EX-10.2 16 dex102.txt EXHIBIT 10.2 Exhibit 10.2 ================================================================================ XM SATELLITE RADIO HOLDINGS INC. XM SATELLITE RADIO INC. Up to $366,300,000 Principal Amount at Maturity of 10% Senior Secured Discount Convertible Notes due 2009 -------------------------------- NOTE PURCHASE AGREEMENT -------------------------------- Dated as of December 21, 2002 ================================================================================ TABLE OF CONTENTS 1. DEFINITIONS............................................................................ 1 2. PURCHASE AND SALE OF THE NOTES; CLOSING................................................ 19 3. INTEREST AND REPAYMENT................................................................. 20 3.1. Interest on the Notes............................................................ 20 3.2. Interest after Maturity.......................................................... 20 3.3. Payments and Computations........................................................ 20 3.4. Payment at Maturity or Upon Conversion........................................... 21 4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF XM....................................... 21 4.1. Incorporation, Standing, etc..................................................... 21 4.2. Subsidiaries..................................................................... 21 4.3. SEC Reports...................................................................... 22 4.4. Qualification.................................................................... 22 4.5. Authorization of Agreement and Notes............................................. 22 4.6. Absence of Defaults and Conflicts................................................ 23 4.7. Absence of Proceedings........................................................... 23 4.8. Possession of Licenses and Permits............................................... 24 4.9. No Violations of Laws............................................................ 24 4.10. Internal Accounting Controls..................................................... 24 4.11. Tax Returns and Payments......................................................... 24 4.12. Indebtedness..................................................................... 24 4.13. Title to Properties; Liens....................................................... 25 4.14. Patents, Trademarks, Authorizations, etc......................................... 25 4.15. Governmental Consents............................................................ 25 4.16. Restrictions..................................................................... 25 4.17. Capitalization................................................................... 25 4.18. Seniority of Notes............................................................... 25 4.19. Material Events.................................................................. 26 4.20. Financial Statements............................................................. 26 4.21. No Undisclosed Fees.............................................................. 27 4.22. No Transactions with Affiliates.................................................. 27 4.23. Registration Rights.............................................................. 27 4.24. Private Placement................................................................ 27 4.25. Acknowledgement Regarding Investors' Purchases of Notes.......................... 27 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS........................................ 27 5.1. Risks of Investment.............................................................. 28 5.2. Investment Experience............................................................ 28 5.3. Ability to Bear Risk............................................................. 28 5.4. Receipt and Review of Documentation.............................................. 28 5.5. Acquisition for Own Account...................................................... 28 5.6. No Public Market; Rule 144....................................................... 28 5.7. Organization, Good Standing, Corporate Authority................................. 29 5.8. Due Authorization................................................................ 29 5.9. Qualified Institutional Buyer, Accredited Investor............................... 29 5.10. Acknowledgement Regarding Investors' Purchases of Notes.......................... 29 5.11 No Net Short Positions........................................................... 29 6. RESTRICTIONS ON TRANSFER............................................................... 29 7. COVENANTS.............................................................................. 30 7.1. Payment of Notes and Maintenance of Office....................................... 30 7.2. Reports.......................................................................... 30 7.3. Taxes............................................................................ 31 7.4. Stay, Extension and Usury Laws................................................... 31 7.5 Restricted Payments.............................................................. 31 7.6. Dividend and Other Payment Restrictions Affecting Material Subsidiaries.......... 32 7.7. Incurrence of Indebtedness and Issuance of Preferred Stock....................... 33 7.8. Asset Sales...................................................................... 35 7.9. Transactions with Affiliates..................................................... 37 7.10. Liens............................................................................ 38 7.11. Corporate Existence.............................................................. 39 7.12. Offer to Repurchase Upon Change of Control....................................... 39 7.13. Limitation on Sale and Leaseback Transactions.................................... 40 7.14. Limitation on Issuances and Sales of Equity Interests of Material Subsidiaries..................................................................... 40 7.15. Insurance........................................................................ 40 7.16. Merger, Consolidation, or Sale of Assets......................................... 41 7.17. Certain Trading Limitations...................................................... 42 7.18 Payments for Consent............................................................. 42 7.19. Hart-Scott-Rodino................................................................ 42 7.20. Pledges of Securities............................................................ 43 7.21. Securities Law Disclosure; Publicity............................................. 43 7.22. Reimbursement.................................................................... 43 7.23. Avoidance of Conflicts........................................................... 44 8. DEFAULTS AND REMEDIES.................................................................. 44 8.1. Events of Default................................................................ 44 8.2. Acceleration..................................................................... 45 8.3. Other Remedies................................................................... 46 8.4. Waiver of Past Defaults.......................................................... 46 8.5. Control by Majority.............................................................. 46 8.6. Rights of Holders of Notes to Receive Payment.................................... 46 9. CONVERSION PROVISIONS.................................................................. 46 9.1. Conversion at Option of Holders.................................................. 46 9.2. Conversion at Option of Obligors................................................. 47 9.3. Issuance of Certificates......................................................... 48 9.4. No Fractional Shares............................................................. 48 9.5. Merger of Holdings............................................................... 48 9.6. Reclassification of Class A Common Stock......................................... 49 9.7. Reservation of Class A Common Stock.............................................. 49 9.8. Taxes............................................................................ 50 9.9. No Rights or Liabilities as Stockholders......................................... 50 9.10. Limitation on Conversion......................................................... 50 10. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES....................................... 51 10.1. Note Register.................................................................... 51 ii 10.2. Transfer and Conversion of Notes................................................. 51 10.3. Replacement of Notes............................................................. 51 11. GUARANTEES............................................................................. 51 11.1. Execution and Delivery of Agreement Guarantees................................... 51 11.2. Subsidiary Guarantors may Consolidate, Etc. on Certain Terms..................... 52 11.3. Releases Following Sale of Assets................................................ 52 11.4. Application of Certain Terms and Provisions to Holdings and the Subsidiary Guarantors....................................................................... 53 12. SECURITY AGREEMENTS.................................................................... 53 12.1. Security Agreements.............................................................. 53 12.2. Release of Collateral............................................................ 53 13. CONDITIONS TO CLOSING.................................................................. 54 13.1 Conditions to Obligations of the Investors....................................... 54 13.2 Conditions to the Obligations of the Obligors.................................... 55 13.3 Investment Election in Absence of Closing........................................ 56 14. EXPENSES............................................................................... 56 15. SURVIVAL............................................................................... 56 16. AMENDMENTS AND WAIVERS................................................................. 56 17. NOTICES................................................................................ 57 18. EXECUTION IN COUNTERPARTS.............................................................. 58 19. BINDING EFFECT......................................................................... 58 20. GOVERNING LAW; CHOICE OF FORUM; JURY TRIAL WAIVER...................................... 58 21. MISCELLANEOUS.......................................................................... 59 21.1. Severability..................................................................... 59 21.2. No Waiver........................................................................ 59 21.3. Further Assurances............................................................... 59 21.4. Construction..................................................................... 59 Exhibit A Form of Note Exhibit B Form of Security Agreement Exhibit C Form of Amended and Restated Security Agreement Exhibit D Form of Noteholders Agreement Exhibit E Form of Registration Rights Agreement Exhibit F Form of Agreement Guarantee Exhibit G Form of Voting Agreement Exhibit H Form of Director Agreement iii NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT, dated as of December 21, 2002, by and among XM SATELLITE RADIO INC., a Delaware corporation (the "Company"), XM SATELLITE RADIO HOLDINGS INC., a Delaware corporation and the sole stockholder of the Company ("Holdings" and, together with the Company, the "Obligors"), and each of the investors set forth on the signature pages hereto (each, an "Investor," and collectively, the "Investors," and together with the Company and Holdings, the "Parties," and each, a "Party"). WITNESSETH WHEREAS, the Obligors are engaged in the development of a satellite digital audio radio service in the United States; WHEREAS, the Obligors require significant incremental capital to fund their operations and are in the process of attempting to restructure certain of their obligations under their outstanding securities and other contractual obligations; WHEREAS, the Obligors desire to consummate a financing of newly invested funds by issuing the Obligors' 10% Senior Secured Discount Convertible Notes due 2009, substantially in the form attached hereto as Exhibit A; WHEREAS, as an inducement to the Investors to purchase the Notes, the Obligors hereby agree that (a) each of the Obligors will enter into the General Security Agreement, substantially in the form attached hereto as Exhibit B, (b) the Company will enter into the FCC License Subsidiary Pledge Agreement, substantially in the form attached hereto as Exhibit C, (c) Holdings will enter into the Noteholders Agreement and Director Agreement, substantially in the forms attached hereto as Exhibit D and Exhibit H, respectively, (d) Holdings will enter into the Registration Rights Agreement, substantially in the form attached hereto as Exhibit E, and (e) the Company will cause its subsidiary XM Equipment Leasing LLC to enter into, on the Closing Date referred to below, such General Security Agreement and an Agreement Guarantee, substantially in the form attached hereto as Exhibit F, and will cause certain other subsidiaries to enter into similar agreements in the circumstances described herein; WHEREAS, on the terms and subject to the conditions set forth herein, each of the Investors is willing to purchase Notes for the aggregate purchase price set forth next to its name on Attachment 1; and WHEREAS, the Parties desire to set forth the terms and conditions of and to provide for the issuance by the Obligors of the Notes described herein. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 1. DEFINITIONS The following terms when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Accredited Investor" has the meaning set forth in Rule 501(a) under the Securities Act. "Accreted Value" means, for a given Note, (1) as of any date prior to January 1, 2006, an amount equal to the sum of (a) the Initial Value of such Note plus (b) the amount which shall have accreted with respect to such Note through such date, such accretion to occur on a daily basis and be compounded semi-annually each June 30 and December 31 at the rate of 10% per annum from the Closing Date through the date of determination computed on the basis of a 360-day year of twelve 30-day months, and (2) as of any date on or after January 1, 2006, the principal amount of such Note. "Acquired Debt" means, with respect to any specified Person, (x) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person or (y) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person, provided that, in each case, such Indebtedness or Lien, as applicable, is not incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person. "Additional Interest" means interest, if any, accruing on the Notes pursuant to Section 2.2 of the Registration Rights Agreement. "Adjusted Consolidated Operating Cash Flow" means, with respect to an Obligor, the Consolidated Operating Cash Flow of such Obligor for the latest four fiscal quarters for which consolidated financial statements of such Obligor are available, taken as a whole. For purposes of calculating Consolidated Operating Cash Flow for any four fiscal quarter period for purposes of this definition, all Subsidiaries of an Obligor on the date of the transaction giving rise to the need to calculate Adjusted Consolidated Operating Cash Flow (the "Transaction Date") shall be deemed to have been Subsidiaries of such Obligor at all times during such four fiscal quarter period. In addition, for purposes of calculating Adjusted Consolidated Operating Cash Flow: (1) acquisitions that have been made by the specified Obligor or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the calculation date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Adjusted Consolidated Operating Cash Flow for such reference period shall be calculated on a pro forma basis; and (2) the Consolidated Operating Cash Flow attributable to discontinued operations of such Obligor or its Subsidiaries, as determined in accordance with GAAP, and operations or businesses disposed of prior to the calculation date, shall be excluded. "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," 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 or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. "Affiliate Transaction" has the meaning set forth in Section 7.9 of this Agreement. "Agreement" means this Note Purchase Agreement (including any Schedules and Exhibits hereto), as it may from time to time be amended, supplemented or modified in accordance with its terms. "Agreements and Instruments" have the meaning specified in Section 4.6 of this Agreement. "Agreement Guarantee" means (1) the Guarantee, dated as of the Closing Date, entered into by XM Leasing Subsidiary in favor of the Holders and (2) any other Guarantee entered into by a Subsidiary Guarantor in favor of the Holders pursuant to the terms of Section 11.1 hereof. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets; provided that the sale, conveyance or other disposition of all or substantially all of the assets of an Obligor and its Subsidiaries taken as a whole will be governed by the provisions of Sections 7.12 and 7.16(a) hereof and not by the provisions of Section 7.8 hereof; and (2) the issuance or sale of new Equity Interests, or the sale or other disposition of outstanding Equity Interests, of an Obligor's Subsidiary. 2 Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value or that involve net proceeds of less than $1,000,000; (2) a transfer of assets between or among either Obligor and any of its Wholly Owned Subsidiaries, (3) an issuance of Equity Interests by a Wholly Owned Subsidiary to an Obligor or to another Wholly Owned Subsidiary; (4) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) a Restricted Payment or Permitted Investment that is permitted by Section 7.5 hereof; (7) any Qualified Sale and Leaseback Transaction; and (8) the sale by XM Building Subsidiary of its real property located at 1500 Eckington Place, NE, Washington, DC and related improvements. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have corresponding meanings. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Board Resolution" means, with respect to an Obligor, a resolution duly adopted by the Board of Directors of such Obligor or a committee of the Board of Directors in the case of Holdings, certified by the Secretary or an Assistant Secretary of such Obligor to have been duly adopted and to be in full force and effect on the date of such certification. 3 "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500,000,000; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having one of the two highest ratings obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of an Obligor and its Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal; (2) the adoption of a plan relating to the liquidation or dissolution of an Obligor (other than a liquidation or dissolution of the Company into Holdings); 4 (3) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person", other than the Principals and their Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Holdings or the Company, measured by voting power rather than number of shares; (4) the first day on which a majority of the members of the Board of Directors of an Obligor are not Continuing Directors; (5) an Obligor consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, an Obligor, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of such Obligor or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of an Obligor outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance); or (6) the first day on which the Company ceases to be a Wholly Owned Subsidiary of Holdings. Notwithstanding the foregoing, neither the Concurrent Financing Transactions nor a Parent Company Merger shall constitute a "Change of Control". "Class A Common Stock" means the Class A Common Stock, par value $0.01 per share, of Holdings. "Closing" means the consummation of the transactions contemplated by this Agreement, including the sale and purchase of the Notes. "Closing Date" means the date of the Closing. "Collateral" means (1) the Collateral (as defined in the General Security Agreement), and (2) the Collateral (as defined in the FCC License Subsidiary Pledge Agreement). "Collateral Agent" means the collateral agent under the applicable Intercreditor Agreement. "Company" means XM Satellite Radio Inc., a Delaware corporation and direct Wholly Owned Subsidiary of Holdings, and any and all successors thereto. "Concurrent Financing Transactions" means (1) the issuance to General Motors Corporation or Affiliates thereof ("GM") of the Obligors' Series GM Senior Secured Convertible Notes due 2009 (the "GM Notes") in the principal amount of $89,042,387 in lieu of certain guaranteed payments due to GM during the period from 2003 to 2006 under the Company's Distribution Agreement with GM (the "Distribution Agreement"), (2) the amendment of the Distribution Agreement to provide for, among other things, the issuance of the GM Notes and the payment of up to $35,000,000 in subscriber bounty payments in the form of Class A Common Stock, (3) the issuance of the Company's 14% Senior Secured Discount Notes due 2009, warrants to purchase Class A Common Stock (the "Exchange Warrants") and cash in exchange for some or all of the Company's outstanding 14% Senior Secured Notes due 2010 (the "Existing Notes"), (4) the Obligors' entering into a $100,000,000 Senior Secured Credit Facility with GM (the "GM Credit Facility") to finance certain revenue share payments owed to GM under the Distribution Agreement or other amounts which may be owed to GM, (5) the issuance of a warrant to GM to purchase 10,000,000 shares of Class A Common Stock (the "GM Warrant"), (6) the issuance and sale on or before the Closing Date, to the extent determined to be desirable by Holdings or after the Closing Date to the extent contemplated by the letter agreement between Holdings and the BayStar Group, of Class A Common Stock, with or without warrants to purchase Class A Common Stock, in accordance with Section 4(2) of the Securities Act or pursuant to a registration statement under the Securities Act, all of which transactions shall be on terms substantially as previously disclosed to the Investors or otherwise on terms reasonably satisfactory to the Majority Holders, 5 including the proposed sale of 5,555,556 shares of Class A Common Stock to U.S. Trust Company (the "US Trust Purchase") and warrants to purchase 900,000 shares of Class A Common Stock, and (7) execution, delivery and performance of all agreements, documents and instruments, including the Noteholders Agreement, Director Agreement and Registration Rights Agreement, in substantially the form previously provided to the Investors, evidencing the transactions described in clauses (1) through (6) of this definition and arrangements contemplated thereby. "Concurrent Financing Transactions Issuances" means the issuances or potential issuances of: (a) Class A Common Stock upon conversion of the GM Notes and the Notes; (b) the GM Warrant and Class A Common Stock upon exercise thereof; (c) the Exchange Warrants and Class A Common Stock upon exercise thereof; (d) Class A Common Stock as payment of interest on the GM Notes in accordance with the terms thereof; (e) Class A Common Stock as payment of interest under the GM Credit Facility in accordance with the terms thereof; (f) Class A Common Stock pursuant to the Distribution Agreement in accordance with the terms thereof, and (g) Class A Common Stock and warrants issued and sold as contemplated by clause (6) of the definition of Concurrent Financing Transactions, including the US Trust Purchase and including Class A Common Stock upon exercise of such warrants. "Consolidated Net Income" means, with respect to an Obligor for any period, the aggregate of the Net Income of such Obligor and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of an Obligor's Subsidiary that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to such Obligor or a Subsidiary thereof; (2) the Net Income of an Obligor's Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; (3) the Net Income of an Obligor's Subsidiary acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; and (4) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to a specified Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Consolidated Operating Cash Flow" means, with respect to an Obligor for any period, the Consolidated Net Income of such Obligor for such period, plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Obligor or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus 6 (2) any provision for taxes based on income or profits of such Obligor and its Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Obligor and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations and Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Obligor and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the preceding, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Subsidiary of an Obligor shall be added to Consolidated Net Income to compute Consolidated Operating Cash Flow of such Obligor only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to such Obligor by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Continuing Directors" means, with respect to an Obligor as of any date of determination, any member of the Board of Directors of such Obligor who: (1) was a member of such Board of Directors on the date hereof; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Conversion" means the conversion of all or a portion of the Accreted Value of a Note, together with accrued but unpaid premium and interest thereon, into shares of Class A Common Stock in accordance with the provisions of Section 9 of this Agreement. "Conversion Price" means $3.18 per share of Class A Common Stock. "Conversion Stock" means the shares of Class A Common Stock that may be issued upon any Conversion, in accordance with the provisions of Section 9 of this Agreement. "Core XM Radio Assets" means XM Radio Assets reasonably necessary to operate the XM Radio Business. "Cumulative Available Cash Flow" means, as at any date of determination, the positive cumulative Consolidated Operating Cash Flow realized during the period commencing on the beginning of the first fiscal quarter following the date hereof and ending on the last day of the most recent fiscal quarter immediately preceding the date of determination for which consolidated financial information of Holdings is available or, if such 7 cumulative Consolidated Operating Cash Flow for such period is negative, the negative amount by which cumulative Consolidated Operating Cash Flow is less than zero. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Director Agreement" means the Agreement, dated as of the Closing Date, by and among Holdings, AEA XM Investors I LLC, AEA XM Investors II LLC, AEA XM Investors IA LLC, AEA XM Investors IIA LLC, Columbia XM Radio Partners, LLC, Columbia XM Satellite Partners III, LLC, Columbia Capital Equity Partners II (QP), L.P., Columbia Capital Equity Partners III (QP), L.P., Clear Channel Investments, Inc., Hughes Electronics Corporation, Madison Dearborn Capital Partners III, L.P., Madison Dearborn Special Equity III, L.P., Special Advisors Fund I, LLC and American Honda Motor Co., Inc., as such agreement may be amended, modified or supplemented from time to time. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to April 1, 2010. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the issuer thereof to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that such issuer may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 7.5 of this Agreement. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Event of Default" has the meaning set forth in Section 8.1 of this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Act Filings" has the meaning set forth in Section 4.3 of this Agreement. "Existing Indebtedness" means Indebtedness of an Obligor and its Subsidiaries in existence on the date hereof, including the Indebtedness incurred or to be incurred pursuant to the Concurrent Financing Transactions, until such amounts are repaid. "Fair Market Value" means, with respect to the Class A Common Stock, the average, calculated to two decimal places, of the weighted average daily trading prices of such stock over the ten Trading Day period ending on the Trading Day prior to calculation thereof as reported on Bloomberg. If at any time the Class A Common Stock is not listed on any national securities exchange or quoted on the Nasdaq Stock Market or the over-the-counter market, the Fair Market Value of the Class A Common Stock shall be the fair value thereof as determined by the Board of Directors of Holdings in good faith. "FCC License Subsidiary" means XM Radio Inc., a Delaware corporation and direct Wholly Owned Subsidiary of the Company. "FCC License Subsidiary Pledge Agreement" means the agreement, dated as of the Closing Date, among the Company, the Collateral Agent and the other parties thereto, providing for the pledge of the stock of the FCC License Subsidiary as security for the Notes and certain other indebtedness. "FCC License Subsidiary Pledge Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement, dated as of the Closing Date, pursuant to which the collateral agent named therein will be appointed on behalf of the various secured creditor parties to serve as collateral agent under the FCC License Subsidiary Pledge Agreement. 8 "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "General Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement, dated as of the Closing Date, pursuant to which the collateral agent named therein will be appointed on behalf of the various secured creditor parties to serve as collateral agent under the General Security Agreement. "General Security Agreement" means the agreement, dated as of the Closing Date, among the Obligors, XM Leasing Subsidiary, the Collateral Agent and the Subsidiary Guarantors from time to time, providing for a grant of security interest in certain assets of the Company as security for the Notes and certain other indebtedness. "Governmental Approval" means the authorization, consent, approval, license, ruling, permit, certification, exemption, filing or registration by or with a Governmental Entity required by applicable requirements of law to be obtained or held in connection herewith or with the Concurrent Financing Transactions. "Governmental Entity" means any international body or any nation or government, any state of political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government any corporation or other entity owned or controlled, through stock or capital or otherwise, by any of the foregoing. "Governmental Licenses" has the meaning set forth in Section 4.8 of this Agreement. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency values. "Holder" means a Person in whose name a Note is registered. "Holdings" means XM Satellite Radio Holdings Inc. and any and all successors thereto. "Hughes Repeater Contract" means the Contract for the Design, Development and Purchase of Terrestrial Repeater Equipment by and between the Company and Hughes Electronics Corporation, dated February 14, 2000 as amended from time to time provided that such amendments, taken as a whole, shall not be materially adverse to the Company. 9 "Hughes Repeater Escrow Agreement" means the agreement between the Company and Hughes Electronics Corporation, dated as of March 2, 2000, providing for the escrow of funds payable under the Hughes Repeater Contract. "Hughes Satellite Agreement" means the Satellite Purchase Agreement between the Company and Hughes Space and Communications Inc., dated July 21, 1999, as in effect on the date hereof and as it may be amended from time to time in any respect other than with respect to the terms or scope of the security interest granted by the Company thereunder. "incur" has the meaning set forth in Section 7.7 hereof. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent, in respect of: (1) borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) banker's acceptances; (4) representing Capital Lease Obligations; (5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations; if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" shall include (a) all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person), (b) to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of any other Person and (c) all Attributable Debt of such Person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means the Indenture, dated as of the Closing Date, among the Company, each of the Guarantors named therein, and The Bank of New York, as Trustee, as amended or supplemented from time to time. "Initial Value" means, for a given Note, the amount set forth opposite the name of the Investor purchasing such Note on Attachment 1 to this Agreement. The aggregate Initial Value for all Notes shall be the aggregate amount set forth opposite the names of all Investors on Attachment 1 to this Agreement. "Intercreditor Agreements" means the General Intercreditor Agreement and the FCC License Subsidiary Pledge Intercreditor Agreement. "Interest Payment Date" means June 30 and December 31 of each year, commencing June 30, 2006, provided that (i) if any Additional Interest shall accrue prior to January 1, 2006, then the initial Interest Payment Date shall occur on the June 30 or December 31 next following the date on which such accrual begins, and 10 (ii) if any Interest Payment Date is not a Business Day, the Interest Payment Date will be deferred and interest will be payable through the next Business Day. "Interest Rate" means a rate equal to (i) for the period from the Closing Date through December 31, 2005, the rate of Additional Interest, if any, accruing from time to time and (ii) from January 1, 2006 through the date on which the Notes are paid in full, the rate of 10% per annum plus the rate of Additional Interest, if any, accruing from time to time. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended. "Investments" means, with respect to an Obligor, all direct or indirect investments by such Obligor in other Persons (including Affiliates) in the form of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers, directors and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. The acquisition by an Obligor or any Subsidiary of such Obligor of a Person that holds an Investment in a third Person shall be deemed to be an Investment by such Obligor in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person determined as provided in the final paragraph of Section 7.5 hereof. "Investor" has the meaning set forth in the recitals to this Agreement. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Majority Holders" means (1) as of any time prior to the Closing, Investors that have agreed to purchase a majority in Initial Value of the Notes at the Closing as set forth in Attachment 1 and (2) at any time after the Closing, the Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes. "material" means individually or in the aggregate (i) material in relation to the business, operations, affairs, assets, liabilities, financial condition, or properties of Holdings and its Subsidiaries taken as a whole or (ii) having a value or worth, individually, or when combined with breaches of any other representation, warranty or covenant (without giving effect to any materiality or Material Adverse Effect qualifiers contained therein), in excess of $10,000,000, provided, however, that any individual breaches or violations having a value or worth below $100,000, shall not be combined with breaches of any other representation, warranty or covenant for purposes of calculating the $10,000,000 threshold. "Material Subsidiary" means, with respect to an Obligor, a Subsidiary of such Obligor (1) the business, operations, affairs, assets, liabilities, financial condition, or properties of which are material to the business, operations, affairs, assets, liabilities, financial condition, or properties of the Obligors and their Subsidiaries taken as a whole, (2) owning assets having an aggregate book value greater than $10,000,000 or (3) that has been designated by the Board of Directors as a Material Subsidiary. Notwithstanding the foregoing, "Material Subsidiary" shall not include the Subsidiary contemplated by clause (10) of the definition of "Permitted Investments" herein. "Material Adverse Effect" means individually or in the aggregate (i) a material adverse effect on the business, operations, affairs, assets, liabilities, financial condition or properties of Holdings and its Subsidiaries taken as a whole, (ii) a material adverse effect on the ability of Holdings or any of its Subsidiaries to perform their respective obligations under this Agreement or any of the Transaction Documents, or (iii) an economic cost or liability, individually, or when combined with breaches of any other representation, warranty or covenant (without giving effect to any materiality or Material Adverse Effect qualifiers contained therein), to Holdings or any of its Subsidiaries in excess of $10,000,000, in each case other than continued deferrals of vendor payments; provided, 11 however, that any individual breaches or violations having an economic cost or resulting in a liability below $100,000 shall not be combined with breaches of any other representation, warranty or covenant for purposes of calculating the $10,000,000 threshold. "Maturity Date" means December 31, 2009. "Net Income" means, with respect to an Obligor or a Subsidiary of an Obligor, the net income (loss) of such Person and its Subsidiaries, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and (2) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss. "Net Proceeds" means the aggregate cash proceeds received by an Obligor or any of its Material Subsidiaries in respect of any Asset Sale or other transaction (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale or other transaction, including legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale or other transaction and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Notes" means the Obligors' 10% Senior Secured Discount Convertible Notes due 2009, including any additional such notes paid as interest thereon. "Noteholders Agreement" means the Second Amended and Restated Shareholders and Noteholders Agreement, dated as of the Closing Date, by and among Holdings and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Obligors" means Holdings and the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means, with respect to any Person, a certificate signed on behalf of such Person by two Officers of such Person. "Parent Company Merger" means (a) a merger or consolidation of the Company with or into Holdings or a merger or consolidation of Holdings with or into the Company, provided that the holders of Voting Stock of Holdings immediately prior to such transaction own substantially all of the Voting Stock of the surviving entity immediately after such transaction, or (b) any assignment, transfer, conveyance or other disposition of all or substantially all of the properties or assets of the Company to Holdings or of Holdings to the Company. "Pari Passu Indebtedness" means, with respect to an Obligor, Indebtedness of such Obligor that is pari passu in right of payment to the Notes. 12 "Permitted Business" means any of the lines of business conducted by an Obligor and its Subsidiaries on the date hereof and any business similar, ancillary or related thereto or that constitutes a reasonable extension or expansion thereof, including in connection with such Obligor's existing and future technology, trademarks and patents. "Permitted Investments" means: (1) any Investment in a Wholly Owned Subsidiary of Holdings; (2) any Investment in Cash Equivalents; (3) any Investment by an Obligor or any Subsidiary of an Obligor in a Person, if as a result of such Investment: (a) such Person becomes a Wholly Owned Subsidiary of such Obligor; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, such Obligor or a Wholly Owned Subsidiary of such Obligor; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 7.8; (5) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of Holdings; (6) Hedging Obligations; (7) Investments in existence on the date hereof and modifications thereof (but not including any increase in the amount of such Investment); (8) Investments in securities of trade creditors or customers received in compromise of obligations of such Person incurred in the ordinary course of business, including under any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such Person; (9) Investments indirectly acquired by an Obligor or any of its Subsidiaries through a direct Investment in another Person made in compliance with this Agreement, provided that such Investments existed prior to and were not made in contemplation of such acquisition; (10) Investments in a joint venture with Sirius Satellite Radio, Inc., or an affiliate or successor thereof, the proceeds of which investments are used solely to develop interoperable radio technology capable of receiving and processing radio system signals broadcast by both the Company and Sirius Satellite Radio Inc., for the licensing of other satellite radio technology from the Company and Sirius Satellite Radio, Inc. in connection therewith and for activities reasonably ancillary thereto in accordance with the Joint Development Agreement between the Company and Sirius Satellite Radio, Inc., as in effect on the date hereof or as it may be amended in a manner not materially adverse to the Company; and (11) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (11) since the date hereof that are at the time outstanding not to exceed $10,000,000. 13 "Permitted Liens" means: (1) Liens on any assets of an Obligor or its Material Subsidiaries securing Pari Passu Indebtedness incurred pursuant to clause (i) of Section 7.7 hereof or Permitted Refinancing Indebtedness in respect thereof; provided that the Notes shall be equally and ratably secured by such assets; (2) Liens in favor of an Obligor; (3) Liens on property, or on shares of stock or Indebtedness, of a Person existing at the time such Person is merged with or into or consolidated with an Obligor or any Subsidiary of an Obligor; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with such Obligor or the Subsidiary; (4) Liens on property existing at the time of acquisition thereof by an Obligor or any Subsidiary of an Obligor, provided that such Liens were not incurred in contemplation of such acquisition; (5) Liens to secure the performance of bids, tenders, leases, statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (vi) of the third paragraph of Section 7.7 hereof covering only the assets acquired, constructed or improved with such Indebtedness; (7) Liens existing on the date hereof (including Liens arising under the Prior Indenture in favor of the trustee thereunder and Liens under the Hughes Repeater Escrow Agreement) and Liens securing Indebtedness incurred pursuant to the Concurrent Financing Transactions; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (9) Liens securing the Notes; (10) Liens that (a) are incidental to the conduct of an Obligor's or a Material Subsidiary's business or the ownership of its property and assets not securing Indebtedness, and (b) do not in the aggregate materially detract from the value of the assets or property of such Obligor and its Subsidiaries taken as a whole, or materially impair the use thereof in the operation of its business; (11) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (12) judgment Liens which do not give rise to an Event of Default; (13) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of an Obligor or any of its Subsidiaries; (14) any interest or title of a lessor under any Capital Lease Obligation; (15) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Obligors and their Subsidiaries; (16) Liens arising from filing Uniform Commercial Code financing statements regarding leases; 14 (17) Liens in favor of customs and revenue authorities arising as a mater of law to secure payment of customer duties in connection with the importation of goods; (18) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business that are not delinquent or remain payable without penalty; (19) Liens which secure Hedging Obligations that relate to Indebtedness otherwise permitted under this Agreement; (20) Liens encumbering property or other assets under construction in the ordinary course of business arising from progress or partial payments by a customer of the Company or its Subsidiaries relating to such property or other assets; (21) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Subsidiaries in the ordinary course of business; (22) Liens on an Obligor's interests in satellites and its terrestrial repeater network, including under the Hughes Satellite Agreement, subsequent satellite procurement or launch contracts and the Hughes Repeater Contract; (23) Liens incurred in the ordinary course of business of the Obligors and their Subsidiaries with respect to obligations that do not exceed $10,000,000 (in the aggregate for both Obligors and their Subsidiaries) at any one time outstanding; (24) Liens on Qualified Receivables securing Indebtedness permitted by clause (xii) of the third paragraph of Section 7.7 hereof; and (25) Liens arising out of financing provided by a satellite or satellite launch vendor or Affiliate thereof of all or part of the cost of construction, launch and insurance of one or more replacement satellites or satellite launches relating to such satellites provided by such vendor or its Affiliates; (26) Liens securing Indebtedness permitted under clause (vii) of Section 7.7, provided that such Liens are no more extensive than the Liens securing the Indebtedness refunded, refinanced or replaced thereby; and (27) Liens securing Indebtedness incurred in any Qualified Sale and Leaseback Transaction. "Permitted Refinancing Indebtedness" means any Indebtedness of an Obligor or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of such Obligor or any of its Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of all expenses, consent fees and premiums incurred in connection therewith); (2) (A) if such Permitted Refinancing Indebtedness has a Weighted Average Life to Maturity shorter than that of the Notes or a final maturity date earlier than the final maturity date of the Notes, such Permitted Refinancing Indebtedness shall have a Weighted Average Life to Maturity no shorter than the remaining Weighted Average Life to Maturity of the debt so extended, refinanced, renewed, replaced, defeased or refunded and a final Stated Maturity no earlier than the final maturity date of the debt so extended, refinanced, renewed, replaced, defeased or refunded or (B) in all other cases, such Permitted Refinancing Indebtedness shall have a final maturity date later than the final maturity date of, and shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Notes; 15 (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by such Obligor or by the Subsidiary, as applicable, that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Principals" means General Motors Corporation, DIRECTV Enterprises, Inc. and Clear Channel Investments, Inc. "Prior Indenture" means the Indenture, dated as of March 15, 2000, between the Company and U.S. Trust Company of New York, as Trustee, as amended or supplemented from time to time. "Qualified Institutional Buyer" has the meaning set forth in Rule 144A under the Securities Act. "Qualified Receivables" means the aggregate amount of accounts receivables of an Obligor determined in accordance with GAAP that are not more than 90 days past due. "Qualified Sale and Leaseback Transaction" means a sale and leaseback transaction (1) involving one or more satellites of an Obligor or any of its Subsidiaries and (2) the Net Proceeds of which, together with the aggregate Net Proceeds from all other sale and leaseback transactions involving satellites consummated after the date hereof (including any subsequent replacements, amendments or modifications thereof), do not exceed $150,000,000 (in the aggregate for the Obligors and their Subsidiaries). "Reclassified Securities" has the meaning set forth in Section 9.6 of this Agreement. "Registration Rights Agreement" means the Second Amended and Restated Registration Rights Agreement, dated as of the Closing Date, by and among Holdings and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Related Party" means: (1) any controlling stockholder, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Principal; or (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in the immediately preceding clause (1). "Restricted Payment" has the meaning set forth in Section 7.5 of this Agreement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreements" means the FCC License Subsidiary Pledge Agreement and the General Security Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. 16 "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subordinated Indebtedness" means (i) with respect to the Company, either (a) unsecured Indebtedness of the Company contractually subordinated in right of payment to the Notes or (b) Indebtedness of Holdings (and not the Company) that is structurally subordinated to the Notes and (ii) with respect to Holdings, unsecured Indebtedness of Holdings that is contractually subordinated in right of payment to the Notes. "Subscriber" means a subscriber in good standing to the XM Radio Service that has paid subscription fees for at least one month of such service and whose subscription payments are not delinquent. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership, trust or limited liability company (a) the sole general partner or the managing general partner, manager or trustee of which is such Person or a Subsidiary of such Person or (b) the only general partners or managing members of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantor" means any entity that enters into an Agreement Guarantee pursuant to Section 11. "Supermajority Investors" means any combination of Investors and purchasers in the US Trust Purchase that have agreed to invest at least 66-2/3% of the amount to be invested at the Closing under this Agreement, as set forth in Attachment 1 and the US Trust Purchase, taken collectively. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Internal Revenue Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax, fee, levy, duty, tariff, impost and other charges of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not imposed by any governing or taxing authority. "Tax Sharing Agreement" means the tax sharing agreement dated March 15, 2000 between the Obligors and XM Radio Inc., as in effect on the date hereof. "Total Consolidated Indebtedness" means, at any date of determination, an amount equal to the aggregate amount of all Indebtedness of Holdings and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, outstanding as of the date of determination. "Total Incremental Equity" means, at any date of determination, the sum of, without duplication: (1) the aggregate cash proceeds received by Holdings after the Closing from the issuance or sale of Capital Stock of Holdings (other than Disqualified Stock but including Capital Stock issued upon the conversion of convertible Pari Passu Indebtedness or from the exercise of options, warrants or rights to purchase Capital Stock of Holdings other than Disqualified Stock) to any Person other than a Subsidiary of Holdings; plus (2) an amount equal to the net reduction in Investments in any Person (other than Permitted Investments) resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to Holdings or any Subsidiary thereof after the Closing from such Person; provided, however, that the foregoing sum shall not exceed the amount of Investments previously made (and treated as a Restricted Payment) by Holdings or any Subsidiary thereof in such 17 Person and that constitutes a Restricted Payment that has been deducted from Total Incremental Equity pursuant to clause (3) below; minus (3) the aggregate amount of all Restricted Payments declared or made on or after the Closing (including the aggregate amount paid pursuant to clauses (1), (2), (3), (4), (5) and (7) of the second paragraph of Section 7.5). "Trading Day" means any day on which the Class A Common Stock is traded on the Nasdaq National Market or such other primary national securities exchange on which the Class A Common Stock is then listed or quoted. "Transaction Documents" means all documents delivered in connection with the transactions contemplated by this Agreement, including the Security Agreements, the Noteholders Agreement, the Director Agreement, the Intercreditor Agreements, the Registration Rights Agreement, the Voting Agreement and the Agreement Guarantee of XM Leasing Subsidiary. "Trustee" means the party named as such in the Indenture until a successor replaces it in accordance with the applicable provisions of the Indenture and thereafter means the successor serving thereunder. "Voting Agreement" means the Voting Agreement, dated as of the date hereof, by and among certain Investors and other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of directors, general partners, managers or trustees of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness or Disqualified Stock at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal (or liquidation preference, as applicable), including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount (or liquidation preference) of such Indebtedness (or Disqualified Stock, as applicable). "Wholly Owned" means, with respect to a Subsidiary of a specified Person, all of the outstanding Equity Interests of such Subsidiary (other than directors' qualifying shares) are at the time owned by such Person or by one or more Wholly Owned Subsidiaries of such Person. "XM Building Subsidiary" means XM 1500 Eckington LLC, a Delaware corporation and direct Wholly Owned Subsidiary of Holdings, and any and all successors thereto. "XM Capital Subsidiary" means XM Capital Resources Inc., a Delaware corporation and direct Wholly Owned Subsidiary of the Company, and any and all successors thereto. "XM Leasing Subsidiary" means XM Equipment Leasing LLC, a Delaware limited liability company and direct Wholly Owned Subsidiary of the Company, and any and all successors thereto. "XM Radio Assets" means all assets, rights, services and properties, whether tangible or intangible, used or intended for use in connection with an XM Radio Business, including satellites, terrestrial repeating stations, FCC licenses, uplink facilities, musical libraries and other recorded programming, furniture, fixtures and equipment and telemetry, tracking, monitoring and control equipment. 18 "XM Radio Business" means the business of transmitting digital radio programming throughout the United States by satellite and terrestrial repeating stations to be received by subscribers, including any business in which the Company was engaged on the date hereof, and any business reasonably related thereto. "XM Radio Service" means digital radio programming transmitted by satellites and terrestrial repeating stations to vehicle, home and portable radios in the United States. 2. PURCHASE AND SALE OF THE NOTES; CLOSING (a) The Obligors have duly authorized $366,300,000 in aggregate principal amount at maturity of the 10% Senior Secured Discount Convertible Notes due December 31, 2009, which includes additional Notes issuable after January 1, 2006 as payment of Interest under Section 3.1, for issuance to the Investors on the terms and subject to the conditions set forth in this Agreement. The Notes, including any Notes issued in substitution or exchange therefor pursuant to this Agreement, will bear interest at the Interest Rate on the principal amount at maturity of the Notes and will mature on December 31, 2009, unless earlier repurchased, paid or Converted in accordance with the terms hereof, and will be in substantially the form of Exhibit A attached hereto, with such changes thereto, if any, as may be approved by the Obligors and the Majority Holders. (b) Subject to the terms and conditions of this Agreement, each of the Investors agrees, severally and not jointly, to purchase for cash from the Obligors at the Closing, and the Obligors agree to sell and issue to each of the Investors at the Closing, a Note with a principal amount at maturity equal to the Accreted Value as of December 31, 2005 of a Note with the Initial Value corresponding to each such Investor on Attachment 1 to this Agreement. Each of the Obligors and the Investors acknowledges that the Notes are being issued with an "original issue discount" for federal and state tax purposes. The Obligors' agreements with each of the Investors are separate agreements, and the sale of Notes to each of the Investors is a separate sale. The Closing shall take place as of 10 A.M., Eastern time, on the Closing Date, which shall be the next Business Day after the conditions set forth in Section 13 (other than delivery of items to be delivered at the Closing and other than satisfaction of those conditions that by their nature are to be satisfied at the Closing, it being understood that the occurrence of the Closing shall remain subject to the delivery of such items and the satisfaction or waiver of such conditions at the Closing) are first satisfied or waived, provided that the date of the Closing may be deferred (i) for up to ten Business Days after the satisfaction of such conditions, as may be mutually agreed upon in writing by the Obligors and Eastbourne Capital Management, L.L.C., acting in its sole discretion on behalf of the Noteholders, or (ii) until such later date as may be mutually agreed upon in writing by the Obligors and the Majority Holders. This Agreement shall terminate at 5:00 p.m., Eastern standard time, on March 31, 2003, if the Closing has not occurred, unless such date is extended by the written consent of the Obligors and all of the Investors. (c) Each Note shall be governed by, and the rights and the benefits of the Investors determined in accordance with, the terms and conditions of this Agreement and, to the extent an Investor is party thereto, the Transaction Documents. Each of the Investors that is a party to the Noteholders Agreement, by accepting a Note, hereby agrees and acknowledges that the Note (and the shares of Class A Common Stock into which it may be Converted) may be offered, sold or otherwise transferred only in accordance with the provisions of the Noteholders Agreement. (d) The Accreted Value of a Note, together with any premium or accrued interest thereon, may be Converted at any time, in whole or in part, at the option of the Holder thereof into Class A Common Stock in accordance with the provisions of Section 9 of this Agreement. The stock into which such Accreted Value, premium and interest are Converted in accordance with this Section 2(d) shall be referred to as "Conversion Stock." (e) At the Closing, (i) each Party will deliver executed counterparts of each Transaction Document to which it is a party; (ii) the Obligors shall deliver to each Investor a Note in the principal amount at maturity calculated in accordance with Section 2(b) of this Agreement, together with an Agreement Guarantee of XM Leasing Subsidiary; and (iii) each Investor shall deliver by wire transfer, to an account or accounts designated by the Obligors, immediately available funds in an amount equal to the Initial Value set forth for such Investor on Attachment 1 to this Agreement. The Obligors shall provide each of the Investors with information as to such wire 19 transfers, including information as to the account or accounts to which funds are to be transferred and the amount of funds to be transferred to each such account, no later than three Business Days prior to the Closing. (f) The obligations of each Investor hereunder and under each of the Transaction Documents are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor hereunder or under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant hereto or thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby or by the Transaction Documents. Each Investor shall be entitled to independently protect and enforce its rights, including the rights arising out of this Agreement and out of each of the Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose. 3. INTEREST AND REPAYMENT With respect to each Note: 3.1. INTEREST ON THE NOTES Interest will accrue on the principal amount at maturity of the Notes at the rate of 10% per annum commencing January 1, 2006, and Additional Interest may accrue on the principal amount at maturity of the Notes at the rates, and in the circumstances, set forth in Section 2.2 of the Registration Rights Agreement. All interest on the Notes will be payable in arrears on each Interest Payment Date. Each payment of interest on the Notes will be made to the Holder by certified or bank cashier's check or wire transfer of immediately available funds or by the issuance of additional Notes, at such address or to such account as the Holder specifies in writing to the Obligors at least five Business Days before such payment is to be made. Any such written instructions may provide that the information contained therein shall continue to be in effect with respect to subsequent interest payments until thereafter modified by written instructions of such Holder, which modified instructions shall take effect as of the next Interest Payment Date occurring more than five Business Days after delivery of such modified instructions. Any Note issued to a Holder as payment of interest due on an Interest Payment Date will be issued in a principal amount equal to the amount of such interest, will commence accruing interest as of the calendar day immediately following such Interest Payment Date, will otherwise have the same terms as the Notes issued at Closing and will be subject to the provisions and have the benefits of this Agreement. Notwithstanding the foregoing, no Additional Interest shall be payable at any time by the issuance of additional Notes and no other interest shall be payable by issuance of additional Notes if Additional Interest shall be accruing on the Notes as of the applicable Interest Payment Date. 3.2. INTEREST AFTER MATURITY In the event the Obligors shall fail to make any payment of the principal amount at maturity of, or interest on, any Note when due, the Obligors shall pay interest on such unpaid amount, payable from time to time on demand, from the date such amount shall have become due to the date of payment thereof (after as well as before judgment), accruing on a daily basis, at a per annum rate of 12% plus any Additional Interest pursuant to Section 2.2 of the Registration Rights Agreement (or such lesser maximum rate that is permitted to be paid under applicable law). 3.3. PAYMENTS AND COMPUTATIONS (a) The Obligors will pay all sums becoming due on each Note for interest, premium or principal, without the presentation or surrender of the Note or the making of any notation thereon, except that if a Note is paid in full, following such payment, the Note shall be surrendered to the Obligors at their principal office for cancellation. 20 (b) Interest on each Note shall be calculated for the actual number of days (including the first day but excluding the last day of any relevant period) elapsed and shall be computed on the basis of a 360-day year of twelve 30-day months. (c) If a payment date is not a Business Day at a place of payment, then (notwithstanding any other provision of this Agreement or the Notes) payment of interest, premium or principal otherwise due on such date shall instead be made at that place on the next succeeding Business Day and no interest shall accrue on such payment for the intervening period. 3.4. PAYMENT AT MATURITY OR UPON CONVERSION (a) The Accreted Value of each Note, together with any premium and accrued interest thereon, shall be due and payable in full in cash on the earlier of (i) the Maturity Date or (ii) such other date as the Note becomes due and payable or purchasable pursuant to this Agreement. Payment of principal of and premium, if any, on the Notes will be made to each Holder by certified or bank cashier's check or wire transfer of immediately available funds, at such address and to such account as the Holder shall specify in writing to the Obligors at least five Business Days before such payment is to be made. (b) Upon any Conversion of any Note in accordance with the terms of Section 9 hereunder, the Accreted Value of such Note (or any portion thereof subject to such Conversion), together with any premium or accrued interest on such Accreted Value or portion thereof (as the case may be), shall be Converted into a number of shares of Class A Common Stock equal to the amount of such Accreted Value, premium and accrued interest divided by the Conversion Price, with any fractional shares that may result treated in the manner set forth in Section 9.4 of this Agreement. 4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF XM Each of the Obligors hereby represents and warrants to and agrees with the Investors as follows as of the date hereof: 4.1. INCORPORATION, STANDING, ETC. Each of the Obligors and the Material Subsidiaries is duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as presently proposed to be conducted, to enter into this Agreement and the other Transaction Documents to which each is a party and to perform its obligations hereunder and thereunder. Each of the Obligors has the corporate power and authority to issue the Notes and perform its obligations thereunder. Each of the Obligors and XM Leasing Subsidiary has, by all necessary corporate action, duly authorized the execution and delivery of this Agreement and the other Transaction Documents to which each is a party and the performance of its obligations hereunder and thereunder. Each of the Obligors has, by all necessary corporate action, duly authorized the execution and delivery of the Notes and the performance of its obligations thereunder. Each Subsidiary Guarantor has, by all necessary corporate action, duly authorized the execution and delivery of its Agreement Guarantee and the performance of its obligations thereunder. 4.2. SUBSIDIARIES The Company, the FCC License Subsidiary, XM Building Subsidiary, XM Capital Subsidiary and XM Leasing Subsidiary are the only Material Subsidiaries. The only assets of the FCC License Subsidiary consist of all of the FCC licenses used in transmitting the XM Radio Service. The only assets of the XM Building Subsidiary consist of real property located at 1500 Eckington Place, NE, Washington, DC and related improvements. 21 All of the outstanding Capital Stock of the Company and XM Building Subsidiary are duly authorized, validly issued, fully paid and non-assessable, and all such Capital Stock is owned beneficially and of record by Holdings free and clear of any Lien. All of the outstanding Capital Stock of the FCC License Subsidiary, XM Capital Subsidiary and XM Leasing Subsidiary are duly authorized, validly issued, fully paid and non-assessable, and all such Capital Stock is owned beneficially and of record by the Company free and clear of any Lien, except as contemplated by the FCC License Subsidiary Pledge Agreement or its predecessor agreement. 4.3. SEC REPORTS (a) The Obligors have provided to the Investors a draft of their Offering Circular, dated December 21, 2002, to be used in connection with the exchange contemplated by clause (3) of the definition of Concurrent Financing Transactions (the "Offering Circular"), which contains information about the Obligors' business. Such draft of the Offering Circular does not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The Annual Reports on Form 10-K for the year ended December 31, 2001 filed by the Obligors, and all other reports filed by the Obligors pursuant to Section 13(a) or 15(d) of the Exchange Act since December 31, 2001 (collectively, the "Exchange Act Filings") through the Closing Date, complied and will comply (as the case may be) as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC thereunder and such filings, taken as a whole, do not and will not (as the case may be) include any untrue statement of material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) Holdings is eligible to register Class A Common Stock for resale by the Holders pursuant to a registration statement on Form S-3 under the Securities Act. 4.4. QUALIFICATION Each of the Obligors and the Material Subsidiaries is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified and in good standing would not, individually or in the aggregate, result in a Material Adverse Effect. 4.5. AUTHORIZATION OF AGREEMENT AND NOTES (a) This Agreement has been duly executed and delivered by each of the Obligors and constitutes a valid, binding and enforceable obligation of each of them, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (b) When, on the Closing Date, the Notes and the Security Agreements have been duly executed and delivered by the Company and the Notes have been paid for by the Investors in accordance with the terms of this Agreement, the Notes and the Security Agreements will constitute valid, binding and enforceable obligations of the Company, subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (c) When, on the Closing Date, the Notes, the Noteholders Agreement, the Director Agreement and the Registration Rights Agreement have been duly executed and delivered by Holdings and the Notes have been paid for by the Investors in accordance with the terms of this Agreement, the Notes, the Noteholders Agreement, the Director Agreement and the Registration Rights Agreement will constitute valid, binding and enforceable obligations of Holdings, subject to applicable bankruptcy, insolvency, moratorium and 22 similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (d) When, on the Closing Date, the Agreement Guarantee of XM Leasing Subsidiary has been duly executed and delivered by XM Leasing Subsidiary in accordance with the terms of this Agreement, such Agreement Guarantee will constitute a valid, binding and enforceable obligation of XM Leasing Subsidiary, subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 4.6. ABSENCE OF DEFAULTS AND CONFLICTS Neither of the Obligors nor any of the Material Subsidiaries is in violation of its respective certificate of incorporation, bylaws or other charter documents or is in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which any of them is a party or by which any of them may be bound, or to which any of the property or assets of the Obligors or the Material Subsidiaries is subject (collectively, "Agreements and Instruments"); and the execution, delivery and performance of this Agreement and the Transaction Documents by the Obligors and the Material Subsidiaries party thereto in connection with the transactions contemplated hereby and thereby, and the consummation of the transactions contemplated herein and therein (including the issuance of the Notes) and compliance by the Obligors and the Material Subsidiaries with their respective obligations hereunder and thereunder, do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default (or an event that with notice, lapse of time or both would become a default) under, require the Obligors to conduct an offer to repurchase any outstanding Obligations in accordance with the documents establishing the terms under which such Obligations were incurred, give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of either of the Obligors or any of the Material Subsidiaries pursuant to such Agreements and Instruments, nor will such action result in any violation of the provisions of the certificate of incorporation, bylaws or other charter documents of either of the Obligors or any of the Material Subsidiaries or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality, stock exchange or Nasdaq Stock Market or court, domestic or foreign, having jurisdiction over either of the Obligors, any of the Material Subsidiaries or any of the assets or properties of the Obligors and the Material Subsidiaries. There are no control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provisions, in each case, which could be violated or triggered by the ownership level of a stockholder or group, under Holdings' certificate of incorporation or the laws of the State of Delaware that would be violated or triggered by the Investors and the Obligors fulfilling their obligations or exercising their rights under the Notes or the Transaction Documents, including the Obligors' issuance of the Notes and the Investors' subsequent Conversion of Notes for Conversion Stock. 4.7. ABSENCE OF PROCEEDINGS Except as disclosed in Schedule 4.7, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or to the knowledge of the Obligors threatened, against or affecting the Obligors, the Material Subsidiaries, any of the Officers or directors of the Obligors or Material Subsidiaries in their capacity as such, or any of the property or assets of the Obligors or Material Subsidiaries. There has not been, and to the knowledge of the Obligors there is not pending or contemplated, any investigation by the SEC involving the Obligors or any current or former director or officer of an Obligor with respect to such Obligor or any Subsidiary thereof. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by an Obligor under the Exchange Act or the Securities Act. 23 4.8. POSSESSION OF LICENSES AND PERMITS Except as disclosed in Schedule 4.8: (i) each of the Obligors and the Material Subsidiaries possesses such material permits, certificates, licenses, approvals, consents, orders and other authorizations (collectively, "Governmental Licenses") issued by the appropriate Federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by it or planned to be conducted by it; (ii) each of the Obligors and the Material Subsidiaries is in compliance with the terms and conditions of all of its Governmental Licenses; (iii) all of the Governmental Licenses are valid and in full force and effect; and (iv) neither of the Obligors nor any of the Material Subsidiaries has received any notice of, nor do any of them have any knowledge of any pending or threatened (or any basis therefor), proceedings relating to the revocation, withdrawal, cancellation, modification, suspension or non-renewal of any Governmental Licenses. 4.9. NO VIOLATIONS OF LAWS Neither of the Obligors nor any of the Material Subsidiaries has violated any law, including (i) the U.S. Communications Act of 1934, as amended, and the rules or regulations promulgated thereunder, (ii) any applicable state law or regulation concerning intra-state telecommunications, and (iii) any foreign law or regulation concerning international communications, in each case the violation of which, together with any other such violations, would have a Material Adverse Effect. 4.10. INTERNAL ACCOUNTING CONTROLS The books, records and accounts of each of the Obligors and the Material Subsidiaries accurately and fairly reflect, in all material respects, in reasonable detail, the transactions in and dispositions of the assets of the respective Obligors and Material Subsidiaries. Each of the Obligors and the Material Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded amount for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 4.11. TAX RETURNS AND PAYMENTS The Obligors and the Material Subsidiaries have filed all income tax returns required by law to be filed by them and have paid all Taxes shown on such returns and all other Taxes and other governmental charges levied upon them and their respective properties, assets, income and franchises, to the extent such Taxes have become due and payable and before they have become delinquent, except for any Taxes the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Obligors or the Material Subsidiaries, as the case may be, have established adequate reserves in accordance with GAAP. The charges, accruals and reserves on the books of the Obligors and the Material Subsidiaries in respect of Taxes for all fiscal periods are adequate in the reasonable opinion of the Obligors and, to the knowledge of the Obligors, there are no additional assessments for such periods or any basis therefore. 4.12. INDEBTEDNESS Neither of the Obligors nor any of the Material Subsidiaries is in default, and no waiver of default is currently in effect, in the payment of any interest or principal on any Indebtedness in aggregate principal amount in excess of $5,000,000. 24 4.13. TITLE TO PROPERTIES; LIENS Each of the Obligors and the Material Subsidiaries has good and marketable title to all of its properties and assets, free and clear of all Liens, except for Permitted Liens. 4.14. PATENTS, TRADEMARKS, AUTHORIZATIONS, ETC. Except as disclosed in Schedule 4.14, each of the Obligors and the Material Subsidiaries owns, possesses or has the right to use (without any known conflict with the rights of others) all patents, trademarks, service marks, trade names, copyrights, licenses and authorizations which are necessary to the conduct of its business as currently conducted. 4.15. GOVERNMENTAL CONSENTS Except as may be required to be obtained or made under the Securities Act and applicable state securities laws in connection with the exercise of any registration rights of a Holder provided for in the Registration Rights Agreement or any registration rights granted to purchasers in the offering(s) contemplated by clause (6) of the definition of Concurrent Financing Transactions, neither of the Obligors nor any of the Material Subsidiaries is required to procure, make or file any consent, approval or authorization of, or any notice to, of filing, registration or qualification with, any court or administrative or governmental body in order to execute and deliver this Agreement and the Notes and to perform its obligations hereunder and under any and all Transaction Documents. 4.16. RESTRICTIONS Except for the restrictions contained herein or under applicable law, there will be no restrictions upon the Notes (including any restrictions set forth in any existing shareholder agreement), with the exception of any restrictions contained in the Noteholders Agreement, the Director Agreement and the Registration Rights Agreement. 4.17. CAPITALIZATION The authorized, issued and outstanding Capital Stock of Holdings is as set forth in Schedule 4.17 hereof under "Capitalization." All of the outstanding shares of Capital Stock of Holdings are duly authorized, validly issued, fully paid and non-assessable. Except as disclosed on Schedule 4.17, neither of the Obligors nor any of the Material Subsidiaries has outstanding any securities convertible into or exchangeable for any of its Capital Stock nor does it have outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, any of its Capital Stock or securities convertible into or exchangeable for any of its Capital Stock. Subject to the provisions of Section 9.7, all shares of Conversion Stock will, when issued in accordance with the terms of this Agreement and the Notes, be duly and validly issued, fully paid and non-assessable and free from all Liens (other than any Liens created by Holders). 4.18. SENIORITY OF NOTES The Notes shall rank equal to all Indebtedness incurred by the Obligors pursuant to the Concurrent Financing Transactions and all Indebtedness of the Company under the Prior Indenture. Except as disclosed on Schedule 4.18, the Notes shall rank senior to all other existing Indebtedness of the Obligors as of the date of issuance of the Notes. 25 4.19. MATERIAL EVENTS Except as disclosed in the Exchange Act Filings and the Offering Circular, since September 30, 2002, there has not been with respect to Holdings or any of its Material Subsidiaries: (a) any event which could reasonably be expected to result in a Material Adverse Effect; or (b) any damages, destruction or loss to the properties or assets of either of the Obligors or any of the Material Subsidiaries, whether or not covered by insurance, that has or could reasonably be expected to have a Material Adverse Effect or that in the aggregate exceeds $100,000; or (c) any loss or waiver by either of the Obligors or any of the Material Subsidiaries of any right, not in the ordinary course of business, or any material debt owed to any of them; or (d) other than the sales of assets in the ordinary course of business (including pursuant to sale leaseback transactions), any sale, transfer or other disposition of, or agreements to sell, transfer or otherwise dispose of, any assets by either of the Obligors or any of the Material Subsidiaries in excess of $100,000 in the aggregate, or any cancellation or agreement to cancel any debt or claims of either of the Obligors or any of the Material Subsidiaries; or (e) any declaration or setting aside or payment of any dividend (whether in cash, property or stock) or any distribution (whether in cash, property or stock) or other payment with respect to any of the Capital Stock of either of the Obligors or any of the Material Subsidiaries, or any repurchase, purchase or other acquisition of, or agreement to repurchase, purchase or otherwise acquire, any Capital Stock of either of the Obligors or any of the Material Subsidiaries; or (f) any amendment or termination of any contract, agreement or license to which either of the Obligors or any of the Material Subsidiaries is a party or by which it is bound, except where such amendment or termination could not be reasonably expected to have a Material Adverse Effect; or (g) any resignation or termination or employment of any key employee, and there is no impending or threatened resignation or termination or terminations of employment of any key employee; or (h) any labor dispute (including any negotiation, or request for negotiation, for any labor representation or any labor contract) affecting either of the Obligors or any of the Material Subsidiaries; or (i) any application of any existing (or the enactment of any new) environmental law or personnel, product safety law or other governmental regulation that has or which could reasonably be expected to have a Material Adverse Effect. 4.20. FINANCIAL STATEMENTS The financial statements and schedules of Holdings and its consolidated subsidiaries included in the Exchange Act Filings comply as to form in all material respects with applicable accounting requirements and present fairly in all material respects the consolidated financial condition of Holdings and its consolidated Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows of Holdings and its consolidated Subsidiaries for the respective periods covered thereby, all in conformity with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and subject, in the case of unaudited statements, to normal year-end audit adjustments). The financial statements and schedules of the Company and its consolidated subsidiaries included in the Exchange Act Filings comply as to form in all material respects with applicable accounting requirements and present fairly in all material respects the consolidated financial condition of the Company and its consolidated Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries for the respective periods covered thereby, all in conformity with GAAP 26 applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and subject, in the case of unaudited statements, to normal year-end audit adjustments). 4.21. NO UNDISCLOSED FEES Except as disclosed on Schedule 4.21, there are no fees or payments to be made by either Obligor to bankers, brokers or agents with regard to the issue and delivery of the Notes or the transactions contemplated by the Concurrent Financing Transactions. 4.22. NO TRANSACTIONS WITH AFFILIATES Neither of the Obligors nor any of the Material Subsidiaries is presently party to any material transaction with an Affiliate thereof on terms any less favorable to such Obligor or Material Subsidiary than would have been obtainable in arm's length dealing with a Person not an Affiliate. 4.23. REGISTRATION RIGHTS Except as disclosed on Schedule 4.23, there are no contracts, agreements or understandings between Holdings and any other Person granting such Person the right to require Holdings to file a registration statement under the Securities Act with respect to any securities that Holdings owned or to be owned by such a Person or to require Holdings to include such securities in the securities registered pursuant to any of the registration statements filed by Holdings under the Securities Act. 4.24. PRIVATE PLACEMENT Neither of the Obligors nor any Person acting on such Obligor's behalf has sold or offered to sell or solicited any offer to buy the Notes by means of any form of general solicitation or advertising. Neither of the Obligors nor any of its Affiliates nor any Person acting on such Obligor's behalf has, directly or indirectly, at any time within the past six months, made any offer or sale of any security or solicitation of any offer to buy any security under circumstances that would (i) eliminate the availability of an exemption from registration under the Securities Act in connection with the offer and sale of the Notes as contemplated hereby or (ii) cause the offering of the Notes pursuant to this Agreement to be integrated with other securities offerings by such Obligor (including any such offering contemplated by the Concurrent Financing Transactions) for purposes of any applicable law, regulation or shareholder approval provisions, including under the rules and regulations of the Nasdaq Stock Market. 4.25. ACKNOWLEDGEMENT REGARDING INVESTORS' PURCHASES OF NOTES The Obligors acknowledge and agree that each of the Investors is acting solely in the capacity of an arm's-length purchaser with respect to this Agreement and the transactions contemplated hereby. The Obligors further acknowledge that no Investor is acting as a financial advisor or fiduciary of the Obligors (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Investor or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Investors' purchase of the Notes. Each Obligor further represents to each Investor that its decision to enter into this Agreement has been based solely on its independent evaluation and the independent evaluation of its representatives. 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each of the Investors, severally and not jointly and as to itself only, represents and warrants to and agrees with each Obligor that as of the date hereof: 27 5.1. RISKS OF INVESTMENT Its management recognizes that the purchase of a Note and any securities which may be issued in payment of interest on or upon the Conversion thereof (collectively, the "Securities") involves a high degree of risk including the following: (i) an investment in the Obligors is highly speculative, and only investors who can afford the loss of their entire investment should consider investing in the Obligors and purchasing the Securities; (ii) the Investor may not be able to liquidate its investment; (iii) transferability of the Securities is restricted; (iv) in the event of a disposition of the Securities, the Investor could sustain the loss of its entire investment; and (v) the Obligors do not anticipate the payment of dividends in the foreseeable future. 5.2. INVESTMENT EXPERIENCE Its management has prior investment experience, including investment in securities which are traded on the Nasdaq National Market. To the extent it has deemed appropriate, the Investor has retained and relied upon professional advice regarding the investment, tax and legal merits and consequences of this Agreement and its purchase of Notes hereunder. 5.3. ABILITY TO BEAR RISK By reason of its management's business or financial experience, the Investor has the capacity to protect its own interests in connection with the transaction contemplated hereby, and is able to bear the economic risk which it hereby assumes. 5.4. RECEIPT AND REVIEW OF DOCUMENTATION Its management has been furnished by the Obligors during the course of this transaction with information regarding the Obligors which such Investor's management has requested, has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Obligors concerning the terms and conditions of the Securities, and has received any additional information which its management has requested. 5.5. ACQUISITION FOR OWN ACCOUNT The Investor is acquiring the Securities for its own account for investment only, and not with a view towards their distribution in violation of applicable securities laws. 5.6. NO PUBLIC MARKET; RULE 144 (a) Its management understands that there currently is no public market for the Notes. Its management understands and hereby acknowledges that the Obligors are under no obligation to register the Notes under the Securities Act or any state securities or "blue sky" laws. (b) The Investor's management acknowledges and agrees that the shares of Class A Common Stock the Investor may receive upon a Conversion of Notes must be held indefinitely unless such shares are subsequently registered under the Securities Act or an exemption from such registration is available. The Investor has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about Holdings, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Exchange Act) and the number of shares being sold during any three-month period not exceeding specified limitations. 28 5.7. ORGANIZATION, GOOD STANDING, CORPORATE AUTHORITY It (other than an individual Investor) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, with requisite corporate or partnership power and authority to enter into this Agreement and the Transaction Documents to which it is to be a party and to consummate the transactions contemplated hereby and thereby, including the purchase of the Notes to be acquired by it hereunder. 5.8. DUE AUTHORIZATION The execution and delivery of, and the performance by the Investor of its obligations under, this Agreement and the other Transaction Documents to which it is a party have been duly and validly authorized and, upon execution and delivery thereof, this Agreement and the other Transaction Documents to which it is a party will constitute the legal, valid, binding obligations of such Investor, enforceable against such Investor in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 5.9. QUALIFIED INSTITUTIONAL BUYER, ACCREDITED INVESTOR It is: (a) a Qualified Institutional Buyer, an institutional Accredited Investor, or an Accredited Investor, as will be indicated to the Obligors in writing prior to the Closing, and (b) aware that the sale of Securities to it is being made in reliance on the exemption from the registration requirements provided by Section 4(2) of the Securities Act and the regulations promulgated thereunder. 5.10. ACKNOWLEDGEMENT REGARDING INVESTORS' PURCHASES OF NOTES It acknowledges that it is not relying upon any person, firm or corporation other than the Obligors in making its investment or decision to invest in the Notes. It represents to each of the other Investors that it has been solely responsible for its own "due diligence" investigation of the Obligors and their respective management personnel and businesses, and for its own analysis of the merits and risks of this investment. It agrees that no Investor nor the respective controlling persons, officers, directors, shareholders, investors partners, agents or employees of any such Investor shall be liable to any other Investor for any actions taken in connection with the purchase of Notes in accordance with the terms of this Agreement. 5.11 NO NET SHORT POSITIONS As of the date hereof through the time of filing of a Current Report on Form 8-K on the Business Day succeeding the date hereof (as contemplated by the first sentence of Section 7.21 hereof), it has no Net Short Position (as defined in Section 7.17), without giving any effect to the proposed purchase of Notes contemplated hereby. 6. RESTRICTIONS ON TRANSFER (a) Each of the Investors party to the Noteholders Agreement agrees, and each subsequent Holder of the Securities by its acceptance thereof will agree (to the extent bound by the terms of the Noteholders Agreement), to offer, sell or otherwise transfer such Securities only in compliance with the terms and conditions set forth in the Noteholders Agreement. Each Investor acknowledges that each certificate representing Securities will contain a legend substantially to the following effect: 29 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE RE-OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT. Certificates evidencing Securities shall not be required to contain such legend (i) following any sale of such Securities pursuant to an effective registration statement covering the resale of such Securities under the Securities Act, (ii) following any sale of such Securities pursuant to Rule 144 under the Securities Act, (iii) if such Securities are eligible for sale under Rule 144(k), or (iv) if such legend is not, in the opinion of counsel to Holdings, required in the circumstances under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the SEC). (b) In addition, each Investor party to the Noteholders Agreement acknowledges that each certificate issued to such Investor to represent Securities will contain a legend substantially to the following effect: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE THE SUBJECT OF A CERTAIN SHAREHOLDERS AND NOTEHOLDERS AGREEMENT WHICH, AMONG OTHER THINGS, CONTAINS RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES. A COPY OF THE SHAREHOLDERS AND NOTEHOLDERS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF XM SATELLITE RADIO INC. AND XM SATELLITE RADIO HOLDINGS INC. Upon termination of the Noteholders Agreement, the Obligors shall remove the applicable legend from the certificate(s) representing such Securities promptly upon request of the Holder thereof and shall promptly deliver replacement certificate(s) to such Holder. 7. COVENANTS The Obligors hereby covenant and agree with each Investor as follows, it being understood that prior to the Closing only those covenants specified in Sections 7.2, 7.18, 7.19, 7.21 and 7.23 shall be in effect. 7.1. PAYMENT OF NOTES AND MAINTENANCE OF OFFICE The Obligors will punctually pay or cause to be paid the principal, premium (if any) and interest due in respect of each Note according to the terms thereof and hereof and will maintain an office within the continental boundaries of the United States of America where notices, presentations and demands in respect of this Agreement and the Notes may be made upon them and will notify the Holders of such Notes of any change of location of such office. Such office is presently maintained at 1500 Eckington Place, NE, Washington, DC 20002. 7.2. REPORTS So long as any Notes are outstanding, each of the Obligors shall file with the SEC, within the time periods specified in the SEC's rules and regulations, periodic reports on Forms 10-Q, 10-K and 8-K (or any successor forms). If at any time an Obligor is not required to file such reports, such Obligor (as the case may be) shall furnish to the Holders within such time periods: (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if such Obligor were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual financial statements only, a report thereon by the certified independent accountants of