Exhibit 10.7

 

LEGG MASON, INC.

 

1996 Equity Incentive Plan

 

NON-QUALIFIED STOCK OPTION AGREEMENT

 

Legg Mason, Inc. (the “Company”) hereby grants to you an option to purchase
shares of the Company’s Common Stock, $.10 par value (the “Shares”), at
$           per share, pursuant to the Legg Mason, Inc. 1996 Equity Incentive
Plan (the “Plan”).  This document constitutes your “Award Notification.”  By
electronically accepting the award described in this agreement, you are
acknowledging your acceptance of the award subject to the restrictions and upon
the terms and conditions set forth in this agreement and the Plan.  The number
of Shares that may be purchased under the option granted hereby shall be as set
forth on the third party website pursuant to which this Award Notification is
electronically delivered to you and in the books and records of the Company,
which shall control, absent manifest error, in the event of a discrepancy.  The
date of grant of the option provided hereby shall for all purposes be
                  .  This option is intended to be a non-qualified stock option
for purposes of the Internal Revenue Code.

 

This option is subject in all respects to the applicable provisions of the Plan,
which is incorporated herein by reference and made a part hereof.  In addition
to the terms, conditions and restrictions set forth in the Plan, all terms,
conditions and restrictions set forth in this Agreement, including the
following, are applicable to the option granted by this Agreement:

 

(1)           Issuance of the Shares

 

The Company may postpone the issuance and delivery of any Shares until the
completion or amendment of any registration or qualification of the Shares,
under any federal or state law, rule or regulation which the Company may
determine to be necessary or advisable.  In the event that, at the time of
issuance of the Shares to you pursuant to exercise of the option provided by
this Agreement, there shall not be in effect a current registration statement
under the Securities Act of 1933 (the “Act”) with respect to such issuance, you
shall, prior to issuance of the Shares to you (a) represent to the Company, in
form satisfactory to counsel for the Company, that you are acquiring the Shares
for your own account and not with a view to the resale or distribution thereof,
and (b) agree that none of the Shares issued to you pursuant to exercise of the
option provided hereby may be sold, transferred or otherwise disposed of
unless:  (i) a registration statement under the Act shall be effective at the
time of disposition with respect to the Shares sold, transferred or otherwise
disposed of; (ii) the Company shall have received an opinion of counsel or other
information and representations, satisfactory to it to the effect that
registration under the Act is not required by reason of Rule 144 under the Act
or otherwise; or (iii) a “no-action” letter shall have been received from the
staff of the Securities and Exchange Commission to the effect that such sale,
transfer or other disposition may be made without registration.

 

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(2)           Normal Vesting - Except as provided in Section (3) below, the
option awarded hereby shall vest in 20% increments over a five year period such
that you may exercise the option with respect to, and purchase, 20% of the
Shares purchasable under your option on each of May 31,         , May 31,
        , May 31,         , May 31,          and May 31,         .  If vesting
occurs on a non-trading day, vested options may be first exercised on the next
trading day.  To the extent not exercised, installments shall accumulate and be
exercisable by you in whole or in part during the exercise period described in
Section (4) below.

 

(3)           Accelerated Vesting

 

(a)           If your employment is terminated as a result of your death or
“Permanent Disability,” all of your then unvested option rights shall become
vested and exercisable on and after the date of the termination of your
employment.  For purposes of this Agreement, you will be considered to have
suffered a “Permanent Disability,” if you are unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in your death or which has
lasted or can be expected to last for a continuous period of not less than 12
months.

 

(b)           In the event that a “Change of Control” occurs and within 12
months of such “Change of Control” (i) your employment is terminated by your
employer without “Cause” or (ii) your employment is terminated by you for “Good
Reason,” then all of your unvested option rights shall become immediately vested
and exercisable on and after the date of termination of your employment.

 

For purposes of this Agreement, “Change of Control” means any of the following
events: (i) any person, including a “person” as such term is used in
Section 14(d)(2) of the Securities Exchange Act of 1934, as amended, acquires,
directly or indirectly, beneficial  ownership of securities representing 50.1%
or more of the combined voting power of the outstanding equity securities of the
Company; (ii) the closing of any merger, consolidation or other reorganization
involving the Company with respect to which the stockholders of the Company
immediately prior to such reorganization do not hold, directly or indirectly,
more than 50% of the combined voting power of the outstanding equity securities
of such successor entity immediately following such transaction; (iii) the
closing of any transaction involving a sale of assets of the Company that have a
total gross fair market value equal to or more than 40% of the total gross fair
market value of all of the assets of the Company; (iv) the adoption of any plan
or proposal for the liquidation or dissolution of the Company; or (v) within any
12-month period, individuals who, as of May 15,         , constitute the board
of directors of the Company (the “Incumbent Board”) cease for any reason to
constitute at least a majority of such board; provided, however, that any
individual becoming a director subsequent to such date whose election, or
nomination for election by the Company’s stockholders, was approved by a vote of
at least a majority of the directors then comprising the Company’s board of
directors shall be considered as though such individual were a member of the
Incumbent Board.

 

For purposes of this Agreement, “Good Reason” means (i) a material adverse
change in your responsibilities from those in effect prior to the Change of
Control and (ii) your principal

 

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place of employment is moved more than 50 miles from the location immediately
prior to the Change of Control, (iii) your base salary is significantly reduced
or (iv) your incentive compensation for a fiscal year is materially reduced from
your incentive compensation for the prior fiscal year, and such reduction is not
related to a reduction in your responsibilities or either individual or
corporate performance.

 

(c)             If your employment is terminated before the date on which all of
your option rights have vested and (i) such termination is due to the
elimination of your position in connection with a reduction in workforce by your
employer and (ii) such termination of employment is without “Cause”, then all of
your unvested option rights shall become vested and exercisable on and after the
date of termination of your employment.

 

For purposes of this Agreement, “Cause” means any one or more of the following
types of behavior by you which the Company or your employer in its sole
discretion finds to be sufficient reason to terminate your employment:  (i) any
conduct (a) that constitutes Competitive Activity, (b) that breaches any
obligation to, or your duty of loyalty to, the Company or your employer, or
(c) that is materially injurious to the Company or your employer, monetarily or
otherwise; (ii) material violation of, or an act taken by the failure to act
which causes the Company or your employer to be in violation of any government
statue or regulation, or of the constitution, by-laws, rules or regulations of
any securities or commodities exchange or a self-regulatory organization, or of
the policies of the Company or your employer; (iii) the entering of an order or
decree or the taking of any similar action with respect to you which
substantially impairs you from performing your duties or makes you ineligible
from being associated with the Company or your employer pursuant to Section 9 of
the Investment Company Act of 1940, as amended, or Section 203(f) of the
Investment Advisors Act of 1940, as amended; (iv) malfeasance, disloyalty or
dishonesty in any material respect; (v) any conviction for a felony: (vi) any
failure to devote all professional time to assigned duties and to the business
of the Company and your employer; (vii) failure to satisfactorily perform
duties, as determined by the Company’s or your employer’s management in its sole
discretion, or gross misconduct or gross negligence in the performance of
duties; or (viii) failure to remain licensed to perform duties or other act,
conduct or circumstance which renders you ineligible for employment with the
Company or your employer.  For purposes of this Agreement, “Competitive
Activity” means your engagement in any activity that competes with any of the
business operations of the Company or its subsidiaries, as determined by the
Committee, in its sole discretion, and shall include, without limitation,
representing in any capacity, other than as an outside director, a company that
competes with the Company and its subsidiaries.

 

(d)           In addition, the Compensation Committee (the “Committee”) of the
Board of Directors of the Company or the Board of Directors of the Company may,
in its sole discretion, accelerate the vesting of any part or all of the option
rights under this Agreement.

 

(4)           Option Exercise Period

 

This option may not be exercised prior to vesting.  Upon the termination of your
employment, any options that are not yet vested (after taking into account any
accelerated vesting

 

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provided for in Section (3) of this Agreement) shall expire immediately.  To the
extent not exercised, vested options shall expire on May 17, 2018, unless they
expire sooner as provided below:

 

(a)           To the extent not previously exercised, vested options shall
expire immediately upon the termination of your employment for cause.

 

(b)           To the extent not previously exercised, vested options shall
expire on the first anniversary of the termination of your employment as a
result of your death or Permanent Disability.

 

(c)           To the extent not previously exercised, vested options shall
expire three months after the termination of your employment for any reason
other than the termination of your employment for cause or the termination of
your employment as a result of your death or Permanent Disability.  In the event
of your death during the post-employment exercise period, the exercise period
shall be extended to the first anniversary of the termination of your
employment.

 

(5)           Transferability

 

During your lifetime, this option shall be exercisable only by you and shall not
be transferable.  Any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of, or to subject to execution, attachment or similar process,
this option contrary to the provisions of this Agreement and the Plan, shall be
void and of no effect, shall give no right to the purported transferee, and
shall result in forfeiture of the option involved in such attempt.

 

(6)           Exercise Notice

 

This option is exercisable solely by written notice to the Company or its
designee.  Each such notice shall:

 

(a)           state the election to exercise the stock option and the number of
shares in respect of which it is being exercised;

 

(b)           be delivered by you or, in the event of your death or permanent
disability, by your personal representative; and

 

(c)           be accompanied by (i) cash, check, bank draft or money order in
the amount of the option price payable to the order of the Company or
(ii) certificates for shares of the Company’s Common Stock (together with duly
executed stock powers) or other written authorization as may be required by the
Company to transfer shares of such Common Stock to the Company, with an
aggregate value equal to the option price of the Shares being acquired or
(iii) a combination of the consideration described in clauses (i) and (ii).  You
may transfer shares of Common Stock to pay the option price for shares being
acquired pursuant to clause (ii) or (iii) above only if such transferred shares
(x) were acquired by you in open market transactions or (y)

 

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have been owned by you for longer than six months.  Unless otherwise determined
by the Committee subsequent to the date of this Agreement, the value of any
shares of the Company’s Common Stock delivered in full or partial payment of the
option price shall be determined on the basis of the mean between the high and
low prices per share on the New York Stock Exchange on the day of delivery of
the shares (or the next preceding business day on which trading occurred if
there was no trading on the day of delivery).

 

In addition to the exercise methods described above, you may exercise the option
through a procedure whereby you deliver to the Company or its designee an
irrevocable notice of exercise in exchange for the Company issuing the shares of
the Company’s Common Stock subject to the option to a broker previously
designated or approved by the Company (the “Broker”) versus payment of the
option price by the Broker to the Company, subject to such rules and procedures
as the Committee may determine.

 

For all purposes of the Plan, the date of exercise shall be the date on which
notice and any required payment shall have been delivered to the Company or its
designee.  You shall not have any of the rights of a stockholder with respect to
any of the Shares subject to this option until the Shares have been issued to
you upon the exercise of the option.

 

(7)           Delivery of Notices

 

Any notice to be given to the Company (including notice of exercise of all or
part of a stock option) shall be in delivered or mailed to the Company’s Stock
Option Plan Administrator or designee.  If mailed, it shall be addressed to the
Stock Option Plan Administrator, at 100 International Drive, Baltimore,
Maryland  21202, or at such other address as the Company may designate by notice
to you.  Any notice given to you shall be addressed to you at your address as
reflected on the personnel records of the Company, or at such other address as
you may designate by notice to the Company.  Notice shall be deemed to have been
duly delivered when hand delivered or, if mailed, at the close of business on
the day such notice is postmarked.

 

(8)           Modification of Agreement

 

This Agreement may be modified only by the Committee or by the Company’s Board
of Directors.  No officer or employee of the Company or any of its subsidiaries
is authorized to bind the Company to a modification of any of the terms of the
Agreement.

 

 

LEGG MASON, INC.

 

 

 

 

 

By:

 

 

 

Thomas C. Merchant

 

 

Secretary

 

 

 

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