NON-QUALIFIED STOCK OPTION AGREEMENT pursuant to LEXMARK INTERNATIONAL, INC. 2005 NONEMPLOYEE DIRECTOR STOCK PLAN

EX-10.3 4 lxkexhibit103.htm LEXMARK INTERNATIONAL, INC., 3Q 2006 FORM 10-Q , EXHIBIT 10.3 Lexmark International, Inc., 3Q 2006 Form 10-Q , Exhibit 10.3

Exhibit 10.3

NON-QUALIFIED STOCK OPTION AGREEMENT

pursuant to

LEXMARK INTERNATIONAL, INC.

2005 NONEMPLOYEE DIRECTOR STOCK PLAN

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

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

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

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

1. Grant of Option; Exercise Price.

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

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

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

2. Vesting; Period of Exercise of Option.

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

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

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

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

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

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

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

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

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

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

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

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

6. Adjustment in Capitalization.

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

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

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

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

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

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

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

12. Miscellaneous.

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

(i)

if to the Company, to it at:

One Lexmark Centre Drive

740 West New Circle Road

Lexington, Kentucky 40550

Attention: Secretary

(ii)

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

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

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

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

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

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

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

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

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

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

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

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

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

LEXMARK INTERNATIONAL, INC.

By: _______________________________

Name: Jeri I. Stromquist

Title: Vice President of Human Resources

OPTIONEE:

By: _______________________________

Name: __________________________

Title: Director

Address of Optionee:

_____________________________________