XM Radio 2000 Annual Report Download - page 48

XM SATELLiTE RADiO 2000 Annual Report
(h) Joint Development Agreement
On January 12, 1999, Sirius Radio the other holder of an FCC satellite radio license, commenced an action against
the Company in the United States District Court for the Southern District of New York, alleging that the Company
was infringing or would infringe three patents assigned to Sirius Radio. In its complaint, Sirius Radio sought money
damages to the extent the Company manufactured, used or sold any product or method claimed in their patents and
injunctive relief. On February 16, 2000, this suit was resolved in accordance with the terms of a joint development
agreement between the Company and Sirius Radio and both companies agreed to cross-license their respective
property. Each party is obligated to fund one half of the development cost for a unified standard for satellite
radios. Each party will be entitled to license fees or a credit towards its one half of the cost based upon the
validity, value, use, importance and available alternatives of the technology it contributes. The amounts for these
fees or credits will be determined over time by agreement of the parties or by arbitration. The parties have yet
to agree on the validity, value, use, importance and available alternatives of their respective technologies. If the
parties fail to reach agreement, the fees or credits may be determined through binding arbitration. However, if
this agreement is terminated before the value of the license has been determined due to the Company’s failure
to perform a material covenant or obligation, then this suit could be refiled.
(i) Sony Warrant
In February 2000, the Company issued a warrant to Sony exercisable for shares of the Company’s Class A common
stock. The warrant will vest at the time that it attains its millionth customer, and the number of shares underlying
the warrant will be determined by the percentage of XM Radios that have a Sony brand name as of the vesting
date. If Sony achieves its maximum performance target, it will receive 2 percent of the total number of shares of
the Company’s Class A common stock on a fully-diluted basis upon exercise of the warrant. The exercise price of
the Sony warrant will equal 105 percent of fair market value of the Class A common stock on the vesting date,
determined based upon the 20-day trailing average.
(j) Approval of Change of Control
On July 14, 2000, the Company filed an application with the FCC to allow the Company to transfer its control
from Motient to a diffuse group of owners, none of whom will have controlling interest. On December 22, 2000,
the application was approved by the FCC. As discussed in note 5(c), Motient converted 2,652,243 shares of the
Company’s Class B common stock to Class A common stock on January 12, 2001. Through February 9, 2001,
Motient has sold 2,000,000 shares of Class A common stock, which reduced its voting interest to 48.7 percent
of the shares outstanding.
(k) Sales, Marketing and Distribution Agreements
The Company has entered into various joint sales, marketing and distribution agreements. Under the terms of these
agreements, the Company is obligated to provide incentives, subsidies and commissions to other companies that
may include fixed payments, per-unit subscriber amounts and revenue sharing arrangements. The amount of
these operational, promotional, subscriber acquisition, joint development, and manufacturing costs related to
these agreements cannot be estimated, but are expected to be substantial future costs.
FiNANCiALS 2000
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