Sample Business Contracts


Engagement Letter - Merrill Lynch & Co. and CD Radio Inc.


                                                Investment Banking Group

                                                World Financial Center
                                                North Tower
                                                New York, New York  10281-1329
                                                212 449-1000

[LOGO] Merrill Lynch

                                                                 October 8, 1997

CD Radio Inc.
1001 22nd Street N.W., Sixth Floor
Washington, D.C.  20037

                  Attention:  Andrew Greenebaum

Ladies and Gentlemen:

         You have advised Merrill Lynch & Co. ("Merrill Lynch") that CD Radio
Inc. (the "Company") plans to raise capital to finance the construction of
satellites, for working capital and for other uses in connection with its
digital radio broadcasting business (the "Financing"). Merrill Lynch has been
asked by you to (i) act as financial advisor to the Company in connection with
the Financing, (ii) act as lead underwriter in a proposed public offering or
lead manager in a private placement of senior notes and, if required by market
conditions, warrants (the "Debt Offering"), with estimated gross proceeds of
$150 million, (iii) act as lead underwriter in a proposed public offering of
equity securities (the "Equity Offering"), with estimated gross proceeds of $75
million, and (iv) advise on the terms of, and act as dealer-manager with respect
to, a proposed offer to exchange for common stock and/or new preferred stock
and/or to redeem for cash (the "Exchange Offer") the Company's outstanding 5%
Delayed Convertible Preferred Stock (the "Preferred Stock"). In addition to the
Debt Offering and the Equity Offering, you have advised us that you may wish to
conduct other financings consisting of either debt or equity securities (but
excluding securities issued to a strategic investor in connection with an equity
investment) (together with the Debt Offering and the Equity Offering, the
"Offerings"), with Merrill Lynch acting as lead underwriter or placement agent
in connection therewith. This letter agreement is to confirm our understanding
with respect to our engagement.

         You agree to give Merrill Lynch the right to act as the lead
underwriter or placement agent for the Company in connection with the Offerings
and exclusive dealer-manager with respect to the Exchange Offer.





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         You agree to pay, or cause to be paid, to the underwriters, including
Merrill Lynch, (i) a fee of 3.50% of the gross proceeds from the issuance and
sale of securities in the Debt Offering lead managed by Merrill Lynch and (ii) a
fee of 6.50% of the gross proceeds from the issuance and sale of securities in
the Equity Offering lead managed by Merrill Lynch. In addition, you agree to
pay, or cause to be paid, to Merrill Lynch (i) fees as described in the
preceding sentence and in the second following paragraph in connection with any
other Offering that occurs prior to December 31, 1997 and (ii) fees to be
mutually agreed to by Merrill Lynch and the Company in connection with any other
Offering (other than an offering in which Merrill Lynch declines to participate)
that occurs thereafter and prior to the termination of this letter agreement.
The fees referred to in this paragraph are payable in cash in U.S. dollars upon
the closing of the issuance and sale of securities in connection with the
applicable Offering.

         You also agree to pay, or cause to be paid, to Merrill Lynch a fee
equal to 2.0% of (a) the per share liquidation preference of any Preferred Stock
issued in the Exchange Offer, (b) the principal amount of any debt securities
issued in the Exchange Offer and (c) the fair market value of any common stock
or other consideration (including cash) issued in the Exchange Offer. Such fee
is payable in cash in U.S. dollars upon the consummation of the Exchange Offer.

         In addition, you agree that in connection with the Debt Offering and
any future debt offerings contemplated by this agreement ("Future Debt
Offerings"), the underwriting syndicate or private placement arrangement, as the
case may be, will be structured so that the portion of all underwriting
discounts and commissions or placement agency fees and commissions relating to
the Debt Offering and any Future Debt Offerings allocable to Merrill Lynch shall
be no less than 70% and 50%, respectively.

         This letter agreement is not intended to constitute, and should not be
construed as an agreement or commitment between the Company and Merrill Lynch to
act as underwriter or agent in any Offering, to purchase or place any debt or
equity securities of the Company, or to act as dealer-manager with respect to
the Exchange Offer. If the Company determines to undertake an Offering or the
Exchange Offer, the contractual arrangements will be reflected in one or more
mutually satisfactory underwriting, purchase, dealer-manager or other agreements
between the Company and Merrill Lynch. The Company acknowledges that it will
have no obligation to sell, and Merrill Lynch will have no obligation to buy or
place, any debt or equity securities of the Company, except upon signing of a
definitive underwriting, purchase or other agreement by the Company and Merrill
Lynch. Merrill Lynch's execution of any such agreement or any dealer-manager
agreement will be subject in its complete discretion to, among other things,
satisfactory completion of a due diligence review, the receipt of all necessary
approvals (including Merrill Lynch's internal commitment committee approval),
market conditions which, in Merrill Lynch's sole judgment are satisfactory, no
material adverse change in the condition, financial or otherwise, of





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the Company and upon compliance by the Company with the terms contained in this
letter agreement and such definitive underwriting, purchase or other agreement.
Such underwriting, purchase or other agreement will include the final terms of
any Offering, including the transaction size and pricing terms, as well as other
customary terms and conditions, including provisions relating to indemnity,
conditions precedent for the agreement to become effective, and certain
termination events.

         You will furnish or cause to be furnished to Merrill Lynch such
information as Merrill Lynch believes appropriate to its assignment (all such
information so furnished being the "Information"). You recognize and confirm
that Merrill Lynch (a) will use and rely primarily on the Information and on
information available from generally recognized public sources in performing the
services contemplated by this letter agreement without having independently
verified the same, (b) does not assume responsibility for the accuracy or
completeness of the Information and such other information and (c) will not make
an appraisal of any assets or liabilities of the Company. You will promptly
advise Merrill Lynch in writing if you become aware that any Information
previously provided has become inaccurate in any material respect or is required
to be updated.

         You agree to indemnify Merrill Lynch and its affiliates, directors,
officers, employees, agents and controlling persons (each such person being an
"Indemnified Party") from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under any applicable law, domestic or foreign, or otherwise, and related
to or arising out of (i) any untrue statement or alleged untrue statement of a
material fact contained in any information (whether oral or written) or
documents, including, without limitation, any Information, furnished or made
available by the Company, directly or through Merrill Lynch, to any offeree of
securities included in any Offering or in the Exchange Offer or any of their
representatives or the omission or the alleged omission to state therein a
material fact necessary in order to make the statements therein not misleading,
in the light of the circumstances under which they were made, or (ii) any
matters contemplated hereby or the appointment of Merrill Lynch pursuant to, and
the performance by Merrill Lynch of the services contemplated by, this letter
agreement and will promptly reimburse any Indemnified Party for all expenses
(including reasonable counsel fees and expenses) as they are incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party and whether or not such claim, action or
proceeding is initiated or brought by or on behalf of the Company except as
otherwise provided in the immediately following sentence. The Company will not
be liable under clause (ii) of the foregoing indemnification provision to any
Indemnified Party to the extent that any loss, claim, damage, liability or
expense is found in a final, non-appealable judgment by a court to have resulted
from the bad faith or gross negligence of such Indemnified Party. You also agree
that no Indemnified Party shall have any liability (whether direct or indirect,
in contract or tort or otherwise) to you or your respective affiliates or





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security holders or creditors related to or arising out of the engagement of
Merrill Lynch pursuant to, or the performance by Merrill Lynch of the services
contemplated by, this letter agreement except to the extent that any loss,
claim, damage, liability or expense is found in a final, non-appealable judgment
by a court to have resulted from the bad faith or gross negligence of such
Indemnified Party.

         If the indemnification of an Indemnified Party provided for in this
letter agreement is for any reason held unenforceable, you agree to contribute
to the losses, claims, damages and liabilities for which such indemnification is
held unenforceable (i) in such proportion as is appropriate to reflect the
relative benefits to the Company, on the one hand, and Merrill Lynch, on the
other hand, from the Offerings and the Exchange Offer (whether or not such
Offerings or the Exchange Offer are consummated) or (ii) if (but only if) the
allocation provided for in clause (i) is for any reason held unenforceable, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) but also the relative fault of the Company, on the one
hand, and Merrill Lynch, on the other hand, as well as any other relevant
equitable considerations. You also agree that for the purposes of this paragraph
the relative benefits to the Company, on the one hand, and to Merrill Lynch, on
the other hand, shall be deemed to be in the same proportion as the anticipated
or actual total proceeds from the proposed sale or placement of the securities
received or to be received by the Company in connection with the Offerings and
the Exchange Offer bears to the fees paid or to be paid to Merrill Lynch under
this letter agreement; provided, however, that, to the extent permitted by
applicable law, in no event shall the Indemnified Parties be required to
contribute an aggregate amount in excess of the aggregate fees actually paid to
Merrill Lynch under this letter agreement. The foregoing contribution agreement
shall be in addition to any rights that any Indemnified Party may have at common
law or otherwise. No investigation or failure to investigate by any Indemnified
Party shall impair the foregoing indemnification and contribution agreement or
any right an Indemnified Party may have.

         You agree to notify Merrill Lynch promptly of the assertion against the
Company, Merrill Lynch or any other person of any claim or the commencement of
any action or proceeding relating to a transaction contemplated by this letter
agreement or Merrill Lynch's engagement hereunder, and Merrill Lynch agrees to
notify you promptly after receipt of notice of any claim or the commencement of
any action or proceeding with respect to which an Indemnified Party may be
entitled to indemnification hereunder. The failure of Merrill Lynch to so notify
the Company shall not affect any liability of the Company to Merrill Lynch or
any other Indemnified Party.

         You agree that, without Merrill Lynch's prior written consent, you will
not settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding in respect of which indemnification could
be sought under the indemnification provision of this letter agreement (whether
or not Merrill Lynch or any other Indemnified Party is an actual or potential
party to such





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claim, action or proceeding), unless such settlement, compromise or consent
includes an unconditional release of each Indemnified Party from all liability
arising out of such claim, action or proceeding.

         In the event that an Indemnified Party is requested or required to
appear as a witness in any action brought by or against the Company or any of
its affiliates in which such Indemnified Party is not named as a defendant, you
agree to reimburse Merrill Lynch for all expenses incurred in connection with
such Indemnified Party's appearing and preparing to appear as a witness,
including, without limitation, the reasonable fees and disbursements of legal
counsel, and to compensate Merrill Lynch in an amount to be mutually agreed
upon.

         You agree that the indemnification and contribution provisions
contained herein are in addition to any indemnification or contribution
contained in any private placement agency agreement or any purchase or
underwriting agreement between you and Merrill Lynch.

         You acknowledge and agree that Merrill Lynch has been retained solely
to act as financial advisor to the Company as provided herein and potentially to
act as lead placement agent or underwriter in connection with the Offerings and
as exclusive dealer-manager with respect to the Exchange Offer. In such
capacity, Merrill Lynch shall act as an independent contractor, and any duties
of Merrill Lynch arising out of its engagement pursuant to this letter agreement
shall be owed solely to the Company.

         Merrill Lynch's engagement hereunder will terminate on January 31,
1998; provided, however, that if, by or on such date, an Offering or the
Exchange Offer has been consummated, then such engagement shall remain in effect
for 18 months from the date of this letter agreement; further provided that
Merrill Lynch may terminate this letter agreement at any time upon written
notice thereof to that effect and the Company may terminate this letter
agreement at any time if an officer of Merrill Lynch who (i) works in Merrill
Lynch's Investment Banking division and (ii) has material responsibilities in
connection with the relationship between the Company and Merrill Lynch ceases to
be an employee of, or otherwise affiliated with, Merrill Lynch. The Company may
also terminate this letter agreement prior to January 31, 1998 if Merrill Lynch
is not proceeding in good faith with the completion of the Offerings. In
addition, if at any time following consummation of any Offerings or the Exchange
Offer, Merrill Lynch declines any proposal of the Company to proceed with a
transaction contemplated by this letter agreement, the Company may pursue the
completion of such transaction without the participation of Merrill Lynch.
Notwithstanding the foregoing, the provisions contained herein relating to the
right of Merrill Lynch to the payment of fees, to indemnification and
contribution and to the waiver of right to trial by jury will survive any such
termination. The provisions of this letter agreement shall be superseded by any
private placement agency agreement or any purchase or underwriting agreement, as
the case may be, relating to an Offering to the extent provided therein.





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         Each of Merrill Lynch and you (on your own behalf and, to the extent
permitted by applicable law, on behalf of your affiliates and your and their
respective security holders) waives all right to trial by jury in any action,
proceeding or counterclaim (whether based upon contract, tort or otherwise)
related to or arising out of the engagement of Merrill Lynch pursuant to, or the
performance by Merrill Lynch of the services contemplated by, this letter
agreement.

         You acknowledge that Merrill Lynch may, at its option, place an
announcement in such newspapers and periodicals as it may choose, stating that
Merrill Lynch has acted as the placement agent or underwriter for the Company in
connection with any Offering or the financial advisor to the Company in
connection with the Exchange Offer.

         You agree that, except as required by applicable law in the opinion of
your counsel or unless Merrill Lynch has otherwise consented in writing, you
will not disclose, provide a copy of or circulate this letter to any person or
entity or reference Merrill Lynch or the fees payable to Merrill Lynch in any
offering circular, registration statement or other disclosure document, or in
any press release or other document or communication.

         No waiver, amendment or other modification of this letter agreement
shall be effective unless in writing and signed by each party to be bound
thereby.

         This letter agreement shall be governed by, and construed in accordance
with, the law of the State of New York.





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         Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Merrill Lynch the duplicate copy of this letter
agreement enclosed herewith. We look forward to the successful conclusion of
this assignment.

                                Very truly yours,

                                MERRILL LYNCH, PIERCE, FENNER & SMITH
                                  INCORPORATED

                                    By:   /s/ Robert Kramer
                                        -----------------------------
                                         Name: Robert Kramer
                                         Title:  Managing Director
                                         Investment Banking Group

Accepted and Agreed:

CD RADIO INC.

By:  /s/ Andrew J. Greenebaum
    --------------------------------------
     Name:  Andrew J. Greenebaum
     Title: Executive Vice President
            and Chief Financial Officer


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