10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2006

Commission file number 000-51466

WORLDSPACE, INC.

(Exact name of registrant as specified in its charter)

Delaware	52-1732881
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

8515 Georgia Avenue, Silver Spring, MD 20910

(Address of principal executive offices) (Zip code)

301-960-1200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, par value $0.01 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

(Class)	(Outstanding as of August 10, 2006)
CLASS A COMMON STOCK, $0.01 PAR VALUE	21,341,092
CLASS B COMMON STOCK, $0.01 PAR VALUE	17,426,443

WORLDSPACE, INC. AND SUBSIDIARIES

INDEX

		Page
PART I— FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations for three and six-month periods ended June 30, 2006 and 2005	3
	Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005	4
	Condensed Consolidated Statements of Cash Flows for the six-month period ended June 30, 2006 and 2005	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
PART II— OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults upon Senior Securities	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Other Information	30
Item 6.	Exhibits	31

EXPLANATORY NOTE

This quarterly report is filed by WorldSpace, Inc. (the “Company”). Unless the context requires otherwise, the terms “we,” “our” and “us” refer to the Company and its subsidiaries.

This quarterly report and all other reports and amendments filed by us with the SEC can be accessed, free of charge, through our website at http://investor.worldspace.com on the same day that they are electronically filed with the SEC.

2

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

WORLDSPACE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three-Months and Six-Months ended June 30, 2006 and 2005

	Three months ended June 30,						Six Months ended June 30,
	2006			2005			2006			2005
	(in thousands, except share and per share data)
Revenue
Subscription revenue	$	1,928		$	799		$	3,530		$	1,596
Equipment revenue		698			558			1,774			976
Other revenue		1,133			971			1,935			2,311
Total Revenue		3,759			2,328			7,239			4,883
Operating Expenses
Cost of Services (excludes depreciation, shown separately below)
Satellite and transmission, programming and other		6,681			3,391			13,762			6,869
Cost of equipment		2,314			581			5,470			1,024
Research and development		(163	)		25			491			46
Selling and marketing		5,140			2,073			11,527			3,507
General and administrative		14,111			8,887			28,022			18,050
Stock-based compensation (1)		4,064			276			7,187			987
Depreciation and amortization		14,708			14,702			29,454			29,406
Total Operating Expenses		46,855			29,935			95,913			59,889
Loss from Operations		(43,096	)		(27,607	)		(88,674	)		(55,006	)
Other Income (Expense)
Gain on extinguishment of debt		—			—			—			14,130
Interest income		3,094			914			6,040			1,602
Interest expense		(2,326	)		(2,307	)		(4,625	)		(5,162	)
Other		(2,444	)		875			(2,814	)		922
Total Other Income (Expense)		(1,676	)		(518	)		(1,399	)		11,492
Loss Before Income Taxes		(44,772	)		(28,125	)		(90,073	)		(43,514	)
Income Tax Benefit		8,111			6,105			24,218			12,243
Net Loss	$	(36,661	)	$	(22,020	)	$	(65,855	)	$	(31,271	)
Loss per share—basic and diluted	$	(0.98	)	$	(0.95	)	$	(1.78	)	$	(1.35	)
Weighted Average Number of Shares Outstanding		37,240,585			23,211,317			37,085,353			23,211,317
_____________           (1)    Allocation of stock based compensation to operating expenses:
Satellite, transmission, programming and other	$	162		$	8		$	346		$	20
Selling, general and administrative	$	3,902		$	268		$	6,841		$	967

See accompanying notes to unaudited condensed consolidated financial statements.

3

WORLDSPACE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2006 and December 31, 2005

	June 30, 2006			December 31, 2005
	Unaudited
	(in thousands, except share data)
Assets
Current Assets
Cash and cash equivalents	$	14,586		$	36,925
Marketable securities		204,133			239,048
Accounts receivable, net		2,767			3,000
Prepaid expenses		3,610			4,486
Inventory, net		5,407			4,922
Other current assets		5,510			2,370
Total Current Assets		236,013			290,751
Restricted Cash and Investments		6,102			4,588
Property and Equipment, net		18,171			16,811
Satellites and Related Systems, net		371,964			397,463
Deferred Financing Costs, net		12,908			13,667
Other Assets		1,248			1,207
Total Assets	$	646,406		$	724,487
Liabilities and Shareholders’ Deficit
Current Liabilities
Accounts payable	$	17,257		$	19,631
Accrued expenses		15,611			14,407
Income taxes payable		20,000			20,000
Accrued purchase commitment		12,969			11,954
Accrued interest		1,934			1,953
Deferred tax liability		1,498			1,998
Total Current Liabilities		69,269			69,943
Long-term Debt		155,200			155,000
Deferred Tax Liability		151,823			175,566
Other Liabilities		3,968			2,256
Contingent Royalty Obligation		1,814,175			1,814,175
Total Liabilities		2,194,435			2,216,940
Commitments and Contingencies
Minority Interest in Subsidiary		474			—
Shareholders’ Deficit
Preferred Stock, $.01 par value; 25,000,000 shares authorized; no shares issued and outstanding as of June 30, 2006		—			—
Class A Common stock, $.01 par value; 200,000,000 shares and 100,000,000 shares authorized; 19,982,016 shares and 19,365,332 shares issued and outstanding as of June 30, 2006 and December 31, 2005, respectively		200			194
Class B Common stock, $.01 par value; 75,000,000 shares authorized; 17,426,443 shares issued and outstanding as of June 30, 2006 and December 31, 2005, respectively		174			174
Additional paid-in capital		710,845			717,718
Deferred compensation		—			(16,621	)
Accumulated other comprehensive loss		(558	)		(609	)
Accumulated deficit		(2,259,164	)		(2,193,309	)
Total Shareholders’ Deficit		(1,548,503	)		(1,492,453	)
Total Liabilities and Shareholders’ Deficit	$	646,406		$	724,487

See accompanying notes to unaudited condensed consolidated financial statements.

4

WORLDSPACE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months ended June 30, 2006 and 2005

	Six months ended June 30,
	2006			2005
	(in thousands)
Cash Flows from Operating Activities
Net loss	$	(65,855	)	$	(31,271	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		29,454			29,406
Gain on extinguishment of debt		—			(14,130	)
Amortization of deferred financing costs		759			694
Loss on disposal of assets		1,691			—
R&D expense related to warrants		375			—
Adjustment to cost basis of satellite and related systems		—			5,834
Stock-based compensation		7,187			987
Deferred tax benefit		(24,243	)		(12,243	)
Other		10			597
Changes in assets and liabilities:
Accounts receivable and other assets		(2,516	)		(7,032	)
Accounts payable and accrued expenses		(1,170	)		(22,196	)
Accrued interest		(18	)		(10,801	)
Other liabilities		2,727			(59	)
Net Cash Used in Operating Activities		(51,599	)		(60,214	)
Cash Flows from Investing Activities
Purchase of property and equipment, net		(4,805	)		(2,277	)
Purchase of satellite and related systems		(2,201	)		(1,373	)
Purchase of marketable securities		(259,057	)		—
Maturities of marketable securities		293,972			—
Net Used in Investing Activities		27,909			(3,650	)
Cash Flows from Financing Activities
Proceeds from exercise of employee stock options		2,192			—
Minority interest contributions		473			—
Proceeds from the issuance of notes payable		200			—
Increase in restricted cash, net		(1,514	)		(7,160	)
Net Cash Provided (Used in) by Financing Activities		1,351			(7,160	)
Net (Decrease) Increase in Cash and Cash Equivalents		(22,339	)		(71,024	)
Cash and Cash Equivalents, beginning of period		36,925			154,362
Cash and Cash Equivalents, end of period	$	14,586		$	83,338
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes	$	60		$	—
Cash paid for interest	$	3,864		$	3,865

See accompanying notes to unaudited condensed consolidated financial statements.

5

WORLDSPACE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(A) Organization

WorldSpace, Inc. (WSI) was organized on July 29, 1990, and incorporated in the State of Maryland on November 5, 1990. WorldSpace, Inc. and Subsidiaries (the Company) is engaged in the design, development, construction, deployment and financing of a satellite-based radio and data broadcasting service, which serve areas of the world where traditional broadcast media or internet services are limited. The Company, which operates in 10 countries, has one satellite in orbit over Africa, another over Asia and a completed third satellite currently in storage. This satellite, which can be used to replace either of the Company’s two operational satellites or may also be modified and launched to provide DARS in Western Europe.

During March 2004, the Company began generating sales in India related to its satellite-based radio and data broadcasting service and exited the development stage, as defined by Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises.

In December 2004, WorldSpace International Network, Inc. (WIN), a wholly owned subsidiary of the Company, was merged into WSI. Immediately following the merger, WSI was merged into a newly created company of the same name incorporated in the State of Delaware.

(B) Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of WorldSpace, Inc. and its majority and wholly-owned controlled subsidiaries. The equity method of accounting is used to account for investments in enterprises over which the Company has significant influence, but of which it has less than 50 percent ownership. All significant intercompany transactions and balances have been eliminated in consolidation.

The balance sheet and operating results of our foreign operations are consolidated using the local currencies of the countries in which they are located as the functional currency. The balance sheet accounts are translated at exchange rates in effect at the end of the period, and income statement accounts are translated at average exchange rates during the period. The resulting translation gains and losses are included as a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included in our income statement in the period in which they occur.

In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring entries, necessary for a fair presentation of the consolidated financial position of WorldSpace, Inc. and its subsidiaries as of June 30, 2006; the results of operations for the three and six month periods ended June 30, 2006 and 2005; and cash flows for the six months ended June 30, 2006 and 2005. Certain reclassifications have been made to the 2005 financial statements to conform to the 2006 presentation.

These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K.

Revenue Recognition

Revenue from the Company’s principal activities, subscription audio services and capacity leasing, is recognized as the services are provided. Revenue from subscribers, which is generally billed in advance, consists

6

WORLDSPACE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of fixed charges for service, which are recognized as the service is provided, and non-refundable activation fees are recognized ratably over the estimated term of the subscriber relationship. Direct activation costs are expensed as incurred. Advertising revenue is recognized in the period in which the spot announcement is broadcast. Revenue from the sale of satellite radio receivers is recognized when the product is shipped. Promotions and Discounts are treated as an offset to revenue during the period of promotion. Sales incentives, consisting of discounts to subscribers, offset earned revenue. The Company’s current policy is not to accept product returns, but if in the future, the Company were to accept product returns that are not covered under the manufacturers warranty, a sales return allowance will be established based on the guidance provided under Statement of Financial Accounting Standards (“SFAS”) No. 48. “Revenue Recognition When a Right of Return Exists” and Staff Accounting Bulletin, Topic 13A-4b.

Marketable Securities

The Company accounts for marketable securities in accordance with the provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The Company has determined that all of its investments are marketable securities to be classified as “Held-to-Maturity”. Held-to-Maturity securities are recorded at amortized cost. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in the “Interest income” line item on the accompanying consolidated statements of operations. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as held-to-maturity are included in the “Interest income” line item on the consolidated statements of operations.

We invest in highly-liquid, short-term marketable securities. As of June 30, 2006 the weighted average maturity of the marketable securities portfolio was 22 days. The unrealized losses on the marketable securities, if accounted under “Available for Sale” category, would be reported in the stockholders’ equity in the accompanying consolidated balance sheets under the caption “Accumulated Other Comprehensive Income” to an extent of $108,000.

Cash and Cash Equivalents

All liquid investments, defined as having initial maturities of three months or less, have been classified as cash equivalents. Cash equivalents, as of June 30, 2006 and December 31, 2005, consisted primarily of demand deposits and money market instruments. Cash balances in individual banks exceed insurable amounts.

Restricted Cash and Investments

Cash and investments that are deposited with a lessor or committed to support letters-of-credit issued pursuant to trade and lease agreements have been classified as restricted cash and investments in the accompanying consolidated balance sheets.

Inventories

Inventories are stated at the lower of cost or market value using the first in, first out (FIFO) method of accounting. Inventories primarily consist of satellite radio receivers manufactured to the Company’s specifications by independent third parties. Provisions have been recognized to reduce excess or obsolete inventories to their estimated net realizable value. The Company periodically evaluates inventory levels on hand as to potential obsolescence based on current and future selling prices. The Company capitalized certain costs related to the development of new receiver models.

7

WORLDSPACE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(C) Stock-Based Compensation

In accordance with SFAS No. 123 (Revised 2004), Share Based Payment (“SFAS No. 123R”) and the Securities and Exchange Commission’s rule amending the compliance dates of SFAS No. 123R, the Company began to recognize compensation expense for equity-based compensation using the fair value method in 2006 using the “Modified Prospective Method”. This method allows the Company to apply the fair value provisions of SFAS No. 123R only on the future share-based payment arrangements and unvested portion of prior awards at the adoption date.

The Modified Prospective Method allows the Company to account for the stock-based awards issued prior to the adoption of fair value provisions under SFAS No. 123R using the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—An Amendment of FASB Statement No. 123.

At June 30, 2006, the Company has a stock-based employee compensation plan which is described below. The compensation cost charged against income under the plan was $4.1 and $7.2 million for the three month and six month periods ending June 30, 2006. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $0 for the three and six month periods ending June 30, 2006.

2005 Incentive Award Plan

On July 7, 2005, the Company’s shareholders approved the 2005 Incentive Award Plan (‘The Plan’). The Plan provides for the grant of up to 5,625,000 shares of our Class A Common Stock for stock based awards to employees, consultants and directors of the Company and its subsidiaries and affiliates. The Company granted employees restricted stock awards and stock options under this plan. The stock award program offers employees the opportunity to earn shares of our stock over time, rather than options that give employees the right to buy stock at a pre-determined price. Option awards are generally granted with an exercise price of the Company’s stock at the date of grant; those option awards generally vest based on 3 years of continuous service and have 10-year contractual terms.

The fair value of each option award is estimated on the date of grant using Black-Scholes option pricing model (closed model) that uses the assumptions noted in the following table. Because closed models incorporate assumptions for inputs, those inputs are disclosed. Expected volatilities are based on historical volatility of the stock price of similar entities, for a period not less than the required service period, since the Company does not have a historical volatility equal to the required service period. The Company uses historical data to estimate option exercise and employee termination within the valuation model based on the employee’s career level, historical exercise behavior and other factors for valuation purposes. The expected term of options and other awards granted is derived from the guidance provided under Staff Accounting Bulletin No. 107 (“SAB 107”), “Share Based Payment”, and represents the period of time that stock based awards are expected to be outstanding. The risk-free rate for periods within the contractual life of the awards is based on the U.S. Treasury yield curve in effect at the time of grant.

	2006
Expected volatility	88% -105%
Weighted-average volatility	96%
Expected dividends	0%
Risk-free rate	5.1%
Expected term	6.0 years

8

WORLDSPACE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Summary of option activity:

Summary of the status of the Company’s stock option awards and units as of January 1, 2006 and changes during the six month period ending June 30, 2006 is presented below:

	Number of options	Weighted average exercise price		Weighted average contractual life remaining	Aggregate intrinsic value
Non-qualified stock options:
Outstanding as of January 1, 2006	17,559,152	$	6.25	4.60 Years	$	145,208,581
Granted	1,206,028	$	6.28	8.04 Years		—
Exercised	304,184	$	5.66	2.38 Years	$	1,537,781
Forfeited/expired	126,079	$	6.84	3.15 Years	$	74,869
Outstanding at June 30, 2006	18,334,917	$	6.26	4.50 Years	$	3,420,880
Exercisable at June 30, 2006	17,354,965	$	6.22	4.20 Years	$	3,420,880

The weighted-average grant-date fair value of options granted during the three and six month periods ending June 30, 2006 was $3.82 and $4.29. The total grant-date fair value of all stock based awards issued during the three and six month periods ending June 30, 2006 was $ 6.7 million and $8.1 million.

Cash received from the exercise of stock options under all share-based payment arrangements for the three month period ending June 30, 2006 and 2005 was $0.2 million and $0, respectively. Cash received from the exercise of stock options under all share-based payment arrangements for the six month period ending June 30, 2006 and 2005 was $1.7 million and $0, respectively. The actual tax benefit realized for the tax deductions from option exercise of the share-based arrangements totaled $0, for the three and six month periods ending June 30, 2006 and 2005.

Summary of the status of the Company’s nonvested restricted share awards and units as of January 1, 2006 and changes during the six month period ending June 30, 2006 is presented below:

	Shares	Aggregate Grant Date Fair Value		Weighted average grant date fair value
Nonvested restricted shares:
Nonvested at January 1, 2006	1,842,133	$	38,666,372	$	20.99
Granted	437,597	$	2,916,642	$	6.67
Vested	312,500	$	6,559,375	$	20.99
Forfeited/Expired	37,777		792,939	$	20.99
Nonvested at June 30, 2006	1,929,453	$	34,230,700	$	17.74

Summary of the status of the Company’s nonvested stock options as of January 1, 2006 and changes during the six month period ending June 30, 2006 is presented below:

	Shares	Aggregate Grant Date Fair Value		Weighted average grant date fair value
Nonvested stock options:
Nonvested at January 1, 2006	44,485	$	431,109	$	9.69
Granted	1,206,028	$	5,169,535	$	4.29
Vested	255,639	$	563,519	$	2.20
Forfeited	14,922	$	136,568	$	9.15
Nonvested at June 30, 2006	979,952	$	4,900,557	$	5.00

9

WORLDSPACE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of June 30, 2006, there was $14.4 million of total unrecognized compensation related to restricted stock awards, units and options granted under the plan. That cost is expected to be recognized over a weighted-average period of 2.2 years. A total of 312,500 restricted shares were vested during the three month period ending June 30, 2006.

Warrant issued to XM

On July 18, 2005, the Company issued to XM 1,562,500 shares of Class A Common Stock for an aggregate purchase price of $25 million. In connection with this transaction, the Company entered into a global satellite radio cooperation agreement on receiver technology, terrestrial repeater technology, OEM and third party distribution relationships, content opportunities and new applications and services. In connection with this transaction, the Company also granted to XM a performance-based warrant to purchase 1,785,714 shares of Class A Common Stock. Half of the warrant shares will vest upon the Company obtaining an operational chipset developed with substantial support from XM under the cooperation agreement. The remaining warrant shares vest upon the Company’s design for deployment of a terrestrial repeater network utilizing and relying on XM software, XM know-how in utilizing the software of others or XM support personnel under the cooperation agreement. This warrant expires on July 17, 2008.

The Company accounted for the warrant under the guidance provided by Emerging Issues Task Force Issue No. 96-18 (“EITF 96-18”), “Accounting for Equity instruments that are issued to other than employees for acquiring, or in conjunction with selling, goods or services”. The Company used Black-Scholes model for calculating the fair value. The following table illustrates the major assumptions used to calculate the fair value:

	2006
Expected volatility	88% - 104%
Weighted-average volatility	96%
Expected dividends	0%
Risk-free rate	5.1%
Expected term	3.2 years

Using the assumptions mentioned in the table above, the Company re-valued the warrant at $1.9 million, which would be expensed over the term that the performance is expected to be provided, which the Company estimated to be 2.5 years starting January 1, 2006. The Company recorded an expense of $375,000 related to this warrant under “Research and Development” for the six months ending June 30, 2006. The unrecognized expense related to this warrant at June 30, 2006 and December 31, 2005 was $1.5 million and $0, respectively. The Company will remeasure the value of the warrant and adjust the expense in every reporting period until the expiration date.

(D) Debt

Long-Term Debt

Long-term debt at June 30, 2006 and December 31, 2005 consisted of the following (in thousands):

	June 30, 2006		December 31, 2005
Convertible promissory notes	$	155,000	$	155,000
Notes payable		200		—
	$	155,200	$	155,000

10

WORLDSPACE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The convertible promissory notes were issued on December 31, 2004 and mature on December 31, 2014, and are convertible into reserved Class A shares of the Company’s common stock at $13.52 per share. Interest payments are due quarterly or may be added to the principal balance outstanding, at the option of the Company. The related registration rights agreement provides that beginning 180 days after an IPO of the Company’s common stock, declared effective by the Securities and Exchange Commission (SEC) on August 3, 2006, the investors have the right to demand that the Company file up to three registration statements with the SEC at any time during the period defined in the related registration rights agreement, in order to sell some or all of the Class A Common Stock received upon any conversion of the convertible promissory notes. If a registration statement is not filed by the Company with the SEC by the applicable deadline, a penalty of up to 3 percent of the aggregate purchase price of the promissory notes will be imposed. Additionally, three years following the effective date of the issuance of the convertible promissory notes, the investors may require the Company to redeem the unpaid principal and accrued interest.

In June 2006, we received $200,000 from the Montgomery County of the State of Maryland under the Economic Development Fund as a contingent loan. This loan could be converted into a grant if the company maintains a specified number of employees on a particular maturity date and is in compliance with certain other terms of the agreement. The loan has a 5% annual interest rate. As of June 30, 2006, under the terms of the loan, the company was contingently obligated to repay the loan principal together with accrued interest.

Line-of-Credit

WorldSpace India Private Limited, a wholly owned subsidiary of the Company, had a $1,000,000 line-of-credit to purchase inventory which expired on February 23, 2006 and was closed. The Company and four directors of WorldSpace India Private Limited had previously guaranteed the debt. Substantially the entire inventory is collateralized to secure the debt. The outstanding balance as of June 30, 2006 and December 31, 2005, was $0.

(E) Provision for Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and the tax basis of assets and liabilities, using enacted tax rates for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the sum of taxes payable for the period and the change during the period in deferred tax assets and liabilities.

(F) Net Loss Per Share

The Company computes net loss per share in accordance with SFAS No. 128, Earnings Per Share and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). Basic loss per share is computed by dividing net loss by the weighted-average number of outstanding shares of common stock. Diluted loss per share is computed by dividing net loss by the weighted-average number of shares adjusted for the potential dilution that could occur if stock options, warrants and other convertible securities were exercised or converted into common stock.

For the three and six month periods ended June 30, 2006 and 2005, options, warrants and other convertible securities to purchase approximately 33.7 and 18.2 million shares of common stock, respectively, were outstanding, but not included in the computation of diluted earnings per share, because the effect would be anti-dilutive.

11

WORLDSPACE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(G) Commitments and Contingencies

Leases

The Company leases office space under non-cancelable operating leases that expire through 2016. As of June 30, 2006 minimum annual rental commitments under these leases are:

	(in thousands)
July - December 2006	$	1,730
2007		3,132
2008		2,642
2009		2,427
2010		2,483
Thereafter		4,102
	$	16,516

Litigation, Claims and Income Taxes

The Company is subject to various claims and assessments. In the opinion of management, these matters will not have a material adverse impact on the Company’s financial position or results of operations. In evaluating the exposure associated with various tax filing positions, the Company accrues charges for probable exposures. Based on annual evaluations of tax positions, the Company believes it has appropriately accrued for probable exposures.

Design and Production Agreement

The Company is committed to purchasing 722,445 satellite radio receiver chipsets for approximately $18.0 million at June 30, 2006. The Company has recorded a liability equal to the excess of the aggregate purchase price over the expected sales price, of $13.0 million and $12.0 million at June 30, 2006 and December 31, 2005, respectively, as accrued purchase commitment in the accompanying consolidated balance sheets. The difference between the liability at June 30, 2006 and December 31, 2005 is the result of changes in the exchange rates of foreign currencies.

(H) Contingent Royalty Obligation

Effective December 31, 2004 the Company restructured $1,553 million of notes payable and advances. Under the terms of the agreements, the ongoing obligations of the Company to the lender were set forth in a separate Royalty Arrangement (Royalty Agreement), under which the Company is required to pay the lender 10 percent of earnings before interest, taxes, depreciation, and amortization, if any, for each year through 2015 in exchange for the lender releasing all claims. The Company is subject to certain covenants regarding the disposition of assets, liquidation of the Company, reporting, and distributions or payments to certain current shareholders. The Royalty Agreement also requires the Company to have a segregated reserve, to be funded each quarter in any year in which payment under the Royalty Agreement is projected, at the rate of 25 percent of the estimated annual payment. In addition, 80 percent of the annual payment is required to be made within 60 days after year-end, and the remaining portion within 180 days following year-end. Even though management is satisfied that the debt may not be reinstated, in accordance with SFAS No. 15, Accounting by Debtors and Creditors for Trouble Debt Restructuring, the debt restructuring is not considered an extinguishment of debt because the future payments under the agreement are indeterminate. Accordingly, the carrying value of the debt and accrued interest of $1,814 million is shown as a contingent royalty obligation on the accompanying balance sheets.

12

WORLDSPACE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(I) Minority Interest

The Company’s Italian subsidiary, WorldSpace Italia S.r.l., is a majority-owned subsidiary of the Company’s European holding company, Viatis Satellite Radio. WorldSpace Italia’s other partner is New Satellite Radio S.r.l., an Italian company whose primary shareholder is Class Editori S.p.A., a media and broadcast corporation based in Milan. New Satellite Radio holds a 35 percent interest in WorldSpace Italia S.r.l., and has contributed $0.9 million towards capital investment. The net outstanding minority interest of New Satellite Radio S.r.l., as of June 30, 2006 was $0.5 million and is separately classified in the accompanying unaudited condensed consolidated balance sheets.

(J) Recent Accounting Pronouncements

In June 2006, the FASB Emerging Issues Task Force issued EITF No. 06-3, How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation), which states that a company should disclose its accounting policy (i.e., gross or net presentation) regarding presentation of taxes within the scope of this Issue. If taxes included in gross revenues are significant, a company should disclose the amount of such taxes for each period for which an income statement is presented. The consensus would be effective for the first annual or interim reporting period beginning after December 15, 2006. The disclosures are required for annual and interim financial statements for each period for which an income statement is presented. The Company will adopt this Interpretation effective January 1, 2007. Based on the Company’s current evaluation of this Issue, the Company does not expect the adoption of EITF No. 06-3 to have a significant impact on its consolidated results of operations or financial position.

In June 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Statement shall be effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2006. The Company will adopt this Interpretation effective January 1, 2007. Based on the Company’s current evaluation of this Interpretation, the Company does not expect the adoption of FIN No. 48 to have a significant impact on its consolidated results of operations or financial position.

(K) Subsequent Events

On July 18, 2006, the Company entered into an agreement with Acorn Media Group, Inc. (“Acorn”), pursuant to which Acorn subleased excess office space at the Company’s headquarters in Silver Spring. The total minimum lease payments receivable under this agreement is $1.5 million over a period of 60 months.

13

WORLDSPACE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(K) Geographic Areas

The following tables present summary operating information by geographic segment for the three and six months ended June 30, 2006 and 2005:

	Geographical Area Data
	Three months ended June 30,					Six Months ended June 30,
	2006		2005			2006		2005
	(in thousands)
Revenue
United States	$	635	$	1,063	(1)	$	1,401	$	2,087	(2)
France		822		293			1,142		908
Kenya		416		184			636		428
South Africa		210		239			430		502
Singapore		17		9			32		25
India		1,563		392			3,404		675
Other foreign countries		96		148			194		258
	$	3,759	$	2,328		$	7,239	$	4,883

Customers from which 10 percent or more of revenue is derived.

(1) Includes $0.4 million from USAID

(2) Includes $1.4 million from USAID

Long-lived Segment Assets

	June 30, 2006		December 31, 2005
	(in thousands)
United States	$	385,848	$	410,866
Foreign countries		3,836		3,408

Excludes deferred financing costs, restricted cash and investments and investments in affiliates and other assets.

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Item 2. Management’s discussion and analysis of financial condition and results of operations

The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto included herewith, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations and audited Consolidated Financial Statements and Notes thereto for the year ended December 31, 2005, which is included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2006

Our second quarter 2006 highlights include the following:

• Added 36,985 subscribers globally, including 35,130 subscribers in India

• Appointed Gregory B. Armstrong and Alexander P. Brown as co-Chief Operating Officers

• Obtained approval to launch Europe’s first subscription satellite radio service in Italy

• Launched in fourteen new markets (including Goa, Jaipur, Nagpur, and Trivendrum), extending WorldSpace presence to 24 cities and towns in India, with 82 million people, including approximately 45 million in the top three economic segments.

• Continued expansion of our distribution and geographic presence in India, including at the end of the quarter having over 1,162 retail points of presence in 24 cities, and 6 WorldSpace lounges

• Signed an agreement with Sodielec, a French company specializing in transmission solutions, to develop terrestrial repeater prototypes that will enable WorldSpace to expand its satellite radio and data services to automobiles across Western Europe, beginning in Italy

The gross subscriber adds in our primary target market of India were negatively affected by delays in the launching of a new marketing campaign centered around our new brand ambassador until July, delays in opening more experiential locations, changes in sale channel incentives and ineffective communication of pricing plan changes. These issues negatively affecting the second quarter subscriber counts have been identified and are being addressed.

The gross adds company-wide during the quarter were 36,985 with 35,130 of those coming from India which was negatively impacted by lower marketing spend, delays in the launching of a new marketing campaign, delays in opening more experiential locations and changes in sale channel incentives.

The larger challenge in the quarter was the potential volatility in near-term churn that we had identified in our first quarter earnings call. High second quarter-specific churn in India significantly pulled down our net additions for the quarter. This is because of the expiration during the quarter of so many of the three-month promotional subscriptions that we added during the fourth quarter of 2005 and the first quarter of 2006. As a result of those short period sales, at the end of 2005 and the first quarter, our end-of-period subscriber base contained about 50% of these 3-month subscribers. During the first half of 2006, over 74,000 subscribers came up for renewal including over 54,000 three-month subscribers and over 18,500 one-year subscribers. Of those that came up for renewal, about 65% of the three-month promotional subscribers and about 72% of the one-year subscribers have, as of July 31, renewed their subscriptions with either a one-year, six-month or two-year prepaid plan. In total, over 31,000 subscribers churned out during the first half of this year, yielding a year-to-date churn rate of about 64% per annum. The annualized churn rate is high at the end of the first half of the year compared with the 16.5% we reported at the end of the first quarter because of the inordinately high number of subscribers that came up for renewal during the second quarter combined with the relatively low gross adds during the second quarter.

But we are now seeing the trend changing and are encouraged. Currently, our subscriber mix has change such that only 30% of our end-of-June subscribers were three-month promotional subscribers and about 58% were either in a one-year or longer plan, with remaining in a six-month plan.

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Summary Operating Metrics

The key metrics we use to monitor our business growth and our operational results are: ending subscribers, Average Monthly Subscription Revenue Per Subscriber (“ARPU”), Subscriber Acquisition Cost (“SAC”), Cost Per Gross Addition (“CPGA”) and EBITDA presented as follows:

	Three months ended June 30,						Six months ended June 30,
	2006			2005			2006			2005
Net Subscriber Additions		6,528			11,427			44,659			29,660
India		7,774			6,203			44,923			19,598
ROW (5)		(1,246	)		5,224			(264	)		10,062
Total EOP Subs		159,965			63,930			159,965			63,930
India		119,497			27,933			119,497			27,933
ROW (5)		40,468			35,997			40,468			35,997
ARPU (1)	$	3.78		$	4.39		$	4.00		$	5.03
ARPU (India)		2.90			2.35			2.98			2.47
ARPU (ROW) (5)		6.23			5.95			6.54			6.80
SAC (2)	$	41		$	2		$	41		$	2
SAC(India)		41			12			42			10
SAC(ROW) (5)		0			0			0			0
CPGA (3)	$	131		$	103		$	133		$	95
CPGA(India)		122			175			126			150
CPGA(ROW) (5)		262			39			225			46
EBITDA (4)	$	(30,832	)	$	(12,030	)	$	(62,034	)	$	(10,548	)

(1) Average Monthly Subscription Revenue Per Subscriber (“ARPU”)—Please see further discussion under Average Monthly Subscription Revenue Per Subscriber under “Managements Discussion and Analysis of Financial Condition” and Results of Operations

(2) SAC—Please see further discussion under Subscriber Acquisition Cost under “Managements Discussion and Analysis of Financial Condition and Results of Operations” and “Results of Operations—Cost of services”

(3) CPGA—Please see further discussion under Cost Per Gross Addition under “Managements Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Operating expense”

(4) EBITDA—We refer to net loss before interest income, interest expense, income taxes, depreciation and amortization as “EBITDA”. EBITDA is not a measure of financial performance under generally accepted accounting principles. We believe EBITDA is often a useful measure of a company’s operating performance and is a significant basis used by our management to measure the operating performance of our business. Because we have funded and completed the build-out of our system through the raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation, amortization and interest expense. EBITDA, which excludes this information, provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant or capital structure. EBITDA is frequently used as one of the bases for comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating loss or cash flow from operating activities, as those terms are defined under generally accepted accounting principles and should not be considered as an alternative to those measurements as an indicator of our performance.

(5) ROW—Rest of World: All other operating regions excluding India.

16

	Three months ended June 30,
	2006			2005
Reconciliation of Net Loss to EBITDA
Net Loss as reported	$	(36,661	)	$	(22,020	)
Addback non-EBITDA items included in net loss:
Interest income		(3,094	)		(914	)
Interest expense		2,326			2,307
Depreciation & amortization		14,708			14,702
Deferred income taxes benefit		(8,111	)		(6,105	)
EBITDA	$	(30,832	)	$	(12,030	)

	Six months ended June 30,
	2006			2005
Reconciliation of Net Loss to EBITDA
Net Loss as reported	$	(65,855	)	$	(31,271	)
Addback non-EBITDA items included in net loss:
Interest income		(6,040	)		(1,602	)
Interest expense		4,625			5,162
Depreciation & amortization		29,454			29,406
Deferred income taxes benefit		(24,218	)		(12,243	)
EBITDA	$	(62,034	)	$	(10,548	)

17

Results of Operations

WORLDSPACE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three-Months and Six-Months ended June 30, 2006 and 2005

	Three months ended June 30,						Six Months ended June 30,
	2006			2005			2006			2005
	(in thousands, except share and per share data)
Revenue
Subscription revenue	$	1,928		$	799		$	3,530		$	1,596
Equipment revenue		698			558			1,774			976
Other revenue		1,133			971			1,935			2,311
Total Revenue		3,759			2,328			7,239			4,883
Operating Expenses
Cost of Services (excludes depreciation, shown separately below)
Satellite and transmission, programming and other		6,681			3,391			13,762			6,869
Cost of equipment		2,314			581			5,470			1,024
Research and development		(163	)		25			491			46
Selling and marketing		5,140			2,073			11,527			3,507
General and administrative		14,111			8,887			28,022			18,050
Stock-based compensation (1)		4,064			276			7,187			987
Depreciation and amortization		14,708			14,702			29,454			29,406
Total Operating Expenses		46,855			29,935			95,913			59,889
Loss from Operations		(43,096	)		(27,607	)		(88,674	)		(55,006	)
Other Income (Expense)
Gain on extinguishment of debt		—			—			—			14,130
Interest income		3,094			914			6,040			1,602
Interest expense		(2,326	)		(2,307	)		(4,625	)		(5,162	)
Other		(2,444	)		875			(2,814	)		922
Total Other Income (Expense)		(1,676	)		(518	)		(1,399	)		11,492
Loss Before Income Taxes		(44,772	)		(28,125	)		(90,073	)		(43,514	)
Income Tax Benefit		8,111			6,105			24,218			12,243
Net Loss	$	(36,661	)	$	(22,020	)	$	(65,855	)	$	(31,271	)
Loss per share—basic and diluted	$	(0.98	)	$	(0.95	)	$	(1.78	)	$	(1.35	)
Weighted Average Number of Shares Outstanding		37,240,585			23,211,317			37,085,353			23,211,317
_____________           (1) Allocation of stock based compensation to operating expenses:
Satellite, transmission, programming and other	$	162		$	8		$	346		$	20
Selling, general and administrative	$	3,902		$	268		$	6,841		$	967

See accompanying notes to unaudited condensed consolidated financial statements.

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Results of Operations

Three months ended June 30, 2006 compared with Three months ended June 30, 2005

Revenue

The table below presents our operating revenue for the three months ended June 30, 2006 and 2005, together with the relevant percentage of total revenue represented by each revenue category.

	Three months ended June 30,
	2006			2005
			Percent of total			Percent of total
	($ in thousands)
Revenue:
Subscription	$	1,928	51.3	$	799	34.3
Equipment sales		698	18.6		558	24.0
Other		1,133	30.1		971	41.7
Total revenue:	$	3,759	100.0	$	2,328	100.0

Total revenue for the three months ended June 30, 2006 was $3.8 million, an increase of 61.4% compared with $2.3 million for the three months ended June 30, 2005. This was primarily due to increased revenue from subscribers to our DARS service and related equipment sales. The mix of our revenue changed during 2005 as we emerged from development stage and deployed newly acquired financial resources to implement our India-focused subscription sales business plan.

Subscription revenue. Subscription revenue for the three months ended June 30, 2006 was approximately $1.9 million, an increase of 141.3 % compared with $0.8 million generated in the three months ended June 30, 2005. This increase in subscription revenues was primarily due to the increase in our paying subscribers. We expect to significantly increase subscription revenues in 2006 as we expand our subscriber base in India.

Average Monthly Subscription Revenue Per Subscriber (ARPU).

Blended ARPU (for India and ROW) was $3.78 for the three months ended June 30, 2006 and $4.39 for the three months ended June 30, 2005. The reduction in blended ARPU for 2006 compared to 2005 resulted from the shift of the subscribers’ weighting to India where single market ARPU is lower than other markets. ARPU from India was $2.90 for the three months ended June 30, 2006, and $2.35 for the three months ended June 30, 2005. In July 2005, we increased the annual subscription pricing by 50% to Rs. 1800 (approximately $40) from Rs. 1200 (approximately $27). The increase in the monthly subscription price took effect for all billing cycles on or after July 7, 2005. We expect total blended ARPU to decrease for 2006 as we expect the majority of our subscribers to come from our India market relative to other regions (where we sell a global subscription package ranging from $5.00 per month to $9.99 per month).

Equipment sales revenue. Equipment sales revenue was approximately $0.7 million for the three months ended June 30, 2006, an increase of 24.9 % compared with $0.6 million for the three months ended June 30, 2005. This increase was primarily due to increased unit sales in India. We sold approximately 30,000 receivers in the three months ended June 30, 2006, compared with approximately 9,000 receivers sold in the three months ended June 30, 2005.

Other revenue. Other revenue for the three months ended June 30, 2006 was $1.1 million, an increase of 16.7% compared with $1.0 million for the three months ended June 30, 2005. This increase was primarily due to an increase of miscellaneous operating income, offset by a reduction in government services revenue. Other revenue primarily consists of capacity lease revenue, data subscription revenue, government services revenue, and miscellaneous operating income.

19

Capacity lease revenue. Satellite capacity leasing revenue for the three months ended June 30, 2006 was $0.3 million, a decrease of 14.8 % compared with $0.3 million for the three months ended June 30, 2005. This decrease was a result of a reduction in the number of broadcasters contracting to use our satellite capacity for their broadcasts as we shifted focus toward acquiring new subscribers and away from the capacity leasing business.

Government services revenue. Government services revenue for the three months ended June 30, 2006 was $0.1 million, a decrease of 72.6% compared with $0.4 million for the three months ended June 30, 2005. Government services revenues decreased as we completed the Pakistan Education Initiative (PEI) contract in June 2005. Government services revenue included minimal equipment sales for both periods.

Miscellaneous other revenue. Other revenue (including licensing/manufacturing income and syndication income) for the three months ended June 30, 2006 was $0.7 million, an increase of 253.9 % compared with $0.2 million, in the three months ended June 30, 2005. This increase was principally due to a new data service contract launched in the fourth quarter of 2005, revenue from a contract with the European Union, and a litigation settlement from a former broadcaster.

Cost of services

The table below presents our costs of services for the three months ended June 30, 2006 and 2005, together with the percentages of total cost of services represented by each category.

	Three months ended June 30,
	2006			2005
			Percent of total			Percent of total
	($ in thousands)
Cost of services:
Engineering & broadcast operations	$	3,562	36.9	$	2,197	55.3
Content & programming		2,342	26.0		789	19.9
Customer care, billing & collection		498	5.5		110	2.8
Cost of equipment		2,314	25.7		581	14.6
Other cost of services		279	3.1		295	7.4
Total cost of services:	$	8,995	100.0	$	3,972	100.0

Total cost of services for the three months ended June 30, 2006 was $9.0 million, a 126.5 % increase compared with $4.0 million in the three months ended June 30, 2005. This increase was primarily due to increases in the content & programming, and cost of equipment.

Engineering and broadcast operations. Engineering and broadcast expense, including the cost of operating our two satellites, ground control systems and telecommunications links as well as our in-orbit insurance, for the three months ended June 30, 2006 was $3.6 million, an increase of 62.1 % compared with $2.2 million in the three months ended June 30, 2005. This increase was primarily due to a price adjustment related to satellite monitoring services, incremental in-orbit insurance costs and increased broadcast operation costs related to live programming.

Content and programming. Content and programming expense, which includes content production, music royalties and other content acquisition costs, for the three months ended June 30, 2006 was $2.3 million, an increase of 196.8 % compared with $0.8 million for the three months ended June 30, 2005. These expenses increased as we increased staffing levels to support the launch of live programming and additional channels specifically for the Indian market. New channels included PLAY, the first 24 hour sports talk channel in that market. We expect content costs to continue to increase in 2006 as we launch additional channels for India and other markets, and introduce several channels programmed in a live format. We intend to launch several additional channels for our India market including regional music and lifestyle programs in Urdu, Gujarati, and Marathi, and business, comedy, children and educational channels.

20

Customer care, billing & collection. Customer care, billing and collections expense for the three months ended June 30, 2006 was $0.5 million, an increase of 352.8 % compared to $0.1 million for the three months ended June 30, 2005. This increase was due to increased volume of subscriber related activities. These expenses are expected to increase as we continue to add subscribers throughout 2006, and replace our current proprietary subscriber management system with a Portal solution for billing, collection & customer care software.

Cost of Equipment. Cost of equipment for the three months ended June 30, 2006 was $2.3 million, an increase of 298.3 % compared with $0.6 million, in the three months ended June 30, 2005. Cost of equipment increased due to an increased number of receivers being sold in India as we focused on ramping up subscriptions in that market. We expect this trend to continue as we aggressively ramp up our subscribers additions throughout 2006.

Subscriber Acquisition Cost (SAC)

Total blended SAC (for India and ROW) calculated based on unit sales to our distributors, was approximately $41 per subscriber for the three months ended June 30, 2006 and $2 for the three months ended June 30, 2005. SAC for India, was approximately $41 per subscriber for the three months ended June 30, 2006 and approximately $12 per subscriber for the three months ended June 30, 2005. SAC has increased as we launched a new campaign in Q4 of 2005 where we provided an equipment subsidy to our distributors to achieve a certain price point for the end consumer.

Other cost of services. Other cost of services for the three months ended June 30, 2006 was $0.3 million, a 5.5% decrease compared with $0.3 million in the three months ended June 30, 2005. This decrease was due to factors which we do not believe to be operationally significant. Other costs include subscription revenue share, Thompson technology fee, development & technology expenses and cost to service the government services activities.

Operating expense

The table below presents our operating expense for the three months ended June 30, 2006 and 2005, together with the relevant percentage increase (decrease) year-over-year.

	Three months ended June 30,
	2006			2005		Percent increase (decrease)
Operating expense:
Cost of services	$	8,995		$	3,972	126.5
Research and development		(163	)		25	(752.0	)
Selling and marketing		5,140			2,073	147.9
General & administrative		14,111			8,887	58.8
Stock-based compensation		4,064			276	1,372.5
Depreciation and amortization		14,708			14,702	0.0
Total operating expense:	$	46,855		$	29,935	56.5

Total operating expense for the three months ended June 30, 2006 was $46.9 million, a 56.5% increase compared with $29.9 million for the three months ended June 30, 2005. This increase was primarily due to increases in our cost of services (discussed above), selling and marketing, and general and administrative expense. Our decrease in research & development expense is due to recognition of the fair value of the warrant related to ongoing work to obtain an operational chipset developed with substantial support from XM under the

21

terms of our co-operation agreement with XM. Our selling and marketing expense for the three months ended June 30, 2006 was $5.1 million, an increase of 147.9% compared with $2.1 million in the three months ended June 30, 2005. This increase was primarily due to significantly increased marketing activity as we ramped up our advertising presence in our launched markets. Our general and administrative expense for the three months ended June 30, 2006 was $14.1 million, an increase of 58.8% compared with $8.9 million in the three months ended June 30, 2005. This increase was primarily due to a $3.3 million increase in headcount expense as we increased staffing to execute on our business plan, a $2.8 million increase in outside services (primarily temporary consultants, and technical & regulatory services), offset by a $0.8 million decrease in facilities as we moved to our Silver Spring offices thereby reducing our rent. Our stock based compensation expense was $4.1 million in the three months ended June 30, 2006 an increase of 1,372.5% compared with $0.3 million in the three months ended June 30, 2005. This increase was due to a restricted stock granted to employees in connection with our initial public offering in August 2005. The Company granted employees restricted stock awards, effective August 3, 2005, which except for those granted to certain key executives, vest over a three year period. Restricted stock vesting issued to certain key executives has been extended through January 3, 2007. Depreciation and amortization expense for the three months ended June 30, 2006 and the three months ended June 30, 2005 remained relatively constant at $14.7 million.

Cost Per Gross Addition (CPGA)

Total blended CPGA expense (for India and ROW) was approximately $4.6 million for the three months ended June 30, 2006 and approximately $1.2 million for the three months ended June 30, 2005. CPGA for India was approximately $4.1 million for the three months ended June 30, 2006 and approximately $1.0 million for the three months ended June 30, 2005. Unit blended CPGA (for India and ROW), was approximately $131 for the three months ended June 30, 2006 and approximately $103 for the three months ended June 30, 2005. CPGA for India, was approximately $122 for the three months ended June 30, 2006 and approximately $175 for the three months ended June 30, 2005. CPGA has increased due to the increase in marketing spend (as outlined above) and the increase in equipment subsidy compared to the three months ended June 30^th, 2005. Going forward, we expect CPGA to decline as we amortize our fixed sales & marketing expenditure over an increasing number of gross subscriber additions.

Other income (expense)

Interest income. Interest income for the three months ended June 30, 2006 was $3.1 million, an increase of 238.3 % compared with $0.9 million in the three months ended June 30, 2005. This increase was due to increased average cash balances invested in marketable securities as a result of our 2005 financing activities and higher interest rates.

Interest expense. Interest expense for the three months ended June 30, 2006 was $2.3 million, remaining relatively flat compared to the three months ended June 30, 2005.

Other income (expense). Other expense for the three months ended June 30, 2006 was $2.4 million compared with Other Income of $0.9 million recorded in the three months ended June 30, 2005. This increase was due to a write-off of leasehold improvements, and foreign currency fluctuation under a contract where our payment obligation was denominated in Euros.

Income tax

During the three months ending June 30 2006, the Company recorded an income tax benefit of $8.1 million compared to $6.1 million for the three months ending June 30, 2005 due to higher current net loss. This benefit is the result of current period operating losses, release of a partial valuation allowance against certain foreign net operating losses and an adjustment associated with section 162(m) limitation.

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Six months ended June 30, 2006 compared with six months ended June 30, 2005

Revenue

The table below presents our operating revenue for the six months ended June 30, 2006 and 2005, together with the relevant percentage of total revenue represented by each revenue category.

	Six months ended June 30,
	2006			2005
			Percent of total			Percent of total
	($ in thousands)
Revenue:
Subscription	$	3,530	48.8	$	1,596	32.7
Equipment sales		1,774	24.5		976	20.0
Other		1,935	26.7		2,311	47.3
Total revenue:	$	7,239	100.0	$	4,883	100.0

Total revenue for the six months ended June 30, 2006 was $7.2 million, a 48.3% increase compared with $4.9 million for the six months ended June 30, 2005. This was primarily due to increased revenue from subscribers to our DARS service and equipment sales, offset by a reduction in revenue from government service contracts and capacity leases. The mix of our revenue changed during 2005 as we emerged from development stage and deployed newly acquired financial resources to implement our India-focused subscription sales business plan.

Subscription revenue. Subscription revenue for the six months ended June 30, 2006 was approximately $3.5 million, an increase of 121.2% compared with $1.6 million generated in the six months ended June 30, 2005. This increase in subscription revenues was primarily due to the increase in our paying subscribers. We expect to significantly increase subscription revenues in 2006 as we expand our subscriber base in India.

Average Monthly Subscription Revenue Per Subscriber (ARPU).

Blended ARPU (for India and ROW) was $4.00 for the six months ended June 30, 2006 and $5.03 for the six months ended June 30, 2005. The reduction in blended ARPU for 2006 compared to 2005 resulted from the shift of the subscribers’ weighing to India where single market ARPU is lower than other markets. ARPU from India was $2.98 for the six months ended June 30, 2006, and $2.47 for the six months ended June 30, 2005. In July 2005, we increased the annual subscription pricing by 50% to Rs. 1800 (approximately $40) from Rs. 1200 (approximately $27). The increase in the monthly subscription price took effect for all billing cycles on or after July 7, 2005. We expect total blended ARPU to decrease for 2006 as we expect the majority of our subscribers to come from our India market relative to other regions (where we sell a global subscription package ranging from $5.00 per month to $9.99 per month).

Equipment sales revenue. Equipment sales revenue was approximately $1.8 million for the six months ended June 30, 2006, an increase of 82.5% compared with $1.0 million for the six months ended June 30, 2005. This increase was primarily due to increased unit sales in India. We sold approximately 82,000 receivers in the six months ended June 30, 2006, compared with approximately 14,000 receivers sold in the six months ended June 30, 2005.

Other revenue. Other revenue for the six months ended June 30, 2006 was $1.9 million, a decrease of 16.4% compared with $2.3 million for the six months ended June 30, 2005. This decrease was primarily due to a reduction in capacity lease revenue and government services revenue. Other revenue primarily consists of capacity lease revenue, government services revenue, data subscription revenue, licencing/manufacturing income and syndication income.

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Capacity lease revenue. Satellite capacity leasing revenue for the six months ended June 30, 2006 was $0.5 million, a decrease of 39.7% compared with $0.7 million for the six months ended June 30, 2005. This decrease was a result of a reduction in the number of broadcasters contracting to use our satellite capacity for their broadcasts as we shifted focus toward acquiring new subscribers and away from the capacity leasing business.

Government services revenue. Government services revenue for the six months ended June 30, 2006 was $0.3 million, a decrease of 62.8% compared with $0.8 million for the six months ended June 30, 2005. Government services revenues decreased as we completed the Pakistan Education Initiative (PEI) contract in June 2005, partially offset by the entry into a government contract in the third quarter. Government services revenue included minimal equipment sales for both periods.

Miscellaneous other revenue. Other revenue (including licensing/manufacturing income and syndication income) for the six months ended June 30, 2006 was $1.2 million, an increase of 53.2% compared with $0.8 million, in the six months ended June 30, 2005. This increase was principally due to revenue from a contract with the European Union, a new data service contract launched in the fourth quarter of 2005, and a litigation settlement from a former broadcaster.

Cost of services

The table below presents our costs of services for the six months ended June 30, 2006 and 2005, together with the relevant percentages of total cost of services for each cost category.

	Six months ended June 30,
	2006			2005
			Percent of total			Percent of total
	($ in thousands)
Cost of services:
Engineering & broadcast operations	$	7,914	41.2	$	4,383	55.5
Content & programming		4,072	21.2		1,744	22.1
Customer care, billing & collection		1,084	5.6		152	1.9
Cost of equipment		5,470	28.4		1,024	13.0
Other cost of services		691	3.6		590	7.5
Total cost of services:	$	19,232	100.0	$	7,893	100.0

Total cost of services for the six months ended June 30, 2006 was $19.2 million, an increase of 143.7% compared with $7.9 million in the six months ended June 30, 2005. This increase was primarily due to increases in the engineering and broadcast operations, and cost of equipment.

Engineering and broadcast operations. Engineering and broadcast expense, including the cost of operating our two satellites, ground control systems and telecommunications links as well as our in-orbit insurance, for the six months ended June 30, 2006 was $7.9 million, an increase of 80.6% compared with $4.4 million in the six months ended June 30, 2005. This increase was primarily due to an increase in in-orbit insurance as we renewed policies on our AfriStar and AsiaStar satellites in April 2005, offset by a pricing adjustment related to satellite monitoring services provided by a vendor.

Content and programming. Content and programming expense, which includes content production, music royalties and other content acquisition costs, for the six months ended June 30, 2006 was $4.1 million, an increase of 133.5% compared with $1.7 million for the six months ended June 30, 2005. These expenses increased as we increased staffing levels to support the launch of live programming and additional channels specifically for the Indian market. New channels included PLAY, the first 24 hour sports talk channel in that market. We expect content costs to continue to increase in 2006 as we launch additional channels for India and other markets, and introduce several channels programmed in a live format. We intend to launch several additional channels for our India market including regional music and lifestyle programs in Urdu, Gujarati, and Marathi, and business, comedy, children and educational channels.

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Customer care, billing & collection. Customer care, billing and collections expense for the six months ended June 30, 2006 was $1.1 million, an increase of 613.2% compared to $0.2 million for the six months ended June 30, 2005. This increase was due to increased volume of subscriber related activities. These expenses are expected to increase as we continue to add subscribers throughout 2006, and replace our current proprietary subscriber management system with a Portal solution for billing, collection & customer care software.

Cost of Equipment. Cost of equipment for the six months ended June 30, 2006 was $5.5 million, an increase of 434.2% compared with $1.0 million, in the six months ended June 30, 2005. Cost of equipment increased due to an increased number of receivers being sold in India as we focused on ramping up subscriptions in that market. We expect this trend to continue as we aggressively ramp up our subscribers additions throughout 2006.

Subscriber Acquisition Cost (SAC)

Total blended SAC (for India and ROW) calculated based on unit sales to our distributors, was approximately $41 per subscriber for the six months ended June 30, 2006 and $2 for the six months ended June 30, 2005. SAC for India, was approximately $42 per subscriber for the six months ended June 30, 2006 and approximately $10 per subscriber for the six months ended June 30, 2005.

Other cost of services. Other cost of services remained relatively flat for the six months ended June 30, 2006 and 2005. Other costs include subscription revenue share, Thompson technology fee, development & technology expenses and cost to service the government services activities.

Operating expense

The table below presents our operating expense for the six months ended June 30, 2006 and 2005, together with the relevant percentage increase (decrease) year-over-year.

	Six Months Ended June 30,
	2006		2005		Percent increase (decrease)
Operating expense:
Cost of Services	$	19,232	$	7,893	143.7
Research and development		491		46	967.4
Selling and marketing		11,527		3,507	228.7
General & administrative		28,022		18,050	55.3
Stock-based compensation		7,187		987	628.2
Depreciation and amortization		29,454		29,406	0.2
Total operating expense:	$	95,913	$	59,889	60.2

Total operating expense for the six months ended June 30, 2006 was $95.9 million, an increase of 60.2% compared with $59.9 million for the six months ended June 30, 2005. This increase was primarily due to increases in our cost of services (discussed above), selling and marketing, and general and administrative expense. Our increase in research & development expense is due to recognition of the fair value of the warrant related to ongoing work to obtain an operational chipset developed with substantial support from XM under the terms of our co-operation agreement with XM. Our selling and marketing expense for the six months ended June 30, 2006 was $11.5 million, an increase of 228.7% compared with $3.5 million in the six months ended June 30, 2005. This increase was primarily due significantly increased marketing activity as we ramped up our advertising presence in our launched markets. Our general and administrative expense for the six months ended June 30, 2006 was $27.5 million, an increase of 55.3% compared with $18.1 million in the six months ended

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June 30, 2005. This increase was primarily due to a $5.2 million increase in headcount expense as we increased staffing to execute on our business plan, and a $4.8 million increase in outside services (primarily temporary consultants, and technical & regulatory services). Our stock based compensation expense was $7.2 million in the six months ended June 30, 2006 an increase of 628.2% compared with $1.0 million in the six months ended June 30, 2005. This increase was due to a restricted stock granted to employees in connection with our initial public offering in August 2005. The Company granted employees restricted stock awards, effective August 3, 2005, which except for those granted to certain key executives, vest over a three year period. Restricted stock vesting issued to certain key executives has been extended through January 3, 2007. Depreciation and amortization expense for the six months ended June 30, 2006 and the six months ended June 30, 2005 remained relatively constant at approximately $29.4 million.

Cost Per Gross Addition (CPGA)

Total blended CPGA expense (for India and ROW) was approximately $10.8 million for the six months ended June 30, 2006 and approximately $2.0 million for the six months ended June 30, 2005. CPGA for India was approximately $9.8 million for the six months ended June 30, 2006 and approximately $1.6 million for the six months ended June 30, 2005. Unit blended CPGA (for India and ROW), was approximately $133 for the six months ended June 30, 2006 and approximately $95 for the six months ended June 30, 2005. CPGA for India, was approximately $126 for the six months ended June 30, 2006 and approximately $150 for the six months ended June 30, 2005.

Other income (expense)

Interest income. Interest income for the six months ended June 30, 2006 was $6.0 million, an increase of 277.0 % compared with $1.6 million in the six months ended June 30, 2005. This increase was due to increased average cash balances as a result of our recent financing activities and higher interest rates.

Interest expense. Interest expense for the six months ended June 30, 2006 was $4.6 million, a decrease of 10.4 % compared with $5.2 million in the six months ended June 30, 2005. This decrease was primarily due to the extinguishments of debt related to the Alcatel settlement in the six months ended June 30, 2005.

Other income (expense). Other expense for the six months ended June 30, 2006 was $2.8 million compared with Other Income of $0.9 million recorded in the six months ended June 30, 2005. This increase was due to a write-off of leasehold improvements, and foreign currency fluctuation under a contract where our payment obligation was denominated in Euros.

Income tax

During the six months ending June 30 2006, the Company recorded an income tax benefit of $24.2 million compared to $12.2 million for the six months ending June 30, 2005 due to higher current net loss. This benefit is the result of current period operating losses, release of a partial valuation allowance against certain foreign net operating losses and an adjustment associated with section 162(m) limitation.

LIQUIDITY AND CAPITAL RESOURCES

Overview

As of June 30, 2006, we had cash and cash equivalents of $14.6 million, and marketable securities of $204.1 million. Cash and cash equivalents and marketable securities decreased $57.3 million during the six months ended June 30, 2006. This decrease resulted from $51.6 million used in operating activities, $27.9 million provided by investing activities, and $1.4 million provided by financing activities. Cash flows used in operations

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includes the net loss of $65.9 million and $1.0 million used in working capital partially offset by $15.2 million in non cash expenses included in net loss. Cash flows provided by investing activities consisted mainly of $34.9 million in net sales of marketable securities partially offset by $4.8 million used for the purchase of property and equipment and $2.2 million used for purchase of satellite and related systems. Cash flows provided by Financing activities consisted of $2.2 million from the proceeds from exercise of employee stock options, $0.5 million for minority interest contributions, offset by a $1.5 million increase in restricted cash for certain lease obligations.

Historical sources of cash

We raised $1.8 billion of equity and debt net proceeds from inception through August 3, 2005 from investors and strategic partners to fund our operations.

IPO

On August 3, 2005, we agreed to sell 11,500,000 shares of common stock at a price to the public of $21.00 per share in our initial public offering. The aggregate gross proceeds to us from the public offering were approximately $241.5 million. We incurred expenses of approximately $20.5 million of which approximately $16.9 million represented underwriting discounts and commissions and approximately $3.6 million represented expenses related to the offering. Net proceeds to us from the offering were $221.0 million.

XM Investment

On July 18, 2005, we issued XM Satellite Radio 1,562,500 shares of Class A common stock for an aggregate purchase price of $25 million. The net proceeds after deducting expenses were $22.5 million.

Uses of Cash

Our cash used during the three months ended June 30, 2006, consisted primarily of funding operating expenses, and working capital.

Future Operating Liquidity and Capital Resource Requirements

Based upon our current plans, we believe that our cash, cash equivalents and marketable securities will be sufficient to cover our estimated funding needs for at least the next 12 months. Our financial projections are based on assumptions which we believe are reasonable but contain significant uncertainties.

We currently intend to use our existing cash reserves to execute our business plan, which – for India, includes the build-out of a terrestrial repeater network, service launch in key cities and marketing expenses related to subscriber acquisitions; for Italy, contemplates service launch and technology related expenses; for the Middle East, involves minimal terrestrial repeater capital expense for a network in Bahrain; and for China, other Western Europe markets and other selected markets within our coverage area, includes limited business development expenses. We expect that the majority of our expenditures in 2006 will be directed towards sales and marketing activities, including developing subscriber operations, increasing content and programming development, capital expenditures, operating and corporate expenses including interest, tax payments, research, development and manufacture of our mobile receivers and terrestrial repeaters. We are currently reviewing our business plan for potential modifications that could result in the reduction of cash expenditures over the next 12 months.

Our business is in its early stages, and we regularly evaluate our plans and strategy. These evaluations may result in changes to our plans and strategy, some of which may be material and significantly change our cash requirement. Our business plan is based on estimates regarding expected future costs and expected revenue. Our costs may exceed or our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Furthermore, we will require additional cash to fully launch our business in China and Western Europe and fund the cost to modify and launch our spare satellite.

Any of these factors may increase our need for funds, which would require us to seek additional financing to continue implementing our current business plan. However, there can be no assurance that we will be successful in securing financing or that it will be available to us at attractive terms.

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Our ability to obtain the financing in the future will depend on several factors, including future market conditions; our success in developing, implementing and marketing our satellite radio service; our future creditworthiness; and restrictions contained in agreements with our investors or lenders. If we fail to obtain any necessary financing on a timely basis or on attractive terms, our results of operations could be materially adversely affected. Additional financings could also increase our level of indebtedness or result in further dilution to existing shareholders.

Capital expenditures

We have spent approximately $745 million on capital expenditures related to the development and launch of our satellites, for our ground systems and for property and equipment. We expect to spend additional amounts to enhance our infrastructure with terrestrial repeaters. We expect to start our terrestrial repeater network build-out in key metropolitan areas in India next year, assuming we obtain the necessary regulatory approvals, and the total cost to cover these major metropolitan areas we currently estimate to be approximately $20 million. This amount will need to be reviewed as we conduct actual testing, including further topographical analysis. We also expect to start our terrestrial repeater build out in Bahrain; however we do not expect this cost to be significant. Over the next 12 months we also anticipate technology and terrestrial repeater development expenses associated with rolling out our services in Italy. We estimate those expenses to be approximately $20 million. This amount will need to be renewed as we conduct actual testing as in India. Until we receive the final approvals from China’s regulatory agencies, we will not start the build-out of a terrestrial repeater network in China. We do not envision this project starting in the next 12 months. We expect the total network in China to cost a similar amount as India in its initial stages. Our future capital expenditures will depend on our business strategy and our response to business opportunities and trends in our industry and our markets.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency

As a global company, we are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany balances between subsidiaries that operate in different functional currencies and transactions with customers, suppliers and employees that are denominated in foreign currencies. Our objective is to minimize our exposure to these risks through our normal operating activities and, where appropriate, to have these transactions denominated in United States dollars. For the six months ended June 30, 2006, approximately 55% of our total revenues and 28% of total operating expenses were denominated in foreign currencies. For the six months ended June 30, 2005, approximately 57% of our total revenues and 24% of total operating expenses were denominated in foreign currencies. The following table shows approximately the split of these foreign currency exposures by principal currency:

	Foreign Currency Exposure at June 30, 2006								Other		Total Exposure
	Euro		Indian Rupee		Kenyan Shilling		South African Rands
Total Revenues (six months ended June 30, 2006)	29	%	38	%	16	%	11	%	6	%	100	%
Total Cost of Revenues and Operating Expenses (six months ended June 30, 2006)	30	%	61	%	8	%	0	%	1	%	100	%

For fiscal 2005, approximately 48% of our total revenues and 4% of our total operating expenses were denominated in foreign currencies.

Interest Rates

Our market risk from changes in interest rates is not material because our long-term debt consists of the Convertible Notes and notes payable, both of which have a fixed interest rate.

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Item 4. Controls and Procedures

We maintain disclosure controls and procedures that have been designed to ensure that information related to the Company is recorded, processed, summarized and reported on a timely basis. The Company has established a Disclosure Committee that is responsible for accumulating potentially material information regarding the Company’s activities and considering the materiality of this information. The Disclosure Committee is also responsible for making recommendations regarding disclosure and communicating this information to our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. The Company’s Disclosure Committee comprises our senior legal official, chief financial officer, chief operating officer, corporate controller, head of internal audit and certain other members of the Company’s finance department.

Evaluation of the Company’s disclosure controls and procedures. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, as required by Rule 13a-15 of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting. The Company has instituted control improvements, including hiring additional key accounting personnel and instituting a greater level of internal control consciousness. In addition, during the quarter ended June 30, 2006, the Company added further controls by implementing additional review procedures over the selection, application and monitoring of appropriate accounting policies, and increasing oversight of its overseas subsidiaries. There have been no additional changes in its respective internal control over financial reporting during the quarter ended June 30, 2006, that have materially affected, or are reasonably likely to materially affect, our respective internal control over financial reporting.

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Part II—Other Information

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Use of proceeds.

On August 3, 2005, the Company’s registration statement on Form S-1 (Commission File No. 333-124044) became effective. The aggregate proceeds of the offering were $249.2 million, of which the aggregate gross proceeds to the Company were approximately $241.5 million. Net proceeds to the Company were approximately $221.0 million. The Company incurred expenses in connection with the offering of $20.5 million which included direct payments of: (i) $3.4 million in legal, accounting and printing fees; (ii) $16.9 million in underwriters’ discounts, fees and commissions payable by the Company and (iii) $0.2 million in miscellaneous expenses. None of the offering expenses were paid to directors, officers, ten percent stockholders or affiliates of the Company.

From the effective date of the offering through June 30, 2006, the Company held approximately $221.0 million of the net proceeds from the offering, of which $204 million are invested in short-term marketable securities and money market instruments and $17 million of the net proceeds are held as demand deposits and restricted cash with various banks.

(c) Not applicable.

Item 3. Defaults Upon Senior Securities

(a) Not applicable.

(b) Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

At the annual meeting of stockholders of WorldSpace held on May 10, 2006, the following matters were voted upon with the results indicated below:

1. The nominees listed below were elected as Class 2 Directors to serve as a three-year term ending at the 2009 Annual Meeting of Stockholders with the respective votes set forth opposite their names:

(a) Kassahun Kebede: 32,978,463

(b) James R. Laramie, Jr.: 32,991,632

(c) Charles McC. Mathias: 32,992,692

2. The stockholders ratified the appointment of Grant Thornton LLP as the Company’s auditors to audit the financial statements of the Company for the fiscal year ended December 31, 2006 by a vote of 32,982,857 for, 17,570 opposed.

Item 5. Other Information

(a) Not applicable.

(b) Not applicable.

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Item 6. Exhibits

10.1	Executive Employment Agreement between WorldSpace, Inc. and Alexander P. Brown effective as of May 12, 2006.
10.2	Executive Employment Agreement between WorldSpace, Inc. and Gregory B. Armstrong effective as of May 12, 2006.
31.1	Certification of the Chief Executive Officer of WorldSpace, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of the Chief Financial Officer of WorldSpace, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of the Chief Executive Officer of WorldSpace, Inc. pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer of WorldSpace, Inc. pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WORLDSPACE, INC.
(Registrant)
By:	/s/    NOAH A. SAMARA
	Noah A. Samara Chairman, Chief Executive Officer and President
	/s/    SRIDHAR GANESAN
	Sridhar Ganesan Executive Vice President–Chief Financial Officer

Dated: August 14, 2006

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EXHIBIT INDEX

Exhibit No.
10.1	Executive Employment Agreement between WorldSpace, Inc. and Alexander P. Brown effective as of May 12, 2006.
10.2	Executive Employment Agreement between WorldSpace, Inc. and Gregory B. Armstrong effective as of May 12, 2006.
31.1	Certification of the Chief Executive Officer of WorldSpace, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of the Chief Financial Officer of WorldSpace, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of the Chief Executive Officer of WorldSpace, Inc. pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer of WorldSpace, Inc. pursuant to Section 906 of Sarbanes-Oxley Act of 2002

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EX-10.1

Exhibit 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT is effective as of May 12, 2006 (the “Effective Date”), by and between WorldSpace, Inc. (“WORLDSPACE”), a Delaware corporation, having a place of business at 8515 Georgia Avenue, Silver Spring, Maryland 20910, and Alexander P. Brown (“EXECUTIVE”), a resident of New York.

WHEREAS, WORLDSPACE is engaged in the development, implementation and operation of an international digital direct audio, data and multimedia satellite service to portable receivers (the “WORLDSPACE System”); and

WHEREAS, EXECUTIVE will serve as a key employee of WORLDSPACE and/or its Affiliates and his services and knowledge are valuable to WORLDSPACE in connection with the management of one or more of WORLDSPACE’s principal operating facilities, divisions, or subsidiaries; and

WHEREAS, WORLDSPACE considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of WORLDSPACE and its shareholders; and

WHEREAS, EXECUTIVE has accumulated substantial expertise and management experience in substantive areas which are material to WORLDSPACE’S business and EXECUTIVE is willing to bring this expertise to WORLDSPACE upon the terms and conditions herein contained.

WHEREAS, the Board has determined that it is in the best interests of WORLDSPACE and its shareholders to secure EXECUTIVE’s services and to ensure EXECUTIVE’s continued dedication and objectivity, and to encourage EXECUTIVE’s full attention and dedication to WORLDSPACE and/or its Affiliates, and, in order to further such goals, the Board (as hereinafter defined) has authorized WORLDSPACE to enter into this Agreement.

NOW, THEREFORE, WORLDSPACE AND EXECUTIVE AGREE AS FOLLOWS:

ARTICLE 1

DEFINITIONS

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

1.1 “Affiliate” means any corporation, partnership or other entity controlling, controlled by, or under common control with WORLDSPACE, by virtue of direct or indirect beneficial ownership of voting securities or of voting interest in the controlled entity.

1.2 “Board” means the Board of Directors of WorldSpace, Inc. as in office from time to time.

1.3 “Cause” means (a) EXECUTIVE’S willful or gross misconduct, willful or gross negligence in the performance of his duties for WORLDSPACE, or intentional or habitual neglect of his duties at WORLDSPACE, provided that WORLDSPACE shall have given EXECUTIVE formal written notice specifying in sufficient detail the conduct it believes to fall within this sentence and EXECUTIVE shall have failed to remedy such conduct within ten (10) days thereafter; or (b) EXECUTIVE’s theft or misappropriation of funds of WORLDSPACE or conviction of a felony relating to his services for WORLDSPACE.

1.4 “Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

1.5 “Confidential Information” means all information which EXECUTIVE knew or should have known was proprietary to WORLDSPACE or was designated as proprietary by WORLDSPACE or learned by EXECUTIVE during the term of employment and not generally known by non-WORLDSPACE employees, including, without limitation, any and all general and specific knowledge, experience, information and data, technical or nontechnical business plans, business strategies, marketing strategies, including, without limitation and whether or not patentable, processes, skills, information, know-how, trade secrets, data, designs, formulae, algorithms, specifications, samples, source code, object code, mask works, employee information and records, methods, techniques, compilations, computer programs, devices, concepts, inventions, developments, discoveries, improvements, and commercial or financial information, in any form, including, without limitation, oral, written, graphic, demonstrative, machine recognizable, specimen or sample form. Confidential information shall also include any information described above which WORLDSPACE obtains from another party and which EXECUTIVE knew or should have known was intended to be maintained as confidential by WORLDSPACE or was designated as proprietary.

1.6 “Conflicting Product or Service” means any product or service of any person or organization in the satellite radio business or related business other than WORLDSPACE, in existence or under development, which resembles or competes with a product or service of WORLDSPACE, or about which he acquired Confidential Information through his work with WORLDSPACE. For purposes of this Agreement a related business would be one which competes for the same customer base as WORLDSPACE and which offers a product that a typical customer would make an either/or buying decision in considering WORLDSPACE or the related business’s product.

1.7 “Conflicting Organization” means any person or organization engaged in, or about to become engaged in, research on or development, production, marketing, or selling of a Conflicting Product or Service.

1.8 “Date of Termination” means (a) the effective date on which EXECUTIVE’s employment by WORLDSPACE and/or its Affiliates terminates as specified in a Notice of Termination by WORLDSPACE or EXECUTIVE, as the case may be, or (b) if EXECUTIVE’s employment by WORLDSPACE and/or its Affiliates terminates by reason of death, the date of death of EXECUTIVE. Notwithstanding the previous sentence, (i) if the EXECUTIVE’s employment is terminated for Disability (as defined in Section 1.9) then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received, and (ii) if the EXECUTIVE’s employment is terminated by WORLDSPACE and/or its Affiliates other than for Cause, then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received.

1.9 “Disability” means EXECUTIVE’s failure to substantially perform his duties with WORLDSPACE and/or its Affiliates on a full-time basis for at least one hundred eighty (180) consecutive days or two hundred and ten (210) days in any twelve month period as a result of EXECUTIVE’s incapacity due to mental or physical illness.

1.10 “Good Reason” means, without EXECUTIVE’s express written consent, the occurrence of any of the following events:

(a) (i) the assignment to EXECUTIVE of any duties inconsistent in any material adverse respect with EXECUTIVE’s position(s), duties, responsibilities, or status with

WORLDSPACE and/or its Affiliates immediately prior thereto, (ii) a material adverse change in EXECUTIVE’s reporting responsibilities, titles or offices with WORLDSPACE and/or its Affiliates as in effect immediately prior thereto, or (iii) any removal or involuntary termination of EXECUTIVE by WORLDSPACE and/or its Affiliates otherwise than as expressly permitted by this Agreement (including any purported termination of employment which is not effected by a Notice of Termination), or (iv) any failure to re-elect EXECUTIVE to any position with WORLDSPACE and/or its Affiliates held by EXECUTIVE immediately prior thereto;

(b) a reduction by WORLDSPACE and/or its Affiliates in EXECUTIVE’s rate of annual Base Salary as in effect immediately prior thereto;

(c) a reduction by WORLDSPACE and/or its Affiliates of the level of EXECUTIVE’s Incentive Compensation opportunity in effect immediately prior thereto;

(d) the failure of WORLDSPACE and/or its Affiliates to (i) provide EXECUTIVE and EXECUTIVE’s dependents with welfare benefits (including, without limitation, medical, prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs, and policies of WORLDSPACE and/or its Affiliates in effect for EXECUTIVE immediately prior thereto or as is in effect for other senior U.S. executives of WORLDSPACE and/or any of its Affiliates, or (ii) provide fringe benefits and perquisites in accordance with the plans, practices, programs, and policies of WORLDSPACE and/or its Affiliates in effect for its U.S. executives immediately prior thereto or as is in effect for other senior executives of WORLDSPACE and/or any of its Affiliates;

(e) the failure of WORLDSPACE and/or its Affiliates to pay on a timely basis any amounts owed EXECUTIVE as salary, bonus, deferred compensation or other compensation;

(f) the failure of WORLDSPACE to obtain a written assumption agreement from any successor as contemplated in Section 8.8;

(g) the refusal by WORLDSPACE and/or its Affiliates to continue to allow EXECUTIVE, as set forth in Section 2.3(b) hereof, to attend to matters or engage in activities not directly related to the business of WORLDSPACE and/or its Affiliates which were permitted by WORLDSPACE and/or its Affiliates immediately prior thereto, including without limitation serving on the boards of directors of other companies or entities, except pursuant to a policy of WORLDSPACE applicable to its U.S. executives generally;

(h) the purported termination of EXECUTIVE’s employment which is not effected pursuant to a Notice of Termination which satisfies the requirements of a Notice of Termination; or

(i) any other material breach by WORLDSPACE of its obligations under this Agreement.

For purposes of this Agreement, any claimed Good Reason event which is remedied by WORLDSPACE and/or its Affiliates within thirty (30) days after receipt of a Notice of Termination given by EXECUTIVE shall not constitute Good Reason, and provided further that EXECUTIVE shall be deemed to have consented to a Good Reason event unless he shall have provided a Notice of Termination with respect to a Good Reason event within forty five (45) days of the first occurrence of such Good Reason event. No Good Reason event shall be deemed to have occurred unless EXECUTIVE provides

WORLDSPACE with a Notice of Termination within forty five (45) days of the initial occurrence of the claimed Good Reason event which provides details of the claimed Good Reason event and cites the provision of this Section 1.10 on which EXECUTIVE relies.

1.11 “Inventions” means inventions, designs, discoveries, developments, creations, and improvements created, discovered, developed or conceived, regardless of whether reduced to practice.

1.12 “Nonqualifying Termination” means a termination of EXECUTIVE’s employment (a) by WORLDSPACE and/or its Affiliates properly and rightly for Cause, (b) by EXECUTIVE for any reason other than for Good Reason with Notice of Termination, (c) as a result of EXECUTIVE’s death, (d) by WORLDSPACE and/or its Affiliates due to EXECUTIVE’s Disability, unless within thirty (30) days after Notice of Termination is provided to EXECUTIVE following such Disability EXECUTIVE shall have returned to substantial performance of EXECUTIVE’s duties on a full-time basis, or (e) as a result of EXECUTIVE’s Retirement.

1.13 “Notice of Termination” means a written notice by WORLDSPACE or EXECUTIVE, as the case may be, to the other, which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of EXECUTIVE’s employment under the provision so indicated, and (iii) specifies the termination date. The failure by EXECUTIVE or WORLDSPACE to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of EXECUTIVE or WORLDSPACE hereunder or preclude EXECUTIVE or WORLDSPACE from asserting such fact or circumstance in enforcing EXECUTIVE’s or WORLDSPACE’s rights hereunder.

1.14 “Retirement” means termination of employment by either the EXECUTIVE or WORLDSPACE and/or its Affiliates on or after the EXECUTIVE’s attainment of age 70.

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

ARTICLE 2

EMPLOYMENT

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

2.2 Term. Subject to the provisions of Article 4 hereof, WORLDSPACE shall employ EXECUTIVE for a term of three (3) years commencing as of the Effective Date and continuing to and including May 11, 2009. The term (as herein extended) shall automatically be extended by one (1) additional year unless, at least three (3) months prior to the end of the term or any anniversary thereof, WORLDSPACE shall deliver to EXECUTIVE or EXECUTIVE shall deliver to WORLDSPACE, written notice that the term shall not be so extended.

2.3 Duties. As Co-Chief Operating Officer of WORLDSPACE, EXECUTIVE shall have the duties and responsibilities as may from time to time reasonably be assigned to or vested in EXECUTIVE by the Board consistent with his position.

(a) EXECUTIVE’s employment with WORLDSPACE shall be full-time and exclusive. During the term of employment, EXECUTIVE shall, except during periods of vacation, sick leave, or other duly authorized leave of absence, devote the whole of EXECUTIVE’s time, attention, skill, and ability during usual business hours (and outside those hours when reasonably necessary to EXECUTIVE’s duties hereunder) to the faithful and diligent performance of EXECUTIVE’s duties hereunder. EXECUTIVE acknowledges and agrees that EXECUTIVE may be required, without additional compensation, to perform services for any Affiliates, and to accept such office or position with any Affiliate as the Board may reasonably require, including, but not limited to, service as an officer or director of WORLDSPACE or any Affiliate. The details of any such office or position (including any applicable insurance coverage, compensation (if any) and employment arrangements) with an Affiliate will be detailed before EXECUTIVE assumes such role. EXECUTIVE will have the right to decline any office or position with an Affiliate without breaching the terms of this Agreement in the event concerns with respect such an assignment raised in writing by EXECUITVE have not been resolved to the mutual satisfaction of the parties. EXECUTIVE shall comply in all material respects with all applicable policies of WORLDSPACE and/or its Affiliates as found in the WORLDSPACE Policy Manual, a copy of which has been provided to EXECUTIVE.

(b) During the term of employment, it shall not be a violation of this Agreement for EXECUTIVE to serve as an officer or director of a cooperative housing, or civic or charitable organization or committee, or to manage personal investments, or to serve as a member of the board of directors of a corporation or trade association, so long as such activities (individually or collectively) do not conflict or materially interfere with the performance of EXECUTIVE’s duties hereunder, and/or on a prospective basis, as of the Effective Date, have been reviewed and approved by the Company’s General Counsel.

(c) The reporting relationships and initial duties of EXECUTIVE are outlined in Attachment A.

2.4 Indemnification. WORLDSPACE will provide to EXECUTIVE, its standard indemnification for officers and directors of WORLDSPACE, the premiums for which shall be paid by WORLDSPACE.

ARTICLE 3

COMPENSATION

3.1 Base Salary. For services rendered by EXECUTIVE pursuant to this Agreement, WORLDSPACE agrees to pay EXECUTIVE a base annual salary (“Base Salary”) commencing as of the Effective Date at the annual rate of Four Hundred Fifty Thousand Dollars ($450,000) per year, payable in accordance with WORLDSPACE’s then prevailing executive payroll practices. Base Salary payments will be made to EXECUTIVE at a minimum of once per month, unless otherwise agreed by both parties. Such Base Salary shall be subject to review at least annually on the anniversary of the Effective Date of this Agreement by the Board and may be increased by the Board in its sole discretion but not decreased without the consent of EXECUTIVE (with the first such review to occur not later than May 1, 2007). In considering any such increase, the Board shall consider any increases in the cost of living and may provide for any performance, merit or other increase. The term “Base Salary” as used herein shall include any increases thereto made from time to time as permitted by this Section 3.1.

3.2 Bonuses.

(a) Incentive Compensation. During the term of this Agreement, and subject to the terms and limitations of this Section 3.2(a), EXECUTIVE shall be eligible to earn incentive compensation targeted at seventy-eight percent (78%) of EXECUTIVE’s Base Salary per full calendar year of service commencing with the calendar year ending December 31, 2006 (prorated for any calendar year in which EXECUTIVE is employed for less than 12 full months). EXECUTIVE shall earn incentive compensation based on satisfying specific annual job performance goals or targets to be established for each calendar year in consultation between EXECUTIVE and the Board, provided, however, that in the event of disagreement, the Board shall have the unilateral right, acting in good faith, to establish such goals and targets. Payment of incentive compensation for a given year shall be made at a date of WORLDSPACE’s election on or before March 15^th of the following calendar year. In the event any portion of the incentive compensation paid under this section is paid in equity, and that equity has an associated vesting period, such equity will immediately vest upon termination of the EXECUTIVE from the company or the expiration of this Agreement. Any vested options granted under this section will be exercisable for eighteen (18) months after the EXECUTIVE’S termination unless that termination is for Cause.

(b) Discretionary Bonuses. During the term of this Agreement, EXECUTIVE shall be entitled to such bonuses as may be authorized, declared, and paid by the Board, in its sole discretion. Factors which the Board may, in its sole discretion, and without limitation, consider with respect to any determination by the Board with respect to the payment or amount of such bonus or bonuses among other factors, include EXECUTIVE’s job performance and WORLDSPACE’s financial performance.

(c) Section 162(m). WORLDSPACE may submit to the shareholders of WORLDSPACE for approval an annual incentive compensation and/or bonus program intended to meet the requirements of Section 162(m) of the Code and which is intended to include all or a portion of the incentive compensation and bonus payments to be made to EXECUTIVE under this Section 3.2.

3.3 Participation in Benefit Plans.

(a) Benefit Plans. During the term of this Agreement, EXECUTIVE shall be eligible to participate in any long-term incentive, shares option, employee stock ownership, pension, thrift, profit sharing, group life or disability insurance, medical or dental coverage, education, or other retirement or employee benefit plan or program that WORLDSPACE has adopted or may adopt for the benefit of its employees, on the same basis as other most senior executive employees. Such participation shall be subject to the terms and conditions of such plans or programs, including, but not limited to, such generally applicable eligibility provisions as may be in effect from time to time.

(b) Vacation. EXECUTIVE shall be entitled to paid vacation (initially twenty-five (25) days per calendar year), paid sick leave, and holidays on the same basis as may from time to time apply to other WORLDSPACE senior executive employees generally.

3.4 Participation in Shares Award Plan. EXECUTIVE shall be eligible to receive an award under the WorldSpace 2005 Incentive Award Plan as approved by shareholders on July 7, 2005, which award shall be set forth in an award agreement to be entered into between WORLDSPACE and the EXECUTIVE.

(a) An initial grant of two hundred thousand (200,000) restricted shares of WORLDSPACE Class A common stock effective on the date of the approval by Compensation Committee of the WorldSpace Board (the “Committee”). These shares would vest over a period of time provided certain performance milestones are achieved within the established timeframe as detailed in the relevant Grant Agreement between WORLDSPACE and EXECUTIVE.

(b) An initial grant of stock options of WORLDSPACE Class A common stock with an economic value of one million five hundred thousand dollars ($1,500,000) as calculated using a reasonable valuation methodology approved by the Committee that is consistently applied. The exercise price of these stock options would be equal to the fair-market value of WORLDSPACE Class A common stock (as defined by the WorldSpace 2005 Incentive Award Plan) on the day the Committee approves the grant of stock options.

(c) For each future fiscal year beginning with the 2007 fiscal year, EXECUTIVE shall be eligible to receive an annual grant of restricted stock and/or stock options with a targeted value of one million five hundred thousand dollars ($1,500,000). In establishing and determining the amount of the annual grant, the Committee may, in its discretion, consider such factors as it deems appropriate, which may include, but is not limited to the financial and operational performance of WORLDSPACE. The value of the annual grant under Section 3.4(c) shall be based on a reasonable valuation methodology approved by the Committee that is consistently applied.

3.5 Expenses. WORLDSPACE shall reimburse EXECUTIVE in connection with performance of the services and duties hereunder for all reasonable, ordinary and necessary business expenses actually incurred by EXECUTIVE in connection with such performance, including ordinary and necessary expenses incurred by EXECUTIVE in connection with travel on WORLDSPACE and/or its Affiliates’ business, provided all such expenses have been approved by WORLDSPACE in accordance with and subject to the terms and conditions of WORLDSPACE’s then-prevailing expense policy and any budget established for EXECUTIVE. As a condition precedent to obtaining such reimbursement, EXECUTIVE shall provide to WORLDSPACE any and all statements, bills, or receipts evidencing the expenses for which EXECUTIVE seeks reimbursement, and such other related information or materials as WORLDSPACE may from time to time reasonably require. EXECUTIVE shall account to WORLDSPACE for any expenses that are eligible for reimbursement under this Section 3.6 in accordance with WORLDSPACE policy.

3.6 Employment and Supplies. WORLDSPACE shall provide EXECUTIVE with reasonable administrative support relating to the performance of EXECUTIVE’s duties of the same type and extent as is provided to other WORLDSPACE senior executive employees of a similar level. WORLDSPACE shall acquire and/or provide to EXECUTIVE for his business use: multimedia portable computer and subscriptions to various trade publications (subject to reasonable, advance WORLDSPACE approval) and various trade books (subject to reasonable, advance WORLDSPACE approval). Such items shall remain the exclusive property of WORLDSPACE, are to be used solely for WORLDSPACE’s benefit, and shall be returned promptly to WORLDSPACE upon the termination of EXECUTIVE’s employment for whatever reason.

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

ARTICLE 4

TERMINATION

4.1 Nonqualifying Termination.

If the employment of EXECUTIVE shall terminate during the term of this Agreement (including any extension of such term), by reason of Nonqualifying Termination, then EXECUTIVE shall be paid the EXECUTIVE’s earned but unpaid Base Salary from WORLDSPACE and/or its Affiliates through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given, any thereto unreimbursed expenses, as well as any benefits (including accrued but unused vacation days at the Date of Termination) to which EXECUTIVE was entitled through the Date of Termination.

(a) In addition, in the event that termination of employment is due to EXECUTIVE’s death, WORLDSPACE shall continue to pay EXECUTIVE’s then current Base Salary and bonus payments (based on the bonus payments, as set forth in Section 3.2, awarded to EXECUTIVE in the prior year), to EXECUTIVE’s legal representatives, estate, beneficiaries or heirs, in accordance with WORLDSPACE’s then-prevailing executive payroll practices, through the end of the calendar month following EXECUTIVE’s death, but shall have no further obligation to EXECUTIVE or EXECUTIVE’s legal representatives, estate, beneficiaries or heirs for any compensation, benefits or other payments hereunder. Any non-vested stock options or non-vested restricted shares shall become fully vested. EXECUTIVE or EXECUTIVE’s legal representatives, estate, beneficiaries or heirs shall be entitled to exercise any of EXECUTIVE’s stock options within one year from the Date of Termination, but not beyond the expiration of the term of the stock option.

(b) In addition, in the event the termination of employment is due to EXECUTIVE’s Disability, WORLDSPACE shall continue to pay EXECUTIVE’s then current Base Salary, if any, and bonus payments (based on the bonus payments, as set forth in Section 3.2, awarded to EXECUTIVE in the prior year), and shall continue to make applicable benefits available, to EXECUTIVE, in accordance with WORLDSPACE’s then-prevailing executive payroll practices, through the end of the third calendar month following the Date of Termination. In addition, WORLDSPACE shall continue any health, medical, dental, or similar benefits which EXECUTIVE (and/or members of the EXECUTIVE’s family) was receiving for a period of eighteen (18) months following the Date of Termination, or pay EXECUTIVE an amount equal to the cost of obtaining equivalent coverage. EXECUTIVE’s non-vested stock options and non-vested restricted shares shall become fully vested. EXECUTIVE or EXECUTIVE’s legal representatives, estate, beneficiaries or heirs shall be entitled to exercise any of EXECUTIVE’s vested stock options within one year from the Date of Termination, but not beyond the expiration of the term of the stock option.

(c) In the event that termination of employment is due to EXECUTIVE’s Disability, the payment of benefits under WORLDSPACE’s short-term and long-term disability insurance programs, if any, to the extent payable and received by EXECUTIVE with respect to any period prior to the Date of Termination, shall offset WORLDSPACE’s obligations to pay benefits under Section 4.1(b).

(d) Except as otherwise provided herein or as may be required by law or the terms of any benefit plan, EXECUTIVE’s participation in any benefit plans of WORLDSPACE and/or any of its Affiliates shall terminate as of his Date of Termination.

4.2 Other Than Nonqualifying Termination. If the employment of EXECUTIVE shall terminate during the term of this Agreement (including any extension of such term), other than by reason of Nonqualifying Termination, then EXECUTIVE shall receive the following severance benefits as compensation for services rendered.

(a) Lump Sum Cash Payment. Following the Date of Termination, EXECUTIVE shall receive a lump sum cash payment in an amount equal to the sum of the following:

(i) EXECUTIVE’s unpaid Base Salary from WORLDSPACE and/or its Affiliates through the Date of Termination at the rate in effect (without taking into account any reduction of Base Salary constituting Good Reason), just prior to the time a Notice of Termination is given) plus any benefit awards, bonus payments and incentive awards which pursuant to the terms of any plans have been earned or become payable, to the extent not theretofore paid; and

(ii) any amounts owed for accrued but unused vacation as of the Date of Termination as well as any thereto unreimbursed expenses.

(b) Other Payments. Following the Date of Termination, EXECUTIVE shall receive the following payments:

(i) as payment in lieu of a bonus or other incentive payment to be paid hereunder or under WORLDSPACE’s annual bonus plan or other incentive or other comparable plan for the year of termination, an amount equal to (x) the number of days EXECUTIVE was employed during the year by WORLDSPACE prior to the Date of Termination (y) divided by the number of days in the year (z) multiplied by the amount of bonus and/or other incentive payments awarded to EXECUTIVE for the immediately preceding year, unless the performance and economic circumstances of the Company dictate that no annual bonus or other incentive payments will be paid to any employee of the Company for such period, which amount shall be payable on the date such bonus or other incentive payment would otherwise have been payable, provided that EXECUTIVE is not in violation of Articles 5 and 6 hereof; and

(ii) continuation of EXECUTIVE’s highest annual rate of Base Salary from WORLDSPACE and/or its Affiliates in effect during the 12-month period prior to the Date of Termination payable over twelve (12) months from the Date of Termination in accordance with the payroll practices of WORLDSPACE, provided EXECUTIVE is not in violation of Articles 5 and 6 hereof.

(c) Stock Options and/or Restricted Shares. All stock options and/or restricted shares that have been granted to EXECUTIVE shall immediately vest and become exercisable, and EXECUTIVE shall be entitled to exercise any of his vested stock options within eighteen (18) months after the Date of Termination, but not beyond the expiration of the term of the option.

(d) Loans. Any loans from WORLDSPACE and/or its Affiliates that the EXECUTIVE had outstanding shall remain payable according to their terms.

(e) Benefits. EXECUTIVE, and any spouse and dependents, will be entitled to continued medical, dental and other health benefits under WORLDSPACE’s health benefit plans or programs in which EXECUTIVE participated immediately prior to the Date of Termination for a period of eighteen (18) months after the Date of Termination, which shall include the statutory period of COBRA continuation coverage, provided EXECUTIVE pays the applicable contribution for such coverage charged to similarly situated active employees of WORLDSPACE.

(f) Out-Placement Services. WORLDSPACE shall provide the EXECUTIVE with executive out-placement services for a period of not less than twelve (12) months at a cost not to exceed $25,000 by entering into a contract with a company chosen by EXECUTIVE specializing in such services, subject to the reasonable approval of WORLDSPACE and in accordance with the policies of WORLDSPACE as in effect from time to time.

4.3 Change in Control.

For purposes of this Agreement, a “Change in Control” will occur where after the Effective Date hereof (i) any person or group (other than Noah Samara and any entities controlled by him) becomes the beneficial owner of securities of WORLDSPACE representing more than 40% of the then voting power of WORLDSPACE; (ii) Board members at the Effective Date of this Agreement or who were appointed after the Effective Date by at least two thirds (2/3) of the members of the Board at the time of their appointment no longer constitute two thirds (2/3) of the Board during the term hereof; (iii) a merger/consolidation of WORLDSPACE occurs wherein the WORLDSPACE voting securities immediately prior thereto do not constitute at least 60 percent of the combined voting securities after the merger/consolidation; or (iv) the stockholders approve a plan of complete liquidation or winding-up or an agreement for the sale or disposition of all or substantially all of WORLDSPACE’s assets. WORLDSPACE will (within 30 days of such an event) provide written notice of a Change in Control to EXECUTIVE.

If (i) a Change in Control occurs during the term of this Agreement, and (ii) during the 12-month period following the date of the Change in Control, EXECUTIVE’s employment is terminated by WORLDSPACE or any successor for any reason other than Cause, death or Disability or by the EXECUTIVE for Good Reason, WORLDSPACE will pay the following benefits to the EXECUTIVE.

(a) Lump Sum Cash Payment. Following the Date of Termination, EXECUTIVE shall receive a lump sum cash payment in an amount equal to the sum of the following:

(i) EXECUTIVE’s unpaid Base Salary from WORLDSPACE and/or its Affiliates through the Date of Termination at the rate in effect (without taking into account any reduction of Base Salary constituting Good Reason), just prior to the time a Notice of Termination is given) plus any benefit awards, bonus payments and incentive awards which pursuant to the terms of any plans have been earned or become payable, to the extent not theretofore paid; and

(ii) any amounts owed for accrued but unused vacation as of the Date of Termination as well as any thereto unreimbursed expenses.

(b) Other Payments. Following the Date of Termination, EXECUTIVE shall receive the following payments:

(i) as payment in lieu of a bonus or other incentive payment to be paid hereunder or under WORLDSPACE’s annual bonus plan or other incentive or other comparable plan for the year of termination, an amount equal to (x) the number of days EXECUTIVE was employed during the year by WORLDSPACE prior to the Date of Termination (y) divided by the number of days in the year (z) multiplied by the amount of

bonus and/or other incentive payments awarded to EXECUTIVE for the immediately preceding year, unless the performance and economic circumstances of the Company dictate that no annual bonus or other incentive payments will be paid to any employee of the Company for such period, which amount shall be payable on the date such bonus or other incentive payment would otherwise have been payable, provided that EXECUTIVE is not in violation of Articles 5 and 6 hereof; and

(ii) continuation of EXECUTIVE’s highest annual rate of Base Salary from WORLDSPACE and/or its Affiliates in effect during the 12-month period prior to the Date of Termination payable over the greater of (x) the balance of the term of this agreement or (y) twelve (12) months from the Date of Termination. Such payments will be made in accordance with the payroll practices of WORLDSPACE, provided EXECUTIVE is not in violation of Articles 5 and 6 hereof.

(c) Stock Options and/or Restricted Shares. All stock options and/or restricted shares that have been granted to EXECUTIVE shall immediately vest and become exercisable, and EXECUTIVE shall be entitled to exercise any of his vested stock options within eighteen (18) months after the Date of Termination, but not beyond the expiration of the term of the option.

(d) Loans. Any loans from WORLDSPACE and/or its Affiliates that the EXECUTIVE had outstanding shall remain payable according to their terms.

(e) Benefits. EXECUTIVE, and any spouse and dependents, will be entitled to continued medical, dental and other health benefits under WORLDSPACE’s health benefit plans or programs in which EXECUTIVE participated immediately prior to the Date of Termination for a period equal to the greater of (x) the balance of the term of this agreement or (y) eighteen (18) months after the Date of Termination, which shall include the statutory period of COBRA continuation coverage, provided EXECUTIVE pays the applicable contribution for such coverage charged to similarly situated active employees of WORLDSPACE.

(f) Out-Placement Services. WORLDSPACE shall provide the EXECUTIVE with executive out-placement services for a period of not less than twelve (12) months at a cost not to exceed $25,000 by entering into a contract with a company chosen by EXECUTIVE specializing in such services, subject to the reasonable approval of WORLDSPACE and in accordance with the policies of WORLDSPACE as in effect from time to time.

4.4 Change of Control Penalties. Notwithstanding anything in this Agreement to the contrary, in the event that it is determined (as hereinafter provided) that any payment or distribution by WORLDSPACE or any of its Affiliates or any other person in connection with the Change in Control to or for the benefit of EXECUTIVE, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, or the lapse or termination of any restriction on, or the vesting or exercisability of, any stock option, restricted stock award or other awards valued in whole or in part by reference to, or otherwise based on, stock (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), and the EXECUTIVE would receive a greater net after-tax amount (taking into account all applicable taxes payable by the EXECUTIVE, including any excise tax under Section 4999 of the Code) by applying the limitation contained in this Section 4.4, then the Payments to EXECUTIVE hereunder plus any other

amounts treated as “change of control payments” under Section 280G of the Code, shall be reduced (but not below zero) to the maximum amount which may be paid hereunder without the EXECUTIVE becoming subject to such an excise tax under Section 4999 of the Code (such reduced payments to be referred to as the “Payment Cap”). In the event that the EXECUTIVE receives reduced payments and benefits hereunder, the EXECUTIVE shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap.

4.5 Resignations. Except to the extent requested by the Board, upon any termination of EXECUTIVE’s employment with WORLDSPACE, EXECUTIVE will immediately resign all positions and directorships with WORLDSPACE and each of its Affiliates.

4.6 Release. The right of EXECUTIVE to receive termination payments and benefits under Sections 4.2 and 4.3 is conditioned on the execution (and non-revocation) by EXECUTIVE of a general release of claims against WORLDSPACE in a form reasonably satisfactory to WORLDSPACE. Such release of claims will be substantially in the form of the draft release of claims attached hereto as Attachment B.

4.7 Mitigation and Offset. Except as otherwise provided herein, EXECUTIVE shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. That is to say, no income or benefit for EXECUTIVE’s employment with a company other than WORLDSPACE will be used to offset or mitigate benefits hereunder.

ARTICLE 5

RESTRICTIVE COVENANTS

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

5.2 Unfair Competition. For a period of one (1) year after the Date of Termination, or, if longer, for the period EXECUTIVE continues to receive Base Salary payments following the Date of

Termination, EXECUTIVE shall not, directly or indirectly, and whether or not for compensation, as a shareholder owning beneficially or of record more than five percent (5%) of the outstanding shares of any class of shares of an issuer, or as an officer, director, employee, consultant, partner, joint venturer, proprietor, or otherwise, engage in or become interested in any Conflicting Organization in connection with research, development, consulting, manufacturing, purchasing, accounting, engineering, marketing, merchandising or selling of any Conflicting Product or Service, directly or indirectly, in competition with WORLDSPACE or any of its Affiliates (or any of their successors) as conducted from time to time during such period. For the avoidance of doubt, such provision will not apply in the event this Agreement expires at the end of the specified term or at the end of the one-year extension period. For a period of one (1) year after the Date of Termination, EXECUTIVE shall not, without the prior written consent of WORLDSPACE, solicit or hire or induce the termination of employment of any employees or other personnel providing services to WORLDSPACE or any of its Affiliates, for any business activity, other than a business activity owned or controlled, directly or indirectly, by WORLDSPACE or any of its Affiliates.

5.3 Injunctive Relief; Survival.

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

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

ARTICLE 6

INVENTIONS, WORKS OF AUTHORSHIP,

PATENTS AND COPYRIGHTS

6.1 Ownership of Inventions and Works of Authorship. EXECUTIVE agrees that all Inventions made, conceived, discovered, developed or reduced to practice by EXECUTIVE and all software and other Works of Authorship created by EXECUTIVE, either alone or with others, at any time, within or without normal working hours, during or prior to the term of this Agreement, arising out of the EXECUTIVE’s employment with WORLDSPACE and/or any of its Affiliates or based upon Confidential Information, or pertinent to any field of business or research in which, during such employment, WORLDSPACE or any Affiliate thereof is engaged or (if such is known or ascertainable by EXECUTIVE) is considering engaging, whether or not patented or patentable, shall be and remain the sole property of WORLDSPACE or its Affiliates with respect to all rights of EXECUTIVE arising from any discovery, conception, development, reduction to practice, or creation by EXECUTIVE. WORLDSPACE shall have the full right to assign, license, or transfer all rights thereto. EXECUTIVE agrees that all such Inventions and Works of Authorship are “works made for hire” under applicable law and EXECUTIVE waives and agrees never to assert any “moral rights” with respect to such Inventions and Works of Authorship.

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

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

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

ARTICLE 7

DISPUTE RESOLUTION; AGREEMENT TO ARBITRATE

7.1 General. The parties agree to perform the terms of this Agreement in good faith, and to attempt to resolve any disputes that may arise between them through good faith negotiations. Accordingly, prior to either WORLDSPACE or EXECUTIVE initiating any arbitration proceeding with respect to any controversy, claim, or dispute arising out of or related to this Agreement or with respect to the validity, construction, interpretation or performance of this Agreement, they shall first undertake the following steps:

(a) First, the aggrieved party will notify the other party in writing of the nature, scope, and basis of the dispute or controversy. Within 15 days of such notice, the parties will meet at a mutually acceptable time and place, in person, to negotiate in good faith a resolution to the dispute or controversy described in the aggrieved party’s notice. As used in this section, “in person” means physically present, and shall not include telephonic or videoconferences. No attorneys representing either party may be present at this meeting, unless otherwise agreed by each of the parties. However, if the parties forsee that an additional meeting before the time described in (b) below with the presence of attorneys may be productive, such meeting maybe arranged by mutual agreement.

(b) Second, if, within 15 days of the meeting described in Section 7.1 (a) above, the parties fail to resolve the dispute or controversy set forth in the aggrieved party’s notice, then, and only then, may either party institute an arbitration proceeding described in Section 7.2 below.

(c) All negotiations pursuant to this Section shall be considered and kept confidential and shall be treated as compromise and settlement negotiations as they would be treated under the Federal Rules of Evidence and applicable state rules of evidence.

7.2 Binding Arbitration. All claims, disputes, and controversies arising out of or in relation to the performance, interpretation, application, or enforcement of this Agreement, including but not limited to breach thereof (except any dispute relating to Articles 5 or 6 of this Agreement), not resolved by the parties shall be referred to arbitration before a single, independent third party who will be selected by mutual agreement of the parties or, if such agreement is not reached within one week of either party seeking such agreement, then in accordance with Employment Dispute Resolution Rules of the American Arbitration Association. Judgment upon the Award rendered by the arbitrator may be entered in any court of competent jurisdiction. Any arbitration pursuant to this Article 7 shall take place in the State of Maryland, or such other place, as the parties shall mutually agree.

ARTICLE 8

MISCELLANEOUS

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

If to EXECUTIVE:

Alexander P. Brown

PO Box 1938

Quogue, NY 11959

If to WORLDSPACE:

WorldSpace, Inc.

Attn: General Counsel

8515 Georgia Avenue

Silver Spring, MD 20910

Tel: +1 301-960-1200

Fax: +1 301-960-2200

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

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

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

8.4 Severability. In case any provision of this Agreement shall be held illegal, unenforceable or void, such illegality, unenforceability or invalidity shall not affect the remaining provisions of this Agreement, but shall be fully severable, and this Agreement shall be construed and enforced as if said illegal, unenforceable, or invalid provisions had never been inserted herein.

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

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

8.7 Additional Obligations. Both during and after the term of employment, EXECUTIVE shall, upon reasonable notice, furnish WORLDSPACE with such information as may be in EXECUTIVE’s possession or control, and cooperate with WORLDSPACE, as may reasonably be requested by WORLDSPACE (and, after the term of employment, with due consideration for EXECUTIVE’s obligations with respect to any new employment or business activity) in connection with any litigation or other adversarial proceeding in which WORLDSPACE or any Affiliate is or may become a party. WORLDSPACE shall reimburse EXECUTIVE for all reasonable expenses incurred by EXECUTIVE in fulfilling EXECUTIVE’s obligations under this Article 8.7.

8.8 Successors; Binding Agreement. This Agreement shall be binding upon and inure to the benefit of WORLDSPACE, EXECUTIVE and each of their respective successors, assigns, personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, as applicable; provided, however, that neither this Agreement nor any rights or obligations hereunder will be

assignable or otherwise subject to hypothecation by EXECUTIVE (except by will or by operation of the laws of intestate succession) or by WORLDSPACE, except that WORLDSPACE may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets, or businesses of WORLDSPACE, if such successor expressly agrees unconditionally to assume all of the obligations of WORLDSPACE hereunder pursuant to a written agreement delivered to EXECUTIVE.

8.9 Beneficiaries. If EXECUTIVE shall die while any amounts would be payable to EXECUTIVE hereunder had EXECUTIVE continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by EXECUTIVE to receive such amounts or, if no person is so appointed, to EXECUTIVE’s estate.

8.10 Obligation to Make Payments.

(a) WORLDSPACE’s obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which WORLDSPACE and/or its Affiliates may have against EXECUTIVE or others. In no event shall EXECUTIVE be obligated to seek other employment or take any action by way of mitigation of the amounts payable to EXECUTIVE under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not EXECUTIVE obtains other employment

(b) If there shall be any dispute between WORLDSPACE and/or its Affiliates and EXECUTIVE in the event of any termination of EXECUTIVE’s employment then, until there is a final, nonappealable, determination pursuant to arbitration declaring that such termination was for Cause, that the determination by EXECUTIVE of the existence of Good Reason was not made in good faith, or that WORLDSPACE and/or its Affiliates are not otherwise obligated to pay any amount or provide any benefit to EXECUTIVE and his dependents or other beneficiaries, as the case may be, under Article 4, WORLDSPACE shall pay all amounts, and provide all benefits, to EXECUTIVE and his dependents or other beneficiaries, as the case may be, that WORLDSPACE and/or its Affiliates would be required to pay or provide pursuant to Article 4 as though such termination were by WORLDSPACE and/or its Affiliates without Cause or by EXECUTIVE with Good Reason; provided, however, that WORLDSPACE shall not be required to pay any disputed amounts pursuant to this Section 8.10 except upon receipt of an undertaking by or on behalf of EXECUTIVE to repay all such amounts to which EXECUTIVE is ultimately determined by the arbitrator not to be entitled.

8.11 Date of Payment. To the extent required by Section 409A of the Code to avoid any penalties on EXECUTIVE, payments to EXECUTIVE hereunder, and under any other agreement with the EXECUTIVE, upon termination of employment shall be distributed on the later of (i) the dates specified in this Agreement or any other agreement with WORLDSPACE, and (ii) six (6) months after the Date of Termination.

8.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, WORLDSPACE has caused this Agreement to be executed by a duly authorized officer of WORLDSPACE. EXECUTIVE has executed this Agreement as of the day and written below.

ACCEPTED AND AGREED TO:		WORLDSPACE, INC.
By	/s/ Alexander P. Brown	By	/s/ Noah A. Samara
	Executive	Name:	Noah A. Samara
		Title:	Chairman, Chief Executive Officer and President

EX-10.2

Exhibit 10.2

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT is effective as of May 12, 2006 (the “Effective Date”), by and between WorldSpace, Inc. (“WORLDSPACE”), a Delaware corporation, having a place of business at 8515 Georgia Avenue, Silver Spring, Maryland 20910, and Gregory B. Armstrong (“EXECUTIVE”), a resident of Colorado.

WHEREAS, WORLDSPACE is engaged in the development, implementation and operation of an international digital direct audio, data and multimedia satellite service to portable receivers (the “WORLDSPACE System”); and

WHEREAS, EXECUTIVE will serve as a key employee of WORLDSPACE and/or its Affiliates and his services and knowledge are valuable to WORLDSPACE in connection with the management of one or more of WORLDSPACE’s principal operating facilities, divisions, or subsidiaries; and

WHEREAS, WORLDSPACE considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of WORLDSPACE and its shareholders; and

WHEREAS, EXECUTIVE has accumulated substantial expertise and management experience in substantive areas which are material to WORLDSPACE’S business and EXECUTIVE is willing to bring this expertise to WORLDSPACE upon the terms and conditions herein contained.

WHEREAS, the Board has determined that it is in the best interests of WORLDSPACE and its shareholders to secure EXECUTIVE’s services and to ensure EXECUTIVE’s continued dedication and objectivity, and to encourage EXECUTIVE’s full attention and dedication to WORLDSPACE and/or its Affiliates, and, in order to further such goals, the Board (as hereinafter defined) has authorized WORLDSPACE to enter into this Agreement.

NOW, THEREFORE, WORLDSPACE AND EXECUTIVE AGREE AS FOLLOWS:

ARTICLE 1

DEFINITIONS

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

1.1 “Affiliate” means any corporation, partnership or other entity controlling, controlled by, or under common control with WORLDSPACE, by virtue of direct or indirect beneficial ownership of voting securities or of voting interest in the controlled entity.

1.2 “Board” means the Board of Directors of WorldSpace, Inc. as in office from time to time.

1.3 “Cause” means (a) EXECUTIVE’S willful or gross misconduct, willful or gross negligence in the performance of his duties for WORLDSPACE, or intentional or habitual neglect of his duties at WORLDSPACE, provided that WORLDSPACE shall have given EXECUTIVE formal written notice specifying in sufficient detail the conduct it believes to fall within this sentence and EXECUTIVE shall have failed to remedy such conduct within ten (10) days thereafter; or (b) EXECUTIVE’s theft or misappropriation of funds of WORLDSPACE or conviction of a felony relating to his services for WORLDSPACE.

1.4 “Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

1.5 “Confidential Information” means all information which EXECUTIVE knew or should have known was proprietary to WORLDSPACE or was designated as proprietary by WORLDSPACE or learned by EXECUTIVE during the term of employment and not generally known by non-WORLDSPACE employees, including, without limitation, any and all general and specific knowledge, experience, information and data, technical or nontechnical business plans, business strategies, marketing strategies, including, without limitation and whether or not patentable, processes, skills, information, know-how, trade secrets, data, designs, formulae, algorithms, specifications, samples, source code, object code, mask works, employee information and records, methods, techniques, compilations, computer programs, devices, concepts, inventions, developments, discoveries, improvements, and commercial or financial information, in any form, including, without limitation, oral, written, graphic, demonstrative, machine recognizable, specimen or sample form. Confidential information shall also include any information described above which WORLDSPACE obtains from another party and which EXECUTIVE knew or should have known was intended to be maintained as confidential by WORLDSPACE or was designated as proprietary.

1.6 “Conflicting Product or Service” means any product or service of any person or organization in the satellite radio business or related business other than WORLDSPACE, in existence or under development, which resembles or competes with a product or service of WORLDSPACE, or about which he acquired Confidential Information through his work with WORLDSPACE. For purposes of this Agreement a related business would be one which competes for the same customer base as WORLDSPACE and which offers a product that a typical customer would make an either/or buying decision in considering WORLDSPACE or the related business’s product.

1.7 “Conflicting Organization” means any person or organization engaged in, or about to become engaged in, research on or development, production, marketing, or selling of a Conflicting Product or Service.

1.8 “Date of Termination” means (a) the effective date on which EXECUTIVE’s employment by WORLDSPACE and/or its Affiliates terminates as specified in a Notice of Termination by WORLDSPACE or EXECUTIVE, as the case may be, or (b) if EXECUTIVE’s employment by WORLDSPACE and/or its Affiliates terminates by reason of death, the date of death of EXECUTIVE. Notwithstanding the previous sentence, (i) if the EXECUTIVE’s employment is terminated for Disability (as defined in Section 1.9) then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received, and (ii) if the EXECUTIVE’s employment is terminated by WORLDSPACE and/or its Affiliates other than for Cause, then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received.

1.9 “Disability” means EXECUTIVE’s failure to substantially perform his duties with WORLDSPACE and/or its Affiliates on a full-time basis for at least one hundred eighty (180) consecutive days or two hundred and ten (210) days in any twelve month period as a result of EXECUTIVE’s incapacity due to mental or physical illness.

1.10 “Good Reason” means, without EXECUTIVE’s express written consent, the occurrence of any of the following events:

(a) (i) the assignment to EXECUTIVE of any duties inconsistent in any material adverse respect with EXECUTIVE’s position(s), duties, responsibilities, or status with

WORLDSPACE and/or its Affiliates immediately prior thereto, (ii) a material adverse change in EXECUTIVE’s reporting responsibilities, titles or offices with WORLDSPACE and/or its Affiliates as in effect immediately prior thereto, or (iii) any removal or involuntary termination of EXECUTIVE by WORLDSPACE and/or its Affiliates otherwise than as expressly permitted by this Agreement (including any purported termination of employment which is not effected by a Notice of Termination), or (iv) any failure to re-elect EXECUTIVE to any position with WORLDSPACE and/or its Affiliates held by EXECUTIVE immediately prior thereto;

(b) a reduction by WORLDSPACE and/or its Affiliates in EXECUTIVE’s rate of annual Base Salary as in effect immediately prior thereto;

(c) a reduction by WORLDSPACE and/or its Affiliates of the level of EXECUTIVE’s Incentive Compensation opportunity in effect immediately prior thereto;

(d) the failure of WORLDSPACE and/or its Affiliates to (i) provide EXECUTIVE and EXECUTIVE’s dependents with welfare benefits (including, without limitation, medical, prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs, and policies of WORLDSPACE and/or its Affiliates in effect for EXECUTIVE immediately prior thereto or as is in effect for other senior U.S. executives of WORLDSPACE and/or any of its Affiliates, or (ii) provide fringe benefits and perquisites in accordance with the plans, practices, programs, and policies of WORLDSPACE and/or its Affiliates in effect for its U.S. executives immediately prior thereto or as is in effect for other senior executives of WORLDSPACE and/or any of its Affiliates;

(e) the failure of WORLDSPACE and/or its Affiliates to pay on a timely basis any amounts owed EXECUTIVE as salary, bonus, deferred compensation or other compensation;

(f) the failure of WORLDSPACE to obtain a written assumption agreement from any successor as contemplated in Section 8.8;

(g) the refusal by WORLDSPACE and/or its Affiliates to continue to allow EXECUTIVE, as set forth in Section 2.3(b) hereof, to attend to matters or engage in activities not directly related to the business of WORLDSPACE and/or its Affiliates which were permitted by WORLDSPACE and/or its Affiliates immediately prior thereto, including without limitation serving on the boards of directors of other companies or entities, except pursuant to a policy of WORLDSPACE applicable to its U.S. executives generally;

(h) the purported termination of EXECUTIVE’s employment which is not effected pursuant to a Notice of Termination which satisfies the requirements of a Notice of Termination; or

(i) any other material breach by WORLDSPACE of its obligations under this Agreement.

For purposes of this Agreement, any claimed Good Reason event which is remedied by WORLDSPACE and/or its Affiliates within thirty (30) days after receipt of a Notice of Termination given by EXECUTIVE shall not constitute Good Reason, and provided further that EXECUTIVE shall be deemed to have consented to a Good Reason event unless he shall have provided a Notice of Termination with respect to a Good Reason event within forty five (45) days of the first occurrence of such Good Reason event. No Good Reason event shall be deemed to have occurred unless EXECUTIVE provides

WORLDSPACE with a Notice of Termination within forty five (45) days of the initial occurrence of the claimed Good Reason event which provides details of the claimed Good Reason event and cites the provision of this Section 1.10 on which EXECUTIVE relies.

1.11 “Inventions” means inventions, designs, discoveries, developments, creations, and improvements created, discovered, developed or conceived, regardless of whether reduced to practice.

1.12 “Nonqualifying Termination” means a termination of EXECUTIVE’s employment (a) by WORLDSPACE and/or its Affiliates properly and rightly for Cause, (b) by EXECUTIVE for any reason other than for Good Reason with Notice of Termination, (c) as a result of EXECUTIVE’s death, (d) by WORLDSPACE and/or its Affiliates due to EXECUTIVE’s Disability, unless within thirty (30) days after Notice of Termination is provided to EXECUTIVE following such Disability EXECUTIVE shall have returned to substantial performance of EXECUTIVE’s duties on a full-time basis, or (e) as a result of EXECUTIVE’s Retirement.

1.13 “Notice of Termination” means a written notice by WORLDSPACE or EXECUTIVE, as the case may be, to the other, which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of EXECUTIVE’s employment under the provision so indicated, and (iii) specifies the termination date. The failure by EXECUTIVE or WORLDSPACE to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of EXECUTIVE or WORLDSPACE hereunder or preclude EXECUTIVE or WORLDSPACE from asserting such fact or circumstance in enforcing EXECUTIVE’s or WORLDSPACE’s rights hereunder.

1.14 “Retirement” means termination of employment by either the EXECUTIVE or WORLDSPACE and/or its Affiliates on or after the EXECUTIVE’s attainment of age 70.

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

ARTICLE 2

EMPLOYMENT

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

2.2 Term. Subject to the provisions of Article 4 hereof, WORLDSPACE shall employ EXECUTIVE for a term of three (3) years commencing as of the Effective Date and continuing to and including May 11, 2009. The term (as herein extended) shall automatically be extended by one (1) additional year unless, at least three (3) months prior to the end of the term or any anniversary thereof, WORLDSPACE shall deliver to EXECUTIVE or EXECUTIVE shall deliver to WORLDSPACE, written notice that the term shall not be so extended.

2.3 Duties. As Co-Chief Operating Officer of WORLDSPACE, EXECUTIVE shall have the duties and responsibilities as may from time to time reasonably be assigned to or vested in EXECUTIVE by the Board consistent with his position.

(a) EXECUTIVE’s employment with WORLDSPACE shall be full-time and exclusive. During the term of employment, EXECUTIVE shall, except during periods of vacation, sick leave, or other duly authorized leave of absence, devote the whole of EXECUTIVE’s time, attention, skill, and ability during usual business hours (and outside those hours when reasonably necessary to EXECUTIVE’s duties hereunder) to the faithful and diligent performance of EXECUTIVE’s duties hereunder. EXECUTIVE acknowledges and agrees that EXECUTIVE may be required, without additional compensation, to perform services for any Affiliates, and to accept such office or position with any Affiliate as the Board may reasonably require, including, but not limited to, service as an officer or director of WORLDSPACE or any Affiliate. The details of any such office or position (including any applicable insurance coverage, compensation (if any) and employment arrangements) with an Affiliate will be detailed before EXECUTIVE assumes such role. EXECUTIVE will have the right to decline any office or position with an Affiliate without breaching the terms of this Agreement in the event concerns with respect such an assignment raised in writing by EXECUITVE have not been resolved to the mutual satisfaction of the parties. EXECUTIVE shall comply in all material respects with all applicable policies of WORLDSPACE and/or its Affiliates as found in the WORLDSPACE Policy Manual, a copy of which has been provided to EXECUTIVE.

(b) During the term of employment, it shall not be a violation of this Agreement for EXECUTIVE to serve as an officer or director of a cooperative housing, or civic or charitable organization or committee, or to manage personal investments, or to serve as a member of the board of directors of a corporation or trade association, so long as such activities (individually or collectively) do not conflict or materially interfere with the performance of EXECUTIVE’s duties hereunder, and/or on a prospective basis, as of the Effective Date, have been reviewed and approved by the Company’s General Counsel.

(c) The reporting relationships and initial duties of EXECUTIVE are outlined in Attachment A.

2.4 Indemnification. WORLDSPACE will provide to EXECUTIVE, its standard indemnification for officers and directors of WORLDSPACE, the premiums for which shall be paid by WORLDSPACE.

ARTICLE 3

COMPENSATION

3.1 Base Salary. For services rendered by EXECUTIVE pursuant to this Agreement, WORLDSPACE agrees to pay EXECUTIVE a base annual salary (“Base Salary”) commencing as of the Effective Date at the annual rate of Four Hundred Fifty Thousand Dollars ($450,000) per year, payable in accordance with WORLDSPACE’s then prevailing executive payroll practices. Base Salary payments will be made to EXECUTIVE at a minimum of once per month, unless otherwise agreed by both parties. Such Base Salary shall be subject to review at least annually on the anniversary of the Effective Date of this Agreement by the Board and may be increased by the Board in its sole discretion but not decreased without the consent of EXECUTIVE (with the first such review to occur not later than May 1, 2007). In considering any such increase, the Board shall consider any increases in the cost of living and may provide for any performance, merit or other increase. The term “Base Salary” as used herein shall include any increases thereto made from time to time as permitted by this Section 3.1.

3.2 Bonuses.

(a) Incentive Compensation. During the term of this Agreement, and subject to the terms and limitations of this Section 3.2(a), EXECUTIVE shall be eligible to earn incentive compensation targeted at seventy-eight percent (78%) of EXECUTIVE’s Base Salary per full calendar year of service commencing with the calendar year ending December 31, 2006 (prorated for any calendar year in which EXECUTIVE is employed for less than 12 full months). EXECUTIVE shall earn incentive compensation based on satisfying specific annual job performance goals or targets to be established for each calendar year in consultation between EXECUTIVE and the Board, provided, however, that in the event of disagreement, the Board shall have the unilateral right, acting in good faith, to establish such goals and targets. Payment of incentive compensation for a given year shall be made at a date of WORLDSPACE’s election on or before March 15^th of the following calendar year. In the event any portion of the incentive compensation paid under this section is paid in equity, and that equity has an associated vesting period, such equity will immediately vest upon termination of the EXECUTIVE from the company or the expiration of this Agreement. Any vested options granted under this section will be exercisable for eighteen (18) months after the EXECUTIVE’S termination unless that termination is for Cause.

(b) Discretionary Bonuses. During the term of this Agreement, EXECUTIVE shall be entitled to such bonuses as may be authorized, declared, and paid by the Board, in its sole discretion. Factors which the Board may, in its sole discretion, and without limitation, consider with respect to any determination by the Board with respect to the payment or amount of such bonus or bonuses among other factors, include EXECUTIVE’s job performance and WORLDSPACE’s financial performance.

(c) Section 162(m). WORLDSPACE may submit to the shareholders of WORLDSPACE for approval an annual incentive compensation and/or bonus program intended to meet the requirements of Section 162(m) of the Code and which is intended to include all or a portion of the incentive compensation and bonus payments to be made to EXECUTIVE under this Section 3.2.

3.3 Participation in Benefit Plans.

(a) Benefit Plans. During the term of this Agreement, EXECUTIVE shall be eligible to participate in any long-term incentive, shares option, employee stock ownership, pension, thrift, profit sharing, group life or disability insurance, medical or dental coverage, education, or other retirement or employee benefit plan or program that WORLDSPACE has adopted or may adopt for the benefit of its employees, on the same basis as other most senior executive employees. Such participation shall be subject to the terms and conditions of such plans or programs, including, but not limited to, such generally applicable eligibility provisions as may be in effect from time to time.

(b) Vacation. EXECUTIVE shall be entitled to paid vacation (initially twenty-five (25) days per calendar year), paid sick leave, and holidays on the same basis as may from time to time apply to other WORLDSPACE senior executive employees generally.

3.4 Participation in Shares Award Plan. EXECUTIVE shall be eligible to receive an award under the WorldSpace 2005 Incentive Award Plan as approved by shareholders on July 7, 2005, which award shall be set forth in an award agreement to be entered into between WORLDSPACE and the EXECUTIVE.

(a) An initial grant of two hundred thousand (200,000) restricted shares of WORLDSPACE Class A common stock effective on the date of the approval by Compensation Committee of the WorldSpace Board (the “Committee”). These shares would vest over a period of time provided certain performance milestones are achieved within the established timeframe as detailed in the relevant Grant Agreement between WORLDSPACE and EXECUTIVE.

(b) An initial grant of stock options of WORLDSPACE Class A common stock with an economic value of one million five hundred thousand dollars ($1,500,000) as calculated using a reasonable valuation methodology approved by the Committee that is consistently applied. The exercise price of these stock options would be equal to the fair-market value of WORLDSPACE Class A common stock (as defined by the WorldSpace 2005 Incentive Award Plan) on the day the Committee approves the grant of stock options.

(c) For each future fiscal year beginning with the 2007 fiscal year, EXECUTIVE shall be eligible to receive an annual grant of restricted stock and/or stock options with a targeted value of one million five hundred thousand dollars ($1,500,000). In establishing and determining the amount of the annual grant, the Committee may, in its discretion, consider such factors as it deems appropriate, which may include, but is not limited to the financial and operational performance of WORLDSPACE. The value of the annual grant under Section 3.4(c) shall be based on a reasonable valuation methodology approved by the Committee that is consistently applied.

3.5 Expenses. WORLDSPACE shall reimburse EXECUTIVE in connection with performance of the services and duties hereunder for all reasonable, ordinary and necessary business expenses actually incurred by EXECUTIVE in connection with such performance, including ordinary and necessary expenses incurred by EXECUTIVE in connection with travel on WORLDSPACE and/or its Affiliates’ business, provided all such expenses have been approved by WORLDSPACE in accordance with and subject to the terms and conditions of WORLDSPACE’s then-prevailing expense policy and any budget established for EXECUTIVE. As a condition precedent to obtaining such reimbursement, EXECUTIVE shall provide to WORLDSPACE any and all statements, bills, or receipts evidencing the expenses for which EXECUTIVE seeks reimbursement, and such other related information or materials as WORLDSPACE may from time to time reasonably require. EXECUTIVE shall account to WORLDSPACE for any expenses that are eligible for reimbursement under this Section 3.6 in accordance with WORLDSPACE policy.

3.6 Employment and Supplies. WORLDSPACE shall provide EXECUTIVE with reasonable administrative support relating to the performance of EXECUTIVE’s duties of the same type and extent as is provided to other WORLDSPACE senior executive employees of a similar level. WORLDSPACE shall acquire and/or provide to EXECUTIVE for his business use: multimedia portable computer and subscriptions to various trade publications (subject to reasonable, advance WORLDSPACE approval) and various trade books (subject to reasonable, advance WORLDSPACE approval). Such items shall remain the exclusive property of WORLDSPACE, are to be used solely for WORLDSPACE’s benefit, and shall be returned promptly to WORLDSPACE upon the termination of EXECUTIVE’s employment for whatever reason.

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

ARTICLE 4

TERMINATION

4.1 Nonqualifying Termination.

If the employment of EXECUTIVE shall terminate during the term of this Agreement (including any extension of such term), by reason of Nonqualifying Termination, then EXECUTIVE shall be paid the EXECUTIVE’s earned but unpaid Base Salary from WORLDSPACE and/or its Affiliates through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given, any thereto unreimbursed expenses, as well as any benefits (including accrued but unused vacation days at the Date of Termination) to which EXECUTIVE was entitled through the Date of Termination.

(a) In addition, in the event that termination of employment is due to EXECUTIVE’s death, WORLDSPACE shall continue to pay EXECUTIVE’s then current Base Salary and bonus payments (based on the bonus payments, as set forth in Section 3.2, awarded to EXECUTIVE in the prior year), to EXECUTIVE’s legal representatives, estate, beneficiaries or heirs, in accordance with WORLDSPACE’s then-prevailing executive payroll practices, through the end of the calendar month following EXECUTIVE’s death, but shall have no further obligation to EXECUTIVE or EXECUTIVE’s legal representatives, estate, beneficiaries or heirs for any compensation, benefits or other payments hereunder. Any non-vested stock options or non-vested restricted shares shall become fully vested. EXECUTIVE or EXECUTIVE’s legal representatives, estate, beneficiaries or heirs shall be entitled to exercise any of EXECUTIVE’s stock options within one year from the Date of Termination, but not beyond the expiration of the term of the stock option.

(b) In addition, in the event the termination of employment is due to EXECUTIVE’s Disability, WORLDSPACE shall continue to pay EXECUTIVE’s then current Base Salary, if any, and bonus payments (based on the bonus payments, as set forth in Section 3.2, awarded to EXECUTIVE in the prior year), and shall continue to make applicable benefits available, to EXECUTIVE, in accordance with WORLDSPACE’s then-prevailing executive payroll practices, through the end of the third calendar month following the Date of Termination. In addition, WORLDSPACE shall continue any health, medical, dental, or similar benefits which EXECUTIVE (and/or members of the EXECUTIVE’s family) was receiving for a period of eighteen (18) months following the Date of Termination, or pay EXECUTIVE an amount equal to the cost of obtaining equivalent coverage. EXECUTIVE’s non-vested stock options and non-vested restricted shares shall become fully vested. EXECUTIVE or EXECUTIVE’s legal representatives, estate, beneficiaries or heirs shall be entitled to exercise any of EXECUTIVE’s vested stock options within one year from the Date of Termination, but not beyond the expiration of the term of the stock option.

(c) In the event that termination of employment is due to EXECUTIVE’s Disability, the payment of benefits under WORLDSPACE’s short-term and long-term disability insurance programs, if any, to the extent payable and received by EXECUTIVE with respect to any period prior to the Date of Termination, shall offset WORLDSPACE’s obligations to pay benefits under Section 4.1(b).

(d) Except as otherwise provided herein or as may be required by law or the terms of any benefit plan, EXECUTIVE’s participation in any benefit plans of WORLDSPACE and/or any of its Affiliates shall terminate as of his Date of Termination.

4.2 Other Than Nonqualifying Termination. If the employment of EXECUTIVE shall terminate during the term of this Agreement (including any extension of such term), other than by reason of Nonqualifying Termination, then EXECUTIVE shall receive the following severance benefits as compensation for services rendered.

(a) Lump Sum Cash Payment. Following the Date of Termination, EXECUTIVE shall receive a lump sum cash payment in an amount equal to the sum of the following:

(i) EXECUTIVE’s unpaid Base Salary from WORLDSPACE and/or its Affiliates through the Date of Termination at the rate in effect (without taking into account any reduction of Base Salary constituting Good Reason), just prior to the time a Notice of Termination is given) plus any benefit awards, bonus payments and incentive awards which pursuant to the terms of any plans have been earned or become payable, to the extent not theretofore paid; and

(ii) any amounts owed for accrued but unused vacation as of the Date of Termination as well as any thereto unreimbursed expenses.

(b) Other Payments. Following the Date of Termination, EXECUTIVE shall receive the following payments:

(i) as payment in lieu of a bonus or other incentive payment to be paid hereunder or under WORLDSPACE’s annual bonus plan or other incentive or other comparable plan for the year of termination, an amount equal to (x) the number of days EXECUTIVE was employed during the year by WORLDSPACE prior to the Date of Termination (y) divided by the number of days in the year (z) multiplied by the amount of bonus and/or other incentive payments awarded to EXECUTIVE for the immediately preceding year, unless the performance and economic circumstances of the Company dictate that no annual bonus or other incentive payments will be paid to any employee of the Company for such period, which amount shall be payable on the date such bonus or other incentive payment would otherwise have been payable, provided that EXECUTIVE is not in violation of Articles 5 and 6 hereof; and

(ii) continuation of EXECUTIVE’s highest annual rate of Base Salary from WORLDSPACE and/or its Affiliates in effect during the 12-month period prior to the Date of Termination payable over twelve (12) months from the Date of Termination in accordance with the payroll practices of WORLDSPACE, provided EXECUTIVE is not in violation of Articles 5 and 6 hereof.

(c) Stock Options and/or Restricted Shares. All stock options and/or restricted shares that have been granted to EXECUTIVE shall immediately vest and become exercisable, and EXECUTIVE shall be entitled to exercise any of his vested stock options within eighteen (18) months after the Date of Termination, but not beyond the expiration of the term of the option.

(d) Loans. Any loans from WORLDSPACE and/or its Affiliates that the EXECUTIVE had outstanding shall remain payable according to their terms.

(e) Benefits. EXECUTIVE, and any spouse and dependents, will be entitled to continued medical, dental and other health benefits under WORLDSPACE’s health benefit plans or programs in which EXECUTIVE participated immediately prior to the Date of Termination for a period of eighteen (18) months after the Date of Termination, which shall include the statutory period of COBRA continuation coverage, provided EXECUTIVE pays the applicable contribution for such coverage charged to similarly situated active employees of WORLDSPACE.

(f) Out-Placement Services. WORLDSPACE shall provide the EXECUTIVE with executive out-placement services for a period of not less than twelve (12) months at a cost not to exceed $25,000 by entering into a contract with a company chosen by EXECUTIVE specializing in such services, subject to the reasonable approval of WORLDSPACE and in accordance with the policies of WORLDSPACE as in effect from time to time.

4.3 Change in Control.

For purposes of this Agreement, a “Change in Control” will occur where after the Effective Date hereof (i) any person or group (other than Noah Samara and any entities controlled by him) becomes the beneficial owner of securities of WORLDSPACE representing more than 40% of the then voting power of WORLDSPACE; (ii) Board members at the Effective Date of this Agreement or who were appointed after the Effective Date by at least two thirds (2/3) of the members of the Board at the time of their appointment no longer constitute two thirds (2/3) of the Board during the term hereof; (iii) a merger/consolidation of WORLDSPACE occurs wherein the WORLDSPACE voting securities immediately prior thereto do not constitute at least 60 percent of the combined voting securities after the merger/consolidation; or (iv) the stockholders approve a plan of complete liquidation or winding-up or an agreement for the sale or disposition of all or substantially all of WORLDSPACE’s assets. WORLDSPACE will (within 30 days of such an event) provide written notice of a Change in Control to EXECUTIVE.

If (i) a Change in Control occurs during the term of this Agreement, and (ii) during the 12-month period following the date of the Change in Control, EXECUTIVE’s employment is terminated by WORLDSPACE or any successor for any reason other than Cause, death or Disability or by the EXECUTIVE for Good Reason, WORLDSPACE will pay the following benefits to the EXECUTIVE.

(a) Lump Sum Cash Payment. Following the Date of Termination, EXECUTIVE shall receive a lump sum cash payment in an amount equal to the sum of the following:

(i) EXECUTIVE’s unpaid Base Salary from WORLDSPACE and/or its Affiliates through the Date of Termination at the rate in effect (without taking into account any reduction of Base Salary constituting Good Reason), just prior to the time a Notice of Termination is given) plus any benefit awards, bonus payments and incentive awards which pursuant to the terms of any plans have been earned or become payable, to the extent not theretofore paid; and

(ii) any amounts owed for accrued but unused vacation as of the Date of Termination as well as any thereto unreimbursed expenses.

(b) Other Payments. Following the Date of Termination, EXECUTIVE shall receive the following payments:

(i) as payment in lieu of a bonus or other incentive payment to be paid hereunder or under WORLDSPACE’s annual bonus plan or other incentive or other comparable plan for the year of termination, an amount equal to (x) the number of days EXECUTIVE was employed during the year by WORLDSPACE prior to the Date of Termination (y) divided by the number of days in the year (z) multiplied by the amount of

bonus and/or other incentive payments awarded to EXECUTIVE for the immediately preceding year, unless the performance and economic circumstances of the Company dictate that no annual bonus or other incentive payments will be paid to any employee of the Company for such period, which amount shall be payable on the date such bonus or other incentive payment would otherwise have been payable, provided that EXECUTIVE is not in violation of Articles 5 and 6 hereof; and

(ii) continuation of EXECUTIVE’s highest annual rate of Base Salary from WORLDSPACE and/or its Affiliates in effect during the 12-month period prior to the Date of Termination payable over the greater of (x) the balance of the term of this agreement or (y) twelve (12) months from the Date of Termination. Such payments will be made in accordance with the payroll practices of WORLDSPACE, provided EXECUTIVE is not in violation of Articles 5 and 6 hereof.

(c) Stock Options and/or Restricted Shares. All stock options and/or restricted shares that have been granted to EXECUTIVE shall immediately vest and become exercisable, and EXECUTIVE shall be entitled to exercise any of his vested stock options within eighteen (18) months after the Date of Termination, but not beyond the expiration of the term of the option.

(d) Loans. Any loans from WORLDSPACE and/or its Affiliates that the EXECUTIVE had outstanding shall remain payable according to their terms.

(e) Benefits. EXECUTIVE, and any spouse and dependents, will be entitled to continued medical, dental and other health benefits under WORLDSPACE’s health benefit plans or programs in which EXECUTIVE participated immediately prior to the Date of Termination for a period equal to the greater of (x) the balance of the term of this agreement or (y) eighteen (18) months after the Date of Termination, which shall include the statutory period of COBRA continuation coverage, provided EXECUTIVE pays the applicable contribution for such coverage charged to similarly situated active employees of WORLDSPACE.

(f) Out-Placement Services. WORLDSPACE shall provide the EXECUTIVE with executive out-placement services for a period of not less than twelve (12) months at a cost not to exceed $25,000 by entering into a contract with a company chosen by EXECUTIVE specializing in such services, subject to the reasonable approval of WORLDSPACE and in accordance with the policies of WORLDSPACE as in effect from time to time.

4.4 Change of Control Penalties. Notwithstanding anything in this Agreement to the contrary, in the event that it is determined (as hereinafter provided) that any payment or distribution by WORLDSPACE or any of its Affiliates or any other person in connection with the Change in Control to or for the benefit of EXECUTIVE, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, or the lapse or termination of any restriction on, or the vesting or exercisability of, any stock option, restricted stock award or other awards valued in whole or in part by reference to, or otherwise based on, stock (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), and the EXECUTIVE would receive a greater net after-tax amount (taking into account all applicable taxes payable by the EXECUTIVE, including any excise tax under Section 4999 of the Code) by applying the limitation contained in this Section 4.4, then the Payments to EXECUTIVE hereunder plus any other

amounts treated as “change of control payments” under Section 280G of the Code, shall be reduced (but not below zero) to the maximum amount which may be paid hereunder without the EXECUTIVE becoming subject to such an excise tax under Section 4999 of the Code (such reduced payments to be referred to as the “Payment Cap”). In the event that the EXECUTIVE receives reduced payments and benefits hereunder, the EXECUTIVE shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap.

4.5 Resignations. Except to the extent requested by the Board, upon any termination of EXECUTIVE’s employment with WORLDSPACE, EXECUTIVE will immediately resign all positions and directorships with WORLDSPACE and each of its Affiliates.

4.6 Release. The right of EXECUTIVE to receive termination payments and benefits under Sections 4.2 and 4.3 is conditioned on the execution (and non-revocation) by EXECUTIVE of a general release of claims against WORLDSPACE in a form reasonably satisfactory to WORLDSPACE. Such release of claims will be substantially in the form of the draft release of claims attached hereto as Attachment B.

4.7 Mitigation and Offset. Except as otherwise provided herein, EXECUTIVE shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. That is to say, no income or benefit for EXECUTIVE’s employment with a company other than WORLDSPACE will be used to offset or mitigate benefits hereunder.

ARTICLE 5

RESTRICTIVE COVENANTS

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

5.2 Unfair Competition. For a period of one (1) year after the Date of Termination, or, if longer, for the period EXECUTIVE continues to receive Base Salary payments following the Date of

Termination, EXECUTIVE shall not, directly or indirectly, and whether or not for compensation, as a shareholder owning beneficially or of record more than five percent (5%) of the outstanding shares of any class of shares of an issuer, or as an officer, director, employee, consultant, partner, joint venturer, proprietor, or otherwise, engage in or become interested in any Conflicting Organization in connection with research, development, consulting, manufacturing, purchasing, accounting, engineering, marketing, merchandising or selling of any Conflicting Product or Service, directly or indirectly, in competition with WORLDSPACE or any of its Affiliates (or any of their successors) as conducted from time to time during such period. For the avoidance of doubt, such provision will not apply in the event this Agreement expires at the end of the specified term or at the end of the one-year extension period. For a period of one (1) year after the Date of Termination, EXECUTIVE shall not, without the prior written consent of WORLDSPACE, solicit or hire or induce the termination of employment of any employees or other personnel providing services to WORLDSPACE or any of its Affiliates, for any business activity, other than a business activity owned or controlled, directly or indirectly, by WORLDSPACE or any of its Affiliates.

5.3 Injunctive Relief; Survival.

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

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

ARTICLE 6

INVENTIONS, WORKS OF AUTHORSHIP,

PATENTS AND COPYRIGHTS

6.1 Ownership of Inventions and Works of Authorship. EXECUTIVE agrees that all Inventions made, conceived, discovered, developed or reduced to practice by EXECUTIVE and all software and other Works of Authorship created by EXECUTIVE, either alone or with others, at any time, within or without normal working hours, during or prior to the term of this Agreement, arising out of the EXECUTIVE’s employment with WORLDSPACE and/or any of its Affiliates or based upon Confidential Information, or pertinent to any field of business or research in which, during such employment, WORLDSPACE or any Affiliate thereof is engaged or (if such is known or ascertainable by EXECUTIVE) is considering engaging, whether or not patented or patentable, shall be and remain the sole property of WORLDSPACE or its Affiliates with respect to all rights of EXECUTIVE arising from any discovery, conception, development, reduction to practice, or creation by EXECUTIVE. WORLDSPACE shall have the full right to assign, license, or transfer all rights thereto. EXECUTIVE agrees that all such Inventions and Works of Authorship are “works made for hire” under applicable law and EXECUTIVE waives and agrees never to assert any “moral rights” with respect to such Inventions and Works of Authorship.

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

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

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

ARTICLE 7

DISPUTE RESOLUTION; AGREEMENT TO ARBITRATE

7.1 General. The parties agree to perform the terms of this Agreement in good faith, and to attempt to resolve any disputes that may arise between them through good faith negotiations. Accordingly, prior to either WORLDSPACE or EXECUTIVE initiating any arbitration proceeding with respect to any controversy, claim, or dispute arising out of or related to this Agreement or with respect to the validity, construction, interpretation or performance of this Agreement, they shall first undertake the following steps:

(a) First, the aggrieved party will notify the other party in writing of the nature, scope, and basis of the dispute or controversy. Within 15 days of such notice, the parties will meet at a mutually acceptable time and place, in person, to negotiate in good faith a resolution to the dispute or controversy described in the aggrieved party’s notice. As used in this section, “in person” means physically present, and shall not include telephonic or videoconferences. No attorneys representing either party may be present at this meeting, unless otherwise agreed by each of the parties. However, if the parties forsee that an additional meeting before the time described in (b) below with the presence of attorneys may be productive, such meeting maybe arranged by mutual agreement.

(b) Second, if, within 15 days of the meeting described in Section 7.1 (a) above, the parties fail to resolve the dispute or controversy set forth in the aggrieved party’s notice, then, and only then, may either party institute an arbitration proceeding described in Section 7.2 below.

(c) All negotiations pursuant to this Section shall be considered and kept confidential and shall be treated as compromise and settlement negotiations as they would be treated under the Federal Rules of Evidence and applicable state rules of evidence.

7.2 Binding Arbitration. All claims, disputes, and controversies arising out of or in relation to the performance, interpretation, application, or enforcement of this Agreement, including but not limited to breach thereof (except any dispute relating to Articles 5 or 6 of this Agreement), not resolved by the parties shall be referred to arbitration before a single, independent third party who will be selected by mutual agreement of the parties or, if such agreement is not reached within one week of either party seeking such agreement, then in accordance with Employment Dispute Resolution Rules of the American Arbitration Association. Judgment upon the Award rendered by the arbitrator may be entered in any court of competent jurisdiction. Any arbitration pursuant to this Article 7 shall take place in the State of Maryland, or such other place, as the parties shall mutually agree.

ARTICLE 8

MISCELLANEOUS

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

If to EXECUTIVE:

Gregory B. Armstrong

700 N. Colorado Blvd.,

#399

Denver, CO 80206

If to WORLDSPACE:

WorldSpace, Inc.

Attn: General Counsel

8515 Georgia Avenue

Silver Spring, MD 20910

Tel: +1 301-960-1200

Fax: +1 301-960-2200

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

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

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

8.4 Severability. In case any provision of this Agreement shall be held illegal, unenforceable or void, such illegality, unenforceability or invalidity shall not affect the remaining provisions of this Agreement, but shall be fully severable, and this Agreement shall be construed and enforced as if said illegal, unenforceable, or invalid provisions had never been inserted herein.

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

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

8.7 Additional Obligations. Both during and after the term of employment, EXECUTIVE shall, upon reasonable notice, furnish WORLDSPACE with such information as may be in EXECUTIVE’s possession or control, and cooperate with WORLDSPACE, as may reasonably be requested by WORLDSPACE (and, after the term of employment, with due consideration for EXECUTIVE’s obligations with respect to any new employment or business activity) in connection with any litigation or other adversarial proceeding in which WORLDSPACE or any Affiliate is or may become a party. WORLDSPACE shall reimburse EXECUTIVE for all reasonable expenses incurred by EXECUTIVE in fulfilling EXECUTIVE’s obligations under this Article 8.7.

8.8 Successors; Binding Agreement. This Agreement shall be binding upon and inure to the benefit of WORLDSPACE, EXECUTIVE and each of their respective successors, assigns, personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, as applicable; provided, however, that neither this Agreement nor any rights or obligations hereunder will be

assignable or otherwise subject to hypothecation by EXECUTIVE (except by will or by operation of the laws of intestate succession) or by WORLDSPACE, except that WORLDSPACE may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets, or businesses of WORLDSPACE, if such successor expressly agrees unconditionally to assume all of the obligations of WORLDSPACE hereunder pursuant to a written agreement delivered to EXECUTIVE.

8.9 Beneficiaries. If EXECUTIVE shall die while any amounts would be payable to EXECUTIVE hereunder had EXECUTIVE continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by EXECUTIVE to receive such amounts or, if no person is so appointed, to EXECUTIVE’s estate.

8.10 Obligation to Make Payments.

(a) WORLDSPACE’s obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which WORLDSPACE and/or its Affiliates may have against EXECUTIVE or others. In no event shall EXECUTIVE be obligated to seek other employment or take any action by way of mitigation of the amounts payable to EXECUTIVE under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not EXECUTIVE obtains other employment

(b) If there shall be any dispute between WORLDSPACE and/or its Affiliates and EXECUTIVE in the event of any termination of EXECUTIVE’s employment then, until there is a final, nonappealable, determination pursuant to arbitration declaring that such termination was for Cause, that the determination by EXECUTIVE of the existence of Good Reason was not made in good faith, or that WORLDSPACE and/or its Affiliates are not otherwise obligated to pay any amount or provide any benefit to EXECUTIVE and his dependents or other beneficiaries, as the case may be, under Article 4, WORLDSPACE shall pay all amounts, and provide all benefits, to EXECUTIVE and his dependents or other beneficiaries, as the case may be, that WORLDSPACE and/or its Affiliates would be required to pay or provide pursuant to Article 4 as though such termination were by WORLDSPACE and/or its Affiliates without Cause or by EXECUTIVE with Good Reason; provided, however, that WORLDSPACE shall not be required to pay any disputed amounts pursuant to this Section 8.10 except upon receipt of an undertaking by or on behalf of EXECUTIVE to repay all such amounts to which EXECUTIVE is ultimately determined by the arbitrator not to be entitled.

8.11 Date of Payment. To the extent required by Section 409A of the Code to avoid any penalties on EXECUTIVE, payments to EXECUTIVE hereunder, and under any other agreement with the EXECUTIVE, upon termination of employment shall be distributed on the later of (i) the dates specified in this Agreement or any other agreement with WORLDSPACE, and (ii) six (6) months after the Date of Termination.

8.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, WORLDSPACE has caused this Agreement to be executed by a duly authorized officer of WORLDSPACE. EXECUTIVE has executed this Agreement as of the day and written below.

ACCEPTED AND AGREED TO:		WORLDSPACE, INC.
By	/s/ Gregory B. Armstrong	By	/s/ Noah A. Samara
	Executive	Name:	Noah A. Samara
		Title:	Chairman, Chief Executive Officer and President

EX-31.1

EXHIBIT 31.1

Certification

I, Noah A. Samara, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2006 of WorldSpace, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on our evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2006

/s/    NOAH A. SAMARA        

Noah A. Samara

Chairman, Chief Executive Officer and President

EX-31.2

EXHIBIT 31.2

Certification

I, Sridhar Ganesan, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2006 of WorldSpace, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on our evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2006

/s/    SRIDHAR GANESAN        

Sridhar Ganesan

Executive Vice President–Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

with Respect to the Quarterly Report on Form 10-Q

for the Quarter Ended June 30, 2006

of WorldSpace, Inc.

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of WorldSpace, Inc., a Delaware corporation (the “Company”), does hereby certify, to the best of such officer’s knowledge, that:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

2. Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2006	/s/    NOAH A. SAMARA
	Noah A. Samara Chairman, Chief Executive Officer and President

The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Form 10-Q or as a separate disclosure document of the Company or the certifying officers.

EX-32.2

EXHIBIT 32.2

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

with Respect to the Quarterly Report on Form 10-Q

for the Quarter Ended June 30, 2006

of WorldSpace, Inc.

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of WorldSpace, Inc., a Delaware corporation (the “Company”), does hereby certify, to the best of such officer’s knowledge, that:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

2. Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2006	/s/    SRIDHAR GANESAN
	Sridhar Ganesan Executive Vice President–Chief Financial Officer

The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Form 10-Q or as a separate disclosure document of the Company or the certifying officers.