Sirius XM Radio (SIRI)

Related Party Transactions

For a discussion of “Related Party Transactions” refer to Note 9 to our unaudited consolidated financial statements in Item 1 of this Form 10-Q.

Related Party Transactions

For a discussion of related party transactions, see Note 10 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

(10) Related Party Transactions

In 2005, SIRIUS entered into a license and services agreement with SIRIUS Canada. Pursuant to such agreement, SIRIUS is reimbursed for certain costs incurred to provide SIRIUS Canada service, including certain costs incurred for the production and distribution of radios, as well as information technology support costs. In consideration for the rights granted pursuant to this license and services agreement, SIRIUS Canada is obligated to pay SIRIUS a royalty based on a percentage of its annual gross revenues. SIRIUS’ investment in SIRIUS Canada is primarily non-voting shares which carry an 8% cumulative dividend.

Total costs that have been or will be reimbursed by SIRIUS Canada for the years ended December 31, 2008, 2007 and 2006 were $14,973, $7,712 and $9,227, respectively. We recorded $1,309, $1,159 and $945 in royalty income for the years ended December 31, 2008, 2007 and 2006, respectively. Such royalty income recognized as a component of Other revenue in our consolidated statements of operations. We also recorded dividend income of $199, $422, and $700 for the years ended December 31, 2008, 2007, and 2006, respectively, which was included in Interest and investment income in our accompanying consolidated statements of operations.

The amount due from SIRIUS Canada at December 31, 2008 was $1,814 and is included in the Company’s investment and advances to SIRIUS Canada which was fully utilized to absorb a portion of the Company’s proportionate share of losses generated by SIRIUS Canada. The amounts payable to SIRIUS Canada at December 31, 2008 and 2007 to fund its remaining capital requirements, were $1,160 and $1,148, respectively, and are included in Related party current liabilities in our consolidated balance sheets.

In November 2005, XM entered into agreements to provide XM Canada with the right to offer XM satellite radio service in Canada. The agreements have an initial term of ten years and XM Canada has the unilateral option to extend the term of the agreements for an additional five years at no additional cost beyond the current financial arrangements. XM Canada has expressed its intent to exercise this option at the end of the initial term of the agreements. XM has the right to receive a 15% royalty for all subscriber fees earned by XM Canada each month for its basic service and a nominal activation fee for each gross activation of an XM Canada subscriber on XM’s system. XM Canada is obligated to pay XM a total of $71,800 for the rights to broadcast and market National Hockey League (“NHL”) games for the 10-year term of XM’s contract with the NHL. In accordance with EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, we recognize these payments on a gross basis as a principal. The estimated fair value of deferred revenue due from XM Canada as of the Merger date was approximately $34,000, and will be amortized on a straight-line basis over the remaining expected term of the agreements. The remaining carrying value of Deferred revenue related to XM Canada was $32,844 as of December 31, 2008.

XM has extended a Cdn$45,000 standby credit facility to XM Canada which can be utilized to purchase terrestrial repeaters or finance the payment of subscription fees. The facility matures on December 31, 2012 and bears interest at a rate of 17.75% per annum. XM has the right to convert unpaid principal amounts into Class A subordinate voting shares of XM Canada at the price of Cdn$16.00 per share. As of December 31, 2008, XM Canada had drawn $8,311 on this facility in lieu of payment of subscription fees. These amounts are included in Related party long-term assets in our consolidated balance sheet.

In connection with the deferred income related to XM Canada, we recorded amortization of $1,156 for the year ended December 31, 2008. The royalty fees XM earns related to subscriber and activation fees are reported as a component of Other revenue in our consolidated statements of operations. We recorded royalty fees of $97 for the year ended December 31, 2008. XM Canada pays XM a licensing fee and reimburses XM for advertising, both of which are reported as a component of Other revenue in our consolidated statements of operations. We recognized licensing fee revenue of $2,500 and advertising reimbursements of $366 for the year ended December 31, 2008. The amount due from XM Canada at December 31, 2008 was $5,594, and is included in Related party current assets in our consolidated balance sheets.

XM has agreements with General Motors (“GM”) and American Honda Motor Co., Inc. (“American Honda”), both of which hold shares of our stock and have one representative each on our board of directors. GM and American Honda install XM radios and promote the XM radio service, and XM will make available use of bandwidth. Subscription revenues received from GM and American Honda for these programs are reported as a component of subscriber revenue.

F-26

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollar amounts in thousands, unless otherwise stated)

We recorded total revenue from GM, primarily consisting of subscriber revenue, of $16,803 for the year ended December 31, 2008. We recorded total revenue from American Honda, primarily consisting of subscriber revenue, of $7,504 for the year ended December 31, 2008.

We rely on GM and American Honda for marketing and we are responsible for certain revenue share payments to these related parties. We recognized Sales and marketing expense with GM of $47,090 for the year ended December 31, 2008. We recognized Sales and marketing expense with American Honda of $4,248 for the year ended December 31, 2008. We recognized Revenue share and royalties expense with GM of $36,305 and American Honda of $2,051 for the year ended December 31, 2008.

As of December 31, 2008, we recorded, within Related party current assets, $10,132 and $94,444 of amounts due from GM and prepaid expenses with GM, respectively. As of December 31, 2008, we recorded, within Related party long-term assets, $116,296 of prepaid expenses with GM. As of December 31, 2008, we recorded $2,194 within Related party current assets for amounts due from American Honda.

As of December 31, 2008, we recorded $63,023 within Related party current liabilities for amounts due to GM. As of December 31, 2008, we recorded $4,190 within Related party current liabilities for amounts due to American Honda.

(10) Related Party Transactions

FACE="Times New Roman" SIZE="2">In 2005, SIRIUS entered into a license and services agreement with SIRIUS Canada. Pursuant to such agreement, SIRIUS is reimbursed for certain costs incurred to provide SIRIUS Canada service, including certain costs
incurred for the production and distribution of radios, as well as information technology support costs. In consideration for the rights granted pursuant to this license and services agreement, SIRIUS Canada is obligated to pay SIRIUS a royalty
based on a percentage of its annual gross revenues. SIRIUS’ investment in SIRIUS Canada is primarily non-voting shares which carry an 8% cumulative dividend.

FACE="Times New Roman" SIZE="2">Total costs that have been or will be reimbursed by SIRIUS Canada for the years ended December 31, 2008, 2007 and 2006 were $14,973, $7,712 and $9,227, respectively. We recorded $1,309, $1,159 and $945 in royalty
income for the years ended December 31, 2008, 2007 and 2006, respectively. Such royalty income recognized as a component of Other revenue in our consolidated statements of operations. We also recorded dividend income of $199, $422, and $700 for
the years ended December 31, 2008, 2007, and 2006, respectively, which was included in Interest and investment income in our accompanying consolidated statements of operations.

Related Party Transactions

For a discussion of related party transactions, see Note 8 to the unaudited condensed consolidated financial statements in Item 1. of this Form 10-Q.

          In 2005, we entered into a license and services agreement with SIRIUS Canada. Pursuant to such agreement, we are reimbursed for certain costs incurred by us to provide SIRIUS Canada service, including certain costs we incur for the production and distribution of radios as well as information technology support costs. In consideration for the rights granted pursuant to this license and services agreement, SIRIUS Canada pays us a royalty based on a percentage of its annual gross revenues. Additionally, the initial financing we provided to SIRIUS Canada is by way of subscription to non-voting shares which carry an 8% cumulative dividend.

          Total costs reimbursed by SIRIUS Canada for the three months ended September 30, 2007 and 2006 were $2,220 and $358, respectively, and $4,862 and $4,445 for the nine months ended September 30, 2007 and 2006, respectively. We recorded $0 and $291 in royalty income for the three months ended September 30, 2007 and 2006, respectively, and $1,159 and $597 for the nine months ended September 30, 2007 and 2006, respectively. Such royalty income was recorded to other income in our accompanying unaudited consolidated statements of operations. We also recorded dividend income of $422 and $0 for the nine months ended September 30, 2007 and 2006, respectively, which was included in interest and investment income in our accompanying unaudited consolidated statements of operations.

          The a mount due from SIRIUS Canada at September 30, 2007 was $4,552, of which $1,316 and $3,236 are included in other current assets and other long-term assets, respectively, on our accompanying unaudited consolidated balance sheet. The amount due from SIRIUS Canada at December 31, 2006 was $4,157, of which $2,502 and $1,655 are included in other current assets and other long-term assets, respectively, on our accompanying unaudited consolidated balance sheet. The amount payable to SIRIUS Canada at September 30, 2007 and December 31, 2006 to fund its remaining capital requirements was $1,148 and is included in accounts payable and accrued expenses in the accompanying unaudited consolidated balance sheet.

13

          In 2005, we entered into a license and services agreement with SIRIUS Canada. Pursuant to such agreement, we are reimbursed for certain costs incurred by us to provide SIRIUS Canada service, including certain costs we incur for the production and distribution of radios as well as information technology support costs. In consideration for the rights granted pursuant to this license and services agreement, SIRIUS Canada pays us a royalty based on a percentage of its annual gross revenues. Additionally, the initial financing we provided to SIRIUS Canada is by way of subscription to non-voting shares which carry an 8% cumulative dividend.

          Total costs reimbursed by SIRIUS Canada for the three months ended June 30, 2007 and 2006 were $723 and $1,521, respectively, and $2,600 and $4,087 for the six months ended June 30, 2007 and 2006, respectively. We recorded $643 and $203 in royalty income for the three months ended June 30, 2007 and 2006, respectively, and $1,159 and $306 for the six months ended June 30, 2007 and 2006, respectively. Such royalty income was recorded to other income in our accompanying unaudited consolidated statements of operations. We also recorded dividend income of $216 and $0 for the three months ended June 30, 2007 and 2006, respectively, and $422 and $0 for the six months ended June 30, 2007 and 2006, respectively, which was included in interest and investment income in our accompanying unaudited consolidated statements of operations.

          Amounts due from SIRIUS Canada at June 30, 2007 were $3,817, of which $581 and $3,236 are included in other current assets and other long-term assets, respectively, on our accompanying unaudited consolidated balance sheets. Amounts due from SIRIUS Canada at December 31, 2006 were $4,157, of which $2,502 and $1,655 are included in other current assets and other long-term assets, respectively, on our accompanying consolidated balance sheets. Amounts payable to SIRIUS Canada at June 30, 2007 and December 31,2006 to fund its remaining capital requirements were $1,148 and are included in accounts payable and accrued expenses in the accompanying unaudited consolidated balance sheets.

13

6. Related Party Transactions

          In 2005, we entered into a license and services agreement with SIRIUS Canada. Pursuant to such agreement, we are reimbursed for certain costs incurred by us to provide SIRIUS Canada service, including certain costs we incur for the production and distribution of radios used by its subscribers as well as information technology support costs. In consideration for the rights granted pursuant to the license and services agreement, SIRIUS Canada Inc. pays us a royalty based on a percentage of its annual gross revenues. Additionally, the initial financing we provided to SIRIUS Canada is by way of subscription to non-voting shares which carry an 8% cumulative dividend.

          Total costs reimbursed by SIRIUS Canada for the three months ended March 31, 2007 and 2006 were $1,877 and $2,566, respectively. We recorded $516 and $103 in royalty income for the three months ended March 31, 2007 and 2006, respectively. Such royalty income was recorded to other income in our accompanying unaudited consolidated statements of operations. We also recorded dividend income of $206 and $0 for the three months ended March 31, 2007 and 2006, respectively, which was included in interest and investment income in our accompanying unaudited consolidated statements of operations.

          Amounts due from SIRIUS Canada at March 31, 2007 were $3,755, of which $1,379 and $2,376 are included in other current assets and other long-term assets, respectively, on our accompanying unaudited consolidated balance sheets. Amounts due from SIRIUS Canada at December 31, 2006 were $4,157, of which $2,502 and $1,655 are included in other current assets and other long-term assets, respectively, on our accompanying consolidated balance sheets. Amounts payable to SIRIUS Canada at March 31, 2007 and December 31,2006 to fund

13

7. Related Party Transactions

          In 2005, we entered into a license and services agreement with SIRIUS Canada Inc. Pursuant to such agreement, we are reimbursed for certain costs incurred by us to provide SIRIUS Canada Inc. service, including certain costs we incur for the production and distribution of radios used by its subscribers as well as information technology support costs. In consideration for the rights granted pursuant to the license and services agreement, SIRIUS Canada Inc. pays us a royalty based on a percentage of its annual gross revenues. Additionally, the initial financing we provided to SIRIUS Canada is by way of subscription to non-voting shares which carries an 8% cumulative dividend.

          Total costs reimbursed by SIRIUS Canada Inc. for the years ended December 31, 2006 and 2005 were $9,227 and $6,025, respectively. We recorded $945 and $10 in royalty income for the years ended December 31, 2006 and 2005, respectively. Such royalty income was recorded to other revenue in our accompanying consolidated statements of operations. We also recorded dividend income of $700 for the year ended December 31, 2006, which was included in interest and investment income in our accompanying consolidated statements of operations.

          Amounts due from SIRIUS Canada Inc. at December 31, 2006 were $4,157, of which $2,502 and $1,655 are included in other current assets and other long-term assets, respectively, on our accompanying consolidated balance sheets. Amounts due from SIRIUS Canada Inc. at December 31, 2005 were $2,277, of which $2,267 and $10 are included in other current assets and other long-term assets, respectively, on our accompanying consolidated balance sheets. Amounts payable to SIRIUS Canada Inc. at December 31, 2006 and 2005 to fund its remaining capital requirements were $1,148 and $3,059, respectively, and are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.