Lexmark International, Inc., 3Q 2006 Form 10-Q , Exhibit 10.3


    

      Exhibit
        10.3

       

       

      NON-QUALIFIED
        STOCK OPTION AGREEMENT

      


      pursuant
        to

      


      LEXMARK
        INTERNATIONAL, INC.

      2005
        NONEMPLOYEE DIRECTOR STOCK PLAN

      


      


      This
        NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") between Lexmark
        International, Inc., a Delaware corporation (the "Company"), and the person
        specified on the signature page hereof (the "Optionee") is entered into as
        of
        the ___ day of ____, ____ pursuant to the Lexmark International, Inc.
        2005 Nonemployee Director Stock Plan, as the same may be amended from time
        to
        time (the "Plan").

      


      WHEREAS,
        the Optionee is a member of the Board of Directors of the Company, who is
        not
        also an officer or employee of the Company or one of its Subsidiaries or
        affiliated with any stockholder of the Company holding 5% or more of the
        Company's equity securities, and the Company has determined that it would
        be to
        the advantage and in the interest of the Company to grant the option provided
        for herein to the Optionee as an inducement to the Optionee to remain in
        the
        service of the Company and as an incentive to the Optionee to devote his
        or her
        best efforts and dedication to the performance of such services and to maximize
        shareholder value;

      


      WHEREAS,
        the Optionee desires to accept from the Company the grant of the options
        evidenced hereby on the terms and subject to the conditions herein;


      


      NOW,
        THEREFORE, in consideration of the premises and subject to the terms and
        conditions set forth herein and in the Plan, the parties hereto hereby covenant
        and agree as follows:

      


      1.
        Grant
        of Option; Exercise Price.

      


      (a)
        Grant
        of Option; Exercise Price.
        The
        Company hereby grants to the Optionee, effective as of the date hereof and
        on
        the terms and conditions herein, an option (the "Option") to purchase ____
        shares (the "Option Shares") of the Company's Class A Common Stock, par value
        $.01 per share (the "Common Stock"), at an exercise price per Option Share
        equal
        to _____, which was the closing price per share of Common Stock on
        ________, ______. The Option is not intended to be an incentive stock
        option under the Internal Revenue Code of 1986, as amended.

      


      (b)
        2005
        Nonemployee Director Stock Plan.
        This
        Agreement is subject in all respects to the terms of the Plan, all of which
        terms are made a part of and incorporated in this Agreement by reference.
        In the
        event of any conflict between the terms of this Agreement and the terms of
        the
        Plan, the terms of the Plan shall control. The Optionee hereby acknowledges
        that
        a copy of the Plan may be obtained from the 


      
        
          
          

        

        
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      Vice
        President of Human Resources and agrees to comply with and be bound by all
        of
        the terms and conditions thereof. Terms used in this Agreement with initial
        capital letters, but not defined herein, shall have the meanings assigned
        to
        them under the Plan.

      


      2.
        Vesting;
        Period of Exercise of Option.

      


      (a)
        Vesting.
        The
        Option shall become vested and exercisable in three approximately equal
        installments on each of the first three anniversaries (34% on the first
        anniversary and 33% on each of the second and third anniversaries, in each
        case
        resulting in a fractional Option Share, rounded up to the next whole Option
        Share, but not exceeding the total set forth in Section 1(a) above) of the
        date
        hereof, subject in the case of each such installment to the provisions of
        Section 2(b) below.

      


      (b)
        Termination
        of Director Status.
        In the
        event the Optionee ceases to serve as a member of the Board for any
        reason,

       

      (i)
        if
        such Optionee has completed three (3) Years of Board Service or less as of
        the
        date of such termination, any portion of the Option (x)
        which
        is then outstanding, vested and exercisable on the date of termination may
        be
        exercised by the Optionee or, if applicable, his or her beneficiary for a
        period
        of 90 days following the date of the Optionee's termination of service, but
        in
        no event later than the expiration date of the term of the Option Period
        (as
        defined in Section 2(c)), and (y)
        which
        is not vested and exercisable on the date of termination, shall be canceled,
        in
        full, on the date of such termination; or

      


      (ii)
        if
        such Optionee has completed more than three (3) Years of Board Service as
        of the
        date of such termination, any portion of the Option (x)
        which
        is then outstanding, vested and exercisable on the date of termination may
        be
        exercised by the Optionee or, if applicable, his or her beneficiary until
        the
        third anniversary of the date of the Optionee's termination of service, but
        in
        no event later than the expiration date of the term of the Option, and
        (y)
        which
        is then outstanding but not vested and exercisable on the date of termination,
        shall thereafter vest and become exercisable by the Optionee or, if applicable,
        his or her beneficiary at the time or times indicated in Section 2(a) for
        a
        period of three (3) years following the Optionee’s termination of service and,
        once exercisable, will remain exercisable for a period of three (3) years
        following the date of the Optionee's termination of service, but in no event
        later than the expiration date of the term of the Option Period.

      


      (c)
        Term
        of Option Exercise Period.
        Except
        to the extent that the Option or any portion thereof shall sooner terminate
        in
        accordance with Section 2(b), once any portion of the Option has become vested
        and exercisable, such portion shall remain exercisable until the end of the
        day
        preceding the tenth anniversary of the date hereof (the "Option
        Period").

      



      
        
          
          

        

        
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      3.
        Method
        of Exercise and Payment; Certain Restrictions on Resale.

      


      (a)
        Exercise
        and Payment.
        Once
        vested and exercisable, the Option, or any such portion thereof, may be
        exercised by the Optionee (or his or her beneficiary or estate) by delivering
        to
        the Company on any business day (the "Option Exercise Date") written notice
        (the
        "Option Exercise Notice"), in such manner and form as may be required by
        the
        Board, specifying the number of Option Shares the Optionee then desires to
        purchase and the aggregate exercise price for such Option Shares (the "Option
        Exercise Price"). The Option Exercise Notice shall be accompanied by payment
        of
        the Option Exercise Price and any other amounts required to be paid pursuant
        to
        Section 4.

      


      The
        Optionee may pay the Option Exercise Price by delivering to the Company cash,
        shares of Qualifying Common Stock (as defined below) already owned by the
        Optionee or a combination of cash and such shares of Qualifying Common Stock,
        provided that the aggregate Fair Market Value on the Option Exercise Date
        of the
        shares of Qualifying Common Stock delivered in payment of any portion of
        the
        Option Exercise Price shall be equal to the excess of (x)
        the
        Option Exercise Price, over (y)
        the
        amount of any cash delivered by the Optionee in payment of the Option Exercise
        Price. For purposes of this Agreement, shares of Common Stock shall constitute
        Qualifying Common Stock that may be delivered in payment of the Option Exercise
        Price if such shares (i)
        are not
        subject to any outstanding loan or other obligation and are not pledged as
        collateral with respect to any loan or other obligation other than any such
        loan
        or other obligation extended to the Optionee by the Company or any Subsidiary,
        and (ii)
        have
        been owned by the Optionee without restriction for a continuous period of
        at
        least six months, or (iii)
        were
        purchased by the Optionee on a national securities exchange.

      


      Within
        a
        reasonable period of time after the Option Exercise Date, subject to payment
        of
        the Option Exercise Price and any amounts required to be paid by the Optionee
        pursuant to Section 4, the Company shall direct its stock transfer agent
        to make
        (or to cause to be made) an appropriate book entry reflecting the Optionee's
        ownership of the Option Shares then being purchased by the Optionee. Upon
        request, the Company shall deliver to the Optionee a certificate or certificates
        for the number of Option Shares purchased by the Optionee, registered in
        the
        name of the Optionee. In the event that the Company or the Board, in its
        sole
        discretion, shall determine that, under applicable U.S. federal or state
        or
        non-U.S. securities laws, the transfer of any Option Shares must be subject
        to
        restriction, any certificates issued under this Section 3(a) shall bear an
        appropriate legend restricting the transfer of such Option Shares, and
        appropriate stop transfer instructions shall be delivered to the Company's
        stock
        transfer agent.

      


      (b)
        Restrictions
        on Sale upon Public Offering.
        The
        Optionee hereby agrees that, during the 20 day period prior to and the 180
        days
        following the effective date of any registration statement filed by the Company
        under the Securities Act of 1933, as amended, with respect to any underwritten
        public offering of any shares of the Company's capital stock, the Optionee
        will
        not effect any public sale or distribution of shares of Common Stock (other
        than
        as part of such underwritten public offering).


      
        
          
          

        

        
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      4.
        Tax
        Withholding.
        The
        delivery of any directions to the Company's stock transfer agent or any
        certificates for shares of Common Stock pursuant to Section 3 shall not be
        made
        until the Optionee, or, if applicable, the Optionee's beneficiary or estate,
        has
        made appropriate arrangements for the payment to the Company of an amount
        sufficient to satisfy any applicable U.S. federal, state and local and non-U.S.
        tax withholding or other tax requirements, as determined by the
        Company.

      


      5.
        Assignability.
        Except
        as set forth in the Plan, the Option may not be sold, transferred, pledged,
        assigned or otherwise alienated or hypothecated by the Optionee otherwise
        than
        by will or the laws of descent and distribution and is exercisable during
        Optionee's lifetime only by the Optionee.

      


      6.
        Adjustment
        in Capitalization.

      


      (a)
        The
        aggregate number of shares of Common Stock subject to the Option and the
        option
        exercise price and/or vesting and exercisability criteria applicable to the
        Option shall be proportionately adjusted to reflect, as deemed equitable
        and
        appropriate by the Board, an Adjustment Event. To the extent deemed equitable
        and appropriate by the Board, subject to any required action by stockholders,
        in
        any merger, consolidation, reorganization, liquidation, dissolution or other
        similar transaction, other than any such transaction that constitutes a Change
        in Control, the Option shall pertain to the securities and other property
        to
        which a holder of the number of shares of Common Stock then covered by the
        Option would have been entitled to receive in connection with such
        event.

      


      (b)
        Any
        shares of stock (whether Common Stock, shares of stock into which shares
        of
        Common Stock are converted or for which shares of Common Stock are exchanged
        or
        shares of stock are distributed with respect to Common Stock) or cash or
        other
        property received with respect to the Option as a result of any Adjustment
        Event, any distribution of property or any merger, consolidation,
        reorganization, liquidation, dissolution or other similar transaction shall,
        except as provided in the Plan, be subject to the same terms and conditions,
        including vesting and restrictions on exercisability or transfer, as are
        applicable to the Option with respect to which such shares, cash or other
        property is received, and stock certificate(s) representing or evidencing
        any
        shares of stock or other property so received shall be legended as
        appropriate.

      


      7.
        Preemption
        by Applicable Laws and Regulations.
        Notwithstanding anything in the Plan or this Agreement to the contrary, the
        issuance of shares of Common Stock hereunder shall be subject to compliance
        with
        all applicable U.S. federal, state and non-U.S. securities laws. Without
        limiting the foregoing, if any law, regulation or requirement of any
        governmental authority having jurisdiction shall require either the Company
        or
        the Optionee (or the Optionee's beneficiary or estate) to take any action
        in
        connection with the issuance of any shares of Common Stock hereunder, the
        issuance of such shares shall be deferred until such action shall have been
        taken to the satisfaction of the Company.


      
        
          
          

        

        
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      8.
        Interpretation;
        Construction.
        All of
        the powers and authority conferred upon the Board pursuant to any term of
        the
        Plan or the Agreement shall be exercised by the Board, in its sole discretion.
        All determinations, interpretations or other actions made or taken by the
        Board
        pursuant to the provisions of the Plan or the Agreement shall be final, binding
        and conclusive for all purposes and upon all persons and, in the event of
        any
        judicial review thereof, shall be overturned only if arbitrary and capricious.
        The Board may consult with legal counsel, who may be counsel to the Company,
        and
        shall not incur any liability for any action taken in good faith in reliance
        upon the advice of counsel.

      


      9.
        Amendment.
        The
        Board shall have the right to alter or amend this Agreement from time to
        time,
        subject to the restrictions set forth in the Plan, for the purpose of promoting
        the objectives of the Plan, provided that no such amendment shall impair
        the
        Optionee's rights under this Agreement without the Optionee's consent. Subject
        to the preceding sentence, any alteration or amendment of this Agreement
        by the
        Board shall, upon adoption thereof by the Board, become and be binding and
        conclusive on all persons affected thereby without requirement for consent
        or
        other action with respect thereto by any such person. The Company shall give
        written notice to the Optionee of any such alteration or amendment of this
        Agreement as promptly as practicable after the adoption thereof. This Agreement
        may also be amended by a writing signed by both the Company and the
        Optionee.

      


      10.
        No
        Right to Serve as a Director.
        Neither
        the Plan nor this Agreement imposes any obligation on the Company to retain
        any
        Optionee as a director or any obligation on any Optionee to remain as a director
        of the Company.

      


      11.
        No
        Rights as a Stockholder.
        The
        Optionee shall have no voting or other rights as a stockholder of the Company
        with respect to any Option Shares until the exercise of the Option and the
        recording of the Optionee's ownership of the Option Shares on the stock transfer
        records for the Common Stock. No adjustment shall be made for dividends or
        other
        rights issued with respect to the Common Stock for which the record date
        is
        prior to the recording of such ownership of the Option Shares.

      


      12.
        Miscellaneous.

      


      (a)
        Notices. All notices and other communications required or permitted to
        be
        given under this Agreement shall be in writing and shall be deemed to have
        been
        given if delivered personally or sent by certified or express mail, return
        receipt requested, postage prepaid, or by any recognized international
        equivalent of such delivery, to the Company or the Optionee, as the case
        may be,
        at the following addresses or to such other address as the Company or the
        Optionee, as the case may be, shall specify by notice to the others delivered
        in
        accordance with this Section 12(a): 


      
        
          
          

        

        
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                (i)

              	
                if
                  to the Company, to it at:

              


      

      


      One
        Lexmark Centre Drive

      740
        West
        New Circle Road 

      Lexington,
        Kentucky 40550

      Attention:
        Secretary

      


      
        	 	
                (ii)

              	
                if
                  to the Optionee, to the Optionee at the address set forth on the
                  signature
                  page hereof.

              


      

      


      All
        such
        notices and communications shall be deemed to have been received on the date
        of
        delivery or on the third business day after the mailing thereof. 

      


      (b)
        Binding
        Effect; Benefits.
        This
        Agreement shall be binding upon and inure to the benefit of the parties to
        this
        Agreement and their respective successors and assigns. Nothing in this
        Agreement, express or implied, is intended or shall be construed to give
        any
        person other than the parties to this Agreement or their respective successors
        or assigns any legal or equitable right, remedy or claim under or in respect
        of
        any agreement or any provision contained herein.

       

      (c)
        Waiver.
        Any
        party hereto may by written notice to the other party (i) extend
        the time for the performance of any of the obligations or other actions of
        the
        other party under this Agreement, (ii) waive
        compliance with any of the conditions or covenants of the other party contained
        in this Agreement and (iii) waive
        or modify performance of any of the obligations of the other party under
        this
        Agreement. Except as provided in the preceding sentence, no action taken
        pursuant to this Agreement, including, without limitation, any investigation
        by
        or on behalf of any party, shall be deemed to constitute a waiver by the
        party
        taking such action of compliance with any representations, warranties, covenants
        or agreements contained herein. The waiver by any party hereto of a breach
        of
        any provision of this Agreement shall not operate or be construed as a waiver
        of
        any preceding or succeeding breach and no failure by a party to exercise
        any
        right or privilege hereunder shall be deemed a waiver of such party's rights
        or
        privileges hereunder or shall be deemed a waiver of such party's rights to
        exercise the same at any subsequent time or times hereunder.

      
        


        (d)
          Applicable
          Law.
          This
          Agreement shall be governed by and construed in accordance with the laws
          of the
          State of Delaware, regardless of the law that might be applied under principles
          of conflict of laws and excluding any conflict or choice of law rule or
          principle that may otherwise refer construction or interpretation of the
          Plan or
          this Agreement to the substantive law of another jurisdiction.

        


        (e)
          Jurisdiction.
          The
          Optionee hereby irrevocably and unconditionally submits to the jurisdiction
          and
          venue of the state courts of the Commonwealth of Kentucky and of the United
          States District Court of the Eastern District of Kentucky located in Fayette
          County, Kentucky, and any appellate court from any thereof, in any 

         

        
          
            
            

          

          
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        action
          or
          proceeding arising out of or relating to this Agreement, or for recognition
          or
          enforcement of any judgment, and each of the parties hereby irrevocably
          agree
          that all claims in respect of any such action or proceeding may be heard
          and
          determined in such Kentucky state or United States federal courts located
          in
          such jurisdiction. Each of the parties hereto agrees that a final judgment
          in
          any such action or proceeding shall be conclusive and may be enforced in
          other
          jurisdictions by suit on the judgment or in any other manner provided by
          law.
          The parties hereby irrevocably waive, to the fullest extent permitted by
          applicable law, any objection which they may now or hereafter have to the
          laying
          of venue of any such proceeding brought in such a court and any claim that
          any
          such proceeding brought in such a court has been brought in an inconvenient
          forum. Optionee further agrees that any action related to, or arising out
          of,
          this Agreement shall only be brought by Optionee exclusively in the federal
          and
          state courts located in Fayette County, Kentucky. Nothing in this Agreement
          shall affect any right that the Company may otherwise have to bring any
          action
          or proceeding relating to this Agreement in the courts of any
          jurisdiction.

        


        (f)
          Severability.
          If any
          provision of this Agreement or the Plan shall be held invalid or unenforceable,
          such invalidity or unenforceability shall not affect any other provisions
          of
          this Agreement or the Plan, and the Agreement and the Plan shall be construed
          and enforced as if such provision had not been included.

        


        (g)
          Internal
          Revenue Code Section 409A.
          The
          Company intends for this Agreement to comply with the provisions of Section
          409A
          of the Code and the guidance issued thereunder. Notwithstanding Section
          9
          hereof, the Company intends to amend this Agreement, and hereby reserves
          the
          right to do so without the Optionee’s consent, in the future as required to
          conform to the provisions of Section 409A of the Code with respect to amounts
          subject to Section 409A of the Code.

        


        (h)
          Section
          and Other Headings, Etc.
          The
          section and other headings contained in this Agreement are for reference
          purposes only and shall not affect the meaning or interpretation of this
          Agreement. In this Agreement all references to "dollars" or "$" are to
          United
          States dollars.

        


        (i)
          Counterparts.
          This
          Agreement may be executed in any number of counterparts, each of which
          shall be
          deemed to be an original and all of which together shall constitute one
          and the
          same instrument.

        


        (j)
          Pronouns.
          Use of
          the masculine pronoun shall be deemed to include usage of the feminine
          pronoun
          where appropriate.

      

      


      
        
          
          

        

        
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      IN
        WITNESS WHEREOF, the Company and the Optionee have executed this Agreement
        as of
        the date first above written.

      


      


      LEXMARK
        INTERNATIONAL, INC.

      


      


      By:         
        _______________________________

      Name: Jeri
        I. Stromquist

      Title: Vice
        President of Human Resources

      


      


      OPTIONEE:

      


      


      


      By:         
        _______________________________

      Name: __________________________

      Title: Director

      


      


      Address
        of Optionee:

      


      _____________________________________

      _____________________________________

      _____________________________________