Document:

Exhibit 10.46

Exhibit 10.46

SALE AND PURCHASE
AGREEMENT 

        This
Sale and Purchase Agreement (“Agreement”) is entered into of this 29th
day of October, 2004, by and between Printers Alliance, Inc., a Delaware corporation
whose principal place of business is 6060 N. Central Expressway, Suite 560, Dallas, Dallas
County, Texas 75206 (“Purchaser”); Executive Auto Services, Inc., a Texas
corporation whose principal place of business is located at 15950 North Dallas Parkway,
Suite 400, Dallas, Dallas County, Texas 75248 and Summit Travel, Inc., a Texas corporation
whose principal place of business is located at 3100 Premier Drive, Suite 232, Irving,
Dallas County, Texas 75063 (collectively, “Guarantors”); and Ascent Assurance
Inc., a Delaware corporation whose principal place of business is 3100 Burnett Plaza, Unit
33, 801 Cherry Street, Fort Worth, Tarrant County, Texas 76102 (“Seller”), owner
of all of the issued and outstanding capital stock of Westbridge Printing Services, Inc.,
a Delaware corporation (“Company”). 

INTRODUCTION 

        Seller
desires to sell and Purchaser desires to purchase all of the issued and outstanding
capital stock of Company on the terms and conditions set forth in this Agreement. 

        In
consideration of the mutual promises of the parties; in reliance on the representations,
warranties, covenants and conditions contained in this Agreement; and for other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged and
confessed, the parties agree as follows: 

ARTICLE 1 

Sale 

             1.01.  
          Seller agrees to sell, convey, transfer, assign and deliver to Purchaser all of
          the issued and outstanding capital stock of Company, and Purchaser agrees to
          purchase such stock and all of the assets of the Company except certain accounts
          receivable as described in Section 1.02. Further, Guarantors agree to guarantee
          the timely and proper performance by the Company and Purchaser of certain future
          payment and other obligations of the Company, as provided herein pursuant to
          their respective Guarantee Agreements attached hereto as Exhibits 1 and 2,
          respectively, and by this reference incorporated for all purposes herein. 

Consideration for Sale 

             1.02.  
          In consideration of the sale and transfer of the shares of capital stock of
          Company and the representations, warranties, and covenants of Seller set forth
          in this Agreement, Purchaser shall assume, jointly and severally with Company,
          certain obligations of Company, which obligations are fully described in Exhibit
          3, which is attached hereto and by this reference incorporated for all purposes
          herein, and no other. The parties expressly agree that the present and fixed
          obligations of Company not fully described in Exhibit 3 shall be retained by
          Seller and shall be fully and timely paid by Seller as a part of the
          consideration due Purchaser from Seller under this Agreement. As additional
          consideration for its purchase of Company, Purchaser shall cause the Company to
          use its best efforts to timely and properly collect the accounts receivable due
          the Company on the Closing Date, and to timely and properly pay the accounts
          payable of the Company as of the Closing Date when such accounts are due. Seller
          and Purchaser agree that the net amount of any sums the Company recovers from
          accounts receivable as of the Closing Date which exceed the sum of (a) all
          accounts payable, as of the Closing date and (b) the lesser of twenty thousand
          dollars ($20,000.00) and the sum of all severance payments made by the Company
          to individuals that were employees of the Company on the Closing Date, and who
          are terminated by the Company within forty five (45) days of the Closing Date
          shall be divided between Seller and Purchaser as follows: Seller shall receive
          sixty percent (60%) of such excess and Purchaser shall receive forty percent (40
          %) of such excess. Seller and Purchaser agree to follow the procedures set forth
          in Exhibit 4 with respect to (a) the timely determination of the amount of the
          accounts receivable and the accounts payable as of the Closing Date, (b) the
          timely collection after the Closing Date of the accounts receivable as of the
          Closing Date, and (c) the timely payment after the Closing Date of the accounts
          payable as of the Closing Date. The pro forma impact of the foregoing provisions
          on the Company’s unaudited balance sheet as of September 30, 2004 is set
          forth at Exhibit 6, which is attached hereto and by this reference incorporated
          for all purposes herein. 

Closing 

             1.03.  
          The parties agree to use their best efforts to consummate this transaction (the
          “Closing”). The Closing shall take place at the office of Seller or at
          such other place as is mutually agreed upon by Seller and Purchaser on or before
          October 29, 2004, (“the Closing Date”). In either event, all terms and
          conditions to the Closing of this Agreement shall have been met on or before the
          Closing Date. 

Termination of 401k
Participation 

        1.04.  
The parties understand, agree and acknowledge that as of the Closing Date the employees of
the Company will no longer have the right or option to participate in the 401k plan
sponsored by an affiliate of Seller. 

Proration of Taxes 

        1.05.  
Seller shall be solely responsible for and shall promptly pay all Taxes which accrued in
connection with the Company, its assets, employees, sales or any other matter or thing
connected with Company prior to 2004. All such Taxes which accrued during 2004 shall be
prorated as follows: Seller shall be responsible for and shall pay when due, five sixths
(5/6s) of all such Taxes and Purchaser shall cause Company to pay or shall itself pay one
sixth (1/6) of all such Taxes when due. 

ARTICLE 2 

SELLER’S
REPRESENTATIONS AND WARRANTIES 

        Seller
hereby represents and warrants to Purchaser that the following facts and circumstances are
and at all times up to the Closing Date will be true and correct. 

Organization 

             2.01.  
          The Company is a corporation duly organized, validly existing and in good
          standing under the laws of the State of Delaware and is qualified to do business
          in Texas. The Company has all requisite power and authority (corporate and, when
          applicable, government) to own, operate, and carry on its business as now being
          conducted. The Company’s certificate of incorporation, certificate of good
          standing in the State of Delaware dated October 18, 2004, articles of
          incorporation and bylaws as currently in effect are contained in Exhibit 7 which
          is attached hereto and by this reference incorporated for all purposes herein. 

Capital Stock 

        2.02.  
The amount of authorized capital stock and the number of shares issued and outstanding of
Company is set forth in Exhibit 8, which is attached hereto and by this reference
incorporated for all purposes herein. The issued and outstanding shares of capital stock
of Company have been validly issued, are fully paid and non-assessable, and were issued in
compliance with applicable federal and state laws regulating the offer and sale of
securities. There are no outstanding options, warrants or similar rights to purchase or
convert any obligation into the capital stock or other securities of Company. A Waiver and
Consent Agreement, as well as Lost Stock Affidavit have been executed by Credit Suisse
First Boston Management Corporation, a copy of each of which is attached hereto as
Exhibits 24 and 25, respectively, and by this reference both are incorporated for all
purposes herein. As a result, the capital stock of the Company is owned, of record and
beneficially, by Seller free and clear of all liens, claims and encumbrances. 

Good Standing 

             2.03.  
          The Company is a corporation in good standing with the State of Texas as well
          as, Delaware, its state of incorporation, and has filed all reports, tax
          returns, public information reports and other documents and has paid all taxes,
          fees and other sums necessary for it to remain in good standing for the current
          year. 

Taxes Paid 

        2.04.  
The Company has paid all federal income taxes, social security taxes, Medicare taxes,
FICA, FUTA, sums withheld from employees’ wages and other sums due the Internal
Revenue Service, the United States Department of the Treasury and other governmental
entities for all periods up to and including the payroll period ended on June 30, 2004.
Such taxes for payroll periods in the quarter ended September 30, 2004 will be paid, when
due, by October 31, 2004. Such taxes for the payroll period ended October 15, 2004 and the
“cut-off” payroll period ended as of the Closing Date, will be paid by Seller,
when due, by January 31, 2004. 

Texas Workforce
Commission 

             2.05.  
          The Company has paid all sums due the Texas Workforce Commission and other
          governmental agencies. 

Employee Benefit Plan
Payments 

             2.06.  
          The Company has paid all sums due in connection with any employee pension plan,
          employee insurance plan and other employee benefit plan, including (without
          limitation) all sums withheld from its employees’ wages. 

Company a
Worker’s Compensation Non-Subscriber 

        2.07.  
The Company is not a subscriber under the worker's compensation insurance for its employees.

Sales by Customer 

        2.08.  
The Company has successfully made the sales described in Exhibit 9, entitled “Sales
by Customer,” which is attached hereto and by this reference incorporated for all
purposes herein. 

Company Owns Inventory 

        2.09.  
The Company owns and is in possession of the paper, ink and prepress material described in
Exhibits 10, 11 and 12, except the Company does not own or have possession of the paper,
ink and prepress material described therein which has been consumed by the Company in the
ordinary course of its business since September 30, 2004, which Exhibits are attached
hereto and by this reference incorporated for all purposes herein. 

Business Relationships 

        2.10.  
The Company has past or current business relationships with the customers named in Exhibit 9.

Accounts Receivable 

        2.11.  
As of the date set forth in Exhibit 13, which is attached hereto and by this reference
incorporated for all purposes herein, the Company owned the accounts receivable described
in Exhibit 13. 

Accounts Payable 

        2.12.  
As of the date set forth in
Exhibit 14, which is attached hereto and by this reference incorporated for all purposes
herein, the Company was liable for the accounts payable described in Exhibit 14. 

Accuracy of Information 

        2.13.  
All of the information set out in this Agreement and in each of the attached Exhibits was
true and complete as of the date(s) indicated therein and includes all information
necessary to make all such Exhibits not misleading. 

Civil Actions and
Administrative Proceedings 

        2.14.  
Except as described in Exhibit 15, which is attached hereto and by this reference
incorporated for all purposes herein, no lawsuit, civil action, criminal action,
administrative proceeding or other liability or potential liability of Company is pending
or threatened and, to the best of Seller’s knowledge and belief formed after
reasonable inquiry, Company has neither engaged in nor suffered to be done any act,
omission or both which has or may reasonably be expected to give rise to any claim against
it by any person or organization.. 

Stock and Assets
Encumbered 

        2.15.  
The stock of the Company is not encumbered by any debt. The assets of the Company are
encumbered only by the leases contained in Exhibit 3 and the obligations thereunder. 

Ownership in Other
Companies 

             2.16.  
          The Company has no interest in any other corporation, firm, business or
          partnership, nor any subsidiaries. 

Officers and Directors 

             2.17.  
          Exhibit 16, which is attached hereto and by this reference incorporated for all
          purposes herein contains a true and correct list of all officers and directors
          of the Company. 

Employees and Borrowed
Employees 

             2.18.  
          Exhibit 17, which is attached hereto and by this reference incorporated for all
          purposes herein contains a true and correct list of all sales employees of the
          Company, as well as all management employees of a subsidiary of Seller who have
          been the borrowed employees of and assigned principally to the Company, their
          annual rate of compensation, and any bonuses paid during 2004. 

Financial Statements 

             2.19.  
          Exhibit 18 is attached hereto and by this reference incorporated for all
          purposes herein and contains the unaudited financial statements of the Company,
          as follows:(a) unaudited pro forma statements of operations for the years ended
          December 31, 2001 through December 31 2003 and the nine months ended September
          30, 2004; and (b) unaudited pro forma balance sheets as of December 31, 2001,
          2002 and 2003 and September 30, 2004. Except as disclosed in Exhibit 18,
          the unaudited financial statements present fairly and accurately the financial
          position and results of operation of the Company at the dates and for the
          periods covered, in each case in conformity with generally accepted and
          consistently applied accounting principles. There are no liabilities or
          obligations of Company, accrued, absolute, contingent, inchoate, or otherwise
          that arose out of or relate to any matter, act, or omission occurring from
          September 30, 2004, to the date of this Agreement, other than liabilities or
          obligations incurred in the normal course of business. Since September 30, 2004,
          to the best of Seller’s knowledge and belief there have not been: 

                         (a)  
          Any material adverse change in financial condition, operations, sales or net
          loss of the Company; 

                         (b)  
          Any loss, damage or destruction to Company’s properties or assets, tangible
          or intangible (whether or not covered by insurance); 

                         (c)  
          Any change in policy regarding compensation payable to or to become payable to
          any of Company’s officers, directors, employees or agents; 

                         (d)  
          Any labor dispute, disturbance, or attempt to organize a union; 

                         (e)  
          Any proposed law or regulation or any actual event or condition of any character
          that is known to Company or Seller that materially adversely affects the
          business or future prospects of Company; 

                         (f)  
          Any claim, litigation, event or condition of any character that materially
          adversely affects the business or future prospects of Company; 

                         (g)  
          Any issuance, purchase of, or agreement to issue or purchase shares of capital
          stock or other securities of Company, except as contemplated in this Agreement; 

                         (h)  
          Any mortgage, pledge, lien or encumbrance made or agreed to be made on any of
          Company’s assets or properties, tangible or intangible; 

                         (i)  
          Any sale, transfer, other disposition of or agreement to sell, transfer or
          dispose of Company’s properties or assets, tangible or intangible, except
          as contemplated in this Agreement and except in the normal course of business
          and then only for full and fair value received; 

                         (j)  
          Any loans, advances, or agreements with respect to any loans or advances, other
          than to customers in the normal course of business and that have been properly
          reflected as accounts receivable on Company’s books; 

                         (k)  
          Any transaction outside the ordinary course of business; and 

                         (l)  
          Any agreement by Seller or Company to do any of the items described in
          Subparagraphs (a) through (k), above. 

Taxes 

             2.20.  
          All federal, state, local and foreign income, ad valorem, excise, sales, use,
          payroll, unemployment and other taxes and assessments (“Taxes”) that
          are due and payable by Company or by Seller on behalf of Company have been
          properly computed, duly reported, fully paid and discharged. There are no unpaid
          Taxes that are or could become a lien on the property or assets of Company or
          require payment by Company, except for current Taxes not yet due and payable.
          All current Taxes not yet due and payable by Company, if any, have been properly
          accrued on the balance sheets of Company and all records of the same have been
          furnished to Purchaser. Company has not incurred any liability for penalties,
          assessments or interest under the Internal Revenue Code, the Texas Tax Code or
          any other applicable statute, regulation or law. Seller warrants to Purchaser
          that no unexpired waiver executed by or on behalf of Company with respect to any
          Taxes is in effect. 

Real Property 

             2.21.  
          Exhibit 3, which is attached hereto and by this reference incorporated for all
          purposes herein, includes a complete and accurate legal description of each
          parcel of real property owned by, leased to, or leased by Company together with
          true, correct, and complete copies of all real property leases. Exhibit 19,
          which is attached hereto and by this reference incorporated for all purposes
          herein, contains a description of all leasehold improvements located on the real
          property that have not been fully depreciated. All of the material real property
          leases are valid and in full force. There does not exist any default or event
          that with notice, lapse of time, or both will constitute a default under any of
          these lease agreements. All of the buildings, fixtures, and leasehold
          improvements used by Company in its business are located on the real property.
          The zoning of each parcel of property described in Exhibit 1 permits the
          presently existing improvements and the continuation of Company’s business
          presently being conducted on such parcel. Neither Company nor Seller is aware of
          any enacted or proposed changes to such zoning. 

Other Tangible
Personal Property 

             2.22.  
          The equipment, furniture, fixtures, and other personal property described in
          Exhibit 19 which attached hereto and by this reference incorporated for all
          purposes herein and all of the equipment, furniture, fixtures, and other
          personal property located at the Company’s facilities in its subleased
          portion of the premises located at 7333 Jack Newell Blvd. North, Fort Worth,
          Texas 76118 constitute most all the items of tangible personal property owned
          by, in the possession of, or used by Company in connection with Company’s
          business except Inventories. Except as stated in Exhibit 3, no personal property
          used by Company in connection with its business is held under any lease,
          security agreement, conditional sales contract, or other title retention or
          security agreement or is located any place other than in the possession of
          Company. 

Title to Assets and
Properties 

             2.23.  
          The Company has good and marketable title to all of its assets and properties,
          tangible and intangible, which is material to Company’s business and future
          prospects. These assets and properties constitute all of the assets and
          interests in assets that are used in Company’s business. All of these
          assets are free and clear of mortgages, liens, pledges, charges, encumbrances,
          equities, claims, easements, rights of way, covenants, conditions, and
          restrictions, except for the following: 

                         (a)  
          Those disclosed in Company’s balance sheets as of September 30, 2004,
          included in Exhibit 18 to this Agreement; 

                         (b)  
          The lien of current Taxes not yet due and payable; and 

                         (c)  
          Possible minor matters that, in the aggregate, are not substantial in amount and
          do not materially detract from or interfere with the present or intended use of
          any of the assets and properties nor materially impair business operations. 

Customers and Sales 

        2.24.  
Exhibit 9 is a correct list for the nine (9) months ended September 30, 2004 of all
customers of Company that are not affiliated with the Seller, together with summaries of
the sales made to each customer during the period described therein. Except as indicated
in Exhibit 9, neither Company nor Seller has information or is aware of any facts
indicating that any of these customers intend to cease doing business with Company or to
materially alter the amount of the business that they are presently doing with Company.
Neither Company nor Seller has information or is aware of any facts indicating that any of
the Company’s sales staff intend to cease doing business with Company or to
materially alter the amount of the business that they are presently doing with Company. 

Laws and Regulations 

        2.25.  
Company is not in default or in violation of any law; regulation, court order, or
order of any federal, state, municipal, foreign, or other government department, board,
bureau, agency or instrumentality, wherever located, that would adversely affect its
business or future prospects. 

Fringe Benefit Plans;
Employment Contracts 

             2.26.  
          There are no employment agreements (in effect with) to which Company is a party.
          There are no unfunded pension or similar liabilities regarding any employee of
          Company. 

Reserves 

        2.27.  
The Company maintains no reserves for contingent liabilities.

Bank Accounts 

        2.28.  
Exhibit 20 which is attached hereto and by this reference incorporated for all purposes
herein contains a true and correct list of the names and addresses of all banks or other
financial institutions in which the Company has an account, deposit or safe deposit box.
Also included are the names of all persons authorized to draw on these accounts or
deposits or who have access to them and the account numbers of each account. 

Business Operations 

             2.29.  
          The business operations of the Company for the past five years have been in
          material compliance with all laws, treaties, rulings, directives, and similar
          regulations of all government authorities having jurisdiction over such business
          insofar as failure to comply could adversely affect the Company’s business
          and future prospects. 

Authority 

             2.30.  
          Seller and the Company each has full power and authority to execute, deliver and
          consummate this Agreement, subject to the conditions to Closing set forth in
          this Agreement. All reports and returns required to be filed by each with any
          government and regulatory agency with respect to this transaction, if any, have
          been properly filed. Except as otherwise disclosed in this Agreement, no notice
          to or approval by any other person, firm or entity, including governmental
          authorities, is required of Seller or Company to consummate the transaction
          contemplated by this Agreement. 

Full Disclosure 

        2.31.  
No representation, warranty or covenant made to the Purchaser in this Agreement nor any
document, certificate, exhibit or other information given or delivered to Purchaser
pursuant to this Agreement contains or will contain any untrue statement of a material
fact, or omits or will omit a material fact necessary to make the statements contained in
this Agreement or the matters disclosed in the related documents, certificates,
information or exhibits not misleading. 

Brokers 

        2.32.  
Neither Seller nor the Company, nor any of the Company’s officers, directors,
employees or stockholders, has retained, consented to, or authorized any broker,
investment banker or third party to act on Company’s behalf, directly or indirectly,
as a broker or finder in connection with the transactions contemplated by this Agreement. 

Authority 

        2.33.  
Seller’s agent executing this Agreement on behalf of Seller has all requisite
authority, including (without limitation) all corporate authority of Seller to execute
this Agreement on Seller’s behalf. Exhibits 21 and 22 are attached hereto and by this
reference incorporated for all purposes herein true copies of resolutions of the
shareholders and directors of Seller certified by Seller’s corporate Secretary
authorizing Seller’s agent whose signature appears below to execute this Agreement on
Seller’s behalf. 

Phone System 

        2.34.  
Seller will surrender its right, title and interest in and to the phone system currently
used by the Company, including telephones in the subleased premises of the Company (as
depicted in the Sublease Agreement) on the Closing Date. 

ARTICLE 3 

PURCHASER’S
REPRESENTATIONS, WARRANTIES AND WAIVERS 

        Purchaser
represents and warrants to Seller that: 

Authority 

             3.01.  
          Purchaser has full power and authority to execute, deliver and consummate this
          Agreement subject to the conditions to Closing set forth in this Agreement. All
          corporate acts, reports and returns required to be filed by Purchaser with any
          government or regulatory agency, if any, with respect to the transaction
          contemplated herein have been or will be properly filed prior to the Closing
          Date. No provisions exist in any contract, document or other instrument to which
          Purchaser is a party or by which Purchaser is bound that would be violated by
          consummation of the transaction contemplated in this Agreement. Moreover, the
          execution, delivery and performance by Purchaser of the duties and obligations
          contained herein are duly authorized by all necessary corporate or other action
          and will not (a) violate any provisions of its certificate of incorporation or
          by-laws (or comparable charter or governance documents); (b) violate an
          provision of, or require any filing, registration, consent or approval under,
          any material law, rule, regulation, order, writ, judgment, injunction, decree,
          determination or award presently in effect having applicability to and binding
          upon Purchaser, or (c) result in a breach of, or constitute a default or event
          of default or require any consent under any indenture, mortgage or loan or
          credit agreement or any other material agreement, lease or instrument to which
          Purchaser is a party or by which its properties may be bound. 

Broker 

        3.02.  
Neither Purchaser, nor any of Purchaser’s officers, directors, or employees, has
retained, consented to, or authorized any broker, investment banker, or third party to act
on its behalf, directly or indirectly, as a broker or finder in connection with the
transactions contemplated by this Agreement. 

Organization and
Standing of Purchaser 

        3.03.  
Purchaser is a corporation that has been duly and properly formed, validly exists, and is
in good standing under the laws of the State of Delaware. Purchaser possesses corporate
power to own property and carry on its business as it is now being conducted. Purchaser
has timely and properly filed all reports, tax returns, public information reports and
other documents and has paid all taxes, fees and other sums necessary for Purchaser to
remain in good standing for the current year. 

Solvency 

        3.04.  
As of the Closing Date Purchaser is not “insolvent” as that term is defined in
Section 101 of the Bankruptcy Reform Act of Act of 1978, as amended from time to time and
any successor statute. Purchaser does not believe it will, incur liabilities and
obligations as a result of this transaction beyond its ability to pay as such obligations
and liabilities mature. 

Insurance 

        3.05.  
Purchaser has secured and purchased all reasonable and necessary property and casualty
insurance coverage for and on behalf of the Company, effective on the date of Closing,
fully insuring and protecting the Company and all of its assets from all forms of loss
including, but not limited to fire, theft, wind, electrical, and mechanical caused
property losses, as well as liability coverage for bodily injury and property damage
allegedly caused by the acts and/or omissions of Purchaser or the Company. 

Payments by the Company 

        3.06.  
Purchaser shall cause the Company to pay, or shall itself pay, the obligations set forth
in Exhibit 3 in accordance with the terms of those obligations or in accordance with such
other terms as are acceptable to those creditors of the Company to whom those obligations
are owed. With respect to the Komori Lithrone Model L640-III Series 45 Six Color Offset
Press and the payment obligations under the Sublease, both of which are set forth in
Exhibit 3, Purchaser shall cause the Company to pay, or shall itself pay, the sums
reflected in Exhibit 3 in the following fashion: (i) Purchaser shall cause the Company to
timely and properly generate checks made payable to the creditor of the Company listed in
Exhibit 3; (ii) Such checks shall be timely and properly delivered by Purchaser to an
agent of Seller designated by Seller within sufficient time for the dispatch, as
applicable, of such checks by Seller to those creditors of the Company in time for receipt
by such creditors on the due date of each applicable obligation of the Company; and (iii)
Seller agrees to use such due and proper care as is necessary to ensure that each such
check is timely mailed or otherwise transmitted in order to be timely received by the
applicable creditor of the Company. 

Joint and Several
Liability 

        3.07.  
Purchaser understands and agrees that it is jointly and severally liable with the Company
to the Seller for the liabilities of the Company described in Exhibit 3. 

Timely and Proper
Maintenance of Press and Equipment 

        3.08.  
Purchaser understands and agrees that the failure to perform timely and proper maintenance
on the presses and printing equipment will lead to a deteriorization of such equipment and
a diminution of market value. Accordingly, Purchaser shall cause the Company to timely and
properly perform all recommended maintenance on all of the presses and printing equipment
of the Company and maintain proper records regarding such maintenance, and if the Company
fails to timely and properly perform such maintenance and maintain such maintenance
records, then Purchaser shall immediately do so. In addition, Seller shall be permitted
access to all maintenance records and maintenance personnel in order to verify
Purchaser’s and the Company’s compliance with this representation and warranty. 

Performance by the
Company 

        3.09.  
On and after the Closing Date, Purchaser shall cause the Company to timely and properly
perform all duties and obligations (i) owed by the Company as the Subtenant under the
Sublease Agreement between the Company and Seller, which is attached hereto as Exhibit 26
and by this reference incorporated for all purposes herein, and (ii) owed by the lessee
under any of the equipment leases identified in Exhibit 3, and if the Company fails to
timely and properly perform all such duties and obligations, then Purchaser shall
immediately do so; and with respect thereto, Seller shall have the same rights against
Purchaser and the Company as the lessor under each such equipment lease. 

Phone System 

        3.10.  
On the first business day following the Closing Date, Purchaser shall effect a termination
of the current local and long distance telephone service from the subsidiary of Seller in
whose name such service is currently provided to the Company and transfer such service to
the Company. 

Maintain Insurance 

             3.11.  
          After the Closing Date, Purchaser shall cause the Company to keep in force all
          policies of insurance covering the Company’s business, properties and
          assets, including all insurance listed in this Agreement. 

Company to Remain in
Good Standing 

             3.12.  
          After the Closing Date, Purchaser shall cause the Company to file all reports,
          tax returns, public information reports and other documents and timely and
          properly pay all taxes, fees and other sums necessary for the Company to remain
          in good standing. 

Maintain Compliance
With Laws and Regulations 

        3.13.  
After the Closing Date, Purchaser shall cause the Company to not be in default or in
violation of any law; regulation, court order, or order of any federal,
state, municipal, foreign, or other government department, board, bureau, agency or
instrumentality, wherever located, that would adversely affect its business or future
prospects. 

Non-Removal of Komori
Printing Equipment 

        3.14.  
After the Closing Date and prior to October 31, 2005, Purchaser shall cause the Company to
keep the Komori printing equipment, described in Exhibit 3, housed and properly safe
guarded at its current location at 7333 Jack Newell Boulevard North, Fort Worth, Texas
unless Company first obtains the prior written approval of Seller, which written approval
shall not be unreasonably withheld. 

ARTICLE 4 

COVENANTS 

        Seller
covenants with Purchaser that from and after the date of this Agreement until the Closing
Date, Seller will and will cause the Company to: 

Business Operations 

             4.01.  
          Operate its business and conduct its activities in the normal course of business
          and not introduce any material new method of management, operation or
          accounting. 

Maintenance of Assets
and Properties 

             4.02.  
          Maintain all tangible assets and properties of the Company in as good a state of
          operating condition and repair, as they are on the date of this Agreement,
          except for ordinary depreciation, wear and tear. 

Absence of Liens 

             4.03.  
          Not sell, pledge, lease, mortgage, encumber, dispose of or agree to do any of
          these acts regarding any of the assets or properties of the Company, other than
          in the ordinary course of business, without the prior written approval of
          Purchaser. 

Preservation of
Business 

             4.04.  
          Use its best efforts to preserve intact its organization and personnel and to
          keep available the services of all of its employees, agents, independent
          contractors and consultants commensurate with the Company’s business
          requirements. 

Preservation of
Customer Relations 

             4.05.  
          Use its best efforts to preserve intact the present customers of Company and the
          goodwill of all customers with respect to the Company and its business. 

Maintain Insurance 

             4.06.  
          Keep in force all policies of insurance covering the Company’s business,
          properties and assets, including all insurance listed in this Agreement. 

Absence of Contractual
Obligations 

             4.07.  
          Not become obligated on any contract or commitment or incur or agree to incur
          any liability beyond a period of thirty (30) days or for any amount in excess of
          $5,000.00 or make any capital expenditures without the prior written consent of
          Purchaser. 

Performance of
Obligations 

             4.08.  
          Perform all of its obligations and not make any material amendment to its
          obligations under all agreements relating to or affecting the Company’s
          customers, business, properties and assets. 

Notification of
Litigation 

             4.09.  
          Promptly notify Purchaser in writing of any outstanding or threatened claims;
          legal, administrative or other proceedings, suits, investigations, inquires,
          complaints, notices of violations or other process; or other judgments,
          orders, directives, injunctions or restrictions against or involving the
          Company or its personnel that could adversely affect the Company. 

Access to Books and
Records 

             4.10.  
          Make available to Purchaser and its authorized agents, accountants and attorneys
          for inspection at reasonable times and under reasonable circumstances the
          following items with respect to Company: assets; properties; business and
          financial records; tax returns. Seller will use its best efforts to cause
          Company’s officers and employees to cooperate fully with Purchaser’s
          examination(s) and to make a full and complete disclosure to Purchaser of all
          facts regarding the financial condition and business operations of Company. 

Employee Compensation 

        4.12.  
Not increase the compensation payable to or to become payable to any executive officer,
key employee or agent; make any bonus payment to any such person; and permit Purchaser to
contact such employees, agents, and officers at all reasonable times for the purpose of
discussing with them prospective employment by Purchaser on or after the Closing Date.
Seller shall use its best efforts to encourage all such persons to accept any employment
offered by Purchaser. 

Not Solicit 

        4.13.  
Not negotiate with any person or entity, or solicit or entertain any proposal concerning
any acquisition in any form of Company. 

Resist Brokers 

        4.14.  
Assist and cooperate with Purchaser in resisting any claim of any broker, investment
banker, or third party for any brokerage fee, finder’s fee, or commission against
Purchaser or Company in connection with the transaction_ contemplated by this
Agreement. 

Maintain Employee
Benefit Plans 

        4.15.  
Not add or discontinue any pension, welfare, or other employee benefit plans, or make any
alteration in any existing pension, welfare, or other employee benefit plans. 

Payment of Liabilities
and Waiver of Claims 

             4.16.  
          Not do, or agree to do, any of the following acts: 

               	a. 	        
                     Pay any obligation or liability, fixed or contingent, other than current
                    liabilities;     
	b. 	        
                    Waive or compromise any right or claim; and/or
	c. 	        
                    Without full
                    payment, cancel any note, loan or other obligation owing to the Company.

                    

Maintain Existing
Agreements 

             4.17.  
          Not modify, amend, cancel or terminate any of the Company’s existing
          contracts or agreements or agree to do so. 

Provide Sales and Use
Tax Certificates 

             4.18.  
          Deliver to Purchaser clearance certificates from the appropriate agencies in
          Texas (where Company is qualified to do business) and any other state where
          Company is qualified to do business as well as any related certificates that
          Purchaser may reasonably request as evidence that all sales, use and other tax
          liabilities of Company (other than income tax liabilities) accruing on or before
          September 30, 2004 and on or before the Closing Date have been fully satisfied
          or provided for by Company. 

ARTICLE 5 

CONDITIONS TO
PURCHASER’S OBLIGATION TO CLOSE 

        The
obligation of Purchaser to Close under this Agreement is subject to each of the following
conditions (any one of which may, at the option of Purchaser, be waived in writing by
Purchaser) existing on the Closing Date, or such earlier date as the context may require. 

Representations and
Warranties 

             5.01.  
          Each of the representations and warranties of Seller in this Agreement, the
          disclosures contained in the exhibits to this Agreement, and all other
          information delivered under this Agreement shall be true in all material
          respects at and as of the Closing Date as though each representation, warranty,
          and disclosure were made and delivered at and as of the Closing Date. 

Opinion of Counsel 

        5.02.  
Seller shall deliver to Purchaser an opinion of counsel addressed to Purchaser and dated
as of the Closing Date in substantially the form set forth in Exhibit 23, which is
attached hereto and by this reference incorporated for all purposes herein. 

Compliance With
Conditions 

             5.03.  
          The Company and Seller shall each comply with and perform all agreements,
          covenants and conditions in this Agreement required to be performed and complied
          with by each of them. All requisite action (corporate and otherwise) in order to
          consummate this Agreement shall be properly taken by Company and Seller. 

Suit or Proceeding 

        5.04.  
No suit or proceeding, legal or administrative, relating to any of the transactions
contemplated by this Agreement shall be overtly threatened or commenced that, in the sole
discretion of Purchaser and its counsel, would make it inadvisable for Purchaser to Close
this transaction. 

Government Approvals
and Filings 

             5.05.  
          All necessary government approvals and filings regarding this transaction shall
          be received or made prior to the Closing Date in substantially the form applied
          for to the reasonable satisfaction of Purchaser and its counsel. Any applicable
          waiting period for the approvals and filings shall have expired. 

Corporate and
Stockholder Action 

             5.06.  
          All corporate and stockholder action necessary to consummate the transactions
          contemplated in this Agreement shall be properly taken by Seller and the
          Company. Purchaser shall receive copies of all appropriate resolutions of the
          Company’s and Seller’s boards of directors and shareholders relating
          to this Agreement. The resolutions shall be certified by the Company’s and
          Seller’s respective corporate secretaries. 

Board of Directors
Resignations 

             5.10.  
          On or before the Closing Date, Seller shall secure the resignations of all
          directors currently serving on the board of directors of Company, and present a
          letter from the applicable director(s) confirming such resignation. 

ARTICLE 6 

CONDITIONS TO
SELLER’S OBLIGATION TO CLOSE 

        The
obligation of Seller to Close under this Agreement is subject to each of the
following conditions (any one of which at the option of Seller may be waived in writing by
Seller) existing on the Closing Date. 

Corporate Action 

        6.01.  
Purchaser shall take appropriate corporate action regarding this transaction, which shall
be evidenced by resolutions of its board of directors and shareholders and certified to
Purchaser’s corporate secretary, authorizing Purchaser to enter into and complete
this transaction. 

Government Approvals 

        6.02.  
All necessary government approvals regarding this transaction shall be received prior to
the Closing Date in substantially the form applied for and to the reasonable satisfaction
of Seller and its counsel. 

Opinion of Counsel 

        6.03.  
Purchaser shall deliver to Seller the opinion of outside counsel dated as of the Closing
Date in substantially the form set forth in Exhibit 23A. 

Guaranties 

        6.04.  
Executive Auto Services, Inc., a Texas corporation whose principal place of business is
15950 North Dallas Parkway, Suite 400, Dallas, Dallas County, Texas 75248 and Summit
Travel, Inc., a Texas corporation whose principal place of business is 3100 Premier Drive,
Suite 232, Irving, Dallas County, Texas 75063 (collectively “Guarantors”) shall
have timely and properly executed and delivered to Seller their respective written
guaranties in the form as set forth in Exhibits 1and 2, which are attached hereto and by
this reference incorporated for all purposes herein. 

ARTICLE 7 

PARTIES’
OBLIGATIONS AT THE CLOSING 

Seller’s
Obligations at Closing 

             7.01.  
          At the Closing, Seller shall deliver or cause to be delivered to Purchaser
          instruments of assignment and transfer of all of the issued and outstanding
          capital stock of Company, free and clear of all liens, claims and encumbrances
          in form and substance reasonably satisfactory to Purchaser’s counsel.
          Simultaneously with the consummation of the transfer, Seller shall put Purchaser
          in full possession and enjoyment of all properties and assets of Company. 

        7.02.  
Seller, at any time before or after the Closing Date, shall execute, acknowledge and
deliver to Purchaser any further deeds, assignments, conveyances, other assurances,
documents and instruments of transfer reasonably requested by Purchaser, including a copy
of Sublease Agreement between Seller and the Company regarding the space currently
occupied by the Company, which has been previously approved and consented to by the
landlord of the original lease. Seller shall also take any other action consistent with
the terms of this Agreement that may be reasonably requested by Purchaser for the purpose
of assigning, transferring, granting, conveying and confirming to Purchaser or reducing to
possession any or all property and assets to be conveyed and transferred by this
Agreement. 

Purchaser’s
Obligation at Closing 

        7.03.  
At the Closing, Purchaser shall deliver to Seller against delivery of the items specified
in Paragraph 7.01, above. Purchaser shall also deliver the properly executed guaranties of
Guarantors in the form of Exhibits 1 and 2, as well as the properly executed opinion of
counsel contained in Exhibit 23A. 

ARTICLE 8 

SELLER’S
OBLIGATIONS AFTER THE CLOSING 

Preservation of
Goodwill 

        8.01.  
Following the Closing Date, Seller will restrict its activities so that Purchaser’s
reasonable expectations with respect to the goodwill, business reputation, employee
relations, and prospects connected with the assets and properties purchased under this
Agreement will not be materially impaired. 

Change of Name 

        8.02.  
Seller agrees that, after the Closing Date, it will not use or employ in any manner,
directly or indirectly, the name of the Company or any variation of the name. Seller also
agrees that, in order to comply with this covenant, it will take and cause to be taken all
necessary action, including filing a withdrawal notice for any assumed name certificate
bearing the Company’s name or any variant of the name that Seller has previously
filed. 

Nonsolicitation of
Employees 

        8.03.  
Prior to the third anniversary of the Closing Date, Seller shall not specifically target,
directly solicit or hire any individual who is employed by the Company on the Closing
Date. 

Non-Competition —
Printing 

        8.04.  
Prior to the third anniversary of the Closing Date, Seller shall not engage by itself or
through any subsidiary in providing printing services to any entity that is not a
subsidiary of Seller at the time such service is provided. 

No Acquisition of
Conventional 4 Color Offset Printing Press 

        8.05.  
Prior to the third anniversary of the Closing Date, neither Seller nor any of
Seller’s subsidiaries shall purchase, lease, or otherwise acquire a Conventional Four
(4) Color Offset Printing Press. Notwithstanding the immediately foregoing sentence,
nothing contained herein shall prevent or otherwise restrict Seller and/or any of its
subsidiaries from purchasing, leasing, or otherwise acquiring any and all types of black
and white or color digital printers or digital presses, including, but not limited to (i)
digitally based xerographic color printers such as Xerox Corporation’s DocuColor®
6060 Digital Color Press, DocuColor® 8000 Digital Color Press, or similar product (ii)
wet or dry toner based printers, and (iii) Konica Minolta’s ColorFORCETM 8050
Color Imaging System, or similar product. 

Non-Disclosure and
Limited Confidentiality 

Seller shall not disclose and shall
keep confidential the specific details of this transaction and parties involved, except to
the extent that such disclosure is required under the securities laws of the United States
that govern Seller as a public company. 

ARTICLE 9 

INDEMNIFICATION 

Limited Covenant to
Indemnify and Hold Harmless 

             9.01.  
          Seller covenants and agrees to indemnify, defend and hold harmless the Company
          from and against any and all claims, suits, losses, judgments, damages and
          liabilities including any investigation, legal and other expenses incurred in
          connection with and any amount paid in settlement of any tax, claim, action,
          suit or proceeding (collectively called “Losses”), other than those
          Losses or potential Losses disclosed in this Agreement or any Exhibit delivered
          pursuant to this Agreement, to which the Company may become subject, if such
          Losses arise out of or are based upon any facts and circumstances that
          constitute a material misrepresentation, breach of warranty, or breach of a
          material covenant by Seller to Purchaser in this Agreement. This right to
          indemnification to the Company is in addition to any other right available to
          Purchaser, including the right of Purchaser to sue Seller for a
          misrepresentation, breach of warranty, or breach of covenant under this
          Agreement. 

Income Taxes 

             9.02.  
          Without limiting the provisions of the above paragraph 9.01, Seller shall
          indemnify, defend and hold harmless Purchaser and Company from and against any
          losses to which the Company may become subject insofar as such losses arise out
          of or are based on any tax on or measured by the net income of Company during
          any period on or before the Closing Date. 

Notification and
Defense of Claims or Actions 

        9.04.  
When the Company proposes to assert the right to be indemnified under this Article 9 with
respect to third-party claims, actions, suits, or proceedings, Purchaser shall cause the
Company, within thirty (30) days after receipt of notice of the commencement of the claim,
action, suit, or proceeding, to notify Seller in writing, enclosing a copy of all papers
served or received. On receipt of the notice, Seller shall have the right to direct the
defense of the matter, but the Company shall be entitled to participate in the defense
and, to the extent that the Company desires, to jointly direct the defense with Seller
with counsel mutually satisfactory to the Company and Seller, at Seller’s expense.
The Company shall also have the right to employ its own separate counsel in any such
action, at its own expense. The fees and expenses of the Company’s counsel in such
circumstance shall be paid by the Company unless: (a) the employment of the counsel has
been authorized by Seller; (b) the Company has reasonably concluded that there is a
conflict of interest between Seller and the Company in the conduct of the defense of any
action in which both are parties and being defended by Seller through one counsel; or (c)
Seller has not, in fact, employed counsel that is reasonably satisfactory to Purchaser to
assume the defense of the Company in the action. In each of these cases, the reasonable
and necessary fees and expenses of the Company’s separate counsel that are actually
incurred and paid by the Company shall be reimbursed by Seller. Neither Seller nor the
Company shall be liable for any settlement of any action or claim described in this
Article 9 that is effected without their consent. 

Interest 

             9.05.  
          Any indemnification required of Seller under this Article 9 shall include
          interest on the amount of the indemnity from the time the indemnified obligation
          is actually and finally incurred and paid to the date of payment by the
          indemnitor at the rate of six percent (6%) simple interest per annum. 

ARTICLE 10 

GENERAL PROVISIONS 

Survival of
Representations, Warranties and Covenants 

             10.01.  
          The representations, warranties, covenants and agreements of the parties
          contained in this Agreement or contained in any writing delivered pursuant to
          this Agreement shall survive the Closing Date for five (5) years. 

Notices 

             10.02.  
          All notices that are required or that may be given pursuant to the terms of this
          Agreement shall be in writing and shall be sufficient in all respects if given
          in writing and delivered personally or by registered or certified mail, return
          receipt requested, postage prepaid as follows: 

        If to Seller: Ascent Assurance Inc., 3100 Burnett Plaza, Unit 33, 801 Cherry Street, Fort Worth, Texas 76102

        If
to Purchaser: Printers Alliance, Inc., 3100 Premier Dr, Suite 232, Irving, Texas 75063. 

        Seller
and Purchaser may each change the address to which the notices contemplated in this
Agreement may be delivered or mailed by delivering or mailing written notice of the new
address to which such notices may be delivered or mailed, in the manner contemplated in
this part 9.02, to the other. Such written notices change the address to which written
notices might be sent pursuant to this Agreement shall be effective ten (10) days after
dispatch of the same. 

Assignment of Agreement 

             10.03.  
          This Agreement shall be binding on and inure to the benefit of the parties to
          this Agreement and their respective successors and permitted assigns. However,
          Purchaser may not assign the rights, duties and obligations it has under the
          terms of this Agreement to any third party without the prior written consent of
          Seller, which consent shall not be unreasonably withheld. Any attempt to make
          such an assignment without such written consent is void. 

Governing Law 

             10.04.  
          This Agreement shall be construed in accordance with and governed by the laws of
          the State of Texas. 

Choice of Form 

             10.05.  
          This Agreement is solely performable in Tarrant County, Texas and any
          action brought to enforce or construe the same or any part thereof shall be
          brought in a state court of competent jurisdiction sitting in Tarrant County,
          Texas. 

Amendments —
Waiver 

             10.06.  
          This Agreement may be amended only in writing by the mutual consent of the
          parties, evidenced by all necessary and proper corporate authority. No waiver of
          any provision of this Agreement shall arise from any action or inaction of any
          party, except an instrument in writing expressly waiving the provision executed
          by the party entitled to the benefit of the provision. 

Entire Agreement 

             10.07.  
          This Agreement, together with any documents and Exhibits attached and
          incorporated herein or required to be delivered pursuant to the express terms of
          this Agreement constitutes the entire agreement between the parties to this
          Agreement. No party shall be bound by any communications between them regarding
          the subject matter of this Agreement unless the communication is (a) in writing,
          and (b) is agreed to by all Parties to this Agreement. On execution of this
          Agreement, all prior agreements or understandings, if any, between the parties
          shall be null and void. 

Reliance on
Representations and Warranties 

        10.08.  
The parties mutually agree that, notwithstanding any right of Purchaser to fully
investigate the affairs of the Company and notwithstanding any knowledge of facts
determined or determinable by Purchaser pursuant to the investigation or right to
investigate, Purchaser may fully rely upon the expressed representations, warranties and
covenants made to Purchaser in this Agreement and on the accuracy of any document,
certificate or Exhibit given or required to be delivered to Purchaser pursuant to the
express terms of this Agreement. 

Termination of
Agreement 

        10.09.  
In the event this Agreement is not Closed by October , 2004 then this Agreement shall
terminate on and as of that date. Any termination shall not affect in any manner any
rights and remedies that any party to this Agreement may have at the time of termination. 

Severability 

        10.10.  
In the event any provision of this Agreement is deemed to be invalid, unenforceable or
both, each such provision shall be severable from the remainder of this Agreement. 

Counterparts 

        10.11.  
The parties to this Agreement agree that this Agreement may be executed in one or more
identical counterparts, each of which shall be deemed an original, but all of which
together shall constitute one agreement. 

Rule of Construction 

             10.12.  
          The signatories hereto and their counsel have reviewed this Agreement and agree
          that the rule of construction providing that any ambiguities in this Agreement
          are to be construed against the drafter shall not be employed in the
          interpretation of this Agreement. 

        SIGNED
on the dates indicated below by the individuals indicated below, each of whom represents
and warrants that he or she is fully authorized and empowered by his or her principal to
execute this Agreement on behalf of that principal. 

ASCENT ASSURANCE INC., 
Seller

	by: /Patrick H. O'Neill/           
       Patrick H. O'Neill
       Executive Vice President	10-29-04
Date

PRINTERS ALLIANCE, INC. 
Purchaser

	by: Marti Shelton                                      
       Marti Shelton, its authorized agent	10-29-04
Date

EXECUTIVE AUTO SERVICES,
INC., 
Guarantor 

	by: Marti Shelton                                      
       Marti Shelton, its authorized agent	10-29-04
Date

SUMMIT TRAVEL, INC., 
Guarantor

	by: Marti Shelton                                      
       Marti Shelton, its authorized agent	10-29-04
Date

 

ACKNOWLEDGMENT 

STATE OF TEXAS 

COUNTY OF TARRANT 

        BEFORE
ME, the undersigned Notary Public, personally appeared Patrick H. O’Neill, known to
me to be the person whose name is subscribed to the foregoing instrument, and acknowledged
to me that he executed that instrument in the capacity indicated and for the purposes and
consideration expressed therein. 

        GIVEN
UNDER MY HAND AND SEAL OF OFFICE on this 29th day of October 2004. 

 

		Patti Bunch  
Notary Public in and for
The State of Texas
My Commission Expires:9-15-2006

 

ACKNOWLEDGMENT 

STATE OF TEXAS 

COUNTY OF TARRANT 

        BEFORE
ME, the undersigned Notary Public, personally appeared Marti Shelton, known to me to be
the person whose name is subscribed to the foregoing instrument, and acknowledged to me
that he executed that instrument in the capacities indicated and for the purposes and
consideration expressed therein on behalf of each of the entities indicated. 

        GIVEN
UNDER MY HAND AND SEAL OF OFFICE on this 29th day of October 2004. 

 

		Patti Bunch  
Notary Public in and for
The State of Texas
My Commission Expires:9-15-2006Exhibit 10.3

Exhibit 10.3            

FINANCIAL ADVISOR RETENTION PROGRAM

Under The Legg Mason, Inc.

1996 Equity Incentive Plan, As Amended 

            
The Compensation Committee of the Legg Mason, Inc. Board of Directors has adopted this Financial Advisor Retention Program (the "Program") under the Legg Mason, Inc. 1996 Equity Incentive Plan, as amended from time to time (the "Plan"), in order to enhance the ability of Legg Mason Wood Walker, Incorporated, a wholly owned subsidiary of Legg Mason, to retain full time financial advisors.   Under this Program, the Committee will annually grant Performance Units under the Plan to certain financial advisors.  The Performance Units granted under the Program are in the nature of retention awards.  This document sets out the terms and conditions under which annual grants of Performance Units in the nature of retention awards will be made under the Program and the terms and conditions of each retention award.  This document, the Program and each retention award are subject to the applicable terms and conditions of the Plan.

            
1.    Purpose - The purpose of the Program is to enhance the ability of Legg Mason Wood Walker, Incorporated (the "Company") to retain key full-time financial advisors by granting Performance Units that provide special payments to key financial advisors who remain employed by the Company for specific periods of time. The Program also provides for payments to retired financial advisors who do not compete with the Company following their retirement. The value of the Performance Units and the amount of additional compensation payable to a full-time financial advisor for remaining with the Company for a specified period (and the measure of the value of that financial advisor's continued employment with the Company) is determined based upon the commissions and fee revenue generated by the financial advisor during a particular calendar year, as determined by the Committee. Amounts payable under this Program are in addition to the compensation provided  for services rendered and are intended solely to encourage financial advisors to remain employed by the Company as full-time financial advisors.

            
2.     Definitions- As used herein, the following definitions shall apply:

                   

(a)   "Account" means a Financial Advisor's combined Interest Account and Phantom Stock Account.

                   
(b)   "Board" means the Legg Mason, Inc. Board of Directors.

                   
(c)   "Committee" means the Compensation Committee of the Board, or such other committee designated by the Board, authorized to administer the Plan under Section 3 thereof.

                   
(d)   "Company" means Legg Mason Wood Walker, Incorporated.

 

                   
(e)   "Credit Interest Asset Base" means for each month, the product of (A) the product of (X) 0.0833 and (Y) the sum of the average credit interest and Legg Mason Money Market Fund balances of the FA for the month (calculated by dividing the sum of the closing balances in the account for each day by the number of days in the month), less the applicable threshold for that Year as set forth in the FA Compensation Schedule, and (B) 0.001 (or the different number for the applicable Year as is set forth in the FA Compensation Schedule).

                   
(f)   "Credit Interest Retention Award" means the portion of a Retention Award credited under Section 4(b) with respect to the combined balance in credit interest accounts and Legg Mason Money Market Fund accounts in excess of the applicable threshold contained in the FA Compensation Schedule.  In the case of a Team Leader, such Retention Award shall be based on the combined balance in credit interest accounts and Legg Mason Money Market Fund accounts of the Participating Team (or portion thereof that is allocated to such Team Leader) in excess of the applicable threshold contained in the FA Compensation Schedule.

                   
(g)   "Credit Interest Rate" means the average of the twelve month end rates of the Company's credit interest rate paid during a Year to the Company's cash reinvestment accounts.

                   
(h)   "Disability" means a medically determinable physical or mental impairment which, as determined by the Committee using such criteria as it establishes in its sole and absolute discretion, will prevent the FA from performing his or her usual duties or any other similar duties available in the Company's employ for a period of at least twelve (12) months.

                   
(i)   "Distribution Valuation Date" means (i) in the case of a distribution following the death of a FA or the termination of a FA's employment as a result of Disability, the date that is ten (10) business days before the applicable Payment Date; and (ii) in all other cases, January 25th (or, if Legg Mason Common Stock is not traded on its principal exchange on that day, the next following day on which Legg Mason Common Stock is traded on its principal exchange) preceding the applicable Payment Date.

                   
(j)   "Dividend Payment Date" has the meaning specified in Section 6(d)(i).

                  
(k)   "Eligible FA" means a FA (i) who is employed in the Company's Private Client Group, (ii) who is classified by the Company as a full-time FA, (iii) who is employed by the Company on the last day of the Year, or who terminated employment during the Year by reason of death, Disability or Retirement, and (iv) whose annual compensation is calculated under the FA Compensation Schedule or, if the FA's annual compensation is not calculated under the FA Compensation Schedule, who has been notified in writing by the Company's management that he or she is eligible to participate in the Program.   A FA who is not classified by the Company as a "full-time" FA is not eligible to participate in the Program, regardless of the number of hours devoted to services as a FA. Also, FAs who are members of a Participating Team are not considered Eligible FAs, however, a FA who is a Team Leader is

2 

 

considered an Eligible FA, regardless of whether the Team's annual compensation is calculated under the FA Compensation Schedule.

                   
(l)   "Eligible Gross Production" means Gross Production that is used to calculate the amount of a Production Retention Award, as determined annually in accordance with the FA Compensation Schedule; provided that Eligible FAs whose annual compensation is not calculated under the FA Compensation Schedule will receive Retention Awards under the Program as if their compensation were calculated under the FA Compensation Schedule.  The Gross Production of a Participating Team shall count toward Eligible Gross Production regardless of whether the Participating Team is compensated under the FA Compensation Schedule.

                   
(m)   "FA Compensation Schedule" means the Legg Mason Financial Advisor Compensation Schedule that is in effect for a particular Year.

                   
(n)   "Fair Market Value" means an amount equal to the average of the closing prices on the principal exchange on which Legg Mason Common Stock is traded for the date on which the price is being determined (i.e., the Valuation Date, Dividend Payment Date, Distribution Valuation Date or other specified date) and the four (4) trading days immediately following the applicable date on which the value is being determined or, if Legg Mason Common Stock is not then traded on an exchange, such amount as is determined by the Committee, in its discretion, using any reasonable method of valuation.  Any decline in the actual trading price of Legg Mason Common Stock during the five (5) day pricing period shall be the sole risk of the FA.

                   
(o)   "Financial Advisor" or "FA" means an employee who devotes all of his or her working time to the generation of commission and fee revenues through the sale of investment products and services to the public and is compensated on a commission basis.  This definition excludes any executive office/departmental personnel unless specifically included by separate agreement.  Notwithstanding the foregoing, a Branch Manager who receives non-commission compensation shall be considered a "Financial Advisor" or "FA" and may be considered a Participating FA who is eligible to receive a Retention Award hereunder (but determined solely on his or her personal Gross Production).

                   
(p)   "Gross Production" means the gross commission and fee revenue (other than investment banking fees and order fees, both of which are excluded from the calculation of Gross Production) that is received by the Company from sales of products and services by a Financial Advisor. If production is split between one or more Financial Advisors, each Financial Advisor's "Gross Production" will be based on his or her own cumulative production level.

                   
(q)   "Inactive Participant" means a Participating FA was credited with a Retention Award under the Program and who continues to be employed by the Company but who ceases to be an Eligible FA.

                   
(r)   "Interest Account" means the investment account established for Retention Awards pursuant to Section 5(a) and Section 6(c) of this document.

3 

 

                   
(s)   "Legg Mason" means Legg Mason, Inc., a Maryland corporation.

                   
(t)   "Legg Mason Common Stock" means shares of common stock, $.10 par value per share, of Legg Mason.

                   
(u)   "Legg Mason Money Market Fund" means one or more money market funds sponsored by a subsidiary of Legg Mason.

                   
(v)   "Legg Mason Share Units" or "Share Units" means units that are economically equivalent to, but are not actual, shares of Legg Mason Common Stock.

                  
(w)   "Monthly Credit Interest Amount" means for each month, the amount determined by multiplying 0.40 (or the different number for the applicable Year as is set forth in the FA Compensation Schedule) by the Credit Interest Asset Base for the FA for that month; however, a Monthly Credit Interest Amount that is a negative number shall be deemed to be zero.

                   
(x)   "Participating FA" means an Eligible FA who participates in the Program based on his or her Eligible Gross Production in any Year or Monthly Credit Amounts for all months in any Year.

                   
(y)   "Participating Team" means a group of FAs who operate (and are compensated) as a team and who are designated as a Participating Team by the Company.

                   
(z)   "Payment Date" means the date a FA receives a payment from Legg Mason pursuant to the Program.

                  
(aa)   "Performance Unit" means an award granted pursuant to Section 11 of the Plan.

                  
(bb)   "Phantom Stock Account" means the investment account established for Retention Awards pursuant to Section 5(a) and Section 6(d) of this document.

                  
(cc)   "Plan" means the Legg Mason, Inc. 1996 Equity Incentive Plan, as amended from time to time.

                 
(dd)   "Production Retention Award" means the portion of a Retention Award calculated under Section 4(a) with respect to Gross Production in excess of the applicable Gross Production threshold contained in the FA Compensation Schedule. In the case of a Team Leader, such Retention Award shall be based on Gross Production of the Participating Team (or portion thereof that is allocated to such Team Leader) in excess of the applicable Gross Production threshold contained in the FA Compensation Schedule.

                 
(ee)   "Program" means the Financial Advisor Retention Program, the terms and conditions of which are contained in this document, pursuant to which Legg Mason will grant retention awards to certain FAs under the Plan.

4 

 

                 
(ff)   "Retention Award" means a Performance Unit granted under the Program that is designed to assist the Company in retaining Eligible FAs.  The value of a Retention Award is based on commission and fee revenue for a Year in excess of certain thresholds established by the Committee. The right to receive payments under a Retention Award is based the continued employment of a Eligible FA for a specific period of time.  A Retention Award includes a Production Retention Award and a Credit Interest Retention Award.

                 
(gg)   "Retirement" means a FA's termination of employment with the Company (i) on or after age sixty-five (65); or (ii) at any time when the sum of the FA's age at termination of employment and his or her years of service with the Company equals at least seventy (70).

                 
(hh)   "Team Leader" means the person (or persons) designated as leader (or leaders) of a Participating Team (which may be all members of a Participating Team) on the records of the Company.

                 
(ii)   "Valuation Date" means February 15th of each year or, if that day is not a day on which Legg Mason Common Stock is traded on the principal exchange on which it is regularly traded, the next following trading day.

                 
(jj)   "Year" means the calendar year.

            
3.    Plan Participation - Eligible FAs shall become participants in the Program on the last day of the first Year during which they become Participating FAs.  In order to receive a Retention Award for any Year during which a Participating FA is employed, the FA must be an Eligible FA for such Year (provided, however, if the employment of a Participating FA terminates during a Year by reason of the FA's death, Disability or Retirement, the FA may be entitled to a prorated Retention Award for such Year (determined in accordance with Section 4)).

            
Retention Awards are designed to encourage continued employment with the Company and to entice Eligible FAs to continue in their position as a full-time FA. If a Participating FA ceases to be an Eligible FA (e.g., because he or she ceases to be classified as a full-time FA), but still remains in the employ of the Company, he/she will become an Inactive Participant. An Inactive Participant shall remain eligible to receive Retention Awards that were previously credited to his or her Account (and which are payable at a future date if he/she remains employed by the Company), and the value of the Account of an Inactive Participant shall continue to be credited with earnings pursuant to Section 5 (subject to the forfeiture provisions of Section 7(a) if he/she does not remain employed by the Company). However, an Inactive Participant shall not be entitled to receive further Retention Awards with respect to his or her subsequent period of employment with the Company in a capacity other than as an Eligible FA.

            
4.    Retention Awards - Retention Awards are designed to provide a financial incentive for Participating FAs to remain employed by the Company and to continue in the position of a full-time FA. The Program also provides for payment of Retention Awards in exchange for compliance with the provisions of Section 10 following Retirement. In order to

5 

 

entice a Participating FA to remain employed as an Eligible FA and/or to comply with the provisions of Section 10 following Retirement, Legg Mason will credit the following amounts to the Account of each Participating FA who is employed on the last day of the Year.  Such credit shall be made following the end of each Year commencing with calendar year 2004:

                   
(a)   "Production Retention Award" - The amount determined by applying the applicable rate schedule in the FA Compensation Schedule for the Year to the Participating FA's Eligible Gross Production for that Year.

                   
(b)   "Credit Interest Retention Award" - The sum of the Monthly Credit Interest Amounts of the Participating FA for that Year.

            
Notwithstanding the foregoing, if the total amount to be credited to the Account of a Participating FA under (a) and (b) above for a Year is less than One Hundred Dollars ($100.00), no amount will be credited to the Account of such Participating FA for such Year.

            
Retention Awards that the Participating FA elects to invest in the Phantom Stock Account will be allocated as of the Valuation Date following the close of the Year to which the Retention Award relates.

            
If the employment of a Participating FA terminates during a Year by reason of the FA's death, Disability or Retirement, the FA shall be entitled to a prorated Retention Award for such Year. Such proration shall be made by:

                        
(i)   multiplying the applicable thresholds in Section 4(a) and the related provisions of the FA Compensation Schedule by a fraction, the numerator of which is the number of calendar days during which the FA was employed by the Company and the denominator of which is 365; and

                        
(ii)   applying such adjusted thresholds and making the required determinations with respect to the FA's Eligible Gross Production under Section 4(a) as of the last day of the  month during which the FA terminated employment and adding to that amount any Credit Interest Retention Award related to the months in which the Participating FA was employed.

            
5.    Establishment of FA Accounts

                   
(a)   Account Established for Each Participating FA - An individual Account shall be established on the books of Legg Mason in the name of each Participating FA, for the purpose of accounting for Retention Awards payable to the FA, and to account for investment adjustments made pursuant to Section 6.  A separate sub-account shall be established with respect to Retention Awards credited for each Year (to which Retention Awards for the Year and any investment adjustments made pursuant to Section 6 shall be credited). Other sub-accounts may be established as the Committee or Legg Mason deems appropriate to properly implement the provisions of the Program.

6 

 

                   
(b)   Account Statements - As soon as practicable after the Valuation Date, Legg Mason shall provide each FA who has a balance in his or her Account with a statement showing the Retention Awards credited to his or her Account with respect to each Year, the manner in which Retention Awards for a particular Year are deemed to be invested, the date on which the FA is scheduled to receive his or her Retention Award (and investment adjustments thereon) for each Year, and such other information as the Committee shall deem relevant.

            
6.    Investment of Retention Awards - In order to give a Participating FA the opportunity to share in the growth and profitability of Legg Mason, and to provide further incentive for Participating FAs to remain in the employ of the Company (and to comply with the provisions of Section 10 following Retirement), Retention Awards credited to an Account shall be deemed to be invested in accordance with the provisions of this Section 6 pending payment.

                   
(a)   Phantom Stock or Interest Credit - For investment purposes, Retention Awards credited to a Participating FA's Account shall be allocated to, and accrue in, either the Phantom Stock Account or Interest Account.

                   
(b)   Investment Designation - Subject to such limitations, rules and procedures as may from time to time be imposed by the Committee, each Participating FA shall elect annually, prior to the end of each Year, on a form prescribed by the Committee, whether any Retention Awards for such Year shall be allocated to, and accrue in, the Interest Account or the Phantom Stock Account. Once an election has been made for a particular Year, it may not be changed. A separate election may be made with respect to each Year. Except as the Committee shall otherwise determine, any investment election with respect to the Retention Awards for a Year shall apply to the Retention Award for each following Year unless and until a new investment election is filed with the Committee. In the event the Committee does not receive an initial investment election, or it receives an investment election which it deems to be incomplete, unclear, not in accordance with procedures established by the Committee, or otherwise improper, the Participating FA's existing investment election (which may include the investment election under the Legg Mason Wood Walker, Incorporated Financial Advisor Retention Plan) then in effect shall remain in effect, unless the Committee provides for, and permits, corrective action. If there is no existing investment election, or, if after the expiration of any opportunity provided for corrective action, the Committee still possesses incomplete investment instructions, the Participating FA shall be deemed to have designated that any non-directed Retention Award be allocated to the Interest Account.

                   
(c)   Interest Account - Legg Mason will establish an Interest Account on its books and records for the benefit of each Participating FA and shall credit such Interest Account with the Retention Awards allocated to the Interest Account. As of the last day of each Year, the balance of a FA's Interest Account (as determined prior to the allocation of any Retention Award for such Year) shall be credited by Legg Mason with an amount equal to one year's interest based on the Credit Interest Rate. Retention Awards which the FA elects to invest in the Interest Account will be allocated as of December 31 of the Year to which the Retention Award relates (but will not be included for purposes of determining the amount of interest allocated for such Year).

7 

 

                   
(d)   Phantom Stock Account - All Retention Awards for a Year that are allocated to the Phantom Stock Account for that Year shall be deemed converted into Legg Mason Share Units. Legg Mason will establish a Phantom Stock Account on its books and records for the benefit of each Participating FA and shall credit such Phantom Stock Account with the amount of Share Units resulting from the conversion of the Retention Awards. The number of Share Units into which such Retention Award shall be converted (calculated to four decimal places) will be determined as of the Valuation Date and will be equal to the amount of the Retention Award for the Year divided by the Fair Market Value of a share of Legg Mason Common Stock on the Valuation Date. The conversion of a Retention Award into Legg Mason Share Units will be made by Legg Mason as soon as administratively practicable after the Valuation Date following the Year to which the Retention Award relates.

                        
(i)   Adjustment to Phantom Stock Account upon Dividend by Legg Mason - If, prior to a Payment Date, Legg Mason pays any dividend (other than in Legg Mason Common Stock) on its Common Stock, or makes any distribution (other than in Legg Mason Common Stock) with respect thereto, the FA's Phantom Stock Account will be credited with a number of additional Share Units determined by dividing the amount of the dividend or other distribution allocable to the Share Units already credited to the Phantom Stock Account as of the record date for the dividend or distribution, by 95% of the Fair Market Value of a share of Legg Mason Common Stock on the payment date for the dividend or distribution (the "Dividend Payment Date").  Amounts to be credited under this subsection 6(d)(i) will be credited as soon as administratively practicable after the applicable Dividend Payment Date.

                        
(ii)   Adjustment to Phantom Stock Account upon Certain Events - In the event that, prior to a Payment Date, the number of outstanding shares of Legg Mason Common Stock is changed by reason of a stock split, stock dividend, combination of shares or recapitalization, or Legg Mason Common Stock is converted into or exchanged for other shares as a result of a merger, consolidation, sale of assets or other reorganization or recapitalization, the number of Share Units then credited to a FA's Phantom Stock Account will be appropriately adjusted so as to reflect such change (based upon the best estimate of Legg Mason as to relative values).

                        
(iii)   Rights as LMI Stockholder - Neither the allocation of Retention Awards to the Phantom Stock Account, nor any other provision of the Plan, shall confer or be construed as conferring upon a FA any rights as a stockholder of Legg Mason or any right to have access to the books and records of Legg Mason or any affiliate or subsidiary.

            
7.    Eligibility for Payment of Account -

                   
(a)   Continued Employment - The Retention Awards credited to a Participating FA's Account for a Year (together with any related investment adjustments thereto) are not intended to constitute compensation for specific services or for commissions or fee revenue generated during a particular year, but are additional discretionary payments that are designed to encourage a FA to remain employed by the Company for a period of six years following the close of such Year in which a Retention Award is credited to an Account. Accordingly, the Retention Awards for a particular Year (together with any related investment adjustments thereto) shall only be paid if the FA remains continuously employed by the

8 

 

Company through the last day of the sixth (6th) Year following the Year to which the Retention Awards relates. If a Participating FA's employment with the Company terminates for any reason (whether involuntary or voluntary and whether with or without cause) other than death, Disability or Retirement on or before the last day of the sixth Year following the year to which the Retention Awards relates, the portion of the Participating FA's Interest Account and Phantom Stock Account that relates to such Retention Awards (and the related investment adjustments thereto) shall be forfeited in their entirety.

                   
(b)   Death or Disability - Upon termination of employment with the Company due to death or Disability, the amount credited to the Account of a FA shall be paid in accordance with the provisions of Section 8.

                   
(c)   Retirement - Upon termination of employment with the Company due to Retirement, a FA shall be entitled to receive the amount credited to his or her Account in accordance with the provisions of Section 8, conditioned upon, and in exchange for, his or her continued compliance with the provisions of Section 10.

                   
(d)   Forfeitures - Forfeited amounts (including amounts forfeited pursuant to Section 10) shall revert to Legg Mason and will not be allocated to other Participating FAs.

            
8.    Timing of Payments -

                   
(a)   During Employment - Except for cases of Retirement, death or Disability, and subject to the terms and conditions of the Program and the Plan, payments of the Retention Awards credited to a FA's Account (together with any investment adjustments made pursuant to Section 6 with respect to such Retention Award) shall be made within seventy-five (75) days after the last day of the sixth (6th) Year following the Year to which the Retention Award relates.

                   
(b)   Retirement - In the event a FA's employment with the Company terminates as a result of Retirement, payment of the FA's remaining Account (including any prorated Retention Award to which the FA may be entitled for the Year pursuant to Section 4) shall be made, subject to the terms and conditions of the Program and the Plan, within seventy-five (75) days after the close of the Year following the Year in which the FA retired, unless the FA has forfeited his or her right to payment pursuant to Section 10.

                   
(c)   Disability of FA - In the event a FA's employment with the Company terminates as a result of the FA's Disability, all amounts in the FA's Account (including any prorated Retention Award to which the FA may be entitled for the Year pursuant to Section 4) shall be paid, subject to the terms and conditions of the Program and the Plan, within seventy-five (75) days following the later of (i) the date on which the FA's employment terminated and (ii) the date the Committee determines that the FA's employment terminated as a result of the FA's Disability.  The Committee, in its sole discretion, may determine that a FA has a Disability and that the FA's employment with the Company terminated as a result of such Disability at any time before, at the time of, or after the FA's termination of employment.

                   
(d)   Death -

9 

 

                        
(i)   Death During Employment - If a FA's employment with the Company terminates as a result of the FA's death, all amounts in the FA's Account (including any prorated Retention Award to which the FA may be entitled for the Year pursuant to Section 4) shall be paid to the FA's beneficiary (as determined pursuant to Section 8(d)(iii)) within seventy-five (75) days following the date of the FA's death.

                        
(ii)   Death Following Retirement - In the event of a FA's death subsequent to the date of the FA's Retirement and at a time during which the FA's remaining Account under the Program has not been distributed, all amounts then remaining in the FA's Account shall be paid to the FA's beneficiary (as determined pursuant to Section 8(d)(iii)) within seventy-five (75) days following Committee's receipt of written notification of the FA's death.

                        
(iii)   Designation of Beneficiary - Each FA from time to time may designate, on such form as the Committee may prescribe from time to time, any person or persons (who may be named contingently or successively) to receive any amount payable under the Program upon or after his or her death, and such designation may be changed from time to time by the FA by filing a new designation with the Committee. Each designation will revoke all prior designations by the FA, shall be on a form prescribed by the Committee, and will be effective only when filed in writing with the Committee during the FA's lifetime. In the absence of a valid beneficiary designation, or if, at the time any amount is payable to a FA or beneficiary, there is no living beneficiary eligible to receive the payment that has been validly named by the FA, then Legg Mason shall pay any such amount to the FA's surviving spouse (if the FA was legally married at the time of his or her death) or if there is no surviving spouse, to the FA's estate.  In determining the existence or identity of anyone entitled to payment, the Committee may rely conclusively upon information supplied by the personal representative of the FA's estate.  In the event of a lack of adequate information having been supplied to the Committee, or in the event that any question arises as to the existence or identity of anyone entitled to receive a payment as aforesaid, or in the event that a dispute arises with respect to any such payment, or in the event that a beneficiary designation conflicts with applicable law, or in the event the Committee is in doubt for any other reason as to the right of any person to receive a payment as beneficiary then, notwithstanding the foregoing, Legg Mason, in its sole discretion, may, in complete discharge, and without liability for any tax or other consequences which might flow therefrom: (i) distribute the payment to the FA's estate, (ii) retain such payment, without liability for interest, until the rights thereto are determined, or (iii) deposit the payment into any court of competent jurisdiction.

            
9.    Form of Payment -

                   
(a)   Interest Account - The portion allocable to a FA's Interest Account shall be paid in cash.

                   
(b)   Phantom Stock Account - The portion allocable to a FA's Phantom Stock Account shall be paid in whole shares of Legg Mason Common Stock as described below, based on the Fair Market Value of Legg Mason Common Stock on the Distribution Valuation Date.  Whole Share Units to be distributed within an FA's Phantom Stock Account will be converted into shares of Legg Mason Common Stock on a one-for-one basis.

10 

 

The portion of a FA's Phantom Stock Account that represents fractional Share Units and thus cannot be converted into whole shares of Legg Mason Common Stock shall be distributed in cash. Any decline in the actual trading price of Legg Mason Common Stock during the period between the Distribution Valuation Date and the applicable Payment Date, as well as any brokerage commissions, fees or other charges incurred by a FA in connection with the disposition of any shares of Legg Mason Common Stock that are distributed to the FA, shall be the sole risk and responsibility of the FA.

            
10.    Non-Compete - If a retired FA engages in competition with the Company prior to the date of payment, the FA's Account shall be forfeited in its entirety.  Forfeited amounts shall revert to Legg Mason and will not be allocated to other FAs.

                   
(a)   For purpose of this Section, a FA shall be deemed to have "engaged in competition" with the Company if he or she:

                        
(i)   discloses the names of or otherwise identifies any of the Company's customers to any person, firm, corporation, association, or other entity which provides products or services that are similar to those provided by the Company;

                        
(ii)   discloses to any person, firm, corporation, association, or other entity any information regarding the Company's general business practices or procedures, methods of sale, list of products, personnel information or any other information concerning the Company's business;

                        
(iii)   owns, manages, operates, controls, is employed by, acts as an agent for, participates in or is connected in any manner with the ownership, management, operation or control of any firm, corporation, association or other entity which is engaged in businesses which are or may be competitive to the business of the Company; provided further that this restrictive covenant shall encompass the State of Maryland and any other states where the Company is engaged in business, and every city, county, and other political subdivision of such states; or

                        
(iv)   solicits or calls, either by himself or at his or her direction has any other person or firm solicit or call, any of the customers of the Company on whom the FA called, with whom the FA became acquainted, or of whom the FA learned during his or her employment by the Company.

                   
(b)   The determination of whether a FA has violated the terms of Section 10(a) shall be made by the Committee, in its sole and absolute discretion, and the determination of the Committee shall be final, conclusive and binding upon both the FA (or any person or entity claiming through the FA) and Legg Mason.

                   
(c)   As a condition precedent to any distribution, the Committee may require a certificate from the FA certifying that he or she has not violated any of the provisions of Section 10(a).

                   
(d)   It is the intention of Legg Mason and the FA that this Section be given the broadest protection allowed by law with regard to the restrictions herein contained.

11 

 

Each restriction set forth in this Section shall be construed as a condition separate and apart from any other restriction or condition.  To the extent that any restriction contained in this Section is determined by any court of competent jurisdiction to be unenforceable by reason of it being extended for too great a period of time, or as encompassing too large a geographic area, or over too great a range of activity, or any combination of these elements, then such restriction shall be interpreted to extend only over the maximum period of time, geographic area, and range of activities which the court deems reasonable and enforceable. The FA agrees that the restrictions described in this Section are reasonable and necessary to protect legitimate interests of Legg Mason.

                   
(e)   In the event a FA desires a ruling as to the potential application of this Section, he may request a ruling from the Committee in accordance with Section 16.

                   
(f)   If the Committee in its discretion determines that an activity otherwise described herein would not be injurious to the Company, it may waive the application of this Section to such activity, which waiver shall be binding upon the FA and Legg Mason.  The Committee shall exercise such discretion in a uniform, nondiscriminatory manner.

            
11.    Withholding Taxes - Amounts payable under the Plan shall be subject to such deductions or withholding as may be required by law. Notwithstanding anything herein to the contrary, Legg Mason may delay any distribution under the Plan until the recipient of the distribution has separately provided for the payment of any required withholding taxes with respect to the distribution by check or other method approved by the Committee in its sole discretion.  Legg Mason, to the extent permitted or required by law, shall have the right (i) to deduct any federal, state or local taxes of any kind required by law to be withheld with respect to any taxable event under the Program from any amount payable hereunder or from any wage, salary, commission, bonus or other payment otherwise due to a FA from Legg Mason or the Company, and (ii) to retain or sell without notice a sufficient number of shares of Legg Mason Common Stock to be issued to such FA (or any other person entitled to receive the payment due a FA) to cover any such taxes.

            
12.    Assignment of Benefits - No amount payable, or other right or benefit, under the Plan will, except as otherwise specifically provided by the terms of this document, the Plan or by applicable law, be subject to sale, assignment, transfer, pledge, encumbrance, attachment, garnishment or levy prior to distribution to a FA.  Since the Plan is intended to be a non-qualified, unfunded plan that is not subject to the Employment Retirement Income Security Act of 1974, as amended, payments under the Plan (including payments under the Program) will not be subject to the provisions of any qualified domestic relations order (as defined under the Internal Revenue Code of 1986, as amended) applicable to a FA's Account.

            
13.    Right to Offset - Notwithstanding any provision herein to the contrary, any distribution payable under the Plan (including under the Program) may be used, at the discretion of the Committee and subject to compliance with applicable law, to offset any debt owed by a FA to Legg Mason or the Company at the date such distribution would otherwise be paid.  Legg Mason may withhold distributions payable under the Plan (including distributions under the Program) to offset any debts or other liabilities owed by a FA to Legg Mason or the Company.  If Legg Mason is aware of any errors, loans outstanding, or outstanding or pending

12 

 

liabilities of a FA, Legg Mason may withhold distributions under the Plan (including distributions under the Program) until such time as the liabilities are satisfied or Legg Mason has determined that an outstanding or pending liability no longer exists.

            
14.    Unfunded Nature of the Plan - Legg Mason will not be required to purchase, hold or dispose of any investments with respect to amounts credited to the Account of any FA participating in the Program.  A FA has no interest in the Account or in any investments Legg Mason may purchase with such amounts, except as a general, unsecured creditor of Legg Mason.

            
The Program at all times shall be entirely unfunded.  The FA's Account (including the Interest Account and Phantom Stock Account) is merely a record for measuring and determining the amount of Retention Awards to be paid by Legg Mason to, or with respect to, the FA under the Program, and such Account shall be established solely for such bookkeeping purposes.  Legg Mason shall not be required to segregate any funds or other assets to be used for payment of benefits under the Program.  The FA's Account shall not be, or be considered as evidence of the creation of, a trust fund, an escrow or any other segregation of assets for the benefit of the FA or any beneficiary of the FA.  There is no guaranty of benefit payments to the FA.

            
The obligation of Legg Mason to make the payments under the Program is an unsecured contractual obligation only, and neither the FA nor any beneficiary of the FA shall have any beneficial or preferred interest by way of trust, escrow, lien or otherwise in and to any specific assets or funds.  The FA and each beneficiary of the FA shall look solely to the general credit of Legg Mason for satisfaction of any obligations due or to become due under the Program.

            
Should Legg Mason elect to make contributions to a trust (hereinafter referred to as the "Trust") to assist Legg Mason in paying the benefits which may accrue hereunder, the amounts contributed shall be used to purchase the deemed investments under Section 6, subject to application of the provisions of this Section 14 to the actual investments.  However, contributions to the Trust shall not reduce or otherwise affect Legg Mason's liability to pay benefits under the Program (which benefits may be paid from the Trust or from Legg Mason's general assets, in the discretion of Legg Mason), except that Legg Mason's liability shall be reduced by actual benefit payments from the Trust (and the Account shall be appropriately adjusted to reflect such payments).  If any such investments, or any contributions to the Trust, are made by Legg Mason, such investments shall have been made solely for the purpose of aiding Legg Mason in meeting its obligations under the Program, and, except for actual contributions to the Trust, no trust or trust fund is intended.  To the extent that Legg Mason does, in its discretion, purchase or hold any such investments (other than through contributions to the Trust), Legg Mason will be named sole owner of all such investments and of all rights and privileges conferred by the terms of the instruments or certificates evidencing such investments.  Nothing stated herein will cause such investments, or the Trust, to form part of the Account, or to be treated as anything but the general assets of Legg Mason, subject to the claims of its general creditors, nor will anything stated herein cause such investments, or the Trust, to represent the vested, secured or preferred interest of the FA.  Legg Mason shall have the right at any time to use such investments not held in the Trust in the ordinary course of its business.  Neither the FA

13 

 

nor any of his or her beneficiaries shall at any time have any interest in the Account or the Trust or in any such investments, except as a general, unsecured creditor of Legg Mason to the extent of the Retention Awards which are the subject of the Program.

            
15.    Effect on Employment Rights and Other Benefit Programs - Neither participation in nor any of the provisions of the Program shall give the FA any right to be retained in the employment of the Company.  The Program shall not be construed as a contract of employment.  Legg Mason and the Company maintain an employment-at-will policy.  As a FA is free to end his or her employment with the Company at any time for any reason or no reason, the Company is free to end the employment with a FA at any time for any reason or no reason.  Furthermore, the Company may end at any time a FA's employment as a Financial Advisor.  In the event a FA is no longer employed as a Financial Advisor or otherwise ceases to be an Eligible FA, the FA will no longer be entitled to Retention Awards pursuant to the Program.  However, as long as a FA continues to be employed in good standing by the Company for the requisite period, the FA shall continue to be entitled to the Retention Awards previously credited to the FA's Account under the Program.  The Program is in addition to, and not in lieu of, any other employee benefit plan or program in which the FA may be or become eligible to participate by reason of employment with the Company, and the timing of receipt of benefits hereunder shall have no effect on contributions to or benefits under such other plans or programs except as the provisions hereof and of each such plan or program may specify.

            
16.    Administration - The Committee, as constituted from time to time, shall have full power to interpret, construe and administer the Program, including authority to determine any dispute or claim with respect thereto.  The determination of the Committee in any matter within the powers and discretion granted to it under the Plan, made in good faith, shall be binding and conclusive upon Legg Mason, the FA and all other persons having any right or benefit hereunder.  The Program is in all respects subject to the terms of the Plan.

            
17.    Paperless Communications - Notwithstanding anything contained herein to the contrary, the Committee from time to time may establish uniform procedures whereby with respect to any or all instances herein where a writing is required, including but not limited to any required written notice, election, consent, authorization, instruction, direction, designation, request or claim, communication may be made by any other means designated by the Committee, including by paperless communication, and such alternative communication shall be deemed to constitute a writing to the extent permitted by applicable law, provided that such alternative communication is carried out in accordance with such procedures in effect at such time.

            
18.    Arbitration - As a condition precedent to the crediting and receipt of Retention Awards under the Plan, each FA agrees that any controversy or dispute arising under the Plan which cannot be resolved by the Committee shall be submitted for arbitration upon demand of either party in accordance with the rules of the National Association of Securities Dealers, Inc.  or the New York Stock Exchange, Inc.

            
19.    Controlling Law - The Program and this document shall be construed, and the legal relations between the parties in connection with any dispute relating to the Plan shall be determined, in accordance with the laws of the State of Maryland; provided, however,

14 

 

that employment laws (including wage and hour laws) shall be based on the law of the jurisdiction in which the FA is employed.

            
20.    Amendment or Termination - Legg Mason reserves the right to amend or terminate the Program at any time.  Any such amendment or termination shall be by action of the Committee.

            
21.    Effect of Amendment or Termination - No amendment or termination of the Program shall directly or indirectly affect the rights of any FA (or the FA's designated beneficiary) to payment of the amount in his or her Account, to the extent that such amount was payable under the terms of the Plan prior to the effective date of such amendment or termination.

15

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