Document:

<PAGE>

                                                                   EXIHBIT 10.15

SpeechWorks International, Inc. has omitted from this Exhibit 10.15 portions of
the Agreement for which SpeechWorks International, Inc. has requested
confidential treatment from the Securities and Exchange Commission. Omitted
language is indicated by brackets (i.e. [ ]). The portions of the Agreement for
which confidential treatment has been requested have been filed separately with
the Securities and Exchange Commission.

                                                                   June 29, 2000

SpeechWorks International, Inc.
695 Atlantic Ave.,
Boston, MA 02111
Attention: Joe Murphy

Dear Joe;

     This letter ("Letter") will serve to confirm that NET2PHONE, INC. ("N2P")
and SPEECHWORKS INTERNATIONAL, INC. ("SWI") are entering into a business
relationship whereby:

(i)   N2P has agreed to invest $4.0 million in SWI pursuant to the terms of that
      certain Common Stock Purchase Agreement dated as of even date herewith
      (together with the other agreements contemplated thereby);

(ii)  SWI will provide to N2P certain software as described in Exhibit A-1,
      attached and made a part of this Letter;

(iii) SWI will provide certain professional services, including but not limited
      to, (a) platform integration and (b) application development in connection
      with N2P's global VoIP network; and

(iv)  the parties may pursue certain joint marketing efforts as further agreed
      upon in an executed License Agreement proposed in this Letter.

     Part I of this Letter is intended by the parties to be binding and Part II
of this Letter shall be non-binding and expressly subject to the execution and
delivery of (1) a definitive Professional Services Agreement (the "PSA") and
Statement(s) of Work ( an "SOW") which shall be executed and delivered no later
than [ ], or a subsequent date as extended and mutually agreed upon by the
parties (the "Contract Date"). If for any reason the parties are unable to
consummate the License Agreement (as defined below) and the PSA, by the Contract
Date, the obligations set forth in this Letter, including but not limited to
Part I, and in that certain Non-Disclosure Agreement dated as of 2000 ("NDA"),
by and between the parties, the terms of such NDA which by their nature survive,
then either party may, upon written notice to the other, terminate this Letter,
and in the event of such termination, the parties agree that Net2Phone's sole
obligation and SWI's sole and exclusive remedy shall be that Net2Phone shall pay
SWI the License Fee as described in Paragraph A below in the amount of [ ] US
Dollars ($[ ]) and all reasonable professional service fees accrued hereunder as
of the date of such termination, under the current fee schedule as described in
Exhibit C, attached and made a part hereof.
<PAGE>

Part I.   BINDING TERMS.

A.   License Fees.

(1)  Initial Order. N2P hereby agrees to pay to SWI an amount equal to [ ]
     Dollars ($[ ]) in consideration for the grant of a license (the "License
     Fee") to N2P of the SpeechWorks software set forth on Exhibit A (the "SWI
     Software"). The terms of the license would be contained in a mutually
     agreed upon Master Software License Agreement ("License Agreement"), a
     draft form of which has been provided to N2P and which the parties agree to
     negotiate the terms of such License Agreement in good faith with the intent
     to execute and deliver said License Agreement no later than the Contract
     Date. The License Agreement would have a term of three (3) years (the
     "Term"). The $[ ] License Fee described in this paragraph A is a guaranteed
     and non-refundable payment.

     (1)  Subsequent Orders. Notwithstanding SWI's then-current fee schedule ,
          SWI agrees that for the Term of the License Agreement, for all
          subsequent orders received during the initial three year term
          (counting the one thousand (1000) Ports ordered in the initial
          order), the following per port discount schedule shall apply:

          AGGREGATE NUMBER OF PORTS IN THE INITIAL TERM    PRICE PER PORT

          [     ] - [     ]                                $[     ]
          [     ] - [     ]                                $[     ]
          [     ] - [     ]                                $[     ]
          [     ] - [     ]                                $[     ]
          more than [     ]                                $[     ]

B.   Revenue Share. In addition to the provisions described above, the
     parties hereby agree that the License Agreement shall contain the
     following provisions regarding the sharing of revenue.

     GENERAL

     N2P and SWI will share net revenue, as defined hereunder generated by
     or through the Facilities Services (defined below), as further defined
     in the proposed License Agreement and as outlined below. In accordance
     with the License Agreement  revenue will only be comprised of those
     fees due to N2P generated from joint offerings brought to market by
     SWI and N2P in a joint endeavour.

     In addition to the foregoing license fees, N2P agrees to pay to SWI
     the following fees (the "Utilization Fees") for  each customer of N2P
     utilizes the SWI Software in connection with the services provided by
     N2P (the "Facilities Services").

         (1)  [ ] percent ([ ]) of any net revenue N2P derives directly from
              selling products or services via the N2P speech system ("e-
              commerce"); and

         (2)  [ ] percent ([ ]) (net of the costs outlined in Exhibit B;
              "Infrastructure Costs") for all revenue derived from minutes (or
              partial minutes rounded up to the next whole minute).

                                                                          Page 2
<PAGE>

     Further, in the event that either of the following conditions occur
     (in a manner to be verified under procedures to be agreed to in the
     License Agreement) the applicable revenue sharing terms set forth
     below would apply:

         1.  SWI brings N2P into an opportunity that N2P has not been
             involved with before; or

         2.  SWI and N2P agree to co-develop a product or application for a
             specific industry or market with either party incurring their
             associated costs.

         In the event that the applicable condition precedent above is
         satisfied, N2P would pay to SWI an amount equal to:

     (1)  [ ] percent ([ ]) of any net revenue N2P derives directly from
          selling products or services via the N2P speech system ("e-
          commerce"); and

     (2)  the lesser of (x) $[ ] per minute and (y) [ ] (net of the costs
          outlined in Exhibit B; "Infrastructure Costs") for all revenue derived
          from minutes (or partial minutes rounded up to the next whole minute).

     Each N2P customer-specific revenue share transaction would provide for
     three (3) years of payments to SWI and such obligation  may survive the
     expiration of the three (3) year term of the License Agreement.

                                                                          Page 3
<PAGE>

C.   Most Favored Pricing

     The following fee provisions shall apply to the License Fees, SWI
     professional services fees requested by N2P, and text-to-speech (TTS)
     (if and when available) licenses which may be contracted by N2P in the
     License Agreement or in any mutually agreed upon agreements. During
     the term of the License Agreement or any other agreement mutually
     agreed upon between the parties, SWI agrees that it shall provide the
     [     ] to N2P [     ] in a transaction (considering all relevant
     material terms) in which [     ] or [     ]. In the event that SWI [
         ], it shall thereafter [     ] and [     ] and [     ] to be [     ].

D.   Roll Over Rights

     SWI hereby agrees that the covenant set forth in Section C above with
     respect to license fees shall be extended to all entities of which N2P
     owns (or acquires such interest in during the Term), at the relevant
     time, more than 50% of the voting shares. Further, in the event that
     N2P owns an equity interest in a third party which is 50% or less,
     then:

          (i)  in the event that such third party is already a customer of SWI,
               then SWI agrees that it shall allow (1) such third party to pay
               to SWI the difference between (x) the license fees which said
               third party had previously agreed to pay (such other fee to be
               known herein as the "Original Fee") and (ii) the license fees
               applicable to N2P and (2) N2P to pay the balance of the Original
               Fee; and

          (ii) in the event that such third party is not already a customer of
               SWI, then SWI may in its discretion enter in to a license
               agreement with such third party and in the event that such third
               party and SWI agree on the applicable license fees, then N2P
               shall have the opportunity to supplement such license fee
               payments as contemplated by clause (i) above .

     The parties agree that the revenue share provisions set forth above shall
     apply to any party described in this Section D which is licensing SWI
     software or using the Facilities Services.

E.   Professional Services.

(1)  Retainer. In order to secure the commitment of SWI Ito provide certain
     professional services, N2P hereby agrees to pay to SWI an amount equal to
     [  ] US Dollars ($[ ]) under the PSA ("Retainer"). Unless otherwise agreed
     upon by the parties in the PSA or an applicable SOW, this amount is subject
     to the terms of Paragraph F below, shall be due and owing to SWI no later
     than June 28, 2001 regardless of whether N2P accrues services fees in such
     amount prior to such date.

(2)  Work Authorization. Upon execution of this Letter, N2P shall be deemed to
     have authorized SWI to commence certain professional services activities as
     directed by N2P related to the initial project, and N2P agrees to pay SWI
     for services rendered in accordance with its current fee schedule up to an
     amount not to exceed the Retainer described above. Any amounts accrued
     under this interim Work Authorization section will be applied against the
     fees agreed to in the applicable SOW. Additionally, any travel expenses
     accrued may  be billed for the amount incurred, assuming that any required
     travel is approved in advance by N2P. In the event N2P and SpeechWorks
     execute a mutually acceptable PSA, such PSA will fully supersede, and make
     null void, this paragraph (2). N2P acknowledges and agrees that any
     deliverable developed in connection with the services rendered hereunder
     shall not be delivered to N2P until such time as a PSA has been executed.

                                                                          Page 4
<PAGE>

F.   Unused Services Fees Allowance. In the event that the aggregate fees
     accrued for the project(s) covered under an initial SOW, if any, equal an
     amount less than [ ] US Dollars ($[ ]), SWI shall allow N2P to apply the
     balance thereof to the purchase of additional licenses under the terms of
     the License Agreement; such application, if any, shall occur no later than
     June 28, 2001.

G.   Joint Obligations. Each party agrees it may undertake the following
     marketing and publicity activities in order to promote the relationship:

 .    CUSTOMERS - Each company agrees to explore the use of their existing
     customers to identify interested implementers of the Voice ASP service.

1.   CO-MARKETING - N2P and SWI  will work together, in good faith, to use
     commercially reasonable efforts to perform the following:

 .    N2P and SpeechWorks will work together to issue a formal, joint press
     release on the equity investment, and N2P will also supply a quotation to
     be used in the Open Speech Web announcement (to be complete Wednesday, June
     28th)

 .    N2P and SpeechWorks will jointly participate in press and analyst briefings
     regarding Net2Phone's equity investment in SpeechWorks

 .    N2P will promote the "SpeechworksHere" program in relevant Marketing
     promotions and collateral

 .    SpeechWorks will promote the N2P Voice ASP service in relevant Marketing
     promotions and collateral

 .    N2P and SpeechWorks agree to work together for joint promotion of the N2P
     Voice ASP commercial launch and subsequent Voice ASP (post-GA) milestones

 .    N2P and SpeechWorks agree to make to cite each other in relevant press
     releases and/or announcements.  Specifically:

     .    SpeechWorks will cite N2P as an investor-partner, ASP-provider and
          provider of yet-to-be-specified speech-based services where
          commercially appropriate,

     .    N2P will cite SpeechWorks in announcements relating to their speech-
          based initiatives where commercially appropriate.

                                                                          Page 5
<PAGE>

Part II. NON-BINDING TERMS. The following terms are agreed by the parties to be
non-binding and shall only express the intent of the parties as to activities
which shall only be agreed upon in a definitive License Agreement, PSA and
Applicable SoWs.

1.   CROSS-MEDIA PROMOTIONS & ATTRIBUTION:  Subject to prior written approval,
     not to unreasonably withheld or delayed:

 .    Each company can use the other company's logo/name in any web listings
     (i.e., customer/partner lists)

 .    N2P agrees to work  with SpeechWorks to pursue cooperative advertising
     with both parties contributing equally to the associated costs.

 .    N2P agrees to SpeechWorks' usage of the N2P logo on demand-generation
     vehicles (WSJ advertising, other advertising, direct mail, etc.)

 .    N2P agrees to let SpeechWorks use the N2P name and logo in IPO-related
     filings (eg: S-1)

 .    N2P agrees to participate in the SpeechWorks Conversations User/Partner
     conference in Laguna Niguel, CA, as a speaker

2.   REFERENCABILITY:  Pending N2P satisfaction with SpeechWorks performance
     against measurable success criteria and N2P internal policies, N2P agrees
     to be a reference for i.) other SpeechWorks prospects,. Additionally,  at
     N2P's sole discretion N2P may participate in a Case Study

3.   STANDARDS SETTING:  N2P and SpeechWorks agree to work together jointly
     develop, market, and offer as De Facto Standards to the market:

 .    VoiceXML and voice browsers

 .    SpeechLinks

 .    SpeechCookies

 .    Content and scripting tools

 .    SpeechSpot U.I. spec and implementation

     The parties agree that the following terms would provide the basis for an
     initial SOW:

A.   PLATFORM INTEGRATION SERVICES: SWI shall perform the following with the
     reasonable cooperation of N2P:

1.   Convert Audio Driver to use N2P protocol and convert IP packets into u-
     law PCM. This would essentially be re-writing of Prompt DLL and Record DLL

2.   Switch the TTS API to use SWI implementation of Lucent TTS. Done through
     SAPI.

3.   Provide an operational VXML browser. SWI will ship voice browser source
     code to N2P

4.   Provide training on any SWI implementation of VXML, in classroom setting

5.   Provide tools to convert applications to VXML operation. SWI will make
     available to N2P all internal tools that are currently used as well as any
     commercially sold tools when they are general release.

6.   Provide SpeechWorks licensed software and the VMXL browser software on
     SCO Unixware 7.

7.   Support SpeechLinks as a platform capability for Net2Phone speech
     services

SWI agrees that any costs associated with SWI's performance obligations, shall
be at SWI's sole expense.

                                                                          Page 6
<PAGE>

B.   APPLICATION DEVELOPMENT

     1.   Provide interface documentation and assistance with the implementation
          of the namedialer module (database, grammar generation and storing and
          again the TTS interface) in order to enable N2P personal voice dialing
          application. This will be delivered from SWI solutions group and
          follow the SADL process as with all application development projects.
          This will need to have a SCOPE OF WORK defined in order to accurately
          describe exact costs and time estimates for delivery.

     2.   Provide Speech Site for internal use

     3.   Speech Web Directory - provide infrastructure for N2P to run the
          application to enable any organization to register their site in Open
          Speech Web Directory.

     Part II of this Letter is non-binding and is intended to facilitate
negotiation and preparation of the License Agreement and PSA that will embody
the final understanding between the parties. Except as otherwise specifically
provided for herein, the obligations of the parties to consummate the
transaction contemplated by this Letter shall be subject in all respects to the
negotiation, execution and delivery of a definitive License Agreement and PSA .
Notwithstanding the foregoing, the $[     ] License Fee  payment obligation of
N2P set forth in Paragraphs 1A of Part I is agreed to be binding

     Please indicate your acceptance of the terms hereof by signing the enclosed
copy of this Letter on the line provided and returning it to the undersigned.

                                    Net2Phone, Inc.

                                    By:  /s/ Jon Fram

                                    Name: Jon Fram

                                    Title: President

Acknowledged and agreed:

SPEECHWORKS INTERNATIONAL, INC.

By:  /s/ Stuart R. Patterson
     Stuart R. Patterson,
     President and Chief Executive Officer

Date: June 29, 2000

                                                                          Page 7
<PAGE>

                                   EXHIBIT A
                                   ----------

                                 Initial Order

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
PRODUCT NAME        PRODUCT DESCRIPTION                 RECOGNITION       SYSTEM      FEE/PORT OR        LICENSE
                                                            PORTS          SEATS           SEAT            FEES
------------------------------------------------------------------------------------------------------------------
<S>                 <C>                                  <C>             <C>           <C>             <C>
SpeechWorks         Includes:                               [    ]          N/A           [   ]          $[     ]
v. 6.1 with         . SpeechWorks Recognition Engine
DialogModule        . DialogModules (see description
                      above).
------------------------------------------------------------------------------------------------------------------

SpeechWorks         Includes:                                 N/A             1                             N/A
SDK                 . Vocabulary Editor (allows
                      developers to generate and maintain
                      large vocabulary lists)
                    . Grammar Specification and Tuning
                      Tools (allows developers to build
                      custom applications and tune their
                      performance)
------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                      TOTAL LICENSE FEES: $[     ]
</TABLE>

The term "Recognition Port" shall mean the number of telephone channels enabled
with the software included in SpeechWorks DialogModule Bundle B that is capable
of either recognizing spoken words or performing "barge-in" for a discrete
period of time. SWI acknowledges that telephone lines or ports can be configured
with or without speech recognition dynamically, and as such, charges are based
on the maximum number of simultaneous speech recognition ports currently
configured in the total system.  The term "system seats" shall mean the number
of end-users permitted to concurrently access and use, at the same time, the
SpeechWorks Tools and Grammar Libraries.

PAYMENT SCHEDULE:

The License Fee to be paid by N2P under the License  Agreement shall be due and
payable within thirty (30) days from the date appearing on an applicable invoice
prepared and delivered by SWI to N2P following the execution of the License
Agreement between the parties. If mutually agreed upon in the License Agreement
SWI may impose a late fee of 1.5% per month on any amounts which remain unpaid
thirty (30) days after they are due.

                                                                          Page 8
<PAGE>

                                  Exhibit A-1
                        DESCRIPTION OF LICENSED SOFTWARE

SpeechWorks(R) is a solution for speech-enabling transactional applications over
the telephone. packaged as six functional components:

     1.  SpeechWorks SMARTRecognizer(TM) recognizes words or phrases from
     individual vocabularies in the call flow and provides processing of phrases
     and sentences. This engine supports a range of hardware platforms and
     scales to thousands of phone lines. Its features include:

     2.  SPEECHWORKS DIALOGMODULES(TM) are high-level building blocks
     representing frequently used caller interactions that developers can
     assemble and integrate into applications. Each DialolgModule encapsulates a
     particular task such as capturing a "yes" or "no" response or creating a
     voice menu. The DialogModules are made available in three bundles/packages.

       A.  BASE:  Includes recognition kernel, reporting tools, and the
       following DialogModules:

       AlphaNumeric String - Collects a string of connected (pauses are not
       required) numbers and letters.  Patterns or a list of valid strings can
       be specified.

       Continuous Digits - Recognizes a string of connected digits only.
       Constraints such as string length or the allowed values can be specified.

       Item List - Lets callers speak words or phrases from a list (up to 250
       words), e.g. "Please say the name of the person you are calling?" or
       "What stock would you like to buy?"

       VoiceMenu - Lets callers choose a word or phrase from a list (maximum of
       20).  Menus are similar to ItemLists, but shorter so that the prompt can
       read each item to the caller.

       YesNo - Performs the essential function of identifying affirmative and
       negative responses from callers.

       B.  EXTENDED:  Includes Base DialogModules, recognition kernel, reporting
       tools, and the following DialogModules:

       CreditCardNumber - Collects a credit card number.  Can understand the
       major credit cards and many private label cards from retailers

       CCExpDate - Collects the expiration date for a credit card, usually month
       and year.  It recognizes the last day of a given month as well.

       Currency - Lets callers speak a monetary value in a natural way, e.g.,
       "One hundred twenty-five dollars and thirty two cents.  Non US dollars
       can be customized.

       Date - Collects dates in several formats, e.g., June Fourth or 6/4/70,
       nicknames can be mapped, e.g., Christmas or today, allowing callers to
       speak a date in a natural way

       ItemList - Up to 2,500 words

       NaturalNumbers - Collects whole numerical amounts; callers can say "fifty
       four hundred".  Vocabulary for units can also be added, as in "a thousand
       boxes".

       SocialSecurityNumber - Collects a 9-digit US Social Security number.
       Illegal numbers, such as those beginning with three zeroes, are screened
       out
       Spelling - Recognizes individual letters so that callers may choose to
       spell out a request.

                                                                          Page 9
<PAGE>

       TimeOfDay - Collects a naturally spoken time of day.  Callers can use 12-
       hour or 24-hour times, as well as prefix words such as "about" and
       "around"

       TelephoneNumber - Collects a phone number in the "North American
       Numbering Plan" consisting of ten, seven or three digits.  It allows
       common phrases such as "area code" and "one eight hundred".

       ZipCode - Recognizes a five and/or nine digit United States ZIP code

       C.  PROFESSIONAL NL (NATURAL LANGUAGE): Includes Extended DialogModules,
       recognition kernel, reporting tools, and the following DialogModules:
       ItemList - Greater than 2,500 words or phrases

       CustomContext  - Provides the ability to run the results of custom
       modules created with the Software Development Kit.
       The Professional NL will typically require some level of SpeechWorks
       custom development services or development support.

       Name - Available with Release 6.0 making it easier to collect a person's
       first, last or first and last names where the names are completely
       unknown.  Speech Attendant apps should continue using the ItemList
       DialogModules

     3. SPEECHWORKS REPORTING AND ANALYSIS TOOL is bundled with each of the
     DialogModule packages. The tool generates text diagnostic reports about
     applications based on call logging data. The reports included are:

       Call-Start - displays a percentage breakdown by one hour time period of
       when calls are initiated helping to identify peaks in system usage.

       Call-Length  - displays a percentage breakdown of calls by duration
       tracking the efficiency of user interface improvements that result in the
       reduction of call length.

       Module Transaction Results - summarizes execution results for each
       DialogModule presenting an overall success rate.  Success rates lower
       than 90% indicate problem areas.

       Module Callflow Results - summarizes results of each attempt to collect
       the primary DialogModule data from the caller.  High values for denied
       confirmation and rejection indicate that recognition is not performing
       well.

       Context Results  - summarizes the result of each recognition event.  This
       report illustrates a complete picture of the caller experience at the
       transaction level.

       Module Vocabulary Results - summarizes results classified by the answer
       returned by the recognizer via a DialogModule.  This report can be used
       to give an indication of a) how effective the system recognized a
       caller's utterance and b) how easily callers were able to clarify/confirm
       what was said.

       Context Stats - summarizes various additional statistics for each
       recognition context.  This report allows quick identification of problem
       contexts indicating that improvements are required

     4. SPEECHWORKS SOFTWARE DEVELOPMENT KIT (SDK) includes the following suite
     of editors and utilities for configuring DialogModules, providing service
     management functions, and supporting ongoing tuning and maintenance:
     Vocabulary Editor (VED), Grammar Development Tools and Application Tuning
     Tools. Included with the SDK are Four (4) Professional NL Run Time Port
     licenses, for development purposes only.

     5.  SPEECHWORKS VOCABULARY LIBRARIES supply pre-packaged and continuously
     maintained language contexts for spoken words/phrases. The User Interface
     for the application using these libraries is not included. The following
     libraries are currently available: (i) Stock Names & Symbols Vocabulary and
     (ii) Mutual Fund Names & Symbols Vocabulary.

                                                                         Page 10
<PAGE>

                                   EXHIBIT B

                              INFRASTRUCTURE COSTS

GENERAL

     N2P and SWI will share net revenue generated by or through the facilities
     services.  For the License Agreement, revenue will only comprise that
     generated from joint offerings brought to market by SWI and N2P in a joint
     endeavour.

GROSS REVENUE

     Gross Revenue is defined as revenue received by N2P in providing services
     that are based on SWI's products.  This definition excludes revenue
     generated from other features that might be offered by N2P that are
     separate from SWI's product, and do not involve access to any of SWI's
     services. Notwithstanding anything contained in this Exhibit or the Letter
     to which it is attached, N2P agrees that all hardware and software costs
     associated with the platform and all other fixed costs and expenses shall
     not be deemed to be Infrastructure Costs hereunder.

IDENTIFICATION OF EXPENSES

     For the purpose of this revenue share calculation, only expenses associated
     with revenue generation will be considered.  These expenses will include:

     Network Traffic Charges

            This expense category includes the per-call charges associated with
            (a) originating, (b) carrying, and (c) terminating the telephone
            call.  These costs are incurred by N2P and can include such items as
            the following: Payphone surcharges, toll-free costs charged to N2P,
            cost to carry the IP traffic, cost to terminate the telephone call,
            etc.

     Recurring Provisioning and Leased-Line Costs

            This expense category includes charges associated with providing the
            subscriber a telephone access method and leasing telephone or data
            access lines used to link facilities.  Provisioning charges include
            the per-number fees paid by N2P to provide such services as Call
            Forward on Busy / No-Answer, Toll-free numbers, and Local Numbers.
            These provisioning costs typically recur monthly and are based on
            DID quantity, but they may also include one-time installation
            charges for DIDs.  Leased line costs include the costs of leasing
            lines (such as T1 lines) that might be used to link site facilities.

     Fraud and Charge-backs

            Net2Phone will recapture any fraudulent generated refunds or bad
            debts. Net2Phone will use reasonable care and practices to minimize
            such occurrences.

     Taxes

            To the extent Taxes are not charged to the customer, Net2Phone will
            pay such charges directly.

NET REVENUE AVAILABLE FOR SHARE BY NET2PHONE AND SWI

     Net Revenue is defined as gross revenue less expenses, as defined above.

                                                                         Page 11
<PAGE>

                                   EXHIBIT C
                        Current Time and Materials Fees

<TABLE>
<CAPTION>
                                  PER EIGHT-HOUR     MINIMUM NUMBER OF
            SERVICE                  DAY RATE              DAYS

------------------------------------------------------------------------
<S>                               <C>              <C>
 Project Management                   $2,500              5 days
------------------------------------------------------------------------
 Application Consulting               $2,000              5 days
------------------------------------------------------------------------
 Speech Scientist                     $2,000              5 days
------------------------------------------------------------------------
 Speech User Interface Design         $1,500              5 days
------------------------------------------------------------------------
 Application Development              $1,500              5 days
------------------------------------------------------------------------
 Systems Integration                  $1,500              5 days
------------------------------------------------------------------------
 Operations Support                   $1,000             20 days
------------------------------------------------------------------------
 Installation Services                $1,000              5 days
------------------------------------------------------------------------
</TABLE>

                                                                         Page 12<PAGE>

                                                                     Exhibit 4.1

                       XM SATELLITE RADIO HOLDINGS INC.

                            1998 SHARES AWARD PLAN
                                 (AS AMENDED)

                            ----------------------

                         Effective as of June 16, 1998
<PAGE>

                       XM Satellite Radio Holdings Inc.
                            1998 Shares Award Plan
                                 (as amended)

                                 INTRODUCTION

     XM Satellite Radio Holdings Inc., a Delaware corporation (hereinafter
referred to as the "Corporation"), hereby establishes an incentive compensation
plan to be known as the "XM 1998 Shares Award Plan" (hereinafter referred to as
the "Plan"), as set forth in this document.  The Plan permits the grant of
Incentive Stock Options, Non-Qualified Stock Options, Phantom Stock Awards,
Stock Appreciation Rights, Restricted Stock Awards and Other Stock-Based Awards.
Subject to the terms of the Plan, the Plan shall become effective on June 16,
1998.

     The purpose of the Plan is to promote the success and enhance the value of
the Corporation by linking the personal interests of Participants to those of
the Corporation's shareholders by providing Participants with an incentive for
outstanding performance.  The Plan is further intended to assist the Corporation
in its ability to motivate, and retain the services of, Participants upon whose
judgment, interest and special effort the successful conduct of its operations
is largely dependent.

                                 DEFINITIONS

     For purposes of this Plan, the following terms shall be defined as follows
unless the context clearly indicates otherwise:

     (a) "Affiliate" shall mean (i) any parent, including American Mobile
          ---------
Satellite Corporation and any other entity which owns directly or indirectly at
least 50% of the total combined voting power of all classes of stock of the
Corporation and (ii) any entity in which the Corporation directly or indirectly
owns at least 50% of the total combined voting power of all classes of stock.

     (b) "Award" shall mean any award to a participant of an Option, Stock
          -----
Appreciation Right, Phantom Share, Restricted Stock or any other stock-based
award under the Plan.

     (c) "Award Agreement" shall mean the written agreement, executed by an
          ---------------
appropriate officer of the Corporation, pursuant to which an Award is granted.
<PAGE>

     (d) "Board of Directors" shall mean the Board of Directors of the
          ------------------
Corporation.

     (e) "Change of Control" shall have the meaning set forth in Section 11(d)
          -----------------
hereof.

     (f) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
          ----
the rules and regulations thereunder.

     (g) "Committee" shall mean the Board of Directors of the Corporation or any
          ---------
committee of two or more Non-Employee Directors (as defined under Rule 16b
promulgated under the Exchange Act) designated by the Board of Directors to
serve as the Committee.

     (h) "Consultant" shall mean an individual or entity who is in a consulting
          ----------
relationship with the Corporation or any parent or subsidiary of the
Corporation.

     (i) "Corporation" shall mean XM Satellite Radio Holdings Inc., a Delaware
          -----------
corporation.

     (j) "Employee" shall mean a common-law employee of the Corporation or of
          --------
any Affiliate.

     (k) "Equivalent Award" shall mean, in connection with a Change of Control,
          ----------------
a continuation of the Award by the Corporation to a Participant, an agreement by
the person(s) acquiring the Corporation that to honor or assume the Award
following the Change of Control, or the substitution of a new Award with an
inherent value equivalent to that of the original Award and on terms at least as
beneficial to the Participant as those contained in the Participant's original
Award Agreement.

     (l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
          ------------
amended, and the rules and regulations thereunder.

     (m) "Fair Market Value" of the Corporation's Common Shares on a Trading Day
          -----------------
shall mean the last reported sale price for Common Shares or, in case no such
reported sale takes place on such Trading Day, the average of the closing bid
and asked prices for the Common Shares for such Trading Day, in either case on
the principal national securities exchange on which the Common Shares are listed
or admitted to trading, or if the Common Shares are not listed or admitted to
trading on any national securities exchange but are traded in the over-the-
counter market, the closing sale price of the Common Shares or, if no sale is
publicly reported, the average of the closing bid and asked quotations for the
Common Shares, as reported by the

                                      -2-
<PAGE>

National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or any comparable system or, if the Common Shares are not listed on NASDAQ or a
comparable system, the average of the bid and asked prices of the Common Shares
or, if no sale is publicly reported, the average of the closing bid and asked
prices, as furnished by two members of the National Association of Securities
Dealers, Inc., who make a market in the Common Shares selected from time to time
by the Corporation for that purpose. In addition, for purposes of this
definition, a "Trading Day" shall mean, if the Common Shares are listed on any
national securities exchange, a business day during which such exchange was open
for trading and at least one trade of Common Shares was effected on such
exchange on such business day, or, if the Common Shares are not listed on any
national securities exchange but are traded in the over-the-counter market, a
business day during which the over-the-counter market was open for trading and
at least one "broker-dealer" quoted both a bid and asked price for the Common
Shares (if a broker-dealer quoted only a bid or only an asked price for such
day, such day will not be a Trading Day). In the event the Corporation's Common
Shares are not publicly traded, the Fair Market Value of such Common Shares
shall be determined by the Committee in good faith and in its sole discretion.

     (n) "Good Cause" shall mean, with respect to any Participant, the meaning
          ----------
of such term as set forth in the employment agreement between the Corporation
(or any Affiliate) and the Participant or, in the event there is no such
employment agreement (or if any such employment agreement does not contain such
a definition), such term shall mean (i) willful or gross misconduct or willful
or gross negligence in the performance of his or her duties for the Corporation
or any Affiliate, (ii) neglect of his or her duties for the Corporation or any
Affiliate after written notice and opportunity to cure, (iii) dishonesty, fraud,
theft, embezzlement or misappropriation of funds, properties or assets of the
Corporation or of any Affiliate, (iv) conviction of a felony, (v) a direct or
indirect material breach of the terms of any agreement with the Corporation or
any Affiliate or (vi) acting in a manner or making any statements which the
Committee reasonably determines to have a material adverse effect on the
reputation, operations, prospects or business relations of the Company or its
Affiliates.

     (o) "Incentive Stock Option" shall mean a right to purchase Shares from the
          ----------------------
Corporation that is granted under Section 5 of the Plan and that is intended to
meet the requirements of Section 422 of the Code or any successor provision
thereto.

     (p) "Non-Employee Director" shall mean a member of the Board of Directors
          ---------------------
who is not a full-time employee of the Corporation.

     (q) "Non-Qualified Stock Option" shall mean a shares option which does not
          --------------------------
satisfy the requirements for, or which is not intended to be eligible for, tax-
favored treatment under Section 422 of the Code.

                                      -3-
<PAGE>

     (r) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
          ------
Option.

     (s) "Optionee" shall mean a Participant who is granted an Option under the
          --------
terms of the Plan.

     (t) "Other Stock-Based Award" shall mean any right granted under Section 9
          -----------------------
of the Plan.

     (u) "Participant" shall mean any Employee, Consultant or Non-Employee
          -----------
Director participating under the Plan.

     (v) "Phantom Share" shall mean a hypothetical Share which is cancelled by
          -------------
the delivery of an actual Share or, in the discretion of the Corporation, by the
payment of cash (or a combination of cash and Shares) in an amount equal to the
Fair Market Value of a Share on the date of surrender.

     (w) "Plan" shall mean this XM 1998 Shares Award Plan as the same shall be
          ----
amended, revised or terminated from time to time.

     (x)  "Restoration Option" shall mean an Option granted under Section 5(f).
           ------------------

     (y) "Restricted Stock" shall mean any Share granted under Section 7 of the
          ----------------
Plan.

     (z) "Securities Act" shall mean the Securities Act of 1933, as amended, and
          --------------
the rules and regulations thereunder.

     (aa) "Share" shall mean a share of the Class A common stock, par value $.01
           -----
per share, of the Corporation, or such other securities of the Corporation as
may be designated by the Committee from time to time.

     (bb) "Stock Appreciation Right" shall mean any right granted under Section
           ------------------------
6 of the Plan.

                                   SECTION 1
                                ADMINISTRATION

     The Plan shall be administered by the Committee.  Subject to the provisions
of the Plan, the Committee may establish from time to time such regulations,
provisions, proceedings and conditions of awards which, in its sole opinion, may
be advisable in

                                      -4-
<PAGE>

the administration of the Plan. A majority of the Committee shall constitute a
quorum, and, subject to the provisions of Section 4 of the Plan, the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee, shall be the acts of
the Committee as a whole.

                                   SECTION 2
                               SHARES AVAILABLE

     Subject to the adjustments provided in Section 7 of the Plan, the aggregate
number of Shares with respect to which Awards may be granted under the Plan
shall be 5,000,000 shares.  The Shares underlying Awards shall be counted
against the limitation set forth in the immediately preceding sentence and may
be reused to the extent that the related Award to any individual is settled in
cash, expires, is terminated unexercised, or is forfeited without the delivery
of Shares.  Shares granted to satisfy Awards under the Plan may be authorized
and unissued shares, issued Shares held in the Corporation's treasury or Shares
acquired on the open market.  The maximum number of Shares with respect to which
Awards may be granted under the Plan to any individual in any calendar year
shall be equal to 267,570 Shares.

                                   SECTION 3
                                  ELIGIBILITY

     All (i) Employees who are regularly employed, (ii) Consultants and (iii)
Non-Employee Directors shall be eligible to participate in the Plan.

                                   SECTION 4
                            AUTHORITY OF COMMITTEE

     The Plan shall be administered by, or under the direction of, the
Committee, which shall administer the Plan so as to comply at all times with
applicable law, and shall otherwise have the sole and exclusive authority to
interpret the Plan and to make all determinations specified in or permitted by
the Plan or deemed necessary or desirable for its administration or for the
conduct of the Committee's business.  Subject to the provisions of Section 12
hereof, all interpretations and determinations of the Committee may be made on
an individual or group basis and shall be final, conclusive and binding on all
persons.  Subject to the express provisions of the Plan, the Committee shall
have authority, in its discretion, to determine, without limitation, the persons
to whom Awards shall be granted, the times when Awards shall be granted, the
number of Shares subject to any Awards, the terms of Awards, any other
restrictions, including any vesting requirements, and the other provisions
thereof (which need not be identical with respect to each Award).  In addition,
the authority of the

                                      -5-
<PAGE>

Committee shall include, without limitation, the following with respect to an
Award of an Option:

     (a) Financing.  The arrangement of temporary financing for a Participant by
         ---------
registered broker-dealers, under the rules and regulations of the Federal
Reserve Board, for the purpose of assisting a Participant in the exercise of an
Option, such authority to include the payment by the Corporation of the
commissions of the broker-dealer;

     (b) Procedures for Exercise of Option.  The establishment of procedures for
         ---------------------------------
a Participant (i) to exercise an Option by payment of cash or (ii) with the
consent of the Committee, (A) to have withheld from the total number of Shares
to be acquired upon the exercise of an Option that number of shares having a
Fair Market Value, which, together with such cash as will be paid in respect of
fractional shares, shall equal the Option exercise price of the total number of
Shares to be acquired, (B) to exercise all or a portion of an Option by
delivering that number of Shares already owned by him or her having a Fair
Market Value which shall equal the Option exercise price for the portion
exercised and, in cases where an Option is not exercised in its entirety, and
subject to the requirements of the Code, to permit the Participant to deliver
the Shares thus acquired by him or her in payment of Shares to be received
pursuant to the exercise of additional portions of such Option, the effect of
which shall be that a Participant can in sequence utilize such newly acquired
shares of Common Shares in payment of the exercise price of the entire Option,
together with such cash as shall be paid in respect of fractional shares or (C)
to engage in any form of "cashless" exercise.

     (c) Withholding. The establishment of a procedure whereby a number of
         -----------
Shares may be withheld from the total number of Shares to be issued upon
exercise of an Award or for the tender of Shares owned by any Participant to
meet any obligation of withholding for taxes incurred by the Participant upon
such exercise.

                                   SECTION 5
                                 SHARE OPTIONS

     (a) Grant.  Subject to the provisions of the Plan, the Committee shall have
         -----
sole and complete discretion and authority to determine the Employees,
Consultants and Non-Employee Directors to whom Options shall be granted, the
number of Shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option.  The
Committee shall have the discretion and authority to grant Incentive Stock
Options (but only to Employees who meet the requirements of Section 422(a)(2) of
the Code), Non-Qualified Stock Options, and any combination thereof (provided
that Incentive Stock Options shall be granted only to Employees who meet the
requirements of Section 422(a)(2) of the Code).  In the

                                      -6-
<PAGE>

case of Incentive Stock Options, the terms and conditions of such grants shall
be subject to and comply with such rules as may be prescribed by Section 422 of
the Code, as from time to time amended, and any regulations implementing such
statute.

     (b) Exercise Price.  Subject to the requirement set forth in Section 5(a)
         --------------
with respect to Incentive Stock Options, the Committee in its sole discretion
shall establish the exercise price at the time each option is granted.  The
exercise price shall be subject to adjustment in accordance with the provisions
of Section 11 of the Plan.

     (c) Term.  Subject to the provisions of the Plan, the term of any Option
         ----
granted hereunder shall be not more than 10 years from the date of grant.

     (d) Exercisability.  Except as provided in Section 5(e) hereof, each Option
         --------------
shall be exercisable in whole or in installments, and at such time(s), and
subject to the fulfillment of any conditions on, and to any limitations on,
exercisability as may be determined by the Committee at the time of the grant of
such Options.  The right to purchase Shares shall be cumulative so that when the
right to purchase any Shares has accrued such Shares or any part thereof may be
purchased at any time thereafter until the expiration or termination of the
Option.  Notwithstanding the above, no Option shall be exercisable by a
Participant until he or she has fully repaid any and all loans made to him or
her by the Corporation (or by any parent or subsidiary of the Corporation);
provided, however, that a repayment (whether in the form of cash or Shares) made
--------  -------
contemporaneously with an exercise of an Option granted hereunder (including a
repayment in the form of withholding on Shares to be received upon the exercise
of such Option) shall be considered to have occurred prior to such Option
exercise.

     (e) Payment of Exercise Price.  The price per share of Shares with respect
         -------------------------
to each Option shall be payable at the time the Option is exercised.  Such price
shall be payable in cash or pursuant to any of the methods set forth in Sections
4(a) or (b) hereof, as determined by the Participant and approved by the
Committee.  Common Shares delivered to the Corporation in payment of the
exercise price shall be valued at the Fair Market Value of the Common Shares on
the date preceding the date of the exercise of the Option.

     (f) Restoration Options.  In the event that any Participant delivers Shares
         -------------------
in payment of the exercise price of any Option granted hereunder, or in the
event that the withholding tax liability arising upon exercise of any such
Option by a Participant is satisfied through the withholding by the Corporation
of Shares otherwise deliverable upon exercise of the Option, the Committee shall
have the authority to grant or provide for the automatic grant of a Restoration
Option to such Participant.  The grant of a Restoration Option shall be subject
to the satisfaction of such conditions or criteria as

                                      -7-
<PAGE>

the Committee in its sole discretion shall establish from time to time. A
Restoration Option shall entitle the holder thereof to purchase a number of
Shares equal to the number of such Shares so delivered or withheld upon exercise
of the original Option. A Restoration Option shall have a per share exercise
price of not less than 100% of the per Share Fair Market Value as of the date of
grant of such Restoration Option and such other terms and conditions as the
Committee in its sole discretion shall determine.

                                   SECTION 6
                           STOCK APPRECIATION RIGHTS

     (a) Grant.  Subject to the provisions of the Plan, the Committee shall have
         -----
sole and complete discretion and authority to determine the eligible persons to
whom Stock Appreciation Rights shall be granted, the number of Shares to be
covered by each Stock Appreciation Right Award, the grant price thereof and the
conditions and limitations applicable to the exercise thereof.  Stock
Appreciation Rights may be granted in tandem with another Award, in addition to
another Award or freestanding and unrelated to another Award.  Stock
Appreciation Rights granted in tandem with or in addition to an Award may be
granted either at the same time as the Award or at a later time.  Stock
Appreciation Rights shall not be exercisable earlier than six months after grant
and shall have a grant price as determined by the Committee on the date of
grant.

     (b) Exercise and Payment.  A Stock Appreciation Right shall entitle the
         --------------------
Participant to receive an amount equal to the excess of the Fair Market Value of
a Share on the date of exercise of the Stock Appreciation Right over the grant
price thereof, provided that the Committee may for administrative convenience
determine that, with respect to any Stock Appreciation Right that is not related
to an Incentive Stock Option and that can only be exercised for cash during
limited periods of time in order to satisfy the conditions of Rule 16b-3, the
exercise of such Stock Appreciation Right for cash during such limited period
shall be deemed to occur for all purposes hereunder on the day during such
limited period on which the Fair Market Value of the Shares is the highest.  Any
such determination by the Committee may be changed by the Committee from time to
time and may govern the exercise of Stock Appreciation Rights granted prior to
such determination as well as Stock Appreciation Rights thereafter granted.  The
Committee shall determine whether a Stock Appreciation Right shall be settled in
cash, Shares or a combination of cash and Shares.

     (c) Other Terms and Conditions.  Subject to the terms of the Plan and any
         --------------------------
applicable Award Agreement, the Committee shall determine, at or after the grant
of a Stock Appreciation Right, the term, methods of exercise, methods and form
of settlement, and any other terms and conditions of any Stock Appreciation
Right.  Any such determination by the Committee may be changed by the Committee
from time to time and may govern the exercise of Stock Appreciation Rights
granted or exercised

                                      -8-
<PAGE>

prior to such determination as well as Stock Appreciation Rights granted or
exercised thereafter. The Committee may impose such conditions or restrictions
on the exercise of any Stock Appreciation Right as it shall deem appropriate.

                                   SECTION 7
                               RESTRICTED STOCK

     (a) Grant.  Subject to the provisions of the Plan, the Committee shall have
         -----
sole and complete discretion and authority to determine the eligible persons to
whom Shares of Restricted Stock shall be granted, the number of Shares of
Restricted Stock to be granted to each Participant, the duration of the period
during which, if any, and the conditions under which, the Restricted Stock may
be forfeited to the Corporation, and the other terms and conditions of such
Awards.

     (b) Transfer Restrictions.  Shares of Restricted Stock may not be sold,
         ---------------------
assigned, transferred, pledged or otherwise encumbered, except, in the case of
Restricted Stock, as provided in the Plan or the applicable Award Agreements.
Certificates issued in respect of Shares of Restricted Stock shall be registered
in the name of the Participant and deposited by such Participant, together with
a stock power endorsed in blank, with the Corporation.  Upon the lapse of the
restrictions applicable to such Shares of Restricted Stock, the Corporation
shall deliver such certificates to the Participant or the Participant's legal
representative.

     (c) Dividends and Distributions.  Dividends and other distributions paid on
         ---------------------------
or in respect of any Shares of Restricted Stock may be paid directly to the
Participant, or may be reinvested in additional Shares of Restricted Stock, as
determined by the Committee in its sole discretion.

                                   SECTION 8
                                PHANTOM SHARES

     (a) Grant.  Subject to the provisions of the Plan, the Committee shall have
         -----
sole and complete discretion and authority to determine the eligible persons to
whom Phantom Shares shall be granted, the number of Phantom Shares to be granted
to each Participant, the duration of the period during which, and the conditions
under which, the Phantom Shares may be forfeited to the Corporation and the
other terms and conditions of such Awards.

     (b) Surrender.  Each Award Agreement with respect to a Phantom Stock Unit
         ---------
shall specify the date on which the Phantom Stock Unit shall be surrendered, and
thereby cancelled by delivery of a Share with respect thereto, subject to such
terms and conditions as the Committee may specify, in its sole discretion, in
the applicable Award

                                      -9-
<PAGE>

Agreement or thereafter. The date on which the Phantom Shares shall be
surrendered may be accelerated upon the occurrence of certain events, as
determined by the Committee in its sole discretion and as set forth in the
applicable Award Agreement.

     (c) Dividends and Distributions.  Payments may be made to Participants who
         ---------------------------
have been awarded Phantom Shares in an amount equal to dividends and other
distributions paid on or in respect of an equivalent number of Shares.  Such
payments may be paid directly to the Participant or may be reinvested in
additional Phantom Shares, as determined by the Committee in its sole
discretion.

                                   SECTION 9
                           OTHER STOCK-BASED AWARDS

     The Committee shall have the discretion and authority to grant to eligible
persons an "Other Stock-Based Award," which shall consist of any right that is
(i) not an Award described in Sections 5 through 8 above and (ii) an Award of
Shares or an Award denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to, Shares (including, without
limitation, securities or rights convertible into Shares), as deemed by the
Committee to be consistent with the purposes of the Plan.  Subject to the terms
of the Plan and any applicable Award Agreement, the Committee shall determine
the terms and conditions of any such Other Stock-Based Award.

                                  SECTION 10
                            TERMINATION OF SERVICES

     The following provisions shall apply in the event that the Participant
ceases to provide services to the Corporation or any Affiliate, either as an
Employee, a Consultant or a Non-Employee Director, unless the Committee shall
have provided otherwise, either at the time of the grant of the Award or
thereafter.

     (a) Non-Qualified Stock Options and Stock Appreciation Rights.
         ---------------------------------------------------------

          (i) Upon Termination of Services as Employee or Consultant.  The
              ------------------------------------------------------
Participant's right to exercise any Non-Qualified Stock Option or Stock
Appreciation Right shall terminate, and such Option or Stock Appreciation Right
shall expire, as set forth in the Award Agreement.  The exercise periods and
rights to acceleration, if any, in the event of termination of employment,
including for Good Cause, or upon death, total and permanent disability or
retirement, or as a result of a change of control or otherwise shall be as set
forth in the Award Agreement as determined by the Committee in its sole
discretion.

                                      -10-
<PAGE>

          (ii) For purposes of determining whether a Participant's employment or
consulting relationship has terminated, a Participant who is both an Employee
(or Consultant) and a director of the Corporation or any Affiliate shall be
considered to have terminated his or her employment or consulting relationship
only upon his or her termination of service both as an Employee (or Consultant)
and as a director.

     (b)  Incentive Stock Options.
          -----------------------

          (i)  Except as otherwise determined by the Committee at the time of
grant, if the Participant's employment with the Corporation terminates for any
reason, the Participant shall have the right to exercise any Incentive Stock
Option and any related Stock Appreciation Right during the 90 days after such
termination of employment to the extent it was exercisable at the date of such
termination, but in no event later than the date the Option would have expired
had it not been for the termination of such employment.  If the Participant does
not exercise such Option or related Stock Appreciation Right to the full extent
permitted by the preceding sentence, the remaining exercisable portion of such
Option automatically will be deemed a Non-Qualified Stock Option (except to the
extent otherwise provided by Section 421 or Section 422 of the Code), and such
Option and any related Stock Appreciation Right will be exercisable during the
period set forth in Section 10(a) of the Plan, provided that in the event that
employment terminates because of death or the Participant dies in such 90-day
period, the option will continue to be an Incentive Stock Option to the extent
provided by Section 421 or Section 422 of the Code, or any successor provisions,
and any regulations promulgated thereunder.  Notwithstanding the forgoing, if a
Participant's employment is terminated by the Corporation or by any Affiliate
for Good Cause or as otherwise set forth in the Award Agreement, then the
Participant shall immediately forfeit his or her rights to exercise any and all
of outstanding Options or Stock Appreciation Rights theretofore granted to him
or her.

          (ii) For purposes of determining whether a Participant's employment or
consulting relationship has terminated, a Participant who is both an Employee
(or Consultant) and a director of the Corporation or any Affiliate shall be
considered to have terminated his or her employment or consulting relationship
only upon his or her termination of service both as an Employee (or Consultant)
and as a director.

     (c) Restricted Stock.  Except as otherwise determined by the Committee at
         ----------------
the time of grant, upon termination of employment for any reason during the
restriction period, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant and reacquired by the Corporation at the
price (if any) paid by the Participant for such Restricted Stock, provided that
in the event of a Participant's retirement, permanent and total disability or
death, or in cases of special circumstances, the Committee may, in its sole
discretion, when it finds that a waiver would be in the

                                      -11-
<PAGE>

best interests of the Corporation, waive in whole or in part any or all
remaining restrictions with respect to such Participant's shares of Restricted
Stock.

     (d) Phantom Shares and Other Stock-Based Awards.  Upon termination of a
         -------------------------------------------
Participant's employment or consulting relationship with the Corporation for any
reason, the Participant who has been granted Phantom Shares or Other Stock-Based
Awards under the Plan shall surrender such Awards, and such Awards shall either
be cancelled or shall be paid as determined by the Committee at the time of
grant and as set forth in the relevant Award Agreement.

                                  SECTION 11
                        ADJUSTMENT OF SHARES; MERGER OR
                    CONSOLIDATION, ETC. OF THE CORPORATION

     (a) Recapitalization, Etc.  In the event there is any change in the common
         ---------------------
shares of the Corporation by reason of any stock dividend, stock split, adoption
of stock rights plans, split-ups, split-offs, spin-offs, liquidations,
combination or exchanges of shares, recapitalizations, mergers, consolidations
or reorganizations of or by the corporation or any distribution to common
stockholders other than ordinary cash dividends, there shall be substituted for
or added to each Share theretofore appropriated or thereafter subject, or which
may become subject, to any Award, the number and kind of shares or other
securities into which each outstanding Share shall be so changed or for which
each such Share shall be exchanged, or to which each such Share be entitled, as
the case may be, and the per share price thereof also shall be appropriately
adjusted.

     (b) Merger or Consolidation of Corporation.  Upon (i) the merger or
         --------------------------------------
consolidation of the Corporation with or into another corporation (pursuant to
which the shareholders of the Corporation immediately prior to such merger or
consolidation will not, as of the date of such merger or consolidation, own a
beneficial interest in shares of voting securities of the corporation surviving
such merger or consolidation having at least a majority of the combined voting
power of such corporation's then outstanding securities), if the agreement of
merger or consolidation does not provide for (1) the continuance of the Awards
granted hereunder or (2) the substitution of new awards for Awards granted
hereunder, or for the assumption of such Awards by the surviving corporation or
(ii) the dissolution, liquidation, or sale of all or substantially all the
assets of the Corporation, the holder of any such Award theretofore granted and
still outstanding (and not otherwise expired) who satisfies such other
requirements, if any, that may be required by the Committee and set forth in the
related Award Agreement, shall have the right immediately prior to the effective
date of such merger, consolidation, dissolution, liquidation or sale of assets
of the Corporation to exercise such Awards in whole or in part without regard to
any installment provision regarding

                                      -12-
<PAGE>

exercisability that may have been made part of the terms and conditions of such
Awards. The Corporation, to the extent practicable, shall give advance notice to
affected Participants of such merger, consolidation, dissolution, liquidation or
sale of assets of the Corporation. All such Awards which are not so exercised
shall be forfeited as of the effective time of such merger, consolidation,
dissolution, liquidation or sale of assets of the Corporation.

     (c) Change of Control of the Corporation.  Notwithstanding the foregoing,
         ------------------------------------
if a Change of Control occurs during the period commencing on the date of grant
of an Award and terminating on the date of expiration of the Award, the
Participant shall be entitled to receive an Equivalent Award.  If, despite the
best efforts of the Corporation, the Participant cannot receive an Equivalent
Award in connection with such Change in Control, (i) the Participant shall be
entitled to receive immediately prior to such Change in Control, in exchange for
his or her Award, cash in an amount equal to the excess of the highest price
paid for a Share in connection with the Change of Control over the exercise
price per Share under the Award, multiplied by the total number of Shares
subject to the Award, including all Shares with respect to which the Award has
not yet become exercisable under the provisions of the Plan but excluding any
Shares with respect to which the Award has previously been exercised or (ii) if
the Participant is an insider who would be subject to suit under Section 16(b)
of the Exchange Act if the Participant were to receive the cash payment
described above, the Award may be exercised by the Participant in full beginning
on the date two weeks before such Change of Control.  If the Participant
receives an Equivalent Award in connection with a Change of Control, and the
Optionee's employment with the Corporation or an Affiliate is terminated within
one year following the Change of Control by reason of involuntary termination,
the Equivalent Award may be exercised in full beginning on the date of such
termination if and for such period as the Committee, in its sole discretion,
shall determine.

     (d) Definition of Change of Control of the Corporation.  A "Change of
         --------------------------------------------------
Control" shall be deemed to have occurred if (i) any person or group of persons
(as defined in Section 13(d) and 14(d) of the Exchange Act) together with its
affiliates, excluding employee benefit plans of the Corporation, is or becomes,
directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of securities of the Corporation representing 40% or more of
the combined voting power of the Corporation's then outstanding securities; or
(ii) individuals who at the beginning of any two-year period constitute the
Board, plus new directors of the Corporation whose election or nomination for
election by the Corporation's shareholders is approved by a vote of at least
two-thirds of the directors of the Corporation still in office who were
directors of the Corporation at the beginning of such two-year period, cease for
any reason during such two-year period to constitute at least two-thirds of the
members of the Board; or (iii) the shareholders of the Corporation approve a
merger or consolidation

                                      -13-
<PAGE>

of the Corporation with any other corporation or entity regardless of which
entity is the survivor, other than a merger or consolidation which would result
in the voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or being
converted into voting securities of the surviving entity) at least 60% of the
combined voting power of the voting securities of the Corporation or such
surviving entity outstanding immediately after such merger or consolidation; or
(iv) the shareholders of the Corporation approve a plan of complete liquidation
or winding-up of the Corporation or an agreement for the sale or disposition by
the Corporation of all or substantially all of the Corporation's assets.
Notwithstanding anything herein to the contrary, in no event shall (A) an
initial public offering of the Corporation, (B) any change in the percentage
ownership of the Corporation by American Mobile Satellite Corporation or its
affiliates, or (C) a private placement of less than $150,000,000 be deemed to
constitute a Change of Control hereunder.

                                  SECTION 12
                           MISCELLANEOUS PROVISIONS

     (a) Administrative Procedures.  The Committee may establish any procedures
         -------------------------
determined by it to be appropriate in discharging its responsibilities under the
Plan.  All actions and decisions of the Committee shall be final.

     (b) Investment Representation.  With respect to Shares received pursuant to
         -------------------------
the exercise of an Option, the Committee may require, as a condition of
receiving such securities, that the Participant furnish to the Corporation such
written representations and information as the Committee deems appropriate to
permit the Corporation, in light of the existence or nonexistence of an
effective registration statement under the Securities Act, to deliver such
securities in compliance with the provisions of the Securities Act.

     (c) Withholding Taxes.  The Corporation shall have the right to deduct from
         -----------------
all cash payments hereunder any federal, state, local or foreign taxes required
by law to be withheld with respect to such payments.  In the case of the
issuance or distribution of Common Shares upon the exercise of an Award, the
Corporation, as a condition of such issuance or distribution, may require the
payment (through withholding from the Participant's salary, reduction of the
number of Shares or other securities to be issued, or otherwise) of any such
taxes.  Each Participant may satisfy the withholding obligations by paying to
the Corporation a cash amount equal to the amount required to be withheld or by
tendering to the Corporation a number of Shares having a value equivalent to
such cash amount, or by use of any available procedure as described under
Section 4(c) hereof.

                                      -14-
<PAGE>

     (d) Compliance with Applicable Law and Regulations.  The adoption of the
         ----------------------------------------------
Plan and the grant and exercise of the Awards thereunder shall be subject to
receipt of all required regulatory approvals, including without limitation any
required approvals of the Federal Communications Commission.  Should any
provision of the Plan that is intended to comply with the provisions of Rule
16b-3 under the Exchange Act at the date of the adoption of the Plan by the
Board not be necessary for such compliance, or become no longer necessary for
such compliance, such provision of the Plan shall have no force or effect under
the Plan as of the date that such provision is not required for the purpose of
satisfying the provisions of Rule 16b-3 under the Exchange Act.

     (e) Costs and Expenses.  The costs and expenses of administering the Plan
         ------------------
shall be borne by the Corporation and shall not be charged against any Award or
to any employee receiving an Award.

     (f) Funding of Plan.  The Plan shall be unfunded.  Neither the Participants
         ---------------
nor any other persons shall have any interest in any fund or in any specific
asset or assets of the Corporation or any other entity by reason of any Award.
The interests of each Participant and former Participant hereunder are unsecured
and shall be subject to the general creditors of the Corporation.

     (g) Other Incentive Plans.  The adoption of the Plan does not preclude the
         ---------------------
adoption by appropriate means of any other incentive plan for employees.

     (h) Plurals.  Where appearing in the Plan, singular terms shall include the
         -------
plural, and vice versa, unless the context clearly indicates a different
meaning.

     (i) Headings.  The headings and sub-headings in the Plan are inserted for
         --------
the convenience of reference only and are to be ignored in any construction of
the provisions hereof.

     (j) Severability.  In case any provision of the Plan shall be held illegal
         ------------
or void, such illegality or invalidity shall not affect the remaining provisions
of the Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provisions had never been inserted
herein.

     (k) Liability and Indemnification.  Neither the Corporation nor any
         -----------------------------
Affiliate shall be responsible in any way for any action or omission of the
Committee, or any other fiduciaries in the performance of their duties and
obligations as set forth in the Plan.  Furthermore, neither the Corporation nor
any Affiliate shall be responsible for any act or omission of any of their
agents, or with respect to reliance upon advice of their counsel provided that
the Corporation and/or the appropriate Affiliate relied in good faith upon the
action of such agent or the advice of such counsel.

                                      -15-
<PAGE>

          (ii) Except for their own gross negligence or willful misconduct
regarding the performance of the duties specifically assigned to them under, or
their willful breach of the terms of, the Plan, the Corporation, each Affiliate
and the Committee shall be held harmless by the Participants, former
Participants, beneficiaries and their representatives against liability or
losses occurring by reason of any act or omission.  Neither the Corporation, any
Affiliate, the Committee, nor any agents, employees, officers, directors or
shareholders of any of them, nor any other person shall have any liability or
responsibility with respect to the Plan, except as expressly provided herein.

     (l) Cooperation of Parties.  All parties to the Plan and any person
         ----------------------
claiming any interest hereunder agree to perform any and all acts and execute
any and all documents and papers which the Committee deems necessary or
desirable for carrying out the Plan or any of its provisions.

     (m) Governing Law.  All questions pertaining to the validity, construction
         -------------
and administration of the Plan shall be determined in accordance with the laws
of the State of Delaware.

     (n) Nonguarantee of Employment or Consulting Relationship.  Nothing
         -----------------------------------------------------
contained in the Plan shall be construed as a contract of employment (or as a
consulting contract) between the Corporation (or any Affiliate) and any Employee
or Participant, as a right of any Employee or Participant to be continued in the
employment of (or in a consulting relationship with) the Corporation (or any
Affiliate), or as a limitation on the right of the Corporation or any Affiliate
to discharge any of its Employees or Consultants, at any time, with or without
cause.

     (o) Notices.  Each notice relating to the Plan shall be in writing and
         -------
delivered in person or by certified mail to the proper address.  All notices to
the Corporation or the Committee shall be addressed to it at c/o General
Counsel, 1250 23rd Street, N.W., Suite 57, Washington, D.C. 20037.  All notices
to Participants, former Participants, beneficiaries or other persons acting for
or on behalf of such persons shall be addressed to such person at the last
address for such person maintained in the Committee's records.

     (p) Written Agreements.  Each Award shall be evidenced by a signed Award
         ------------------
Agreement between the Corporation and the Participant containing the terms and
conditions of the Award.

                                      -16-
<PAGE>

                                  SECTION 13
                       AMENDMENT OR TERMINATION OF PLAN

     The Board of Directors of the Corporation shall have the right to amend,
suspend or terminate the Plan at any time except that no amendment, suspension
or termination of the Plan shall alter or impair any Award previously granted
under the Plan without the consent of the holder thereof.  Any provision of the
Plan or any Award Agreement notwithstanding, the Committee may cause any Award
granted hereunder to be cancelled in consideration of a cash payment or
alternative Award made to the holder of such cancelled Award equal to the Fair
Market Value of such cancelled Award.

                                  SECTION 14
                                 TERM OF PLAN

     The Plan shall automatically terminate on the day immediately preceding the
tenth anniversary of the date the Plan was adopted by the Board of Directors,
unless sooner terminated by the Board of Directors.  No Award may be granted
under the Plan subsequent to the termination of the Plan.

                                  SECTION 15
                                EFFECTIVE DATE

     The Plan shall become effective as of June 16, 1998, the date as of which
it was approved by the Board of Directors.

                                      -17-
<PAGE>

                                 *  *  *  *  *

     The Plan was duly adopted and approved by the Board on June 16, 1998, and
was duly adopted and approved by the stockholders of the Corporation on June 16,
1998.  The Board duly adopted certain amendments to the Plan on February 3, 1999
and June 6, 1999.  The Board duly adopted certain amendments to the Plan on July
8, 1999, including an amendment to increase the number of authorized Shares
under the Plan; the stockholders of the Company approved the amendment for such
increase in the number of authorized Shares on July 8, 1999.  The Board duly
adopted certain amendments to the Plan on March 9, 2000, including an amendment
to increase the number of authorized Shares under the Plan; the stockholders of
the Company approved the amendment for such increase in the number of authorized
Shares on May 31, 2000.

                                            ________________________________
                                            Joseph M. Titlebaum
                                            XM Satellite Radio Holdings Inc.
                                            Senior Vice President,
                                            General Counsel and Secretary

                                      -18-

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