Exhibit 10.40

 

THE DIRECTV GROUP, INC.

 

2004 STOCK PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

 

THIS NON-QUALIFIED STOCK OPTION AGREEMENT (“Agreement”), dated as of March 16,
2004, is entered into between The DIRECTV Group, Inc. a Delaware corporation
(“DIRECTV”) and Chase Carey (“Executive”).

 

WHEREAS, at its meeting on March 15, 2004, the Compensation Committee of
DIRECTV’s Board of Directors (the “Committee”) approved The DIRECTV Group, Inc.
2004 Stock Plan (as it may be amended from time to time, the “Plan”) and the
grant to Executive of nonqualified stock options to purchase an aggregate of
1,883,764 shares of DIRECTV’s common stock, $.01 par value per share (the
“Common Stock”), upon the terms and conditions set forth herein and subject to
the approval of the Plan by DIRECTV’s Board of Directors and further subject to
the approval of the Plan by DIRECTV’s stockholders at their 2004 annual meeting;
and

 

WHEREAS, at its meeting on March 16, 2004, the Board of Directors of DIRECTV
ratified the grant to Executive of the non-qualified stock options referred to
above, upon the terms and conditions set forth herein and subject to the
approval of the Plan by DIRECTV’s stockholders at their 2004 annual meeting; and

 

WHEREAS, the Committee and the Company’s Board of Directors each has also
approved the terms and conditions of an employment agreement with Executive
effective as of January 1, 2004 (such agreement, as it may be amended from time
to time, is referred to herein as the “Employment Agreement”).

 

NOW, THEREFORE, in consideration of the services rendered and to be rendered by
Executive and the mutual promises made herein and the mutual benefits to be
derived there from, DIRECTV and Executive agree as follows:

 

1. Defined Terms. Any capitalized term used herein and not otherwise defined
shall have the meaning assigned to such term in the Plan.

 

2. Grant of Options. This Agreement evidences DIRECTV’s grant to Executive of
the right and option to purchase, on the terms and conditions set forth herein
and in Exhibit A hereto (incorporated herein by this reference), to the extent
exercisable, all or any part of an aggregate of 1,883,764 shares of Common Stock
at the prices set forth in Exhibit A hereto (the “Options”), subject to the
provisions of this Agreement. The grant of the Options is subject to the
approval of the Plan by DIRECTV’s stockholders at their 2004 annual meeting, so
that no Options shall be vested or exercisable unless the stockholders so
approve the Plan. If the Company’s stockholders do not approve the Plan, all the
Options granted hereunder shall be void.

 

3. Exercisability of Option. The Options shall vest and become exercisable as to
the number of shares of Common Stock specified in Exhibit A (subject to
adjustment as provided in Section 8) on the applicable dates specified in
Exhibit A, subject to the applicable provisions of

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the Plan and this Agreement. Each Option may be exercised only to the extent
such Option is vested and exercisable, and, during Executive’s lifetime, only by
Executive. In no event may the Executive exercise any Option after the
applicable Expiration Date (the “Expiration Date”) for such Option as specified
in Exhibit A.

 

(a) Cumulative Exercisability. To the extent Executive does not at the time of a
particular exercise purchase all the shares of Common Stock that Executive may
then exercise for any particular Option or Options, Executive has the right
cumulatively thereafter to purchase any of such shares of Common Stock not so
purchased until the applicable Option terminates or expires.

 

(b) No Fractional Shares; Minimum Exercise. Fractional share interests shall be
disregarded, but may be cumulated. No fewer than 100 shares of Common Stock may
be purchased at any one time, unless the number purchased is the total number at
the time exercisable under the applicable Option.

 

4. Exercise of Option. To the extent vested and exercisable, each Option may be
exercised by the delivery to DIRECTV of a written exercise notice stating the
number of shares of Common Stock to be purchased pursuant to the Option
accompanied by payment of the aggregate Grant Price of the shares of Common
Stock to be purchased and the payment or provision for any applicable employment
or other taxes or withholding for taxes thereon. Subject to Section 7 below,
such Option shall be deemed to be exercised upon receipt and approval by DIRECTV
of such written exercise notice accompanied by the aggregate Grant Price and any
other payments so required, as permitted pursuant to Section 5.

 

5. Method of Payment of Option. Payment of the aggregate Grant Price shall be by
any of the following, or a combination thereof, at the election of Executive:

 

(a) in cash or by electronic funds transfer, or by check payable to the order of
DIRECTV, in the full amount of the purchase price of the shares of Common Stock
and the amount (if any) required to satisfy any applicable withholding taxes;

 

(b) by delivery of shares of Common Stock that have been held by Executive for
at least six months, in accordance with Section 7(e) of the Plan, subject to
compliance with applicable law; or

 

(c) in a combination of payments under clauses (a) and (b).

 

Other payment methods may be permitted only if expressly authorized by the
Committee with respect to each Option or all Options under and consistent with
the terms of the Plan.

 

6. Continuance of Employment Required. The vesting schedule requires continued
service through each applicable vesting date as a condition to the vesting of
the applicable Option and rights and benefits under this Agreement. Partial
service, even if substantial, during any vesting period will not entitle
Executive to any proportionate vesting or avoid or mitigate a termination of
rights and benefits upon or following a termination of employment or service as
provided in Section 7 or 9 below or under the Plan.

 

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7. Effect of Termination of Employment on Exercise Period. If Executive’s
employment by DIRECTV terminates, the Options and all other rights and benefits
under this Agreement shall terminate, except that Executive shall be entitled to
such additional vesting and additional time to exercise the Options after the
date of such termination (the “Severance Date”), to the extent provided below,
except that in no event may any Option be exercised after its Expiration Date as
specified in Exhibit A:

 

(a) If Executive voluntarily terminates his employment, Executive shall have
three months after the Severance Date to exercise each Option to the extent such
Option was exercisable on the Severance Date, unless otherwise approved by the
Committee.

 

(b) If DIRECTV terminates Executive’s employment without Cause (as defined in
the Employment Agreement), or if Executive’s employment terminates as a result
of disability (as determined in accordance with the Employment Agreement) or
death, all unvested Options shall vest as of the Severance Date and Executive
(or Executive’s Personal Representative or Beneficiary, as the case may be)
shall have 12 months after the Severance Date to exercise any or all of the
Options.

 

(c) If DIRECTV terminates Executive’s employment for Cause, all the Options
shall terminate as of the Severance Date.

 

8. Adjustments Upon Specified Events. As provided in Section 14 of the Plan,
upon the occurrence of certain events relating to or affecting the Common Stock
as contemplated by Section 14 of the Plan, the Committee shall, in such manner,
to such extent (if any) and at such times as it deems appropriate and equitable
in the circumstances, make adjustments in the number, amount and type of shares
of Common Stock (or other securities or property) subject to the Options, the
Grant Prices and the securities deliverable upon exercise of the Options (or any
combination thereof) or provide for a cash payment or the assumption,
substitution or exchange of the Option or the shares or other securities subject
to the Options, based upon the distribution or consideration payable to holders
of Common Stock generally. All rights of Executive hereunder are subject to such
adjustments and other provisions of the Plan.

 

9. Possible Early Termination of Award. As permitted by Section 14 of the Plan,
and without limiting the authority of the Committee under any of the provisions
of Section 14 of the Plan, the Committee retains the right to terminate any or
all of the Options, to the extent each such Option has not vested, upon a
dissolution of DIRECTV or a reorganization event or transaction in which DIRECTV
does not survive (or does not survive as a public company in respect of its
outstanding Common Stock). This Section 9 is not intended to prevent future
vesting (including provision for future vesting) if each Option (or a
substituted Award) remains outstanding following a transaction described in
Section 14 of the Plan.

 

10. Leaves of Absence. Absence from work caused by military service, authorized
sick leave or other leave approved in writing by DIRECTV or the Committee shall
not be considered a termination of employment by DIRECTV for purposes of Section
7 only if reemployment upon the expiration of such leave is required by contract
or law, or such leave is for a period of not more than 90 days.

 

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11. Limitations on Acceleration; Reduction in Benefits.

 

(a) Limitation on Acceleration. Notwithstanding anything contained herein or in
the Plan or any other agreement to the contrary, in no event shall the vesting
of an Option be accelerated pursuant to Section 14 of the Plan to the extent
that DIRECTV would be denied a federal income tax deduction for such vesting
because of Section 280G of the Code and, in such circumstances, such Option will
continue to vest in accordance with and subject to the other provisions hereof.

 

(b) Reduction in Benefits. If Executive would be entitled to benefits, payments
or coverage hereunder and under any other plan, program or agreement which would
constitute “parachute payments,” then notwithstanding any other provision hereof
or of any other existing agreement to the contrary, Executive may by written
notice to the Secretary of DIRECTV designate the order in which such “parachute
payments” shall be reduced or modified so that DIRECTV is not denied federal
income tax deductions for any “parachute payments” because of Section 280G of
the Code.

 

(c) Determination of Limitations. The term “parachute payments” shall have the
meaning set forth in and be determined in accordance with Section 280G of the
Code and regulations issued thereunder. All determinations required by this
Section 11, including without limitation the determination of whether any
benefit, payment or coverage would constitute a parachute payment, the
calculation of the value of any parachute payment and the determination of the
extent to which any parachute payment would be nondeductible for federal income
tax purposes because of Section 280G of the Code, shall be made by an
independent accounting firm (other than DIRECTV’s outside auditing firm) having
nationally recognized expertise in such matters selected by the Committee. Any
such determination by such accounting firm shall be binding on DIRECTV and
Executive.

 

12. Executive not a Stockholder. Neither Executive nor any other person entitled
to exercise any Option shall have any of the rights or privileges of a
stockholder of DIRECTV as to any shares of Common Stock subject to the Options
until the issuance and delivery to him or such other person of a certificate
evidencing the shares of Common Stock registered in his or such other person’s
name. No adjustment will be made for dividends or other rights as a stockholder
as to which the record date is prior to such date of delivery.

 

13. No Guarantee of Continued Service . Nothing contained in this Agreement or
the Plan constitutes an employment or service commitment by DIRECTV, confers
upon Executive any right to remain employed by DIRECTV, interferes in any way
with the right of DIRECTV at any time to terminate such employment or affects
the right of DIRECTV to increase or decrease Executive’s other compensation or
benefits. Nothing in this Section 13, however, is intended to adversely affect
any independent contractual right of Executive under the Employment Agreement
(or any other agreement between DIRECTV and Executive) without his consent
thereto. Employment for any period of time (including a substantial period of
time) after the date of this Agreement will not entitle Executive to any
proportionate vesting or avoid or mitigate a termination of rights and benefits
upon or following a termination of employment if the express conditions to
vesting pursuant to this Agreement have not been satisfied.

 

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14. Non-Transferability of Option. The Options and any other rights of Executive
under this Agreement or the Plan are nontransferable except as provided in
Section 15(h) of the Plan.

 

15. Notices. Any notice to be given under the terms of this Agreement shall be
in writing and addressed to DIRECTV at its office located at 2250 East Imperial
Highway, El Segundo, California 90245, to the attention of the Corporate
Secretary and to Executive at the address given beneath Executive’s signature
hereto, or at such other address as either party may hereafter designate in
writing to the other.

 

16. Effect of Award Agreement. This Agreement shall be binding upon and inure to
the benefit of any successor or successors of DIRECTV, except to the extent the
Committee determines otherwise.

 

17. Entire Agreement; Governing Law. The Plan is incorporated herein and made a
part hereof by this reference. Subject to Section 19 below, the Plan and this
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of DIRECTV and Executive with respect to the subject matter hereof.
The construction, interpretation, performance and enforcement of this Agreement
and the Options shall be governed by the internal substantive laws, but not the
choice of law rules, of the State of Delaware.

 

18. Plan. The Options and all rights of Executive with respect thereto are
subject to, and Executive agrees to be bound by, all of the terms and conditions
of the provisions of the Plan, to the extent such provisions are applicable to
Awards granted to Eligible Persons. Executive acknowledges receipt of a copy of
the Plan and agrees to be bound by the terms thereof. Unless otherwise expressly
provided in other Sections of this Agreement, provisions of the Plan that confer
discretionary authority on the Committee do not (and shall not be deemed to)
create any rights in Executive unless such rights are expressly set forth herein
or are otherwise in the sole discretion of the Committee specifically so
conferred by appropriate action of the Committee under the Plan after the date
hereof.

 

19. Employment Agreement. If any provision of this Agreement is inconsistent
with any provision of the Employment Agreement, the provisions of the Employment
Agreement shall control.

 

20. Amendment. This Agreement may be amended in accordance with the terms of the
Plan. Any such amendment must be in writing and signed by DIRECTV. The terms and
conditions of this Agreement may not be restricted or limited by any amendment
of this Agreement or the Plan without Executive’s consent

 

21. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute on and the same instrument.

 

22. Section Headings. The Section headings of this Agreement are for convenience
of reference only and shall not be deemed to alter or affect any provision
hereof.

 

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IN WITNESS WHEREOF, DIRECTV has caused this Agreement to be executed on its
behalf by a duly authorized member of its Compensation Committee and Executive
has hereunto set his hand as of the date and year first written above.

 

THE DIRECTV GROUP, INC. a Delaware corporation By:  

 

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    Peter A. Lund     Chairman of the Compensation Committee EXECUTIVE:

 

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Chase Carey 281 West Hills Road New Canaan, CT 06840

 

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EXHIBIT A

 

Numbers of Shares

of Common Stock

Subject to Option

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Vesting

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   Grant Price

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   Expiration Date

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269,751    All vested, subject to stockholder approval of Plan    $15.69   
9/07/08 202,314    All vested, subject to stockholder approval of Plan    $15.69
   9/06/09 561,982    421,486 vested; 140,496 vest on 11/15/04; in each case
subject to stockholder approval of Plan    $15.69    11/15/09 561,982    421,486
vested; 140,496 vest on 5/01/04; in each case subject to stockholder approval of
Plan    $23.41    5/01/10 134,876    101,156 vested; remaining 33,720 vest on
8/01/04; in each case subject to stockholder approval of Plan    $23.93   
8/01/10 146,115    73,057 vested, 36,529 vest on each of 8/30/04 and 8/30/05; in
each case subject to stockholder approval of Plan    $18.50    8/30/11 6,744   
All vested, subject to stockholder approval of Plan    $15.69    10/09/12