IFILED: NEW YORK COUNTY CLERK 05/11/20111 NYSCEF DOC. NO.

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INDEX NO. 650762/2011 RECEIVED NYSCEF: 05/11/2011

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK

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ONE TWELVE, INC. and DON BUCHWALD,

Index No. 650762/2011

Plaintiffs,

- against-

ANSWER

SIRIUS XM RADIO INC.,

Defendant.

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Sirius XM Radio Inc. ("Sirius"), for its answer to the Complaint of One Twelve,

Inc. ("One Twelve") and Don Buchwald, states as follows:

INTRODUCTION: THE SCOPE AND CONTEXT OF THE DISPUTE

A. Sirius admits-and has itselfpublic1y stated-many of the facts alleged in

the Complaint. Howard Stem has played an outsized role in the history of Sirius, while Sirius has

provided the platform, facilities and support for Stem to continue his extraordinary career in

radio. From the moment Sirius announced it had entered into the October 1,2004 agreement

with Stem (the "Agreement"), through the five years the Stem channels were broadcast by Sirius

under the Agreement, and continuing now under a new five-year contract, Stem has been (and

remains) Sirius' most valuable on-air personality, contributing to the growth and success of

Sirius (along with Sirius' heavy investment in infrastructure, Sirius' management and Sirius'

range of programming on 130 channels).

B. For Stem's meaningful role, One Twelve and Buchwald have received

outsized compensation---compensation that included a signing bonus, base pay, performance-

based compensation, programming development fees, advertising revenue share and a fee upon

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the consummation of the merger between XM Satellite Radio Inc. ("XM") and a subsidiary of Sirius. Pursuant to the Agreement, Sirius paid One Twelve over half a billion dollars in cash and shares of Sirius' common stock. Pursuant to the Agreement, Sirius also paid Buchwald over fifty million dollars in cash and shares of Sirius' common stock.

C. This law suit does not arise from any disagreement over the importance of

Stern's role to Sirius, nor does it signal any deficiency in how much Stem is appreciated by Sirius and its management. Instead, this case pivots on a single issue of contract interpretation -an issue, however, involving a large amount of money. The issue is whether in computing the number of "Sirius subscribers" for purposes of the Performance Based Compensation provisions of the Agreement, subscribers to the satellite radio service of XM should also be counted as "Sirius subscribers" for the period after the Sirius\XM merger.

D. Sirius was able to merge with XM for a myriad of reasons, including

among them a change in the competitive environment that made it possible to secure approval of the merger from the United States Department of Justice and the Federal Communications Commission, as well as the vision and persistence of Sirius' management who saw and seized the moment to make it happen. This is not to say that Stem did not help to put Sirius in a position to be the acquiring entity; he did help and he was paid for it. This law suit, again, is only about the terms of the parties' 2004 bargain.

E. Ultimately, what matters in this case is that the unambiguous language of

the Agreement does not obligate Sirius to pay-or entitle One Twelve and Buchwald to receive-the windfall payment that One Twelve and Buchwald demand. Sirius was obligated to pay Performance Based Compensation only if the number of "Sirius subscribers" exceeded by

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certain specified amounts the number of "Sirius subscribers" proj ected for each year of the term of the Agreement-projections based on the anticipated increase of subscribers to the Sirius service and not on any merger with XM. Subscribers to the XM service, prior to the merger, were by definition subscribers to the competitor's satellite radio service which did not broadcast the Howard Stem Show. The obligation to make one Performance Based Compensation award was triggered under the Agreement on December 31, 2006, and Sirius delivered in January 2007 to One Twelve and Buchwald the shares of stock due to them. The conditions precedent for other Performance Based Compensation awards were never met in any other year.

F. The Agreement mentions XM only once, in a provision obligating Sirius

to pay One Twelve $25 million in the event Sirius merged with XM "whereupon the HS Programs may be broadcast to all subscribers of the surviving company." Sirius paid this amount to One Twelve, and $2.5 million to Buchwald, promptly after the merger. This provision, in contrast, did not specify that-on top of $25 million-One Twelve was also to receive Performance Based Compensation counting the number ofXM subscribers.

G. Sirius, for these reasons, denies all allegations of breach of contract and

seeks dismissal of this law suit on summary judgment with prejudice.

RESPONSES

1. Denies the allegations of paragraph 1, except admits that Howard Stem is a

world-renowned radio personality; that, in 2004, he entered into the Agreement to move his highly successful radio show to Sirius Satellite Radio Inc. (now named Sirius XM Radio Inc.); that Sirius, at the time, was behind XM by certain, but not all, measurements; that the satellite radio industry was in its early stage without a guarantee of success; and that Stem-as Sirius'

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biggest star-accelerated the recognition of satellite radio as well as the increase in the number of Sirius subscribers.

2. Denies the allegations of paragraph 2, except admits that Sirius actively courted

Stem and refers to the Agreement for its true contents.

3. Denies the allegations of paragraph 3, except admits that the parties in the

Agreement set the targets for Sirius subscribers high so that Sirius would more than recoup its investment in Stem were Sirius obligated to pay performance compensation in any year; that Stem attracted a higher-than-expected number of subscribers to Sirius between the announcement of the Agreement and Stem's first broadcast on Sirius; that Sirius was able to announce that it had exceeded subscriber projections at the time Stem began broadcasting on Sirius; and that Sirius paid One Twelve and Buchwald all of the compensation due to them as it became due under the Agreement.

4. Denies the allegations of paragraph 4, except admits that during the term of the

Agreement, Stem attracted a substantial number of subscribers to Sirius and helped retain subscribers, and that Sirius exceeded its internal subscriber estimates by varying amounts in some, but not all, of the years of the Agreement.

5. Denies the allegations of paragraph 5, except admits that Stem helped Sirius

surpass its internal subscriber targets for Sirius subscribers by more than 2 million subscribers in 2006 and 2007, that a subsidiary of Sirius merged with XM in 2008, and that Sirius held a celebration at the world-famous Apollo Theater featuring Paul McCartney in 2010 when the combined number of subscribers to the separate Sirius service and XM service reached 20 million.

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6. Denies the allegations of paragraph 6, refers to the Agreement for its true contents

and states that Sirius has fully performed its obligations under the Agreement including, without limitation, the Performance Based Compensation provisions.

7. Denies the allegations of paragraph 7, except admits that One Twelve and

Buchwald have brought this action (even though no amount is owed to them) and refers to the Agreement for its true contents. Without limitation, Sirius denies the allegation that it "unilaterally decid[ed] that it has paid [Stem] enough"; Sirius has paid to One Twelve and Buchwald all they were entitled to under the unambiguous language of the Agreement.

8. Admits the allegations of paragraph 8.

9. Admits the allegations of paragraph 9.

10. Admits the allegations of paragraph 10.

11. Admits the allegations of paragraph 11.

12. Admits the allegations of paragraph 12.

13. Admits the allegations of paragraph 13, except denies knowledge or information sufficient to respond to the allegations that The Howard Stem Show aired in 46 major markets and was the first radio show ever ranked number one in New York and Los Angeles simultaneously.

14. Admits the allegations of paragraph 14, except denies knowledge or information

sufficient to respond to the allegations about the unidentified report(s) that "the Howard Stem Show had more than 20 million listeners" and the allegations about the demographics of Stem's show.

15. Admits the allegations of paragraph 15, except denies knowledge or information

sufficient to respond to the "most-watched" and "fastest-selling" allegations.

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16. In response to paragraph 16, Sirius (a) admits that in 2004 Sirius and XM were

the only two FCC licensed satellite digital audio radio services in the United States; that XM was first to commence broadcasting in 2001 and that Sirius commenced broadcasting in 2002; and that Sirius entered into discussions with Stem in 2004 about moving to Sirius once Stem's thenexisting contract with Infinity Broadcasting Corporation expired at the end of2005; and (b) denies knowledge or information sufficient to respond to the allegations concerning any discussions between XM and Stem.

17. Admits the allegations of paragraph 17.

18. Admits the allegations of paragraph 18, except denies knowledge or information sufficient to respond to the allegations concerning what XM "coveted."

19. Admits the allegations of paragraph 19.

20. In response to paragraph 20, Sirius admits that it courted Stem actively and denies knowledge or information sufficient to respond to the allegations concerning any discussions between XM and Stem.

21. Admits the allegations of paragraph 21.

22. Admits the allegations of paragraph 22, except refers to the full text of its 2004 annual report for its true contents.

23. In response to paragraph 23, Sirius admits that it wanted Stem to come to Sirius

and denies knowledge or information sufficient to respond to the allegations concerning Stem's and Buchwald's thinking.

24. Denies knowledge or information sufficient to respond to the allegations of

paragraph 24.

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25. In response to paragraph 25, Sirius admits that Buchwald told Sirius that-for

Stem to sign with Sirius-Sirius must make a very attractive offer to Stem, and denies knowledge or information sufficient to respond to the second and third sentences of paragraph 25.

26. Denies the allegations of paragraph 26 and refers to the Agreement for its true

contents.

27. Denies the allegations of paragraph 27 and refers to the Agreement for its true

contents.

28. Denies the allegations of paragraph 28 and refers to the Agreement for its true

contents.

29. Denies the allegations of paragraph 29 and refers to the Agreement for its true

contents.

30. Denies the allegations of paragraph 30 and refers to the Agreement for its true

contents.

31. Denies the allegations of paragraph 31 and refers to the Agreement for its true

contents.

32. Denies the allegations of paragraph 32 and refers to the Agreement for its true

contents.

33. Denies the allegations of paragraph 33 and refers to the Agreement for its true

contents.

34. Denies the allegations of paragraph 34 and refers to the Agreement for its true

contents.

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35. Denies the allegations of paragraph 35 and refers to the Agreement for its true

contents.

36. Denies the allegations of paragraph 36 and refers to the Agreement for its true

contents.

37. Denies the allegations of paragraph 37 and refers to the Agreement for its true

contents.

38. Denies the allegations of paragraph 38 and refers to the Agreement for its true

contents.

39. Denies the allegations of paragraph 39 and refers to the Agreement for its true

contents.

40. Denies the allegations of paragraph 40 and refers to the Agreement for its true

contents.

41. Denies the allegations of paragraph 41 and refers to the Agreement for its true

contents.

42. Denies the allegations of paragraph 42 and refers to the Agreement for its true

contents.

43. Admits the allegations of paragraph 43, except denies knowledge or information

sufficient to respond to the allegation that "Sirius' stockjumped 15.5% as a result" of the "widely publicized" announcement in the "mainstream media" that Stem would be joining Sirius.

44. Denies the allegations of paragraph 44 and refers to the full text of the quoted

document for its true contents.

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45. Denies the allegations of paragraph 45 and refers to the full text of the quoted

document for its true contents.

46. Denies the allegations of paragraph 46 and refers to the full text of the quoted

document for its true contents.

47. Denies the allegations of paragraph 47 and refers to the full text of the quoted

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documents for their true contents.

48. Denies the allegations of paragraph 48 and refers to the full text of Sirius' Form

8-K for its true contents.

49. Denies the allegations of paragraph 49 and refers to the full text of Sirius' Form

8-K for its true contents.

50. Admits the allegations of paragraph 50.

51. Denies the allegations of paragraph 51 and refers to the full text of the cited

documents for their true contents.

52. Admits the allegations of paragraph 52, except refers to the cited document for its

true contents.

53. Admits the allegations of paragraph 53, except refers to the Agreement for its true

contents.

54. Denies the allegations of paragraph 54 and refers to the full text of the cited

document for its true contents.

55. Denies the allegations of paragraph 55, except admits that in February 2007 Sirius

and XM announced that they would seek regulatory approval to merge XM with a subsidiary of

Sirius.

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56. In response to paragraph 56, Sirius admits that the number of Sirius subscribers

increased during 2007 and refers to the full text of the cited document for its true contents.

57. Denies the allegations of paragraph 57, except admits that the merger between a

subsidiary of Sirius and XM became effective on July 28, 2008 and refers to the cited document for its true contents.

58. Denies the allegations of paragraph 58, except admits that following the merger

Sirius made a $25 million payment to One Twelve and a $2.5 million payment to Buchwald in accordance with the Agreement and that XM made available to its subscribers "Best of' Sirius packages.

59. Denies the allegations of paragraph 59, except admits that the combined number

of subscribers to the separate Sirius service and XM service totaled 19,003,856 on December 31, 2008, 18,772,758 on December 31, 2009 and 20,190,964 on December 31,2010.

60. Denies the allegations of paragraph 60 and refers to the cited documents for their

true contents.

61. Denies the allegations of paragraph 61, except admits that Sirius made all

payments due to One Twelve and Buchwald under the Agreement.

62. In response to paragraph 62, Sirius denies knowledge or information sufficient to

respond to the allegations of paragraph 62 concerning the thinking of Stern and Buchwald, denies the allegations as to Sirius, and refers to the cited document for its true contents.

63. Denies the allegations of paragraph 63, except admits that at some point in the

first quarter of 2010 Stephen Fisher (CFO of Don Buchwald & Associates, Inc.) asked Andrew Moss (Sirius' Vice President, Finance) about Performance Based Compensation for 2008 and

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2009 and that Moss stated no amount was due; and refers to the transaction documents between Liberty Media and Sirius XM for their true contents.

64. Denies the allegations of paragraph 64 and refers to the cited documents for their

true contents.

65. In response to paragraph 65, Sirius admits that in December 2010, a new contract

was entered into between Sirius and One Twelve and that during negotiations for the new contract Buchwald said he and One Twelve were entitled to Performance Based Compensation under the Agreement with respect to XM subscribers (while Sirius unequivocally denied that it was owed to them).

66. Denies the allegations of paragraph 66.

With Respect to First Cause of Action

67. Repeats its responses to paragraphs 1-66 above.

68. Admits the allegations of paragraph 68.

69. Admits the allegations of paragraph 69.

70. Denies the allegations of paragraph 70 and refers to the Agreement for its true contents.

71. Denies the allegations of paragraph 71 and refers to the Agreement for its true

contents.

72. Denies the allegations of paragraph 72.

73. Denies the allegations of paragraph 73.

With Respect to Second Cause of Action

74. Repeats its responses to paragraphs 1-73 above.

75. Admits the allegations of paragraph 75.

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76. Denies the allegations of paragraph 76 and refers to the Agreement for its true

contents.

77. Admits the allegations of paragraph 77.

78. Denies the allegations of paragraph 78 and refers to the Agreement for its true contents.

79. Denies the allegations of paragraph 79.

80. Denies the allegations of paragraph 80.

AFFIRMATIVE DEFENSES

81. Without in any way admitting any of the allegations of the Complaint and without

admitting or suggesting that Sirius has the burden of proof on any of the following issues, Sirius alleges the following separate and independent affirmative defenses.

First Affirmative Defense

82. The Complaint fails to state any cause of action against Sirius upon which relief

can be granted.

Second Affirmative Defense

83. Plaintiffs' claims are barred, in whole or in part, by the doctrine of laches.

Third Affirmative Defense

84. Plaintiffs' claims are barred, in whole or in part, by the doctrine of estoppel.

Fourth Affirmative Defense

85. Plaintiffs' claims are barred, in whole or in part, by the doctrine of waiver.

Fifth Affirmative Defense

86. Plaintiffs' claims are barred, in whole or in part, for failing to mitigate damages.

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WHEREFORE. Sirius respectfully requests that the Court dismiss the Complaint

against it with prejudice, award costs, disbursements and attorneys' fees in its favor, and grant

such other and further relief that the Court deems just and proper.

Dated: New York, New York May 11,2011

KRAMER LEVIN NAFTALIS & FRANKEL LLP

By: /s/ Gary P. Naftalis Gary P. N aftalis Michael S. Oberman Peter A. Abruzzese Jared HeUer

1177 Avenue of the Americas New York, New York 10036 (212) 715-9100 (phone)

(212) 715-8000 (fax) gnaftalis@kramerlevin.com moberman@kramerlevin.com pabruzzese@kramerlevin.com jheller@kramerlevin.com

Attorneys for Defendant Sirius XM Radio Inc.

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