Exhibit 10.42

 

2004 GRANTS – CHAIRMAN/PRES-CEO

 

XM SATELLITE RADIO HOLDINGS INC.

1998 SHARE AWARD PLAN

 

NON-QUALIFIED STOCK OPTION AGREEMENT

 

1. Definitions. Terms defined in the Plan and not otherwise defined in this
Agreement are used in this Agreement as defined in the Plan. In this Agreement,
except where the context otherwise indicates, the following definitions apply:

 

  A. “Agreement” means this Non-Qualified Stock Option Agreement, including the
Notice of Grant of Stock Options and Option Agreement attached hereto.

 

  B. “XM” means XM Satellite Radio Holdings Inc., a Delaware corporation.

 

  C. “Committee” means the committee appointed by the XM Board of Directors to
administer the Plan.

 

  D. “Covered Shares” means the Shares subject to the Option.

 

  E. “Date of Exercise” means the date on which XM receives notice of the
exercise, in whole or in part, of the Option pursuant to Section 5.A. of this
Agreement.

 

  F. “Date of Expiration” means, subject to the provisions of Section 3.C and D
of this Agreement, ten (10) years after the Date of Grant.

 

  G. “Date of Grant” means the effective date of grant as set forth on the
Notice of Grant of Stock Options and Option Agreement attached hereto.

 

  H. “Option” means the non-qualified stock option granted to the Optionee in
Section 2 of this Agreement.

 

  I. “Option Period” means the period beginning on the Date of Grant and
terminating on the Date of Expiration.

 

  J. “Option Price” means the dollar amount set forth on the Notice of Grant of
Stock Options and Option Agreement attached hereto.

 

  K. “Optionee” means the person identified as the grantee on the Notice of
Grant of Stock Options and Option Agreement attached hereto.

 

  L. “Plan” means the XM 1998 Shares Award Plan, as the same may be amended from
time to time.

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  M. “Securities Act” means the Securities Act of 1933, as amended.

 

  N. “Shares” means shares of Class A Common Stock of XM.

 

2. Grant of Option. Pursuant to the Plan and subject to the terms of this
Agreement, XM grants to the Optionee the option to purchase from XM that number
of Shares identified in the Notice of Grant of Stock Options and Option
Agreement attached hereto, exercisable at the Option Price, and effective on the
Date of Grant.

 

3. Terms of the Option.

 

  A. Type of Option. The Option is intended to be a non-qualified stock option
and is not an incentive stock option within the meaning of Section 422 of the
Code.

 

  B. Vesting and Exercise. The Option may be exercised during the Option Period,
subject to the limitation that the Option shall vest in three (3) equal annual
installments such that:

 

  a. no portion of the Covered Shares may be exercised during the first year
following the Date of Grant;

 

  b. during the second year following the Date of Grant, the Option may be
exercised to a maximum of 33 1/3% of the Covered Shares;

 

  c. during the third year following the Date of Grant, the Option may be
exercised to a cumulative maximum of 66 2/3% of the Covered Shares; and

 

  d. thereafter the Option with respect to the Covered Shares may be exercised
in full.

 

  C. Termination of Employment: If the Optionee’s employment terminates during
the Option Period, the Option may be exercised for the following periods after
such termination: zero (0) months in the case of a termination for Good Cause;
three (3) months in the case of a voluntary termination; six (6) months
following an involuntary termination, or twelve (12) months in the case of
death, disability, retirement or voluntary or involuntary termination after a
Change of Control. Upon the Optionee’s termination of employment, the Option
shall be exercisable only to the extent that it was vested and exercisable as of
the date of the Optionee’s termination, except that in the case of (i)
Optionee’s death or (ii) involuntary termination within one year of a Change of
Control, the Option shall vest immediately in full and shall be fully
exercisable by the Optionee or the Optionee’s authorized representative or by
his or her properly appointed attorney-in-fact, guardian, trustee, or
conservator, as the case may be. Notwithstanding the foregoing, (x) the
foregoing shall be subject to (and limited by) the terms of any Employment
Agreement in effect from time to time between XM and the Optionee and (y) the
Option (and the Shares issued upon exercise thereof) may be subject to
forfeiture pursuant to other agreements between XM (or its affiliates) and
Optionee.

 

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  D. Nontransferability. The Option is not transferable by the Optionee other
than (i) by will or by the laws of descent and distribution, or (ii) pursuant to
a qualified domestic relations order as defined in Section 414(p) of the Code or
Title I of the Employee Retirement Income Security Act or the rules thereunder,
and is exercisable, during the Optionee’s lifetime, only by the Optionee or, in
the case of the Optionee’s legal disability, by the Optionee’s legal
representative except as provided in paragraph C of this Section 3.

 

4. Capital Adjustments. The number of Covered Shares and the Option Price shall
be subject to such adjustment, if any, in accordance with Section 11(a) of the
Plan.

 

5. Method of Exercise.

 

  A. Notice. The Option shall be exercised, in whole or in part, by the delivery
to XM of written notice of such exercise, in such form as the Committee may from
time to time prescribe, accompanied by:

 

  a. full payment in cash or readily available funds or in Shares in the amount
of the Option Price with respect to that portion of the Option being exercised
or pursuant to a cashless exercise program to be established by the Committee in
accordance with Section 4(b) of the Plan;

 

  b. any amount that must be withheld by XM for Federal, State, and/or local tax
purposes, payable either in cash or in Shares, including through withholding of
Shares upon exercise;

 

  c. such representations and documents as the corporation, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other Federal or State
securities laws or regulations. XM may, in its absolute discretion, also take
whatever additional actions it deems appropriate to effect such compliance,
including, without limitation placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and

 

  d. if the Option or portion thereof shall be exercised pursuant to the
provisions of Section 3.C of this Agreement by any person or persons other than
the Optionee, appropriate proof of the right of such person or persons to
exercise the Option or portion thereof.

 

Until the Committee notifies the Optionee to the contrary, the form attached to
this Agreement as Exhibit A shall be used to exercise the Option.

 

  B. Effect. The exercise, in whole or in part, of the Option shall cause a
reduction in the number of Covered Shares equal to the number of Shares with
respect to which the Option is exercised.

 

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6. Compliance with Law; Disposition of Shares of Common Stock Issued Upon
Exercise.

 

  A. Compliance with Law: Notwithstanding any other provision of this Agreement,
the Optionee agrees, for himself or herself and his or her successors, that XM
shall not be required to honor the exercise of the Option if XM does not have in
effect a registration statement under the Securities Act relating to the offer
of Shares to the Optionee under the Plan, if XM reasonably determines that the
exercise of such Option would violate the Securities Act. The Optionee further
agrees, for himself or herself and his or her successors, that upon the issuance
of any Shares upon the exercise of the Option, he or she will, upon the request
of the XM, agree in writing that he or she is acquiring the Shares for
investment only and not with a view to resale, and that he or she will not sell,
pledge or otherwise dispose of such shares so issued, unless and until (a) XM is
furnished with an opinion of counsel satisfactory to XM to the effect that
registration of such shares pursuant to the Securities Act is not required by
that Act and the rules and regulations thereunder; (b) the staff of the
Securities and Exchange Commission has issued a “no-action” letter with respect
to such disposition; or (c) such registration or notification as is, in the
opinion of counsel for the corporation, required for the lawful disposition of
such shares has been filed by XM and has become effective; provided, however,
that XM is not obligated hereby to file any such registration or notification.

 

The Optionee further agrees that so long as the Optionee is an employee of XM he
or she will only sell, pledge or otherwise dispose of such shares issued upon
the exercise of the Option in accordance with all insider trading policies of XM
then in effect. The present version of XM’s policy requires approval of
transfers by certain categories of employees, and notice and certification by
other employees. An approval or notification form based on the current plan is
attached for Optionee’s convenience, although Optionee is responsible for
completing different or other forms if then required by XM’s policy.

 

  B. Disposition or Transfer. Notwithstanding any other provision of this
Agreement, the Optionee agrees, for himself or herself and his or her
successors, that for seven years following the date hereof, shares issued upon
the exercise of the Option may not be sold at any time that the current trading
price of XMSR Class A Common Stock does not represent at least a 10% increase
over the Option Price. The foregoing shall be subject to (and limited by) the
terms of any Employment Agreement in effect from time to time between XM and the
Optionee.

 

If Optionee intends to dispose of shares issued upon the exercise of the Option,
Optionee will provide to XM a written notice describing the proposed transfer
and indicating which of the prior clauses has been satisfied.

 

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7. Representations and Warranties. Upon exercise of the Option in whole or in
part, if the shares underlying the option shall not then be registered under the
Securities Act, the Optionee shall represent, warrant and acknowledge the
following:

 

  A. The Optionee has made such investigations as the Optionee deems necessary
and appropriate of the business and/or financial prospects of XM.

 

  B. The Option is being exercised and the Covered Shares are being acquired for
investment for the Optionee’s own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act, and the certificate for such stock may be
legended to that effect, that such stock is not registered under federal or
state securities laws and that the registration exemptions being relied on are
the federal and state private or limited offering exemptions and the Optionee
has no reason to believe that such exemptions are not applicable to the
Optionee.

 

  C. The Optionee acknowledges that XM has made available to the Optionee the
opportunity to obtain information to evaluate the merits and risks associated
with this Agreement and the transactions contemplated thereby. The Optionee
acknowledges that the investment contemplated by the Option involves a high
degree of risk, including risks associated with XM’s business operations and
prospects including competition and the dependence on XM’s technology and events
beyond XM’s control, the limits on transferability of the Option and Covered
Shares, and the absence of a public market for the Covered Shares.

 

8. Rights as Stockholder. The Optionee shall have no rights as a stockholder
with respect to any Covered Shares subject to the Option until and unless a
certificate or certificates representing such shares are issued to the Optionee
pursuant to this Agreement. Except as provided in Section 4 of this Agreement,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the issuance of such certificate or certificates.

 

9. Employment. Neither the granting of the Option evidenced by this Agreement
nor any term or provision of this Agreement shall constitute or be evidence of
any understanding, express or implied, on the part of XM to employ or continue
the employment of the Optionee for any period. Whenever reference is made in
this Agreement to the employment of the Optionee, it means employment by XM or
its affiliates.

 

10. Subject to the Plan. The Option evidenced by this Agreement and the exercise
of the Option are subject to the terms and conditions of the Plan, which are
incorporated herein by reference and made a part hereof, but the terms of the
Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, the Option is subject to any rules and regulations
promulgated by the Committee.

 

11. Fractional Shares. Notwithstanding anything contained herein to the
contrary, following a Public Offering, award exercises and issuances involving
the issuance of Shares may only be effected in whole (and not fractional)
shares.

 

12. Applicable Law. This Agreement shall be subject to the laws of the State of
Delaware, without giving effect to the principles of conflict of laws thereof.

 

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13. Entire Agreement. This Agreement is in lieu of and supersedes all prior
agreements, representations, negotiations, or other understandings of the
parties with respect to the subject matter hereof. It may not be amended or
altered except in a writing signed by the Optionee and the authorized
representatives of XM.

 

14. Waiver and Severability.

 

  A. The waiver by either party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of the same or any other breach by
either of the parties to this Agreement, whether prior or subsequent.

 

  B. If any term or provision of this Agreement is determined by a court of
competent jurisdiction to be illegal, invalid, or unenforceable, the legality,
validity, or enforceability of the remainder of this Agreement shall not thereby
be affected, and this Agreement shall be deemed to be amended to the extent
necessary to delete such provision.

 

15. Headings. The Section, paragraph, and subparagraph headings contained in
this Agreement are for reference purposes only, and shall not in any way affect
the meaning or interpretation of this Agreement.

 

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“EXHIBIT A”

 

EXERCISE OF OPTION

 

Chairman, Board of Directors

XM Satellite Radio Holdings Inc.

1500 Eckington Place, N.E.

Washington, D.C. 20002-2194

 

To the Board:

 

The undersigned, the Optionee under the Non-Qualified Stock Option Agreement
identified as Option No.                     , granted pursuant to the XM
Satellite Radio Holdings Inc. 1998 Share Award Plan, hereby irrevocably elects
to exercise the Option granted in the Agreement to purchase              shares
of Class A Common Stock of XM Satellite Radio Holdings Inc. (“XM”), par value
$0.01 per share (“Shares”), and herewith makes payment of $                    
in the form of [cash, Common Stock, cash plus Common Stock, through the exercise
of the cashless exercise program] for the shares purchased and
$                     in the form of                                      [cash,
Common Stock, cash plus Common Stock, through the exercise of the cashless
exercise program] to cover the Corporation’s withholding tax liability in
respect of the purchase. (Please complete, and complete separate cashless
exercise form as appropriate.)

 

[Note: Shares of Common Stock being delivered in payment of all or any part of
the exercise price must be represented by certificates registered in the name of
the Optionee and duly endorsed by the Optionee and by each and every other
co-owner in whose name the shares may also be registered.]

 

The Optionee hereby re-affirms his or her agreement under Section 6.B of the
Non-Qualified Stock Option Agreement that that for seven years following the
date hereof he or she will not sell, pledge or otherwise dispose of Shares
issued upon the exercise of the Option at any time that the current trading
price of XMSR Class A Common Stock does not represent at least a 10% increase
over the Option Price.

 

Dated:                     

 

 

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(Signature of Optionee)

Received by XM Satellite Radio Holdings Inc.:

 

 

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Name

 

   

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Title

 

   

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Date

   

 

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APPROVAL/NOTIFICATION FORM FOR SALE OF SHARES OF XM STOCK

 

NAME:
____________________________________________________________________________________

 

DATE:
____________________________________________________________________________________

 

NUMBER OF SHARES TO BE SOLD:
_________________________________________________________

 

SALE TO BE COMPLETED BY: ______________________________________________[DATE]

 

SHARES ACQUIRED THROUGH: [CHECK AS APPROPRIATE]

 

  ¨ MARKET PURCHASE

 

  ¨ ESPP

 

  ¨ STOCK OPTION PLAN VESTING DATE OF OPTIONS TO BE SOLD                     

 

  ¨ OTHER                                         
                                                         

 

I CONFIRM I AM NOT AWARE OF ANY MATERIAL NON-PUBLIC INFORMATION RELATING TO XM
SATELLITE RADIO HOLDINGS, INC. OR ITS AFFILIATES.

 

 

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[Signature]   [Title]

 

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[Print Name]   [Date]

 

APPROVAL OF GENERAL COUNSEL, IF REQUIRED

 

  ¨ Approved

 

  ¨ NOT Approved

 

If approved, sale must be completed with fourteen (14) calendar days from the
date set forth below (or by such other date as specifically stated herein by the
General Counsel)

 

 

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Joseph M. Titlebaum

 

[Date]

Executive Vice President

   

General Counsel & Secretary

   

 

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