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.


 

















 


(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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