Exhibit 10.1

EXECUTION COPY

 

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EMPLOYMENT AGREEMENT

Between

XM SATELLITE RADIO HOLDINGS INC. and

XM SATELLITE RADIO INC.

and

NATHANIEL A. DAVIS

Dated as of July 20, 2006

 

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THIS AGREEMENT is entered into as of July 20, 2006, (the “Effective Date”), by
and between XM Satellite Radio Holdings Inc., a Delaware corporation, and its
subsidiary XM Satellite Radio Inc., a Delaware corporation, both having a place
of business at 1500 Eckington Place, N.E., Washington, D.C. 20002 (hereinafter
collectively referred to as “XM”) and Nathaniel A. Davis (“EMPLOYEE”) a resident
of the State of Virginia.

WHEREAS, XM is engaged in the development, implementation and operation of a
digital audio satellite service to portable receivers; and

WHEREAS, XM is interested in employing EMPLOYEE as its President and Chief
Operating Officer (“COO”), EMPLOYEE is interested in being employed in that
position subject to the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements of the parties contained herein, the parties hereby
agree as follows:

ARTICLE 1

DEFINITIONS

For purposes of this Agreement, the terms defined in this Article 1 shall have
the respective meanings set forth below:

1.1. “Affiliate” shall mean any corporation, partnership or other entity
controlling, controlled by, or under common control with XM; provided, however,
that no entity that holds capital stock of XM Satellite Radio Holdings Inc.
and/or with board representation rights incidental to such holdings shall be
deemed to be an Affiliate of XM for purposes of this Agreement. For purposes of
this definition, “control” (including the terms “controlling” and “controlled”)
means the power to direct or cause the direction of the management and policies
of an entity, whether through the ownership of securities, by contract, or
otherwise.

1.2. “Confidential information” shall mean all information relating to the
business of XM known to XM or learned by EMPLOYEE during the term of employment
and not generally known, including any and all general and specific knowledge,
experience, information and data, technical or non-technical, and whether or not
patentable, including, without limitation processes, skills, information,
know-how, trade secrets, data, designs, formulae, algorithms, specifications,
samples, methods, techniques, compilations, computer programs, devices,
concepts, inventions, developments, discoveries, improvements, and commercial or
financial information, in any form, including without limitation, oral, written,
graphic, demonstrative, machine recognizable, specimen or sample form.

1.3. “Conflicting Product or Service” shall mean any product or service of any
person or organization other than XM, in existence or under development, which
resembles or competes with a product or service of XM.

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1.4. “Conflicting Organization” shall mean any person or organization engaged in
research on or development, production, marketing, or selling of a “Conflicting
Product or Service.”

1.5. “Inventions” shall mean inventions, designs, discoveries, developments,
creations, and improvements created, discovered, developed, conceived or reduced
to practice.

1.6. “Works of Authorship” shall mean all computer software programs or other
writings, including, without limitation, verbal works, designs, models,
drawings, or audio, visual or audiovisual recordings.

ARTICLE 2

TERM OF AGREEMENT; EMPLOYMENT

2.1. Term. Subject to the provisions of Article 4 hereof, this Agreement shall
be in effect for a term of three (3) years commencing as of the Effective Date.
For the term of this Agreement, each twelve (12) month period beginning on the
Effective Date or any anniversary thereof shall be considered a “Contract Year.”

2.2. Employment. XM agrees to employ EMPLOYEE as President and Chief Operating
Officer and EMPLOYEE agrees to accept such employment by XM, on the terms and
conditions set forth herein. EMPLOYEE represents and warrants that neither the
execution and delivery nor performance by him of this Agreement will violate any
agreement, order, judgment or decree to which he is a party or by which he is
bound.

2.3. Duties.

(a) As President and Chief Operating Officer of XM, EMPLOYEE shall have duties
and responsibilities related to building the organization and business,
including but not limited to, achieving agreed revenue, cost, profit and
cash-flow targets, and shall report to the Chief Executive Officer. While acting
as President and COO, EMPLOYEE shall also serve as a director of XM.

(b) EMPLOYEE’s employment with XM shall be full-time and exclusive. During the
term of employment, EMPLOYEE shall devote the whole of EMPLOYEE’s business time,
attention, skill, and ability to the faithful and diligent fulfillment of
EMPLOYEE’s duties hereunder. EMPLOYEE acknowledges and agrees that EMPLOYEE may
be required, without additional compensation, to perform services for any
Affiliates, and to accept such office or position with any Affiliate as the
Board may require, including, but not limited to, service as an officer or
director of XM or any Affiliate, provided however, that such services, and such
office or position, shall be consistent with EMPLOYEE’s position as President
and COO of XM. EMPLOYEE shall comply with all applicable policies of XM and
Affiliates; provided that such Affiliates’ policies shall be consistent with
those of XM.

 

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(c) During the term of employment, it shall not be a violation of this Agreement
for EMPLOYEE to (i) serve on the Boards of Directors of Charter Communications,
Inc. and Mutual of America Capital Management Corporation; (ii) serve as an
officer or director of a cooperative housing, or civic or charitable
organization or committee; (iii) deliver lectures, fulfill speaking engagements,
or teach at educational institutions; or (iv) manage personal passive
investments, so long as such activities (individually or collectively) do not
conflict or materially interfere with the performance of EMPLOYEE’s duties
hereunder.

2.4. Indemnification. During and after the term of this Agreement, XM shall
provide EMPLOYEE with directors and officers insurance, and shall indemnify
EMPLOYEE and his legal representatives to the fullest extent permitted by the
laws of the State of Delaware and the By-Laws of XM as in effect on the date
hereof, against all damages, costs, expenses and other liabilities incurred or
sustained by EMPLOYEE or his legal representatives in connection with any suit,
action or proceeding to which EMPLOYEE or his legal representatives may be made
a party by reason of EMPLOYEE being or having been a director or officer of XM
or any Affiliate or having served in any other capacity or taken any other
action purportedly on behalf of or at the request of XM or any Affiliate. During
and after the term of this Agreement and without the need for further approval
by the Board of Directors of XM or any Affiliate, XM will promptly advance or
pay any and all amounts for costs or expenses (including but not limited to
legal fees and expenses incurred by counsel of EMPLOYEE’s choice retained by
EMPLOYEE) for which EMPLOYEE may claim XM is obligated to indemnify him.
EMPLOYEE undertakes to repay such amounts if it is ultimately determined that he
is not entitled to be indemnified by XM as provided in this Article 2.4.

ARTICLE 3

COMPENSATION

3.1. Base Salary. For services rendered by EMPLOYEE pursuant to this Agreement,
XM agrees to pay EMPLOYEE a base salary (“Base Salary”) of at least Five Hundred
Thousand Dollars ($500,000) beginning with the effective date, with increases on
each anniversary of the effective date to $550,000 and $600,000, respectively.
Base Salary shall be payable in accordance with XM’s then-prevailing executive
payroll practices. The term “Base Salary” as used herein shall include any
adjustments thereto made from time to time as permitted by this Article 3.1.

3.2. Bonuses.

 

  a) With respect to each calendar year during the term of this Agreement,
EMPLOYEE will be eligible to receive such bonuses (the “Discretionary Bonus”) as
may be authorized and declared by the XM Board of Directors based upon
EMPLOYEE’s yearly performance compared to criteria to set by the Board, after
consultation with EMPLOYEE, at the start of each calendar year. For performance
during the partial year of 2006, EMPLOYEE shall be guaranteed at least one-half
of the pro-rata target bonus regardless of Corporate performance.

 

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  b) Upon signing, XM will provide EMPLOYEE with a one-time signing bonus of
(i) One Hundred Fifty Thousand Dollars ($150,000) and (ii) twenty thousand
(20,000) shares of stock, each subject to applicable withholding taxes. This
payment will be made as soon as practicable following EMPLOYEES employment.
Please note that if EMPLOYEE should choose to leave XM on a voluntary basis,
other than resignation for Good Reason, prior to completing one year of service,
EMPLOYEE will be required to (x) pay back to XM the entire amount of this
signing bonus paid in cash and (y) pay to XM an amount equal to the fair market
value of the 20,000 shares as of the Effective Date. For the avoidance of doubt,
the aforementioned 20,000 shares of stock shall not be subject to any vesting
restrictions or any of the additional restrictions set forth in Section 3.7(f)
hereof.

3.3. Participation in Benefit Plans. Subject to applicable eligibility
requirements, and to the terms of this Agreement, EMPLOYEE shall be eligible
during the term of this Agreement to participate in any stock option, employee
stock ownership, pension, thrift, profit sharing, group life or disability
insurance, medical or dental coverage, education, or other retirement or
employee benefit plan or program that XM has adopted or may adopt for the
benefit of its employees, on the same basis as other executive employees.
EMPLOYEE shall be entitled to paid vacation, paid sick leave, and holidays on
the same basis as may from time to time apply to other XM executive employees
generally.

3.4. Expenses. XM shall reimburse EMPLOYEE for all reasonable, ordinary and
necessary business expenses actually incurred by EMPLOYEE in connection with the
performance of his duties hereunder, including ordinary and necessary expenses
incurred by EMPLOYEE in connection with travel on XM business. As President and
COO of XM, EMPLOYEE shall be entitled to fly first class. All expenses shall be
approved in advance by XM in accordance with and subject to the terms and
conditions of XM’s then-prevailing expense policy. As a condition precedent to
obtaining reimbursement of expenses, EMPLOYEE shall provide to XM any and all
statements, bills, or receipts evidencing the expenses for which EMPLOYEE seeks
reimbursement, and such related information or materials as XM may from time to
time reasonably require. EMPLOYEE shall account to XM for any expenses that are
eligible for reimbursement under this Section 3.4 in accordance with XM policy.
XM shall reimburse EMPLOYEE for all reasonable legal expenses incurred by
EMPLOYEE related to his counsel’s review of this Agreement.

3.5. Employment and Supplies. XM shall provide EMPLOYEE with administrative
support relating to the performance of EMPLOYEE’s duties of the same type and at
least the same extent as is provided to other executive employees. XM shall
acquire and/or provide to EMPLOYEE for his business use: a multimedia portable
computer and subscriptions to various trade publications and various trade
books. Such items shall remain the exclusive property of XM, are to be used
solely for XM’s benefit, and shall be returned promptly to XM upon request at
the termination of EMPLOYEE’s employment for whatever reason.

 

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3.6. Withholding. Anything in this Agreement to the contrary notwithstanding,
all payments required to be made by XM hereunder to EMPLOYEE or EMPLOYEE’s
estate or beneficiaries in connection with EMPLOYEE’s employment hereunder shall
be subject to the withholding of such amounts relating to taxes as XM may
reasonably determine it should withhold pursuant to any applicable law or
regulation.

3.7. Stock Option and Restricted Stock Grants. EMPLOYEE shall receive restricted
stock and options to purchase Class A common stock of XM Satellite Radio
Holdings Inc. (“XM Stock”) on the following terms.

(a) On the Effective Date of this Agreement, XM will grant EMPLOYEE Two Hundred
Thousand (200,000) shares of Restricted XM Stock, and an option to purchase Four
Hundred Thousand (400,000) shares of XM Stock. Subsequent grants of stock
options and restricted shares shall be awarded at the discretion of the
Compensation Committee and the Board of Directors. Should the Compensation
Committee and the Board of Directors award stock options and/or restricted stock
to the executive team, then the award to EMPLOYEE shall be commensurate with his
position compared to the other executives.

(b) The options granted pursuant to Article 3.7(a) hereof will be non-qualified.
The exercise price for such options shall be, with respect to each grant, the
closing price of XM Stock on the date of grant.

(c) Subject to the provisions of Article 4 hereof, the options and restricted
shares granted pursuant to Article 3.7(a) hereof will vest and become
exercisable on the following schedule: with respect to each grant, one third of
the shares covered by the option or restricted grant shall become exercisable on
the first anniversary of the grant, one third of the shares covered by the
option or restricted grant shall become exercisable on the second anniversary of
the grant, and one third of the shares covered by the option or restricted grant
shall become exercisable on the third anniversary of the grant. In the event
that EMPLOYEE holds non-vested options or restricted shares at the time his
employment by XM terminates, such non-vested options and restricted grants shall
vest or shall be forfeited, as the case may be, in accordance with the
provisions of Article 4 hereof.

(d) Vested options may be exercised within ten (10) years of the date on which
they were granted. In the event that EMPLOYEE holds unexercised vested options
at the time his employment by XM terminates, however, such vested options may be
exercised within the time periods set forth in Article 4 hereof.

(e) XM agrees that the XM Stock to be issued to EMPLOYEE upon his exercise of
the options granted pursuant to Article 3.7(a) hereof will be registered for
sale to the public on XM’s Form S-8 Registration Statement.

 

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(f) Neither EMPLOYEE nor his successors will sell, pledge or otherwise dispose
of (“Transfer”) vested Restricted XM Stock until the first to occur of the
following: (i) at any time after the grant date the average closing price for
the Class A Common Stock on the Nasdaq National Market system, or other
principal stock exchange or automated quotation system on which the Class A
Common Stock is then listed or traded, over any seven (7) consecutive trading
days equals or exceeds 150% of the stock price on the grant date, or (ii) seven
(7) years have elapsed since the grant date; provided, however, that if EMPLOYEE
voluntarily leaves the employment of the Company prior to the time clause (i) is
satisfied, EMPLOYEE may not Transfer vested Restricted XM Stock until clause
(i) or (ii) is satisfied. The foregoing shall not prohibit the Transfer of
vested Restricted XM Stock to fund the payment of any withholding or other taxes
that may be due as a result of the vesting of Restricted XM Stock. The foregoing
restrictions shall lapse upon EMPLOYEE’s termination if his service terminates
as a result of EMPLOYEE’s death, Disability or as the result of an involuntary
termination within one year of a Change of Control of XM as defined in Article
4.5(c) hereof.

(g) XM represents and warrants that the restricted stock and options to purchase
XM stock are not deferred compensation under Internal Revenue Code Section 409A.

ARTICLE 4

TERMINATION

4.1. General. EMPLOYEE’s employment hereunder shall terminate in accordance with
the provisions of this Article 4 upon EMPLOYEE’s death or Disability, upon
EMPLOYEE’s termination by XM with or without Cause, upon EMPLOYEE’s resignation
with or without Good Reason, or upon the expiration of the term of this
Agreement without renewal.

4.2. Death. If the EMPLOYEE’s employment terminates because of his death, the
date of termination shall be the date of death.

(a) If the EMPLOYEE’s employment terminates because of his death, XM shall
continue to pay EMPLOYEE’s then current Base Salary, and pro-rated Discretionary
Bonus (based on the percentage of Base Salary awarded to EMPLOYEE as a
Discretionary Bonus in the prior year), and shall continue to make all
applicable benefits available, to EMPLOYEE’s legal representatives, estate,
beneficiaries or heirs, in accordance with XM’s then-prevailing executive
payroll practices, through the end of the third calendar month following
EMPLOYEE’s death. In addition, XM shall continue any health, medical, dental, or
similar benefits which members of EMPLOYEE’s family were receiving for a period
of one year, or pay such family members an amount equal to their cost for
obtaining equivalent coverage.

(b) If the EMPLOYEE’s employment terminates because of his death, a pro-rated
portion of EMPLOYEE’s non-vested options and non-vested restricted stock, which
otherwise would be scheduled to vest in the following twelve (12) month period,
shall

 

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immediately vest and the balance of EMPLOYEE’s non-vested options and non-vested
restricted shares shall be forfeited. EMPLOYEE’s legal representatives, estate,
beneficiaries or heirs shall be entitled to exercise any of EMPLOYEE’s vested
options within one (1) year after EMPLOYEE’s death.

4.3. Disability. For purposes of this Agreement, EMPLOYEE shall be deemed to be
under a Disability if EMPLOYEE shall be unable, by virtue of illness or physical
or mental incapacity or disability (from any cause or causes whatsoever), to
perform EMPLOYEE’s essential job functions hereunder, whether with or without
reasonable accommodation, in substantially the manner and to the extent required
hereunder prior to the commencement of such disability, for a period exceeding
ninety (90) consecutive days.

(a) Upon EMPLOYEE’s Disability, the payment of benefits under XM’s short-term
and long-term disability insurance programs, if any, shall offset XM’s
obligations under Article 3.1 hereof to the extent such benefits are received by
EMPLOYEE.

(b) Subject to any applicable legal requirements, in the event EMPLOYEE shall
remain under a Disability for a period exceeding one hundred twenty (120) days
in any twelve (12) month period, XM shall have the right to terminate EMPLOYEE’s
employment hereunder. XM shall effect such termination by giving EMPLOYEE a
notice specifying the effective date of such termination, which date shall not
be earlier than the last day of the calendar month following the giving of
notice.

(c) If XM terminates the EMPLOYEE’s employment because of Disability, XM shall
continue to pay EMPLOYEE’s then current Base Salary, and pro-rated Discretionary
Bonus (based on the percentage of Base Salary awarded to EMPLOYEE as a
Discretionary Bonus in the prior year), and shall continue to make all
applicable benefits available, to EMPLOYEE, in accordance with XM’s
then-prevailing executive payroll practices, through the end of the third
calendar month following termination. In addition, XM shall continue any health,
medical, dental, or similar benefits which EMPLOYEE (and/or members of
EMPLOYEE’s family) were receiving for a period of one year, or pay EMPLOYEE an
amount equal to the cost of obtaining equivalent coverage.

(d) If XM terminates EMPLOYEE’s employment because of Disability, a pro-rated
portion of EMPLOYEE’s non-vested options and non-vested restricted stock, which
otherwise would be scheduled to vest in the following twelve (12) month period,
shall immediately vest and the balance of EMPLOYEE’s non-vested options and
non-vested restricted shares shall be forfeited. EMPLOYEE shall be entitled to
exercise any of his vested options within one (1) year after termination.

4.4. Termination for Cause or Voluntary Resignation.

(a) For purposes of this Agreement, Cause shall mean a good faith finding by the
Board of Directors of: (i) EMPLOYEE’s willful or gross misconduct, willful or
gross negligence in the performance of his duties for XM, or intentional or
habitual neglect of

 

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his duties for XM, provided that XM shall have given EMPLOYEE notice specifying
the conduct it believes to fall within this sentence and EMPLOYEE shall have
failed to remedy such conduct within ten (10) days thereafter; or
(ii) EMPLOYEE’s theft or misappropriation of funds of XM or conviction of a
felony. XM shall effect a termination for Cause by giving EMPLOYEE a notice
specifying the effective date of such termination.

(b) For purposes of this Agreement, voluntary resignation means the EMPLOYEE’s
resignation of his employment hereunder without Good Reason (as defined in
Article 4.5(b) hereof. EMPLOYEE shall effect a termination by voluntary
resignation by giving XM a notice specifying the effective date of such
termination, which date shall not be earlier than thirty (30) days after the
giving of notice.

(c) In the event EMPLOYEE’s employment is terminated by XM for Cause or by
EMPLOYEE by voluntary resignation:

(i) XM shall pay to EMPLOYEE, in accordance with XM’s then-prevailing executive
payroll practices, all Base Compensation, benefits and other payments to which
EMPLOYEE was entitled hereunder through the effective date of termination.

(ii) EMPLOYEE’s non-vested restricted shares as well as non-vested options shall
be forfeited. EMPLOYEE shall be entitled to exercise any of his vested options
within three (3) months after termination.

(iii) Except as set forth in this Article 4.4, XM shall have no further
obligation to EMPLOYEE (or EMPLOYEE’s legal representatives, estate,
beneficiaries or heirs) for any compensation, benefits or other payments
hereunder, provided that nothing herein shall be deemed to affect EMPLOYEE’s
entitlement, if any, to any vested pension or similar benefits to which he may
be or may become entitled.

4.5. Termination Without Cause or Resignation for Good Reason.

(a) For the purposes of this Agreement, termination without Cause is any
termination by XM of EMPLOYEE’s employment hereunder without Cause, as defined
in Article 4.4(a) hereof. XM shall effect a termination without Cause by giving
EMPLOYEE a notice specifying the effective date of such termination, which date
shall not be earlier than thirty (30) days after the giving of notice.

(b) For the purposes of this Agreement, Good Reason shall mean: (i) a
substantial diminution of EMPLOYEE’s responsibilities or status; (ii) XM’s
relocation of EMPLOYEE outside the Washington, D.C. area; (iii) a material
breach of this Agreement by XM, provided that EMPLOYEE shall have given XM
notice of the conduct he believes to constitute the material breach and XM shall
have failed to remedy such breach within ten (10) days thereafter; (iv) a Change
of Control of XM as defined in Article 4.5(c) hereof; or (v) the naming of a new
Chief Executive Officer of the Company (other than EMPLOYEE or the current
Chairman). EMPLOYEE shall effect a termination by resignation for Good Reason by
giving XM a notice specifying the effective date of such termination.

 

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(c) For the purposes of this Agreement, a Change of Control will occur where
(i) any person or group becomes beneficial owner of securities of XM
representing more than 40% of the then voting power of XM; (ii) Board members
(together with new members appointed with the concurrence of at least two thirds
(2/3) of those members) at the beginning of a two-year period no longer
constitute two thirds (2/3) of the Board during such two-year period; (iii) a
merger/consolidation of XM occurs wherein the XM voting securities immediately
prior thereto do not constitute at least sixty percent (60%) of the combined
voting securities after the merger/consolidation; or (iv) the stockholders
approve a plan of complete liquidation or winding-up or an agreement for the
sale or disposition of all or substantially all of XM’s assets.

(d) In the event EMPLOYEE’s employment is terminated by XM without Cause or by
EMPLOYEE by resignation for Good Reason:

(i) XM shall continue to pay EMPLOYEE’s then current Base Salary, and shall
continue to make all applicable benefits available to EMPLOYEE, in accordance
with XM’s then-prevailing executive payroll practices, for two (2) years from
such termination. With respect to the health, medical, dental, or similar
benefits which EMPLOYEE (and/or members of EMPLOYEE’s family) were receiving, XM
may pay EMPLOYEE an amount equal to his cost for obtaining equivalent coverage,
as an alternative to continuing such benefits.

(ii) XM shall pay EMPLOYEE’s pro-rated Discretionary Bonus (based on the
percentage of Base Salary awarded to EMPLOYEE as a Discretionary Bonus in the
prior year), for the portion of the calendar year EMPLOYEE was employed by XM
prior to the termination.

(iii) Any payment under this Section 4.5(d) shall be made in a present value
lump sum payment.

(e) In the event EMPLOYEE’s employment is terminated by XM without Cause or by
EMPLOYEE by resignation for Good Reason, all options and restricted shares that
have been granted to EMPLOYEE shall immediately vest and become exercisable, and
EMPLOYEE shall be entitled to exercise any of his vested options within eighteen
(18) months after termination.

(f) If, as a result of a Change of Control, it is determined that EMPLOYEE would
be subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code, XM shall reimburse EMPLOYEE for the amount of such tax, and shall pay
EMPLOYEE such additional amount as may be necessary to place EMPLOYEE in the
same financial position that he would have been in if he had not incurred such
excise tax liability. All determinations under this Article 4.5(f), including
whether EMPLOYEE is liable for the excise tax, and the amount to be paid to
EMPLOYEE by XM, shall be made by a nationally-recognized accounting firm to be
selected by EMPLOYEE and paid by XM.

 

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4.6. Expiration of Contract Term.

(a) For the purposes of this Agreement, Renewal Offer means a bona fide offer by
XM to enter into a new employment agreement with EMPLOYEE, on terms at least as
favorable to EMPLOYEE as this Agreement, made to EMPLOYEE at least four
(4) months before the expiration of this Agreement.

(b) In the event that XM makes a Renewal Offer to Employee, but the parties
nevertheless do not enter into a new employment agreement and EMPLOYEE’s
employment by XM therefore terminates upon the expiration of this Agreement, any
restricted shares and options scheduled to vest on the third anniversary of the
Effective Date of this Agreement pursuant to Article 3.7(c) shall immediately
vest and become exercisable, all other non-vested restricted shares and options
shall be forfeited, and EMPLOYEE shall be entitled to exercise any of his vested
options within three (3) months after termination.

(c) In the event that XM does not make a Renewal Offer to Employee and
EMPLOYEE’s employment by XM therefore terminates at the expiration of the term
of this Agreement, all options and restricted shares that have been granted to
EMPLOYEE shall immediately vest and become exercisable, and EMPLOYEE shall be
entitled to exercise any of his vested options within eighteen (18) months after
termination.

4.7. Section 409A of the Internal Revenue Code.

(a) Anything in this Agreement to the contrary notwithstanding, if (A) on the
date of termination of EMPLOYEE’s employment with the Company or a Subsidiary,
any of the Company’s stock is publicly traded on an established securities
market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the
Internal Revenue Code, as amended (the “Code”)) and (B) as a result of such
termination, EMPLOYEE would receive any payment that, absent the application of
this Section 4.7, would be subject to interest and additional tax imposed
pursuant to Section 409A(a) of the Code as a result of the application of
Section 409A(2)(B)(i) of the Code, then no such payment shall be payable prior
to the date that is the earliest of (1) 6 months after EMPLOYEE’s termination
date, (2) EMPLOYEE’s death or (3) such other date as will cause such payment not
to be subject to such interest and additional tax.

(b) It is the intention of the parties that payments or benefits payable under
this Agreement not be subject to the additional tax imposed pursuant to
Section 409A of the Code. To the extent such potential payments or benefits
could become subject to such Section, the parties shall cooperate to amend this
Agreement with the goal of giving EMPLOYEE the economic benefits described
herein in a manner that does not result in such tax being imposed.

 

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ARTICLE 5

RESTRICTIVE COVENANTS

5.1. Confidentiality. Except as authorized or directed by XM, EMPLOYEE shall
not, at any time during or subsequent to the term of this Agreement, directly or
indirectly publish or disclose any Confidential Information of XM or of any of
its Affiliates, or Confidential Information of others that has come into the
possession of XM or of any of its Affiliates, or into the EMPLOYEE’s possession
in the course of his employment with XM or of his services and duties hereunder,
to any other person or entity, and EMPLOYEE shall not use any such Confidential
Information for EMPLOYEE’s own personal use or advantage or make it available to
others for use. All confidential information, whether oral or written, regarding
the business or affairs of XM or any of its Affiliates, including, without
limitation, information as to their products, services, systems, designs,
inventions, software, finances (including prices, costs and revenues), marketing
plans, programs, methods of operation, prospective and existing contracts,
customers and other business arrangements or business plans, procedures, and
strategies, shall all be deemed Confidential Information, except to the extent
the same shall have been lawfully and without breach of the EMPLOYEE’S
confidentiality obligation made available to the general public without
restriction, or that EMPLOYEE can prove, by documentary evidence, was previously
known to EMPLOYEE prior to the term of EMPLOYEE’s employment. The Company shall
be under no obligation to identify specifically any information as to which the
protection of this Section 5.1 extends by any notice or other action. Upon
expiration or termination of this Agreement for any reason, EMPLOYEE shall
promptly return to XM all Confidential Information, including all copies thereof
in EMPLOYEE’s possession, whether prepared by him or others.

5.2. Unfair Competition. During his employment pursuant to this Agreement and
for a period of one (1) year after the termination of his employment, EMPLOYEE
shall not, within the United States, directly or indirectly, and whether or not
for compensation, as a stockholder owning beneficially or of record more than
five percent (5%) of the outstanding shares of any class of stock of an issuer,
or as an officer, director, employee, consultant, partner, joint venturer,
proprietor, or otherwise, engage in or become interested in any Conflicting
Organization in connection with research, development, consulting,
manufacturing, purchasing, accounting, engineering, marketing, merchandising or
selling of any Conflicting Product or Service, directly or indirectly, in
competition with XM or any of its Affiliates (or any of their successors) as
conducted from time to time during such period. During the period in which
EMPLOYEE is receiving any payments under this Agreement and for a period of one
(1) year thereafter, EMPLOYEE shall not, without the prior written consent of
XM, solicit or hire or induce the termination of employment of any employees or
other personnel providing services to XM, or any of its Affiliates, for any
business activity, other than a business activity owned or controlled, directly
or indirectly, by XM or any of its Affiliates.

 

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5.3. Injunctive Relief.

(a) EMPLOYEE acknowledges and warrants that he will be fully able to earn an
adequate livelihood for himself and his dependents if Section 5.2 should be
specifically enforced against him, and that Section 5.2 merely prevents unfair
competition against XM for a limited period of time. EMPLOYEE agrees and
acknowledges that, by virtue of EMPLOYEE’s employment with XM, EMPLOYEE shall
have access to and maintain an intimate knowledge of XM’s activities and
affairs, including trade secrets, Confidential Information, and other
confidential matters. As a result of such access and knowledge, and because of
the special, unique, and extraordinary services that EMPLOYEE is capable of
performing for XM or one of its competitors, EMPLOYEE acknowledges that the
services to be rendered by EMPLOYEE pursuant to this Agreement are of a
character giving them a peculiar value, the loss of which may not adequately or
reasonably be compensated by money damages. Consequently, EMPLOYEE agrees that
any breach or threatened breach by EMPLOYEE of EMPLOYEE’s obligations under this
Article 5 may cause irreparable injury to XM, and that XM may be entitled to
preliminary and permanent injunctions enjoining EMPLOYEE from violating such
provisions. Nothing in this Agreement, however, shall be construed to prohibit
XM from pursuing any other remedy, XM and EMPLOYEE having agreed that all such
remedies shall be cumulative.

(b) The restrictions set forth in this Article 5 and the following Article 6
shall be construed as independent covenants, and shall survive the termination
or expiration of this Agreement, and the existence of any claim or cause of
action against XM, whether predicated upon this Agreement or otherwise, shall
not constitute a defense to the enforcement by XM of the restrictions contained
in this Article 5 or the following Article 6. EMPLOYEE hereby consents and
waives any objection to the jurisdiction over his person or the venue of any
courts within the State of New York with respect to any proceedings in law or in
equity arising out of this Article 5 or the following Article 6. If any court of
competent jurisdiction shall hold that any of the restrictions contained in
Section 5.2 are unreasonable as to time, geographical area, or otherwise, said
restrictions shall be deemed to be reduced to the extent necessary in the
opinion of such court to make their application reasonable.

ARTICLE 6

INVENTIONS, WORKS OF AUTHORSHIP,

PATENTS AND COPYRIGHTS

6.1. Ownership of Inventions and Works of Authorship. EMPLOYEE agrees that all
Inventions made, conceived, discovered, developed or reduced to practice by
EMPLOYEE and all software and other works of authorship created by EMPLOYEE,
either alone or with others, at any time, within or without normal working
hours, during the term of this Agreement, arising out of such employment or
based upon Confidential Information, or pertinent to any field of business or
research in which, during such employment, XM is engaged or (if such is known or
ascertainable by EMPLOYEE) is considering engaging, whether or not patented or
patentable, shall be and remain the sole property of XM with respect to all
rights of EMPLOYEE arising from any discovery, conception, development,
reduction to practice, or creation by EMPLOYEE. XM shall have the full right to
assign, license, or transfer all rights thereto.

 

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6.2. Disclosure of Inventions and Works of Authorship. EMPLOYEE shall promptly
make full disclosure to XM or to an authorized representative thereof of all
information relating to the making, conception, discovery, development, creation
or reduction to practice of Inventions, or of software and other works of
authorship owned by XM pursuant to Section 6.1 above.

6.3. Patent and Copyright Applications. At the request of XM and at XM’s
expense, EMPLOYEE shall execute such documents and perform such acts as XM deems
necessary to obtain patents or the like on such Inventions or copyright
registrations for such software and other works of authorship in any
jurisdiction or jurisdictions. Such obligation shall continue beyond the term of
this Agreement. In the event that XM is unable because of EMPLOYEE’s mental or
physical capacity or for any other reason to secure EMPLOYEE’s signature to
apply for or to pursue any applications for patent or copyright covering
Inventions, software and other works of authorship owned by XM pursuant to
Section 6.1, then EMPLOYEE hereby irrevocably designates and appoints XM as
EMPLOYEE’s agent and attorney in fact, upon prior notice, to act for and in his
behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of patents and
copyright registrations thereon with the same legal force and effect as if
executed by EMPLOYEE. EMPLOYEE further agrees not to file any patent
applications relating to or describing or otherwise disclosing any Confidential
Information or any such Inventions, or to claim any copyright or file any
applications to register any copyright in such software or other works of
authorship, except with the prior written consent of XM.

6.4. Assignment of Inventions and Works of Authorship. EMPLOYEE agrees to assign
to XM or it Affiliates all of EMPLOYEE’s right, title and interest in and to any
and all such Inventions and the patent applications and patents relating thereto
and to the copyright in any and all such software and other works of authorship
and any copyright applications and registrations relating thereto conceived,
reduced to practice, discovered, created or otherwise developed by EMPLOYEE and
owned by XM pursuant to Section 6.1 above.

ARTICLE 7

MISCELLANEOUS

7.1. Assignment. The rights and obligations of XM under this Agreement shall be
binding upon its successors and assigns and, subject to EMPLOYEE’s rights under
Article 4.5 hereof, may be assigned by XM to the successors in interest of XM.
The rights and obligations of EMPLOYEE under this Agreement shall be binding
upon EMPLOYEE’s heirs, legatees, personal representatives, executors or
administrators. This Agreement may not be assigned by EMPLOYEE, but any amount
owed EMPLOYEE upon EMPLOYEE’s death shall inure to the benefit of EMPLOYEE’s
heirs legatees, personal representatives, executors, or administrators.

 

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7.2. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered, sent by overnight courier,
or mailed by first-class, registered, or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram, telecopy, or telex
addressed as follows:

If to EMPLOYEE: (Copy to XM Executive Office)

Nathaniel A. Davis

_____________________

_____________________

If to XM:

XM Satellite Radio Holdings Inc.

1500 Eckington Place, N.E.,

Washington, D.C. 20002

Telephone:   202-380-4066

Telecopy:     202-380-4534

Attn: General Counsel

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.

7.3. Entire Agreement. From and after the Effective Date, this Agreement
constitutes the entire agreement between the parties hereto, and expressly
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein.

7.4. Headings. Article and Section headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.

7.5. Severability. In the event any provision of this Agreement, or any portion
thereof, is determined by any arbitrator or court of competent jurisdiction to
be unenforceable as written, such provision or portion thereof shall be
interpreted so as to be enforceable. In the event any provision of this
Agreement, or any portion thereof is determined by any arbitrator or court of
competent jurisdiction to be void, the remaining portions of this Agreement
shall nevertheless be binding upon XM and EMPLOYEE with the same effect as
though the void provision or portion thereof had been severed and deleted.

 

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7.6. Arbitration. Without prejudice to XM’s right to seek an injunction pursuant
to Article 5.3(a) hereof from a court of competent jurisdiction, any dispute
between the parties hereto arising out of this Agreement, or otherwise arising
out of or relating to EMPLOYEE’s employment by XM, or the termination thereof,
shall be submitted to binding arbitration, before a single arbitrator, to be
appointed by the American Arbitration Association (“AAA”), under the rules of
the AAA. The arbitrator shall have the authority to apportion the costs of
arbitration, and to render an award including reasonable attorney’s fees, as and
to the extent he deems appropriate under the circumstances.

7.7. Governing Law. This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes relating thereto, shall be governed by and
construed in accordance with the substantive laws of the State of New York
(excluding the choice of law rules thereof).

7.8. Amendment; Modification; Waiver. No amendment, modification or waiver of
the terms of this Agreement shall be valid unless made in writing and duly
executed by EMPLOYEE and XM. No delay or failure at any time on the part of
EMPLOYEE or XM in exercising any right, power or privilege under this Agreement,
or in enforcing any provision of this Agreement, shall impair any such right,
power, or privilege, or be construed as a waiver of any default or as any
acquiescence therein, or shall affect the right of EMPLOYEE or XM thereafter to
enforce each and every provision of this Agreement in accordance with its terms.

7.9. Additional Obligations. Both during and after the term of employment,
EMPLOYEE shall, upon reasonable notice, furnish XM with such information as may
be in EMPLOYEE’s possession or control, and cooperate with XM, as may reasonably
be requested by XM (and, after the term of employment, with due consideration
for EMPLOYEE’s obligations with respect to any new employment or business
activity) in connection with any litigation or other adversarial proceedings in
which XM or any Affiliate is or may become a party. XM shall reimburse EMPLOYEE
for all reasonable expenses incurred by EMPLOYEE in fulfilling EMPLOYEE’s
obligations under this Article 7.9.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as
of the Effective Date.

 

XM Satellite Radio Holdings Inc. XM Satellite Radio Inc. By  

/s/ Hugh Panero

  Hugh Panero   Chief Executive Officer   Date: July 20, 2006  

/s/ Nathaniel A. Davis

  Nathaniel A. Davis   Date: July 20, 2006

 

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