- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.1-14050
LEXMARK INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3074422
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
740 New Circle Road NW
Lexington, Kentucky 40511
(Address of principal executive offices) (Zip Code)
(606) 232-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Class A common stock, $.01 par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The number of shares outstanding (excluding shares held in treasury) of each of
the issuer's classes of common stock, as of the close of business on October 25,
1996:
Class Number of Shares
------------------------------------ ----------------
Class A common stock; $.01 par value 67,740,788
Class B common stock; $.01 par value 4,573,323
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<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
INDEX
Page of
Form 10-Q
---------
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995.......................................................2
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (Unaudited)
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995.................3
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.................4
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)...5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND FACTORS THAT MAY AFFECT
FUTURE RESULTS (Unaudited........................................6-9
PART II
ITEM 5. OTHER INFORMATION...................................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................10
1
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Millions, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 547.6 $ 514.7 $1,690.7 $1,527.5
Cost of revenues 373.7 361.4 1,162.2 1,060.7
-------- -------- -------- --------
Gross profit 173.9 153.3 528.5 466.8
Research and development 28.6 30.5 92.1 87.2
Selling, general and administrative 90.2 87.5 279.3 258.6
Amortization of intangibles - 5.1 5.1 20.3
-------- -------- -------- --------
118.1 123.1 376.5 366.1
-------- -------- -------- --------
Operating income 55.1 30.2 152.0 100.7
Interest expense, net 5.5 9.6 16.0 28.9
Amortization of deferred financing costs and other 2.0 0.8 5.8 4.9
-------- -------- -------- --------
Earnings before income taxes and
extraordinary item 47.6 19.8 130.2 66.9
Provision for income taxes 17.4 3.7 47.6 19.5
-------- -------- -------- --------
Earnings before extraordinary item 30.2 16.1 82.6 47.4
Extraordinary loss on extinguishment of debt
(net of related tax benefit of $6.4) - - - (15.7)
-------- -------- -------- --------
Net earnings $ 30.2 $ 16.1 $ 82.6 $ 31.7
======== ======== ======== ========
Earnings per common and common equivalent
share, primary and fully diluted:
Before extraordinary item $ 0.40 $ 0.21 $ 1.09 $ 0.63
Extraordinary loss - - - (0.21)
-------- -------- --------- --------
Net earnings $ 0.40 $ 0.21 $ 1.09 $ 0.42
======== ======== ======== ========
Shares used in per share calculation 75.7 75.0 75.6 75.0
======== ======== ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In Millions, Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 55.7 $ 150.5
Trade receivables, net of allowance of $20.1 in 1996
and $27.1 in 1995 254.2 213.6
Inventories 340.7 296.3
Prepaid expenses and other current assets 66.7 55.3
-------- --------
Total current assets 717.3 715.7
Property, plant and equipment, net 417.3 361.2
Other assets 47.4 66.0
-------- --------
Total assets $1,182.0 $1,142.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ 20.0
Accounts payable 198.9 209.6
Accrued liabilities 223.8 258.4
-------- --------
Total current liabilities 422.7 488.0
Long-term debt 180.5 175.0
Other liabilities 87.9
-------- --------
Total liabilities 691.1 752.7
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 1,600,000 shares authorized,
no shares issued and outstanding - -
Common stock $.01 par value:
Class A, 160,000,000 shares authorized; 66,228,065 and
64,303,619 outstanding 0.6 0.6
Class B, 10,000,000 shares authorized; 5,888,623 and
5,888,623 outstanding 0.1 0.1
Capital in excess of par 514.0 494.6
Retained earnings (deficit) (25.4) (108.0)
Accumulated translation adjustment 1.6 2.9
-------- --------
Total stockholders' equity 490.9 390.2
-------- --------
Total liabilities and stockholders' equity $1,182.0 $1,142.9
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------
1996 1995
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 82.6 $ 31.7
Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities:
Depreciation and amortization 50.9 76.4
Extraordinary loss - 15.7
Deferred taxes (8.3) (2.7)
Other non-cash charges to operations 16.1 33.4
-------- --------
141.3 154.5
Change in assets and liabilities:
Trade receivables (36.0) (41.9)
Trade receivables program (4.6) (20.0)
Inventories (44.4) (30.4)
Accounts payable (10.7) 54.0
Accrued liabilities (34.6) 13.6
Other assets and liabilities 0.4 (9.0)
-------- --------
Net cash provided by operating activities 11.4 120.8
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (106.2) (47.6)
Proceeds from sale of property, plant and equipment 3.3 1.1
-------- --------
Net cash used for investing activities (102.9) (46.5)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt,
net of issuance costs of $2.8 in 1995 5.5 147.2
Principal payments on long-term debt (20.0) (225.0)
Common stock transactions, net 11.7 0.2
Preferred dividends paid - (2.2)
-------- --------
Net cash used for financing activities (2.8) (79.8)
-------- --------
Effect of exchange rate changes on cash (0.5) 0.8
-------- --------
Net decrease in cash and cash equivalents (94.8) (4.7)
Cash and cash equivalents - beginning of period 150.5 42.0
-------- --------
Cash and cash equivalents - end of period $ 55.7 $ 37.3
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited; however, in
the opinion of the Company's management, all adjustments (which comprise
only normal and recurring accruals) necessary for a fair presentation of
the interim financial results have been included. The results for the
interim periods are not necessarily indicative of results to be expected
for the entire year. These financial statements and notes should be read
in conjunction with the Company's audited annual consolidated financial
statements for the year ended December 31, 1995.
Net earnings per common and common equivalent share are computed by using
the weighted-average number of common shares and common equivalent shares
outstanding during each period. Common equivalent shares and other
potentially dilutive securities include stock options, warrants, and
junior preferred stock. Primary and fully diluted earnings per share do
not differ by a material amount.
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
2. INVENTORIES
(Dollars in millions)
Inventories consist of the following:
September 30 December 31
1996 1995
------------ -----------
Work in process $ 191.2 $ 167.7
Finished goods 149.5 128.6
-------- -------
$ 340.7 $ 296.3
======== ========
3. STOCKHOLDERS' EQUITY AND LONG-TERM DEBT
On April 23, 1996, the Company's board of directors authorized the
repurchase of up to $50 million of its Class A common stock. The
repurchase authority allows the Company to selectively repurchase its
stock from time to time in the open market or in privately negotiated
transactions depending upon market price and other factors. As of
September 30, 1996, the Company has not repurchased any of the stock.
The amended and restated credit agreements and the note and stock
purchase agreement have been amended to permit, among other things, the
Company's repurchase of up to $50 million of common stock.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations,
Financial Condition and Factors that May Affect Future Results
(Unaudited)
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Results of Operations
- ---------------------
Consolidated revenues for the three months ended September 30, 1996 were $548
million, an increase of 6 percent from the same period of 1995. Printers and
associated supplies revenues were $430 million, an increase of 19 percent.
Revenues from other office imaging products were $118 million, a slight increase
over 1995. The transition out of the keyboard business was completed in March
1996 and, excluding this business, revenues for the third quarter were up $70
million or 15 percent from 1995. Total U.S. revenues were down $16 million or 5
percent, and international revenues were up $49 million or 25 percent. Excluding
the keyboard business, total U.S. revenues were up 8 percent.
For the nine months ended September 30, 1996, consolidated revenues were $1,691
million, an increase of 11 percent from the same period of 1995. Printers and
associated supplies revenues were $1,275 million, an increase of 25 percent from
1995. Revenues from other office imaging products were $382 million, an increase
of 4 percent from 1995. Excluding the keyboard business, revenues were up $269
million or 19 percent from 1995. Total U.S. revenues were up $20 million or 2
percent, and international revenues were up $143 million or 23 percent.
Excluding the keyboard business, total U.S. revenues were up 16 percent.
The increase in revenues for the third quarter and the nine months ended
September 30, 1996 over the corresponding periods of 1995 was principally due to
growth in the core printer and associated supplies business. Hardware volumes
have shown significant growth in the sales of inkjet printers while printer
supplies revenues increased due to the continued growth of the Company's
installed printer base. These revenue increases more than offset price
reductions on certain printers. Foreign currency translation effects were
slightly unfavorable for both the quarter and nine months ended September 30,
1996.
Consolidated gross profit was $174 million for the three months ended September
30, 1996, an increase of 13 percent from the same period of 1995, principally
due to increased printer and associated supplies volumes, lower costs through
cost management, the absence of the lower-margin keyboard business in 1996 and
more favorable product sales mix. Gross profit as a percentage of revenues for
the third quarter of 1996 increased to 32 percent from 30 percent in 1995.
Gross profit attributable to printers and associated supplies for the third
quarter 1996 was $133 million, an increase of 21 percent over the third quarter
of 1995, principally due to higher revenues and the mix of these revenues. Gross
profit margin was 31 percent, up from 30 percent in the prior year, as
competitive price pressures on printers were more than offset by lower costs and
growth in the higher margin associated consumable supplies.
For the nine months ended September 30, 1996, consolidated gross profit was $528
million, an increase of 13 percent over the corresponding period of 1995. Gross
profit as a percentage of revenues was constant at 31 percent for the first nine
months of both 1996 and 1995. Gross profit attributable to printers and
associated supplies was $393 million, an increase of 26 percent.
6
<PAGE>
Total operating expenses decreased 4 percent in the third quarter of 1996
compared to the corresponding period of 1995. Expenses as a percentage of
revenues were 22 percent in the third quarter of 1996 compared to 24 percent for
the same period of 1995. The decline in the expense to revenue ratio was
principally due to a reserve for the write-down of keyboard assets recorded in
the third quarter of 1995, and effective expense management and lower
amortization of intangibles in 1996.
Total operating expenses increased 3 percent for the nine months ended September
30, 1996 compared to the same period of 1995. Expenses as a percentage of
revenues were 22 percent for the first nine months of 1996 compared to 24
percent for the corresponding period of 1995, principally reflecting in 1996
lower amortization of intangibles, revenue growth, more focus on expense
controls and in 1995 the keyboard asset write-down reserve.
Consolidated operating income was $55 million for the third quarter of 1996 and
$152 million for the nine months ended September 30, 1996, an increase of 82
percent and 51 percent, respectively, over the corresponding periods of 1995.
These increases were due to stronger 1996 sales volumes, cost and expense
controls, lower amortization of intangibles and the 1995 keyboard asset
write-down reserve. The impact of the keyboard business on the Company's third
quarter 1995 operating income was essentially matched in the third quarter of
1996 by the effect of lower margins in the other office imaging products
business resulting from the previously announced changes in the IBM supplies
distribution agreement.
Earnings before income taxes were $48 million for the third quarter of 1996 and
$130 million for the first nine months of 1996, up 139 percent and 94 percent,
respectively, over the corresponding periods of 1995, principally due to the
operating performance and lower interest expense as a result of lower debt
levels and lower interest rates.
Net earnings for the third quarter of 1996 were $30 million, up 87 percent
compared to the third quarter of 1995. This increase was due to the operating
performance and lower interest expense, partially offset by a higher income tax
provision. The income tax provision was approximately 37 percent of earnings
before tax in the third quarter of 1996 as compared to 19 percent in the same
period of 1995. The effective tax rate for the third quarter of 1995 was lower
principally due to taking into account, among other things, a change in
circumstances that led the Company to reduce its valuation allowance for
deferred tax assets. Net earnings per share were $0.40 for the third quarter of
1996, compared to $0.21 for the third quarter of 1995, an increase of 85
percent.
Net earnings for the nine months ended September 30, 1996 were $83 million, up
160 percent compared to the same period of 1995 and up 74 percent over earnings
before extraordinary loss in 1995. The income tax provision was approximately 37
percent of earnings before tax for the first nine months of 1996 as compared to
29 percent in the same period of 1995. The effective tax rate for 1995 reflected
a change in circumstances that resulted in a reduction in the valuation
allowance for deferred tax assets. Net earnings per share were $1.09 for the
nine months ended September 30, 1996, compared to $0.42, or $0.63 before
extraordinary loss for the same period of 1995, an increase of 158 percent and
73 percent, respectively.
7
<PAGE>
Financial Condition
- -------------------
The Company's financial position remains strong, with slightly lower debt levels
than at December 31, 1995, and the ability to sell additional trade accounts
receivables under the receivables sales program. Senior notes in the principal
amount of $20 million were redeemed in March 1996. Total long-term debt
outstanding was $181 million at September 30, 1996. The debt to capital ratio
was 27 percent at the end of the third quarter 1996 compared to 33 percent at
December 31, 1995.
In January 1996, the Company entered into an agreement to sell up to 22 million
deutsche marks of Germany trade receivables on a limited recourse basis. At
September 30, 1996, 22 million deutsche marks of receivables (approximately $14
million at current exchange rates) were outstanding under this program and, as
collections reduce previously sold receivables, the Company may replenish these
with new receivables. Additionally, the U.S. receivables sales program was
renewed in June 1996 with substantially the same terms as the previous U.S.
agreement and had approximately $81 million outstanding at September 30, 1996.
The Company continued to execute its strategy of growth in its core printers and
associated supplies business in the first nine months of 1996, including
investing approximately $106 million in capital additions primarily to support
increased manufacturing capacity. This compares to $48 million invested in the
first nine months of 1995. It is anticipated that capital expenditures for 1996
will be at least 25% less than original estimates for the full year, principally
due to aggressive management of capital projects, some rebalancing of production
plans and changes in timing of implementation.
Cash provided by operating activities for the nine months ended September 30,
1996 was $11 million compared to the $121 million cash provided by operating
activities for the same period of 1995, primarily reflecting higher working
capital requirements in support of sales growth. Trade accounts receivables and
inventories were higher, while accounts payable/accrued liabilities were lower,
than at December 31, 1995. Trade receivables were up principally due to higher
revenues while inventories have increased to support the higher sales volumes.
Accounts payable/accrued liabilities were down primarily due to timing of
payments.
On April 23, 1996, the Company's board of directors authorized the repurchase of
up to $50 million of its Class A common stock. The repurchase authority allows
the Company to selectively repurchase its stock from time to time in the open
market or in privately negotiated transactions depending upon market price and
other factors. As of September 30, 1996, the Company has not repurchased any of
the stock.
The amended and restated credit agreements and the note and stock purchase
agreement were amended to permit, among other things, the Company's repurchase
of up to $50 million of common stock.
Factors That May Affect Future Results
- --------------------------------------
The Company's future operating results may be adversely affected if it is unable
to continue to develop, manufacture and market products that meet customers'
needs. The markets for printers and associated supplies are highly competitive,
especially with respect to pricing and the introduction of new products and
features. The Company and its major competitors, all of which have significantly
greater financial, marketing and technological resources than the Company, have
regularly lowered prices on printers and may continue to do so. The inkjet
printer market has experienced and could continue to experience significant
printer price pressure from the Company's major competitors. The Company expects
the impact of price reductions on profits and profit margins to be largely
mitigated by manufacturing cost reductions, expense controls and continued
growth in sales of consumables. However, price reductions beyond expectations
could result in lower profitability and jeopardize the Company's ability to grow
or maintain its market share.
8
<PAGE>
The life cycles of the Company's products, as well as delays in product
development and manufacturing, variations in the cost of component parts and
delays in customer purchases of existing products in anticipation of new product
introductions by the Company or its competitors, may cause a build up in the
Company's inventories, make the transition from current products to new products
difficult and could adversely affect the Company's future operating results.
Further, some of the Company's newly developed products replace or compete with
some of the Company's existing products.
In addition, sales outside the United States make up about half of the Company's
revenues. Accordingly, the Company's future results could be adversely affected
by a variety of factors, including foreign currency exchange rate fluctuations,
trade protection measures, changes in a specific country's or region's political
or economic conditions and unexpected changes in regulatory requirements.
Factors unrelated to the Company's operating performance, including trading
activity in the Company's common stock, particularly in light of the substantial
number of shares owned by the original investor group that are available for
resale, may affect the Company's common stock price.
9
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Part II. Other Information
Item 5. Other Information
The Company's wholly-owned subsidiary, Lexmark International, Inc.
("Lexmark"), executed an agreement, effective October 1, 1996, with
Hewlett-Packard Company to cross-license each other's patents filed
prior to a specified date (the "Agreement"). The Agreement generally
gives both parties a worldwide license under the licensed patents for
the manufacture and sale of printers, as well as accessories and
consumable supplies designed for use with each party's own printers.
In addition, the Agreement resolves issues of patent infringement
that had been raised by both companies and does not involve any
royalty or other payment by either party. The Agreement generally
permits licenses granted thereunder to be terminated in the event of
a "change of control," which includes, in very limited circumstances,
an acquisition of substantially less than 50% of the Company's or
Lexmark's voting shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
A list of exhibits is set forth in the Exhibit Index found on
page 12 of this report.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months
ended September 30, 1996.
10
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, both on behalf of the registrant and in
his capacity as principal accounting officer of the registrant.
Lexmark International Group, Inc.
(Registrant)
Date:November 6, 1996 By: /s/ Albert L. Luedtke
---------------- ---------------------
Albert L. Luedtke
Corporate Controller
(Principal Accounting Officer)
11
<PAGE>
EXHIBIT INDEX
Exhibits:
10 Patent Cross-License Agreement, effective October 1, 1996, between
Hewlett-Packard Company and Lexmark International, Inc. *
27 Financial Data Schedule
- ---------------
* Confidential Treatment Requested
12
HP Confidential Lexmark Confidential
PATENT CROSS-LICENSE AGREEMENT (redacted)
This Agreement is effective October 1, 1996 between Hewlett-Packard
Company, incorporated under the laws of the State of California, with a place of
business at 3000 Hanover Street, Palo Alto, California 94304, U.S.A. ("HP"), and
Lexmark International, Inc., incorporated under the laws of the State of
Delaware, with a place of business at 740 New Circle Road, Lexington, Kentucky,
40511, U.S.A., ("Lexmark");
Whereas, HP and Lexmark (formerly known as "IBM Information Products
Corporation") have entered into a previous Agreement dated March 26, 1991
(hereinafter "Previous Agreement") relating to patent rights of HP and Lexmark;
Whereas, HP has brought certain HP patents to Lexmark's attention in
connection with certain Lexmark products;
Whereas, Lexmark has brought certain Lexmark patents to HP's attention
in connection with certain HP products;
Whereas,HP and Lexmark desire to resolve these patent disputes amicably;
Whereas, HP and Lexmark desire to promote individual research,
advancement of printing technology, and development of new products; and
Whereas, HP and Lexmark desire to each obtain greater design freedom
for their own products and to avoid infringement of the other party's patents;
Now, Therefore, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Definitions.
1.1 "Subsidiaries" means any corporation or other business entity in
which either party now or hereafter owns or controls more than fifty percent
(50%) of the outstanding voting stock or other voting rights entitled to elect
directors, but such corporation or entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists.
1.2 "Licensed Patents" means any and all patents throughout the world,
including utility models and including design patents/registrations for type
fonts (but not including any other design patents, industrial designs or design
registrations) issued or issuing on applications entitled to a first effective
filing date before * under which patents or applications therefor
either party (as a Licensor) or any of its subsidiaries now has or hereafter
obtains the right to grant licenses to the other party (as a Licensee) of
or within the scope granted herein *
*Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission ("SEC")
<PAGE>
HP Confidential Lexmark Confidential
*
* The
term "Licensed Patents" shall also include any patent reissuing on any of the
aforesaid patents. *
1.3 "Printers" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.4 "Print Mechanisms" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.5 "OEM Inkjet Printer Subassemblies" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.6 "Printer Consumables" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
*Confidential portion has been omitted and filed separately with the SEC
2
<PAGE>
HP Confidential Lexmark Confidential
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.7 "Customized OEM Consumables" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.8 "Printer Consumable Components" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.9 "Printer Accessories" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
3
<PAGE>
HP Confidential Lexmark Confidential
1.10 "Print Media" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.11 "Licensed Products" means any one or more of and only the
following:
(a) Printers;
(b) Print Mechanisms;
(c) Printer Service Items;
(d) typewriters;
(e) OEM Inkjet Printer Subassemblies;
(f) Printer Consumables;
(g) Customized OEM Consumables;
(h) Third Party Inkjet Consumables;
(i) Printer Consumable Components;
(j) Printer Accessories;
(k) Print Media;
(l) Printer Consumable Material; and
(m) manufacturing apparatus and methods used to fabricate
any one or more of (a) through (l) above.
1.12 "Printer Consumable Material" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.13 "Inkjet" means printing technology in which thermal energy
is used to eject droplets of ink onto a medium to create images or text.
1.14 "Inkjet Products" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
4
<PAGE>
HP Confidential Lexmark Confidential
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.17 "Third Party Inkjet Consumables" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
5
<PAGE>
HP Confidential Lexmark Confidential
1.18 "Printer Service Items" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.20 "Acquired Printer Company Products" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.21 "Product Platform" means:
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
1.22 "Product Models" means
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
6
<PAGE>
HP Confidential Lexmark Confidential
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
2. Previous Agreement.
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
2.2 Paragraph 5.2 of the Previous Agreement is hereby terminated in
all respects and is not replaced by any provision of this Agreement.
2.3 Paragraph 5.3 of the Previous Agreement is hereby terminated in
all respects and is not replaced by any provision of this Agreement.
3. Grants and Releases.
3.1 Each party (as a Releasing Party) forever releases and discharges
the other party (as a Released Party), its Subsidiaries and all purchasers and
users of Licensed Products sold by the Released Party or any of its Subsidiaries
before the effective date of this Agreement from all claims and liabilities for
any infringement of the Licensed Patents prior to the effective date of this
Agreement with respect to those products.
3.2 Subject to the limitations set forth in paragraphs 3.2.1 and 3.2.2
below, each party (as a Licensor) hereby grants to the other party (as a
Licensee) and its Subsidiaries a worldwide, royalty free, non-exclusive license,
without the right to sublicense, to make, have made (as provided below in
Section 4), use, import, offer for sale, sell, or otherwise dispose of: (a)
Inkjet Products (excluding OEM Inkjet Printer Subassemblies and Third Party
Inkjet Consumables) *
* (b) OEM Inkjet Printer Subassemblies and Third
Party Inkjet Consumables * and (c) all other Licensed
Products *
*Confidential portion has been omitted and filed separately with the SEC
7
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HP Confidential Lexmark Confidential
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
3.4 This Agreement is a patent cross license agreement. Neither party
is licensed under the copyrights *
*
mask works, trademarks, trade names, trade dress, or trade secrets (or other
confidential information) of the other party. Nothing in this Agreement shall
be read to authorize either party to make any representations to the contrary to
third parties *
*
3.5 Each party (as a Licensor) grants to the other party (as a
Licensee) and its Subsidiaries a worldwide, non-exclusive license under the
Licensed Patents, without the right to sublicense, to make, have made (as
provided in Section 4), use, import, offer for sale, sell, or otherwise dispose
of (a) Acquired Printer Company Products, but only for a period ending
* after the acquisition of the respective acquired third party, and (b)
spare parts and accessories (but not consumables) for Acquired Printer Company
Products, but only for a period ending * after the acquisition of the
respective acquired party, at a royalty rate equal to the lesser of (1)
* realized from the sale of Acquired Printer Company Products and
spare parts and accessories for those products for each patent practiced
by the products licensed under this Subsection 3.5, (2) * realized
from the sale of such products, and (3) the royalty rate that would have
applied under any separate agreement between the Licensor and the respective
acquired party had such party not been acquired. In the event either party (as
a Licensee) fails to cure a material breach of this Subsection 3.5 within
sixty (60) days after the date of receipt of written notice of such breach,
the other party (as a Licensor) may terminate the licenses granted to the
Licensee pursuant to this Subsection 3.5.
*Confidential portion has been omitted and filed separately with the SEC
8
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HP Confidential Lexmark Confidential
3.6 If an entity ceases to be a Subsidiary, then all rights and
licenses granted to that Subsidiary under this Agreement shall automatically
terminate.
4. Have-Made Rights.
4.1 Subject to Subsection 4.3, any license granted under any of the
above provisions to have Printers, Print Mechanisms, typewriters *
*
* made by a third-party manufacturer for the use, importation, offer for
sale, sale or other disposition by a party or any of its Subsidiaries requesting
such making ("the Requesting Party") shall be restricted to all of the following
conditions:
4.1.1 The designs, specifications and working drawings for the
manufacture of such products must be owned and furnished by, and also
must originate with the Requesting Party (or with the Requesting
Party's contractor, whether or not the contractor is also the third
party manufacturer);
4.1.2 Unless the Requesting Party's contractor is the third
party manufacturer, the designs, specifications and working drawings
must be in sufficient detail that substantially no additional designing
by the third-party manufacturer is required other than adaptation to
the production processes and standards normally used by the third-party
manufacturer, which adaptation changes the characteristics of such
products only to a negligible extent; and
4.1.3 Any products made pursuant to this Subsection 4.1 by a
third-party manufacturer shall be purchased by the Requesting Party.
4.1.4 If a third party contractor or manufacturer originates
the designs, specifications and working drawings of Printers, Print
Mechanisms, typewriters, *
*
any patents or patent applications, which are based on inventions
made in the contract,and which cover such products or any portion
thereof, must be licensable by the Requesting Party to the other party
on a royalty-free basis and subject to the terms and conditions of
this Agreement.
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
*Confidential portion has been omitted and filed separately with the SEC
9
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HP Confidential Lexmark Confidential
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
4.2 Subject to Subsection 4.3, any license granted under any of the
above provisions to have Printer Consumables *
* made by a third-party
manufacturer for the use, importation, offer for sale, sale or other
disposition by a party or any of its Subsidiaries requesting such making
("the Requesting Party") shall be restricted to all of the following
conditions:
4.2.1 The designs, specifications and working drawings for the
manufacture of such products must be owned by, furnished by, and
originate with the Requesting Party;
4.2.2 The designs, specifications and working drawings must be
in sufficient detail that substantially no additional designing by the
third-party manufacturer is required other than minor adaptation to the
production processes and standards normally used by the third-party
manufacturer, which adaptation changes the characteristics of such
products only to a negligible extent; and
4.2.3 Any products made pursuant to this Subsection 4.2 by a
third party manufacturer shall be purchased by the Requesting Party.
4.3 Solely with regard to * any license granted under any
of the above provisions to have Licensed Products made by a third-party
manufacturer for the use, importation, offer for sale, sale or other disposition
by a party or any of its Subsidiaries requesting such making ("the Requesting
Party") shall be restricted to all of the following conditions:
4.3.1 The designs, specifications and working drawings for the
manufacture of such products must be owned by, furnished by, and
originate with the Requesting Party;
4.3.2 The designs, specifications and working drawings must be
in sufficient detail that substantially no additional designing by the
third-party manufacturer is required other than minor adaptation to the
production processes
*Confidential portion has been omitted and filed separately with the SEC
10
<PAGE>
HP Confidential Lexmark Confidential
and standards normally used by the third-party manufacturer, which
adaptation changes the characteristics of such products only to a
negligible extent; and
4.3.3 Any and all products made pursuant to this Subsection
4.3 by a third-party manufacturer shall be purchased by the Requesting
Party.
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
5. Warranty and Disclaimer.
5.1 Each party warrants that it has the right to grant the licenses set
forth in Section 3 hereof. Neither party makes any other representations or
warranties, express or implied, nor does either party assume any liability with
respect to any infringement of patents or other rights of third parties due to
the other party's operation under the licenses granted herein, nor does either
party assume any responsibility for enforcement of its patents against third
parties.
5.2 Lexmark warrants that Lexmark International Group, Inc. ("LIG") and
its subsidiaries (other than Lexmark or Subsidiaries of Lexmark) currently do
not own any patents. In the event LIG itself becomes the owner of any patents,
which if owned by Lexmark would be within the scope of the Licensed Patents as
defined in this Agreement, Lexmark also warrants that it will cause such patents
to be licensed to HP and its Subsidiaries on the same basis as the Licensed
Patents.
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
11
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HP Confidential Lexmark Confidential
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
6. Confidentiality.
6.1 The parties agree that although the existence of this Agreement is
not confidential, the terms are confidential. Each party shall use the same
degree of care to prevent disclosure of the terms of this Agreement to any third
party as it uses to protect its own most sensitive confidential information. In
no event will this obligation of confidentiality preclude any disclosure
required by law or by a regulatory authority, provided that prior to making any
such disclosure of the terms of this Agreement a party shall promptly consult in
advance with the other party and shall use all commercially reasonable efforts
to obtain written assurance that confidential treatment will be accorded to such
information. If any party determines upon the advice of counsel that this
Agreement or any part of it is required to be filed with the Securities and
Exchange Commission, the parties agree that: (a) confidential treatment shall be
sought for the provisions of the Agreement as indicated by the redacted copy of
this Agreement attached hereto as Exhibit 4, (b) the party making the filing
shall give the other party the opportunity to review and provide input on the
filing and the confidential treatment request, and (c) the filing party will
give the other party a copy of any submission. The parties further agree that
neither party will issue a press release or otherwise make a public announcement
relating to the existence or provisions of this Agreement without the prior
written consent of the other party, except as set forth in Exhibit 3 in the case
of Lexmark and as may be adapted with respect to company specific information in
the case of either HP or Lexmark.
6.2 Notwithstanding the provisions of Subsection 6.1, if either party
determines that a potential Change of Control may take place with regard to a
particular third party and that it is reasonably necessary to disclose the terms
of Section 7 and Exhibit 2 of this Agreement, then such party may disclose such
information, provided such party shall use all commercially reasonably efforts
to obtain written assurance that confidential treatment will be accorded such
information.
6.3 In the event of termination of a license under Section 7 of this
Agreement, each party may make a public disclosure (subject to the provisions of
Subsection 6.1) concerning the termination and the surviving licenses.
7. Term and Termination.
7.1 The term of this Agreement shall be from the effective date hereof
until the expiration of the last to expire of the patents licensed hereunder.
7.2 All licenses granted by this Agreement under *
may be terminated: (a) by HP if a Change of Control, as defined in Exhibit 2,
occurs with respect to Lexmark, LIG, or any successor entity to either of them;
or (b) by
*Confidential portion has been omitted and filed separately with the SEC
12
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HP Confidential Lexmark Confidential
Lexmark if a Change of Control, as defined in Exhibit 2, occurs with respect to
HP or any successor entity to it. In order to be effective, such termination
must be in accordance with paragraphs 7.2.1 and 7.2.2.
7.2.1 Any termination pursuant to this Subsection 7.2 shall be
effective as of the date that such Change of Control takes place
provided that the party terminating the licenses gives written notice
to the other party as set forth in paragraph 7.2.2.
7.2.2 Each party shall give the other party prompt written
notice of the occurrence of a Change of Control of such party. The
party seeking to terminate licenses pursuant to this Subsection 7.2
must provide the terminated party with written notice of termination
within ninety (90) days of the date of receipt of the notice of the
occurrence of a Change of Control or the licenses shall remain in
effect.
7.2.3 Notwithstanding any provisions to the contrary, in the
event of a termination of licenses pursuant to this Section 7, the
terminating party (as a Licensor) hereby grants to the terminated party
(as a Licensee) and its Subsidiaries a worldwide, royalty-free,
non-exclusive license under *
to make, have made (as provided in Section 4), use, import, offer for
sale, sell or otherwise dispose of Licensed Products as follows:
(a) Printer Accessories, Printer Service Items, Printer
Consumables, Customized OEM Consumables, Printer Consumable
Components, Print Media, and Printer Consumable Material: (i) for a
period
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
(b) Printers, Print Mechanisms, and typewriters for a period
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
7.2.4 Any termination of licenses pursuant to this Subsection
7.2 shall not relieve the party whose licenses are terminated of any
obligation or liability accrued hereunder, and such termination shall
not affect in any manner any licenses or other rights granted to the
other party under this Agreement. In the event of the termination of
any patent licenses under this Subsection 7.2, all other rights and
obligations under this Agreement shall remain in effect.
*Confidential portion has been omitted and filed separately with the SEC
13
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HP Confidential Lexmark Confidential
7.3 Except as otherwise provided in this Section 7 and in Subsection
3.5, in the event either party fails to cure or is unable to cure a material
breach of this Agreement within sixty (60) days after receipt of written notice
of such breach, the other party may bring an action for breach under this
Subsection 7.3. The non-breaching party shall be entitled only to damages and/or
injunctive relief, except in cases where damages and/or injunctive relief would
not be equitable for a particular material breach. In any such case, upon a
final judicial determination that a material breach has occurred and was not
timely cured or cannot be cured as provided in this Subsection 7.3 and that
other relief is not equitable, the breaching party's licenses under *
* may be
terminated effective as of the date of receipt of written notice of such
material breach by the breaching party. The parties agree that in the event of
such a termination of the breaching party's licenses under * the
non-breaching party shall only be licensed under the breaching party's
* entitled to a first effective filing date prior to the effective
date of such termination. The parties further agree that in no event shall
any remedy for breach include termination of the licenses to either party under
* such licenses * and all the limitations and obligations
associated with those licenses shall remain in effect.
8. Miscellaneous.
8.1 Merger: This Agreement (including attached Exhibits 1, 2, 3 and 4)
constitutes the entire Agreement between the parties relating to
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
and to this extent supersedes all prior proposals, agreements,
representations and other communications between the parties with respect
to *
8.2 Amendment: No change in the provisions of this Agreement shall be
valid unless in writing and signed by both parties.
8.3 Assignment: Neither party may assign, sublicense, or otherwise
transfer its rights and obligations under this Agreement to any party at
any time under any circumstances, without the prior written consent of the
other party, including, without limitation, in the event of a Change of
Control (as defined in Exhibit 2) or by operation of law; provided,
however, that (a) with respect to an assignment by operation of law, the
consent of HP shall not be unreasonably withheld in any of the following
cases: (i) a consolidation of Lexmark with LIG in which neither Lexmark nor
LIG survives, (ii) a merger of Lexmark with a Lexmark Qualified Subsidiary
in which Lexmark is not the surviving corporation, or (iii) a merger of
Lexmark with a subsidiary of LIG (other than Lexmark) in which Lexmark is
not the surviving corporation and such LIG subsidiary is subject to
jurisdiction in the United States, was formed exclusively to acquire
Lexmark
*Confidential portion has been omitted and filed separately with the SEC
14
<PAGE>
HP Confidential Lexmark Confidential
and has no operating assets or independent business operations; and (b) with
respect to an assignment by operation of law, the consent of Lexmark shall not
be unreasonably withheld in either of the following cases: (i) a consolidation
of HP with an HP Qualified Subsidiary in which neither HP nor the HP Qualified
Subsidiary survives, or (ii) a merger of HP into an HP Qualified Subsidiary in
which HP is not the surviving corporation.
8.3.1 For purposes of this Subsection 8.3, "Lexmark Qualified
Subsidiary" means a Lexmark (a) wholly-owned subsidiary, (b) less than
wholly-owned but at least majority-owned subsidiary so long as any such
merger or consolidation is undertaken predominantly for corporate
structuring purposes and not pursuant to any written or oral agreement
with any Person which is not a Subsidiary, or (c) Subsidiary, the only
shares of which that are owned by Persons other than Lexmark or any of
its Subsidiaries are directors' qualifying shares or shares owned
solely to satisfy local law ownership requirements.
8.3.2 For purposes of this Subsection 8.3, "HP Qualified
Subsidiary" means an HP (a) wholly-owned subsidiary, (b) less than
wholly-owned but at least majority-owned subsidiary so long as any such
merger or consolidation is undertaken predominantly for corporate
structuring purposes and not pursuant to any written or oral agreement
with any Person which is not a Subsidiary, or (c) Subsidiary, the only
shares of which that are owned by Persons other than HP or any of its
Subsidiaries are directors' qualifying shares or shares owned solely to
satisfy local law ownership requirements.
8.3.3 Any permitted successors or assigns of either party
shall be bound by the terms and conditions of this Agreement.
8.4 Neither party shall assign or convey any of its Licensed Patents
(or applications therefor) unless such assignment or conveyance is made subject
to the terms and conditions of this Agreement.
8.5 Disputes: With regard to any dispute arising out of this Agreement,
the parties shall first attempt to settle the same by means of amicable,
sensible and generally reasonable discussions and/or negotiations held between
the parties for at least sixty (60) days before filing any suit or action.
8.6 Waiver: The failure or delay of either party in exercising any of
its rights hereunder, including any rights with respect to a breach of any
obligation to pay royalties by the other party, shall in no way operate as a
waiver of such rights or prevent the assertion of such rights with respect to
any later breach or default by such other party.
8.7 Exhibits: Exhibits 1, 2, 3 and 4 referred to herein shall be
construed with and as an integral part of this Agreement to the same extent as
if they were set forth verbatim herein.
15
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HP Confidential Lexmark Confidential
8.8 Headings and Days: The headings used in this Agreement are for
reference and convenience only and shall not be used in interpreting the
provisions of this Agreement. All references to "days" in this Agreement shall
mean calendar days unless otherwise stated.
8.9 No Other Licenses: Nothing contained in this Agreement shall be
deemed to grant, either directly or by implication, estoppel, or otherwise, any
licenses under patents or other intellectual property rights other than as
specifically provided in this Agreement.
8.10 Unenforceability: Should any provision of this Agreement be held
unenforceable, such holding shall not affect the validity and enforceability of
the remaining provisions of this Agreement.
8.11 Notice: Any notice or acceptance provided for in this Agreement
shall be in writing and (except as otherwise provided in Subsection 3.5, 7.2 and
7.3) shall be deemed to have been given on the date such communication is
deposited in certified or registered first class mail, in an appropriately
stamped envelope, addressed as follows (or to such other address as a party
shall designate by written notice given to the other party):
Director of Patents and Licenses
Legal Department
Hewlett-Packard Company
3000 Hanover Street
Palo Alto CA 94303
General Counsel
Lexmark International, Inc.
740 New Circle Road, N.W.
Lexington, Kentucky 40511
8.12 Waiver and Release: The parties hereto acknowledge the existence
of Section 1542 of the Civil Code of the State of California which reads as
follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
The parties hereby respectively expressly waive and relinquish all rights and
benefits under Section 1542, and any law or legal principle of similar effect in
any jurisdiction, with respect to the releases granted in Subsection 3.1.
8.13 Choice of Law: This Agreement shall be governed by the laws of
the State of California.
16
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HP Confidential Lexmark Confidential
In Witness Whereof, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives on the day and year first set forth
above.
Hewlett-Packard Company Lexmark International, Inc.
By: /s/ Antonio Perez By: /s/ Paul J. Curlander
------------------------------- ------------------------------------
Typed Name: Antonio Perez Typed Name: Paul J. Curlander
----------------------- -----------------------------
Title:Vice President,General Manager Title:Executive Vice President,Operations
------------------------------ -----------------------------------
Date: October 17, 1996 Date: October 18, 1996
------------------------------ ----------------------------------
17
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HP Confidential Lexmark Confidential
EXHIBIT 1
---------
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
<PAGE>
HP Confidential Lexmark Confidential
EXHIBIT 2
---------
"Actual Voting Power" with respect to a corporation shall mean the
---------------------
total number of votes that may be cast in the election of directors (or
other managing authority if not a corporation) of such corporation at
any meeting of stockholders of such corporation, assuming all shares of
common stock and other securities of such corporation entitled to vote
generally in the election of directors of such corporation were present
and voted at such meeting, other than votes that may be cast only by
one class or series of stock (other than common stock) upon the
happening of a contingency. Options and other convertible securities,
prior to the exercise or conversion of any such securities, shall not
count for the purposes of determining "Actual Voting Power" in this
Exhibit 2.
"Affiliate" shall mean, when used with respect to a specified Person,
---------
another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control
with the Person specified.
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
A "Change of Control" shall have occurred with respect to an entity for
-----------------
the purposes of this Agreement if any one or more of the following
shall occur:
(1) The entity or any of its Subsidiaries shall consolidate
with, or merge with and into, any other Person and the other
Person shall be the continuing or surviving corporation (other
than with any of its or, if the entity is Lexmark, its parent
holding company's (A) wholly-owned subsidiaries, (B) less than
wholly-owned but at least a majority-owned subsidiary so long as
any such merger or consolidation is undertaken predominantly for
corporate structuring purposes and not pursuant to any oral or
written agreement with a Person which is not a Subsidiary, or (C)
Subsidiary, the only shares of which that are owned by Persons
other than the entity or any of its Subsidiaries are directors'
qualifying shares or shares owned solely to satisfy local law
ownership requirements), and as a part of such transaction such
other Person or its Subsidiaries or shareholders become the owner
of Equity Securities representing more than fifty percent (50%)
of the Actual Voting Power of the entity.
<PAGE>
HP Confidential Lexmark Confidential
(2) Any Person or any of its Subsidiaries shall
consolidate with the entity, or merge with and into the entity
and the entity shall be the continuing or surviving
corporation of such consolidation or merger (other than any
consolidation or merger with any of such entity's or, if the
entity is Lexmark, its parent holding company's (A)
wholly-owned subsidiaries, (B) less than wholly-owned but at
least a majority-owned subsidiary so long as any such merger
or consolidation is undertaken predominantly for corporate
structuring purposes and not pursuant to any written or oral
agreement with any Person which is not a Subsidiary or, (C)
Subsidiary, the only shares of which that are owned by Persons
other than the entity or any of its Subsidiaries are
directors' qualifying shares or shares owned solely to satisfy
local law ownership requirements) and, in connection with such
consolidation or merger, all or part of the capital stock
shall be changed into or exchanged for stock or other
securities of any Person (including the entity) or cash or any
other property, and as a part of such transaction such other
Person or its Subsidiaries or shareholders become the owner of
Equity Securities representing more than fifty percent (50%)
of the Actual Voting Power of the entity.
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
2
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HP Confidential Lexmark Confidential
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
(6) An entity shall file a voluntary petition in
bankruptcy or a Person shall file in a court of competent
jurisdiction an involuntary petition in bankruptcy against
an entity and such involuntary petition is not withdrawn,
dismissed or stayed within ninety (90) days thereafter.
(7) An entity which is insolvent shall be liquidated
or dissolved; provided, however, that a merger in which the
-------- -------
entity is not the surviving or resulting corporation does not
constitute a dissolution within the meaning of this
subparagraph (7).
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
3
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HP Confidential Lexmark Confidential
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
"Control, "controlled by" and "under common control with" shall mean
------- ---------------- ----------------------------
possession, directly or indirectly, of power to direct or cause the
direction of management or policies, whether through ownership of
securities or partnership, limited liability company or other ownership
interests, by contract or otherwise.
"Equity Securities" shall mean any securities of a corporation entitled
-----------------
to vote generally in the election of directors of such corporation (or
if not a corporation, for election of a similar managing body).
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
"Person" shall mean any individual, firm, corporation, including HP,
------
LIG or Lexmark, partnership, limited liability company, trust, joint
venture, "Group" within the meaning of Section 13(d)(3) of the Exchange
Act, court, administrative agency or commission or other governmental
agency or instrumentality, domestic or foreign, or any arbitrator, of
competent jurisdiction, or other entity, and shall include any
successor (by merger or otherwise) of such entity.
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
4
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HP Confidential Lexmark Confidential
CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC
"Subsidiaries" means any corporation or other business entity in which
------------
a Person now or hereafter owns or controls more than fifty percent
(50%) of the outstanding voting stock or other voting rights entitled
to elect directors, but such corporation or entity shall be deemed to
be a Subsidiary only so long as such ownership or control exists.
5
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HP Confidential Lexmark Confidential
EXHIBIT 3
---------
LEXMARK INTERNATIONAL AND HEWLETT-PACKARD
AGREE TO CROSS-LICENSE PATENTS FOR PRINTERS
-- Pact resolves infringement claims --
LEXINGTON, Ky., __________, 1996 -- Lexmark International, Inc. today
announced it has signed an agreement with Hewlett-Packard Company to
cross-license each other's patents filed prior to a specified date.
While the specific details of the agreement are confidential, the
agreement generally gives the companies a worldwide license under the licensed
patents for the manufacture and sale of printers, as well as accessories and
consumable supplies designed for use with each company's own printers. The
agreement resolves issues of patent infringement that had been raised by both
companies and does not involve any royalty or other payments by either party.
"Our customers will be the ultimate beneficiaries of this agreement,
which gives us important flexibility and freedom in the continuing design and
development of leading-edge printing solutions," said Marvin L. Mann, chairman
and chief executive officer of Lexmark. "We are pleased to have resolved this
issue to our mutual benefit."
Lexmark holds nearly 2,000 patents worldwide and has filed more than
200 worldwide patent applications since its inception in 1991. The company has
more than 100 cross-license agreements of various types with other companies.
Lexmark first entered the color inkjet printer market in 1994 and now markets
four models in retail channels -- the WinWriter 150c and the Color Jetprinter
1020, 2050 and 2070.
<PAGE>
Lexmark International, Inc., is a global developer, manufacturer and
supplier of printing solutions and products, including laser, inkjet and
dot-matrix printers and associated consumable supplies for the office and home
markets. The company is a wholly owned subsidiary of Lexmark International
Group, Inc. (NYSE: LXK). Lexmark, which had sales of $2.2 billion in 1995, has
executive offices and its largest manufacturing center in Lexington, Ky.; other
manufacturing centers are in Boulder, Colo.; Rosyth, Scotland; Orleans, France
and Sydney, Australia. An additional facility will open in Juarez, Mexico, later
this year.
Information about Lexmark can be found in the company's home page at
www.lexmark.com on the Internet. Editional contacts are: Jim Joseph, Lexmark
International, Inc. (606) 232-2249; Stacie Savage, Hewlett-Packard Company
(619) 655-4451.
2
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HP Confidential Lexmark Confidential
EXHIBIT 4
---------
PATENT CROSS-LICENSE AGREEMENT (redacted)
This Agreement is effective October 1, 1996 between Hewlett-Packard
Company, incorporated under the laws of the State of California, with a place of
business at 3000 Hanover Street, Palo Alto, California 94304, U.S.A. ("HP"), and
Lexmark International, Inc., incorporated under the laws of the State of
Delaware, with a place of business at 740 New Circle Road, Lexington, Kentucky,
40511, U.S.A., ("Lexmark");
Whereas, HP and Lexmark (formerly known as "IBM Information Products
Corporation") have entered into a previous Agreement dated March 26, 1991
(hereinafter "Previous Agreement") relating to patent rights of HP and Lexmark;
Whereas, HP has brought certain HP patents to Lexmark's attention in
connection with certain Lexmark products;
Whereas, Lexmark has brought certain Lexmark patents to HP's attention
in connection with certain HP products;
Whereas,HP and Lexmark desire to resolve these patent disputes amicably;
Whereas, HP and Lexmark desire to promote individual research,
advancement of printing technology, and development of new products; and
Whereas, HP and Lexmark desire to each obtain greater design freedom
for their own products and to avoid infringement of the other party's patents;
Now, Therefore, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Definitions.
1.1 "Subsidiaries" means any corporation or other business entity in
which either party now or hereafter owns or controls more than fifty percent
(50%) of the outstanding voting stock or other voting rights entitled to elect
directors, but such corporation or entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists.
1.2 "Licensed Patents" means any and all patents throughout the world,
including utility models and including design patents/registrations for type
fonts (but not including any other design patents, industrial designs or design
registrations) issued or issuing on applications entitled to a first effective
filing date before under which patents or applications therefor
either party (as a Licensor) or any of its Subsidiaries now has or hereafter
obtains the right to grant licenses to the other party (as a Licensee) of or
within the scope granted herein
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The term "Licensed Patents"
shall also include any patent reissuing on any of the aforesaid patents.
1.3 "Printers" means
1.4 "Print Mechanisms" means
1.5 "OEM Inkjet Printer Subassemblies" means
1.6 "Printer Consumables" means
2
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1.7 "Customized OEM Consumables" means
1.8 "Printer Consumable Components" means
1.9 "Printer Accessories" means
3
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1.10 "Print Media" means
1.11 "Licensed Products" means any one or more of and only the following:
(a) Printers;
(b) Print Mechanisms;
(c) Printer Service Items;
(d) typewriters;
(e) OEM Inkjet Printer Subassemblies;
(f) Printer Consumables;
(g) Customized OEM Consumables;
(h) Third Party Inkjet Consumables;
(i) Printer Consumable Components;
(j) Printer Accessories;
(k) Print Media;
(l) Printer Consumable Material; and
(m) manufacturing apparatus and methods used to fabricate any one
or more of (a) through (l) above.
1.12 "Printer Consumable Material" means
1.13 "Inkjet" means printing technology in which thermal energy is used
to eject droplets of ink onto a medium to create images or text.
1.14 "Inkjet Products" means
4
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1.17 "Third Party Inkjet Consumables" means
5
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1.18 "Printer Service Items" means
1.20 "Acquired Printer Company Products" means
1.21 "Product Platform" means:
1.22 "Product Models" means
6
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2. Previous Agreement.
2.2 Paragraph 5.2 of the Previous Agreement is hereby terminated in all
respects and is not replaced by any provision of this Agreement.
2.3 Paragraph 5.3 of the Previous Agreement is hereby terminated in all
respects and is not replaced by any provision of this Agreement.
3. Grants and Releases.
3.1 Each party (as a Releasing Party) forever releases and discharges the
other party (as a Released Party), its Subsidiaries and all purchasers and users
of Licensed Products sold by the Released Party or any of its Subsidiaries
before the effective date of this Agreement from all claims and liabilities for
any infringement of the Licensed Patents prior to the effective date of this
Agreement with respect to those products.
3.2 Subject to the limitations set forth in paragraphs 3.2.1 and 3.2.2
below, each party (as a Licensor) hereby grants to the other party (as a
Licensee) and its Subsidiaries a worldwide, royalty free, non-exclusive license,
without the right to sublicense, to make, have made (as provided below in
Section 4), use, import, offer for sale, sell, or otherwise dispose of: (a)
Inkjet Products (excluding OEM Inkjet Printer Subassemblies and Third Party
Inkjet Consumables)
(b) OEM Inkjet Printer Subassemblies and Third Party
Inkjet Consumables and (c) all other Licensed
Products
7
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3.4 This Agreement is a patent cross license agreement. Neither party
is licensed under the copyrights
mask works,trademarks, trade names,trade dress,
or trade secrets (or other confidential information) of the other party. Nothing
in this Agreement shall be read to authorize either party to make any
representations to the contrary to third parties
3.5 Each party (as a Licensor) grants to the other party (as a
Licensee) and its Subsidiaries a worldwide, non-exclusive license under the
Licensed Patents, without the right to sublicense, to make, have made (as
provided in Section 4), use, import, offer for sale, sell, or otherwise dispose
of (a) Acquired Printer Company Products, but only for a period ending
after the acquisition of the respective acquired third party, and (b) spare
parts and accessories (but not consumables) for Acquired Printer Company
Products, but only for a period ending after the acquisition of
the respective acquired party, at a royalty rate equal to the lesser of (1)
realized from the sale of Acquired Printer Company Products
and spare parts and accessories for those products for each patent practiced by
the products licensed under this Subsection 3.5, (2) realized from
the sale of such products, and (3) the royalty rate that would have applied
under any separate agreement between the Licensor and the respective acquired
party had such party not been acquired. In the event either party (as a
Licensee) fails to cure a material breach of this Subsection 3.5 within sixty
(60) days after the date of receipt of written notice of such breach, the
other party (as a Licensor) may terminate the licenses granted to the Licensee
pursuant to this Subsection 3.5.
8
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3.6 If an entity ceases to be a Subsidiary, then all rights and
licenses granted to that Subsidiary under this Agreement shall automatically
terminate.
4. Have-Made Rights.
4.1 Subject to Subsection 4.3, any license granted under any of the
above provisions to have Printers, Print Mechanisms, typewriters, made by a
third-party manufacturer for the use, importation, offer for sale, sale or other
disposition by a party or any of its Subsidiaries requesting such making ("the
Requesting Party") shall be restricted to all of the following conditions:
4.1.1 The designs, specifications and working drawings for the
manufacture of such products must be owned and furnished by, and also
must originate with the Requesting Party (or with the Requesting
Party's contractor, whether or not the contractor is also the third
party manufacturer);
4.1.2 Unless the Requesting Party's contractor is the third
party manufacturer, the designs, specifications and working drawings
must be in sufficient detail that substantially no additional designing
by the third-party manufacturer is required other than adaptation to
the production processes and standards normally used by the third-party
manufacturer, which adaptation changes the characteristics of such
products only to a negligible extent; and
4.1.3 Any products made pursuant to this Subsection 4.1 by a
third-party manufacturer shall be purchased by the Requesting Party.
4.1.4 If a third party contractor or manufacturer originates
the designs, specifications and working drawings of Printers, Print
Mechanisms, typewriters,
any patents or patent applications, which are based on inventions made
in the contract, and which cover such products or any portion thereof,
must be licensable by the Requesting Party to the other party on a
royalty-free basis and subject to the terms and conditions of this
Agreement.
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4.2 Subject to Subsection 4.3, any license granted under any of the
above provisions to have Printer Consumables
made by a third-party
manufacturer for the use, importation, offer for sale, sale or other
disposition by a party or any of its Subsidiaries requesting such making ("the
Requesting Party") shall be restricted to all of the following conditions:
4.2.1 The designs, specifications and working drawings for the
manufacture of such products must be owned by, furnished by, and
originate with the Requesting Party;
4.2.2 The designs, specifications and working drawings must be
in sufficient detail that substantially no additional designing by the
third-party manufacturer is required other than minor adaptation to the
production processes and standards normally used by the third-party
manufacturer, which adaptation changes the characteristics of such
products only to a negligible extent; and
4.2.3 Any products made pursuant to this Subsection 4.2 by a
third party manufacturer shall be purchased by the Requesting Party.
4.3 Solely with regard to any license granted under
any of the above provisions to have Licensed Products made by a third-party
manufacturer for the use, importation,offer for sale, sale or other disposition
by a party or any of its Subsidiaries requesting such making ("the Requesting
Party") shall be restricted to all of the following conditions:
4.3.1 The designs, specifications and working drawings for the
manufacture of such products must be owned by, furnished by, and
originate with the Requesting Party;
4.3.2 The designs, specifications and working drawings must be
in sufficient detail that substantially no additional designing by the
third-party manufacturer is required other than minor adaptation to the
production processes
10
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and standards normally used by the third-party manufacturer, which
adaptation changes the characteristics of such products only to a
negligible extent; and
4.3.3 Any and all products made pursuant to this Subsection
4.3 by a third-party manufacturer shall be purchased by the Requesting
Party.
5. Warranty and Disclaimer.
5.1 Each party warrants that it has the right to grant the licenses set
forth in Section 3 hereof. Neither party makes any other representations or
warranties, express or implied, nor does either party assume any liability with
respect to any infringement of patents or other rights of third parties due to
the other party's operation under the licenses granted herein, nor does either
party assume any responsibility for enforcement of its patents against third
parties.
5.2 Lexmark warrants that Lexmark International Group, Inc. ("LIG") and
its subsidiaries (other than Lexmark or Subsidiaries of Lexmark) currently do
not own any patents. In the event LIG itself becomes the owner of any patents,
which if owned by Lexmark would be within the scope of the Licensed Patents as
defined in this Agreement, Lexmark also warrants that it will cause such patents
to be licensed to HP and its Subsidiaries on the same basis as the Licensed
Patents.
11
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EXHIBIT 4
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6. Confidentiality.
6.1 The parties agree that although the existence of this Agreement is
not confidential, the terms are confidential. Each party shall use the same
degree of care to prevent disclosure of the terms of this Agreement to any third
party as it uses to protect its own most sensitive confidential information. In
no event will this obligation of confidentiality preclude any disclosure
required by law or by a regulatory authority, provided that prior to making any
such disclosure of the terms of this Agreement a party shall promptly consult in
advance with the other party and shall use all commercially reasonable efforts
to obtain written assurance that confidential treatment will be accorded to such
information. If any party determines upon the advice of counsel that this
Agreement or any part of it is required to be filed with the Securities and
Exchange Commission, the parties agree that: (a) confidential treatment shall be
sought for the provisions of the Agreement as indicated by the redacted copy of
this Agreement attached hereto as Exhibit 4, (b) the party making the filing
shall give the other party the opportunity to review and provide input on the
filing and the confidential treatment request, and (c) the filing party will
give the other party a copy of any submission. The parties further agree that
neither party will issue a press release or otherwise make a public announcement
relating to the existence or provisions of this Agreement without the prior
written consent of the other party, except as set forth in Exhibit 3 in the case
of Lexmark and as may be adapted with respect to company specific information in
the case of either HP or Lexmark.
6.2 Notwithstanding the provisions of Subsection 6.1, if either party
determines that a potential Change of Control may take place with regard to a
particular third party and that it is reasonably necessary to disclose the terms
of Section 7 and Exhibit 2 of this Agreement, then such party may disclose such
information, provided such party shall use all commercially reasonably efforts
to obtain written assurance that confidential treatment will be accorded such
information.
6.3 In the event of termination of a license under Section 7 of this
Agreement, each party may make a public disclosure (subject to the provisions of
Subsection 6.1) concerning the termination and the surviving licenses.
7. Term and Termination.
7.1 The term of this Agreement shall be from the effective date hereof
until the expiration of the last to expire of the patents licensed hereunder.
7.2 All licenses granted by this Agreement under
may be terminated: (a) by HP if a Change of Control, as defined in Exhibit 2,
occurs with respect to Lexmark, LIG, or any successor entity to either of them;
or (b) by
12
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HP Confidential Lexmark Confidential
EXHIBIT 4
---------
Lexmark if a Change of Control, as defined in Exhibit 2, occurs with
respect to HP or any successor entity to it. In order to be effective, such
termination must be in accordance with paragraphs 7.2.1 and 7.2.2.
7.2.1 Any termination pursuant to this Subsection 7.2 shall be
effective as of the date that such Change of Control takes place
provided that the party terminating the licenses gives written notice
to the other party as set forth in paragraph 7.2.2.
7.2.2 Each party shall give the other party prompt written
notice of the occurrence of a Change of Control of such party. The
party seeking to terminate licenses pursuant to this Subsection 7.2
must provide the terminated party with written notice of termination
within ninety (90) days of the date of receipt of the notice of the
occurrence of a Change of Control or the licenses shall remain in
effect.
7.2.3 Notwithstanding any provisions to the contrary, in the
event of a termination of licenses pursuant to this Section 7, the
terminating party (as a Licensor) hereby grants to the terminated party
(as a Licensee) and its Subsidiaries a worldwide, royalty-free,
non-exclusive license under
to make, have made (as provided in Section 4), use, import, offer for
sale, sell or otherwise dispose of Licensed Products as follows:
(a) Printer Accessories, Printer Service Items, Printer
Consumables, Customized OEM Consumables, Printer Consumable
Components, Print Media, and Printer Consumable Material: (i)
for a period
(b) Printers, Print Mechanisms, and typewriters for a period
7.2.4 Any termination of licenses pursuant to this Subsection
7.2 shall not relieve the party whose licenses are terminated of any
obligation or liability accrued hereunder, and such termination shall
not affect in any manner any licenses or other rights granted to the
other party under this Agreement. In the event of the termination of
any patent licenses under this Subsection 7.2, all other rights and
obligations under this Agreement shall remain in effect.
13
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EXHIBIT 4
---------
7.3 Except as otherwise provided in this Section 7 and in Subsection
3.5, in the event either party fails to cure or is unable to cure a
material breach of this Agreement within sixty (60) days after receipt of
written notice of such breach, the other party may bring an action for
breach under this Subsection 7.3. The non-breaching party shall be entitled
only to damages and/or injunctive relief, except in cases where damages
and/or injunctive relief would not be equitable for a particular material
breach. In any such case, upon a final judicial determination that a
material breach has occurred and was not timely cured or cannot be cured as
provided in this Subsection 7.3 and that other relief is not equitable, the
breaching party's licenses under may be
terminated effective as of the date of receipt of written notice of such
material breach by the breaching party. The parties agree that in the
event of such a termination of the breaching party's licenses under
the non-breaching party shall only be
licensed under the breaching party's
entitled to a first effective filing date prior to the effective date of
such termination. The parties further agree that in no event shall any
remedy for breach include termination of the licenses to either party under
such licenses
and all the limitations and obligations associated with those licenses
shall remain in effect.
8. Miscellaneous.
8.1 Merger: This Agreement (including attached Exhibits 1, 2, 3 and 4)
constitutes the entire Agreement between the parties relating to
and to this extent supersedes all prior proposals, agreements,
representations and other communications between the parties with respect to
8.2 Amendment: No change in the provisions of this Agreement shall be
valid unless in writing and signed by both parties.
8.3 Assignment: Neither party may assign, sublicense, or otherwise
transfer its rights and obligations under this Agreement to any party at any
time under any circumstances, without the prior written consent of the other
party, including, without limitation, in the event of a Change of Control (as
defined in Exhibit 2) or by operation of law; provided, however, that (a) with
respect to an assignment by operation of law, the consent of HP shall not be
unreasonably withheld in any of the following cases: (i) a consolidation of
Lexmark with LIG in which neither Lexmark nor LIG survives, (ii) a merger of
Lexmark with a Lexmark Qualified Subsidiary in which Lexmark is not the
surviving corporation, or (iii) a merger of Lexmark with a subsidiary of LIG
(other than Lexmark) in which Lexmark is not the surviving corporation and such
LIG subsidiary is subject to jurisdiction in the United States, was formed
exclusively to acquire Lexmark
14
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HP Confidential Lexmark Confidential
EXHIBIT 4
---------
and has no operating assets or independent business operations; and (b) with
respect to an assignment by operation of law, the consent of Lexmark shall
not be unreasonably withheld in either of the following cases:(i)a consolidation
of HP with an HP Qualified Subsidiary in which neither HP nor the HP Qualified
Subsidiary survives, or (ii) a merger of HP into an HP Qualified Subsidiary in
which HP is not the surviving corporation.
8.3.1 For purposes of this Subsection 8.3, "Lexmark Qualified
Subsidiary" means a Lexmark (a) wholly-owned subsidiary, (b) less than
wholly-owned but at least majority-owned subsidiary so long as any such
merger or consolidation is undertaken predominantly for corporate
structuring purposes and not pursuant to any written or oral agreement
with any Person which is not a Subsidiary, or (c) Subsidiary, the only
shares of which that are owned by Persons other than Lexmark or any of
its Subsidiaries are directors' qualifying shares or shares owned
solely to satisfy local law ownership requirements.
8.3.2 For purposes of this Subsection 8.3, "HP Qualified
Subsidiary" means an HP (a) wholly-owned subsidiary, (b) less than
wholly-owned but at least majority-owned subsidiary so long as any such
merger or consolidation is undertaken predominantly for corporate
structuring purposes and not pursuant to any written or oral agreement
with any Person which is not a Subsidiary, or (c) Subsidiary, the only
shares of which that are owned by Persons other than HP or any of its
Subsidiaries are directors' qualifying shares or shares owned solely to
satisfy local law ownership requirements.
8.3.3 Any permitted successors or assigns of either party
shall be bound by the terms and conditions of this Agreement.
8.4 Neither party shall assign or convey any of its Licensed Patents
(or applications therefor) unless such assignment or conveyance is made subject
to the terms and conditions of this Agreement.
8.5 Disputes: With regard to any dispute arising out of this Agreement,
the parties shall first attempt to settle the same by means of amicable,
sensible and generally reasonable discussions and/or negotiations held between
the parties for at least sixty (60) days before filing any suit or action.
8.6 Waiver: The failure or delay of either party in exercising any of
its rights hereunder, including any rights with respect to a breach of any
obligation to pay royalties by the other party, shall in no way operate as a
waiver of such rights or prevent the assertion of such rights with respect to
any later breach or default by such other party.
8.7 Exhibits: Exhibits 1, 2, 3 and 4 referred to herein shall be
construed with and as an integral part of this Agreement to the same extent as
if they were set forth verbatim herein.
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8.8 Headings and Days: The headings used in this Agreement are for
reference and convenience only and shall not be used in interpreting the
provisions of this Agreement. All references to "days" in this Agreement shall
mean calendar days unless otherwise stated.
8.9 No Other Licenses: Nothing contained in this Agreement shall be
deemed to grant, either directly or by implication, estoppel, or otherwise, any
licenses under patents or other intellectual property rights other than as
specifically provided in this Agreement.
8.10 Unenforceability: Should any provision of this Agreement be held
unenforceable, such holding shall not affect the validity and enforceability of
the remaining provisions of this Agreement.
8.11 Notice: Any notice or acceptance provided for in this Agreement
shall be in writing and (except as otherwise provided in Subsection 3.5, 7.2 and
7.3) shall be deemed to have been given on the date such communication is
deposited in certified or registered first class mail, in an appropriately
stamped envelope, addressed as follows (or to such other address as a party
shall designate by written notice given to the other party):
Director of Patents and Licenses
Legal Department
Hewlett-Packard Company
3000 Hanover Street
Palo Alto CA 94303
General Counsel
Lexmark International, Inc.
740 New Circle Road, N.W.
Lexington, Kentucky 40511
8.12 Waiver and Release: The parties hereto acknowledge the existence
of Section 1542 of the Civil Code of the State of California which reads as
follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
The parties hereby respectively expressly waive and relinquish all rights and
benefits under Section 1542, and any law or legal principle of similar effect in
any jurisdiction, with respect to the releases granted in Subsection 3.1.
8.13 Choice of Law: This Agreement shall be governed by the laws of
the State of California.
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In Witness Whereof, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives on the day and year first set forth
above.
Hewlett-Packard Company Lexmark International, Inc.
By:______________________________ By: ______________________________
Typed Name: _____________________ Typed Name: ______________________
Title: ____________________________ Title: __________________________
Date: ____________________________ Date: ___________________________
17
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EXHIBIT 1
---------
<PAGE>
HP Confidential Lexmark Confidential
EXHIBIT 2
---------
"Actual Voting Power" with respect to a corporation shall mean the
---------------------
total number of votes that may be cast in the election of directors (or
other managing authority if not a corporation) of such corporation at
any meeting of stockholders of such corporation, assuming all shares of
common stock and other securities of such corporation entitled to vote
generally in the election of directors of such corporation were present
and voted at such meeting, other than votes that may be cast only by
one class or series of stock (other than common stock) upon the
happening of a contingency. Options and other convertible securities,
prior to the exercise or conversion of any such securities, shall not
count for the purposes of determining "Actual Voting Power" in this
Exhibit 2.
"Affiliate" shall mean, when used with respect to a specified Person,
-----------
another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control
with the Person specified.
A "Change of Control" shall have occurred with respect to an entity for
-------------------
the purposes of this Agreement if any one or more of the following
shall occur:
(1) The entity or any of its Subsidiaries shall
consolidate with, or merge with and into, any other Person and
the other Person shall be the continuing or surviving
corporation (other than with any of its or, if the entity is
Lexmark, its parent holding company's (A) wholly-owned
subsidiaries, (B) less than wholly-owned but at least a
majority-owned subsidiary so long as any such merger or
consolidation is undertaken predominantly for corporate
structuring purposes and not pursuant to any oral or written
agreement with a Person which is not a Subsidiary, or (C)
Subsidiary, the only shares of which that are owned by Persons
other than the entity or any of its Subsidiaries are
directors' qualifying shares or shares owned solely to satisfy
local law ownership requirements), and as a part of such
transaction such other Person or its Subsidiaries or
shareholders become the owner of Equity Securities
representing more than fifty percent (50%) of the Actual
Voting Power of the entity.
<PAGE>
HP Confidential Lexmark Confidential
(2) Any Person or any of its Subsidiaries shall
consolidate with the entity, or merge with and into the entity
and the entity shall be the continuing or surviving
corporation of such consolidation or merger (other than any
consolidation or merger with any of such entity's or, if the
entity is Lexmark, its parent holding company's (A)
wholly-owned subsidiaries, (B) less than wholly-owned but at
least a majority-owned subsidiary so long as any such merger
or consolidation is undertaken predominantly for corporate
structuring purposes and not pursuant to any written or oral
agreement with any Person which is not a Subsidiary or, (C)
Subsidiary, the only shares of which that are owned by Persons
other than the entity or any of its Subsidiaries are
directors' qualifying shares or shares owned solely to satisfy
local law ownership requirements) and, in connection with such
consolidation or merger, all or part of the capital stock
shall be changed into or exchanged for stock or other
securities of any Person (including the entity) or cash or any
other property, and as a part of such transaction such other
Person or its Subsidiaries or shareholders become the owner of
Equity Securities representing more than fifty percent (50%)
of the Actual Voting Power of the entity.
2
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(6) An entity shall file a voluntary petition in
bankruptcy or a Person shall file in a court of competent
jurisdiction an involuntary petition in bankruptcy against an
entity and such involuntary petition is not withdrawn,
dismissed or stayed within ninety (90) days thereafter.
(7) An entity which is insolvent shall be liquidated
or dissolved; provided, however, that a merger in which the
entity is not the surviving or resulting corporation does not
constitute a dissolution within the meaning of this
subparagraph (7).
3
<PAGE>
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"Control, "controlled by" and "under common control with" shall mean
-------- ----------------
possession, directly or indirectly, of power to direct or cause the
direction of management or policies, whether through ownership of
securities or partnership, limited liability company or other ownership
interests, by contract or otherwise.
"Equity Securities" shall mean any securities of a corporation entitled
-------------------
to vote generally in the election of directors of such corporation (or
if not a corporation, for election of a similar managing body).
"Person" shall mean any individual, firm, corporation, including HP,
--------
LIG or Lexmark, partnership, limited liability company, trust, joint
venture, "Group" within the meaning of Section 13(d)(3) of the Exchange
Act, court, administrative agency or commission or other governmental
agency or instrumentality, domestic or foreign, or any arbitrator, of
competent jurisdiction, or other entity, and shall include any
successor (by merger or otherwise) of such entity.
4
<PAGE>
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"Subsidiaries" means any corporation or other business entity in which a
--------------
Person now or hereafter owns or controls more than fifty percent (50%) of
the outstanding voting stock or other voting rights entitled to elect
directors, but such corporation or entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists.
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LEXMARK INTERNATIONAL GROUP, INC. FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 56
<SECURITIES> 0
<RECEIVABLES> 274
<ALLOWANCES> 20
<INVENTORY> 341
<CURRENT-ASSETS> 717
<PP&E> 417
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,182
<CURRENT-LIABILITIES> 423
<BONDS> 181
0
0
<COMMON> 1
<OTHER-SE> 490
<TOTAL-LIABILITY-AND-EQUITY> 1,182
<SALES> 1,691
<TOTAL-REVENUES> 1,691
<CGS> 1,162
<TOTAL-COSTS> 1,162
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 130
<INCOME-TAX> 47
<INCOME-CONTINUING> 83
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
