<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LEXMARK INTERNATIONAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3074422
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
---------------
ONE LEXMARK CENTRE DRIVE
LEXINGTON, KENTUCKY 40550
(606) 232-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
VINCENT J. COLE, ESQ.
LEXMARK INTERNATIONAL GROUP, INC.
ONE LEXMARK CENTRE DRIVE
LEXINGTON, KENTUCKY 40550
(606) 232-2700
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
COPIES TO:
PAUL S. BIRD, ESQ. DAVID B. HARMS, ESQ. KEITH F. HIGGINS, ESQ.
DEBEVOISE & PLIMPTON SULLIVAN & CROMWELL ROPES & GRAY
875 THIRD AVENUE 125 BROAD STREET ONE INTERNATIONAL PLACE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10004 BOSTON, MASSACHUSETTS 02110
(212) 909-6000 (212) 558-4000 (617) 951-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with a dividend or
interest reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value
$.01 per share.................. 13,800,000 $31.13 $429,594,000 $130,180.00
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes up to 1,800,000 shares subject to the Underwriters' over-
allotment options.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 based on the
average of the high and low prices of the Class A Common Stock as reported
in the consolidated reporting system on October 6,1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses: one to be
used in connection with a United States offering (the "U.S. Prospectus") and
one to be used in a concurrent international offering (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus are
identical in all respects except that they contain different front, inside
front, and back cover pages and different descriptions of the plan of
distribution (contained under the caption "Underwriting" in both the U.S.
Prospectus and the International Prospectus), and the International Prospectus
also contains an additional section under the caption "Certain United States
Tax Consequences to Non-United States Holders". Pages herein for the
International Prospectus are designated as "I- ".
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1997
12,000,000 SHARES
LEXMARK INTERNATIONAL GROUP, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
Of the 12,000,000 shares of Class A Common Stock offered, 9,600,000 shares
are being offered hereby in the United States and 2,400,000 shares are being
offered in a concurrent international offering outside the United States. The
public offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting".
All the shares of Class A Common Stock are being sold by the Selling
Stockholders. See "Selling Stockholders". The Company will not receive any of
the proceeds from the sale of the shares.
The last reported sale price of the Class A Common Stock, which is listed
under the symbol "LXK", on the New York Stock Exchange on October 9, 1997 was
$31.00 per share. See "Price Range of Class A Common Stock and Dividend
Policy".
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDERS(2)
-------------- ------------ -------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
Total(3)........................ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Expenses of approximately $1,000,000 are payable by the Company in
connection with the offerings.
(3) The Selling Stockholders have granted the U.S. Underwriters an option for
30 days to purchase up to an additional 1,440,000 shares at the public
offering price per share, less the underwriting discount, solely to cover
over-allotments. The Selling Stockholders have granted the International
Underwriters a similar option with respect to an additional 360,000 shares
as part of the concurrent international offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Selling Stockholders will be $ , $ and
$ , respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
shares will be ready for delivery in New York, New York, on or about October ,
1997, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SMITH BARNEY INC.
-----------
The date of this Prospectus is , 1997.
<PAGE>
[COLOR PHOTOS OF SELECTED LEXMARK PRODUCTS]
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended ( the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 7th
Floor, New York, New York 10048. Copies of such materials may also be obtained
upon written request from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C., 20549, at prescribed rates. The
Commission also maintains a Web Site at http://www.sec.gov. which contains
reports and other information regarding registrants that file electronically
with the Commission. In addition, such material may also be inspected and
copied at the offices of the New York Stock Exchange, Inc. (the "NYSE"), 20
Broad Street, New York, New York, 10005, on which the Class A Common Stock is
listed.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares (the "Shares") of its Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), being
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. For further information with respect to the Company and the
Shares, reference is hereby made to the Registration Statement.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, including portions incorporated therein of the
Company's definitive Proxy Statement dated March 27, 1997.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997.
3. All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offerings of the Shares.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to the Company,
One Lexmark Centre Drive, Lexington, Kentucky 40550, Attention: Office of the
Secretary, telephone (606) 232-2700.
----------------
3
<PAGE>
Any statement contained in a document or a portion thereof which is
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
or portion thereof which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified shall
not be deemed to constitute a part of this Prospectus except as so modified,
and any statement so superseded shall not be deemed to constitute part of this
Prospectus.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
related notes appearing elsewhere in this Prospectus. Lexmark International
Group, Inc. ("LIG") is a Delaware corporation that has as its only significant
asset all the outstanding common stock of Lexmark International, Inc., a
Delaware corporation ("Lexmark International"). Hereinafter, "the Company" and
"Lexmark" will refer to LIG, or to LIG and Lexmark International, including its
subsidiaries, as the context requires. Unless otherwise indicated, all
information set forth in this Prospectus assumes no exercise of the over-
allotment options to be granted to the Underwriters by the Selling
Stockholders. References herein to the "Common Stock" refer to the Company's
Class A Common Stock and its non-voting Class B Common Stock, par value $.01
per share (the "Class B Common Stock") and to the "IPO" refer to the Company's
initial public offering of Class A Common Stock on November 15, 1995.
THE COMPANY
Lexmark is a global developer, manufacturer and supplier of laser and inkjet
printers and associated consumable supplies for the office and home markets.
Lexmark also sells dot matrix printers for printing single and multi-part forms
by business users. In 1996, revenues from the sale of printers and associated
printer supplies increased 24% from 1995 and accounted for 77% of total Company
revenues of approximately $2.4 billion. In the first six months of 1997,
revenues from the sale of printers and associated printer supplies increased 6%
from the prior year period and accounted for 79% of total Company revenues of
approximately $1.1 billion.
The Company's installed base of printers supports a large and profitable
printer supplies business. Because consumable supplies must be replaced on
average one to three times a year, depending on type of printer and usage,
demand for laser and inkjet print cartridges is increasing at a higher rate
than their associated printer shipments. This is a relatively high margin,
recurring business that management expects to contribute to the stability of
Lexmark's earnings over time.
In addition to its core printer business, Lexmark develops, manufactures and
markets a broad line of other office imaging products which include supplies
for International Business Machines Corporation ("IBM") branded printers,
after-market supplies for original equipment manufacturer ("OEM") products, and
typewriters and typewriter supplies that are sold under the IBM trademark. In
1996, revenues from the sale of other office imaging products increased 2% from
1995 and accounted for 22% of total Company revenues. In the first six months
of 1997, revenues from the sale of other office imaging products decreased 9%
from the prior year period, primarily as a result of lower typewriter and
impact printing supplies volumes reflecting the continued decline of these
markets, and accounted for 21% of total Company revenues.
Approximately half of the Company's 1996 revenues were derived from sales
outside the United States. Revenues derived from international sales, including
exports from the United States, have grown from 45% of total revenues in 1994
to 57% of total revenues for the six months ended June 30, 1997. Lexmark's
products are sold in nearly 150 countries in North and South America, Europe,
the Middle East, Africa, Asia, the Pacific Rim and the Caribbean. As of June
30, 1997, the Company had approximately 7,700 employees worldwide.
PRINTERS AND ASSOCIATED SUPPLIES
Lexmark competes primarily in the markets for office desktop laser and color
inkjet printers--two of the fastest growing printer categories. Sales of office
desktop laser and color inkjet printers and their associated supplies together
represented approximately 86% and 87% of Lexmark's total printer and associated
supplies revenues in 1996 and for the first six months of 1997, respectively.
5
<PAGE>
The Company's critical technology and manufacturing capabilities have allowed
Lexmark to effectively manage quality and to reduce its typical new product
introduction cycle times, for example, in the case of laser printers from 24
months to approximately 12 to 16 months. Management believes its cycle times
are among the fastest in the industry and that these capabilities have
contributed to the Company's success over the last several years.
LASER PRINTERS. Network laser printer growth is being driven by the office
migration from large mainframe computers to local area networks that link
various types of computers using a variety of protocols and operating systems.
This shift has created strong demand for office desktop laser printers with
network connectivity attributes. Laser printers that print at speeds of 11-30
pages per minute ("ppm") are referred to herein as "office desktop" or
"network" printers, while lower-speed (1-10 ppm) laser printers and inkjet
printers are referred to herein as "personal" printers. The Company's laser
printers primarily compete in the office desktop segment, which the Company
believes is one of the fastest growing segments of the laser printer market.
For further discussion of the evolving nature of laser printer classifications,
see "Business--Market Overview and Strategy--Printers and Associated Supplies".
Lexmark develops and owns most of the technology for its laser printers and
consumable supplies, which differentiates the Company from a number of its
major competitors, including Hewlett-Packard Company ("HP"), which purchase
laser engines from third parties. Lexmark's integration of research and
development, manufacturing and marketing has enabled the Company to design
laser printers with features desired by specific customer and application
groups and has resulted in substantial market presence for Lexmark within
certain industry segments such as banking, retail/pharmacy, automobile
distribution and health care.
INKJET PRINTERS. The color inkjet printer market, the fastest growing segment
of the personal printer market, is expanding rapidly due to growth in personal
computers at home and in business and the development of easy-to-use color
inkjet technology with high quality color and black print capability at low
prices. Based on data from industry analysts, management believes that the
inkjet market grew from 4 million units in 1992 to 27 million units in 1996 and
will continue to grow substantially as a result of the increase in the number
of personal computers and as the inkjet market continues to shift from
monochrome to color and as inkjet printers continue to replace low-speed laser
printers. Lexmark introduced its first color inkjet printer using its own
technology in 1994 and has experienced strong sales growth through retail
outlets. The Company has increased its product distribution through retail
outlets, with the number of such outlets worldwide rising from approximately
5,000 retail outlets in 1995 to more than 15,000 in 1996. The Company has made
substantial capital investments in its inkjet production capacity in 1995 and
1996 to address the growing demand for its color inkjet printers.
SUPPLIES. The Company is currently the exclusive source for new print
cartridges for the laser and inkjet printers it manufactures. Management
expects that an increasing percentage of future Company earnings will come from
its consumable supplies business, due to the consumer's continual usage and
replacement of cartridges. In 1996, the Company substantially expanded its
inkjet cartridge manufacturing capacity in both North America and Europe.
STRATEGY. Lexmark's laser printer strategy is to target fast growing segments
of the network printer market and to increase market share by providing high
quality, technologically advanced products at competitive prices. To promote
Lexmark brand awareness and market penetration, Lexmark will continue to
identify and focus on customer segments where Lexmark can differentiate itself
by supplying laser printers with features and performance that meet specific
customer needs and represent the best total cost of printing solution.
Management intends to continue to develop and market products with more
functions and capabilities than comparably priced HP printers. The
6
<PAGE>
Company's inkjet printer strategy is to generate demand for the Lexmark color
inkjet printer by offering high-quality products at competitive prices to
retail and OEM customers. Management expects that the Company's associated
printer supplies business will continue to grow as its installed base of laser
and inkjet printers increases.
OTHER OFFICE IMAGING PRODUCTS
The Company's other office imaging products category includes many mature
products such as supplies for IBM printers, typewriters and typewriter supplies
and other impact supplies that require little investment but provide a
significant source of cash flow. The Company introduced its after-market laser
cartridges in May 1995 for the large installed base of a range of laser
printers sold by other manufacturers. Management believes that the potential
for an after-market laser cartridge business is significant. The Company's
strategy for other office imaging products is to pursue the after-market OEM
laser supplies opportunity while at the same time managing its mature
businesses for cash flow.
KEYBOARDS AND OTHER
In the first quarter of 1996, the Company completed the phase-out of its
keyboard business. Keyboard sales accounted for 8% and 3%, respectively, of the
Company's revenue and gross profit for 1995.
IBM RELATIONSHIP
In 1991, IBM entered into numerous agreements with the Company to support the
Company's operations for a five-year term, including an IBM agreement not to
compete with the Company's products. These agreements expired on March 27,
1996. IBM accounted for approximately 22%, 20%, 8% and 5% of the Company's
consolidated revenues in 1994, 1995, 1996 and the six months ended June 30,
1997, respectively. When keyboard sales to IBM are excluded, IBM accounted for
revenues of approximately 12%, 12%, 7% and 5% in 1994, 1995, 1996 and the six
months ended June 30, 1997, respectively. The Company's keyboard business, of
which IBM represented approximately 95%, accounted for revenues of $201, $177
and $32 million for the years 1994, 1995 and 1996, respectively. In the third
quarter of 1995, the Company entered into a profit sharing supplies agreement
with IBM and a related agreement for an extension of the IBM trademark
agreement that allows the Company to continue to use the IBM logo on certain
existing printer supplies in its other office imaging products line through
March 31, 1999. Under these agreements, Lexmark is required to share the
profits from the Company's sale of certain products bearing the IBM logo. The
Company also entered into a royalty agreement for an extension of the right to
use the IBM logo on typewriters, typewriter supplies and certain other IBM
branded printer supplies through March 27, 2001. Since March 27, 1996, IBM is
no longer required to purchase its desktop printers and typewriters from the
Company. However, IBM subsequently entered into an agreement with the Company
to use its best efforts to buy its printer and typewriter supplies from the
Company through March 31, 1999. In addition, IBM is no longer prohibited from
competing with the Company's printer business and in June 1996 introduced laser
printer products that compete with the Company's products. See "Risk Factors--
Competition".
BACKGROUND
LIG was formed in 1990 by Clayton, Dubilier & Rice, Inc., a private
investment firm ("CD&R"), in connection with the acquisition (the
"Acquisition") of IBM Information Products Corporation (renamed Lexmark
International) from IBM. The Acquisition was completed in March 1991. Upon
completion of the Offerings (as defined herein), The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D Fund IV"), a private investment fund
managed by CD&R, will own 8,890,276 shares of Class A Common Stock representing
approximately 12% of the then outstanding shares of the Common Stock (and
approximately 11% on a fully diluted basis assuming the exercise of all
outstanding warrants and options).
7
<PAGE>
Since the Acquisition, Lexmark has made a successful transition from being a
division within a large corporation to an independent company with its own line
of Lexmark-branded products, its own sales and marketing relationships and more
efficient development and manufacturing processes. Important achievements since
the Acquisition include reducing cycle time for most new product announcements
by 30% to 50% and achieving a position of technological leadership for laser
printers while reducing debt from $940 million to $107 million as of June 30,
1997. The Company's principal executive offices are located at One Lexmark
Centre Drive, Lexington, Kentucky 40550. Telephone: (606) 232-2000.
THE OFFERINGS
The offering of 9,600,000 shares of Class A Common Stock being offered in the
United States (the "United States Offering") and the offering of 2,400,000
shares of Class A Common Stock being offered outside the United States (the
"International Offering") are referred to herein collectively as the
"Offerings". The closing of the International Offering is conditional upon the
closing of the United States Offering, and vice versa.
<TABLE>
<S> <C>
Class A Common Stock offered by the Selling Stockholders.... 12,000,000 shares
U.S. Offering.............................................. 9,600,000 shares
International Offering..................................... 2,400,000 shares
Class A Common Stock to be outstanding after the
Offerings(1)................................................ 70,453,669 shares
NYSE Symbol................................................. LXK
</TABLE>
- --------
(1) Based upon shares outstanding at September 30, 1997, including 462,088
shares of Class A Common Stock issued upon exercise of a warrant, 205,236
of such shares to be sold in connection with the Offerings. Does not
include 6,923,578 shares of Class A Common Stock issuable pursuant to
options.
The Company will not receive any of the proceeds from the sale of Shares in
the Offerings. At the time of the Acquisition, the Company agreed to assume the
costs of the Offerings and to pay certain fees and expenses in connection with
the sale of Shares by the Selling Stockholders. See "Selling Stockholders".
RISK FACTORS
Prospective purchasers of the Class A Common Stock should consider carefully
the specific investment considerations set forth under "Risk Factors", as well
as the other information set forth in this Prospectus.
- --------
Lexmark,(TM) Optra,(TM) ValueWriter,(TM) WinWriter,(TM) MarkVision,(TM)
MarkNet,(TM) Prebate(TM) and ExecJet(R) are registered trademarks of Lexmark
International. Windows(R) and Windows 95(R) are registered trademarks of
Microsoft Corporation. LaserJet(R) and HP(R) are registered trademarks of HP.
Apple(R) is a registered trademark of Apple Computer, Inc. Canon(R) is a
registered trademark of Canon Kabushiki Kaisha. IBM(R) is a registered
trademark of IBM. Xerox(R) is a registered trademark of Xerox Corporation.
8
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT SHARE DATA)
The following table sets forth summary historical consolidated financial data
of the Company as of and for the fiscal years ended December 31, 1994, 1995 and
1996 and as of and for the six months ended June 30, 1996 and 1997. The summary
historical financial data were derived from the Company's Consolidated
Financial Statements. Information as of and for the six months ended June 30,
1996 and 1997 was derived from unaudited interim financial statements that
reflect, in the opinion of the Company, all adjustments, which include only
normal recurring adjustments, necessary for a fair presentation of the
financial data for such periods. Results for interim periods are not
necessarily indicative of results for the full year or for any future period.
See the Consolidated Financial Statements of the Company and the accompanying
notes thereto included elsewhere in this Prospectus, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1994 1995(1) 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 1,852.3 $ 2,157.8 $ 2,377.6 $ 1,143.1 $ 1,139.7
Gross profit............ 553.5 669.9 747.4 354.6 393.2
Research and
development............ 101.0 116.1 123.9 63.5 62.4
Selling, general and
administrative......... 292.9 359.1 388.0 189.1 217.6
----------- ----------- ----------- ----------- -----------
Operating income before
option compensation
related to IPO and
amortization of
intangibles............ 159.6 194.7 235.5 102.0 113.2
Option compensation
related to IPO......... -- 60.6 -- -- --
Amortization of
intangibles(2)......... 44.7 25.6 5.1 5.1 --
----------- ----------- ----------- ----------- -----------
Operating income........ 114.9 108.5 230.4 96.9 113.2
Interest expense........ 50.6 35.1 20.9 10.5 6.3
Amortization of deferred
financing costs and
other expense.......... 13.6 10.1 7.9 3.8 4.4
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes.................. 50.7 63.3 201.6 82.6 102.5
Earnings before
extraordinary item..... 44.6 48.1 127.8 52.4 65.0
----------- ----------- ----------- ----------- -----------
Extraordinary loss(3)... -- (15.7) -- -- (14.0)
----------- ----------- ----------- ----------- -----------
Net earnings............ $ 44.6 $ 32.4 $ 127.8 $ 52.4 $ 51.0
=========== =========== =========== =========== ===========
Earnings (loss) per
common share before
extraordinary item(4).. $ (0.46) $ 0.64 $ 1.68 $ 0.69 $ 0.85
Net earnings (loss) per
common share(4)........ $ (0.46) $ 0.43 $ 1.68 $ 0.69 $ 0.67
Shares used in per share
calculation(5)......... 61,430,896 74,932,103 76,221,843 75,469,183 76,611,158
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------ -----------------
1994 1995 1996 1996 1997
------ -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL POSITION DA-
TA:
Working capital.................... $237.5 $ 227.7 $ 343.8 $ 260.0 $ 209.7
Total assets....................... 960.9 1,142.9 1,221.5 1,139.7 1,138.8
Total long-term debt (including
current portion)................... 290.0 195.0 163.2 175.0 37.5
Stockholders' equity(6)............ 295.5 390.2 540.3 457.1 533.4
</TABLE>
- --------
(1) The Company recognized a non-cash compensation charge of $60.6 ($38.5 net
of tax benefit) in the fourth quarter of 1995 and will recognize additional
amounts totalling $2.2 ($1.4 net of tax benefit) in the years 1996-2000,
resulting from the vesting of certain of the Company's outstanding employee
stock options at the time of the IPO.
(2) Acquisition-related intangibles were fully amortized at March 31, 1996.
(3) Represents extraordinary after-tax loss caused by early extinguishments of
debt related to the refinancing of the Company's term loan in April 1995
and prepayment of the Company's senior subordinated notes in March 1997.
(4) Earnings (loss) per common share are net of dividends of $11.8 paid on the
Company's redeemable senior preferred stock in 1994. Earnings attributable
to common stock in 1994 are also net of a $61.3 preferred stock redemption
premium related to the exchange of redeemable senior preferred stock for
Class A Common Stock on December 30, 1994. No senior preferred stock is
currently outstanding.
(5) Earnings (loss) per common share is determined by dividing the net earnings
(loss) attributable to common stock by the weighted average number of
common shares outstanding. The earnings (loss) attributable to common stock
is determined by deducting preferred stock dividends and any preferred
stock redemption premium from net earnings. The weighted average number of
common shares outstanding in 1994 has been increased by 2,577,480 shares to
give effect to the assumption that all stock, including Class A Common
Stock issued upon the exchange of redeemable senior preferred stock
described in note (4) above, and stock options issued within one year of
the filing of the IPO were outstanding for all years presented, even though
their impact is antidilutive. The number of such shares assumed to be
outstanding is calculated using the treasury stock method based on the IPO
price of $20 per share. Outstanding options, warrants and other potentially
dilutive securities not issued within one year of the filing of the IPO
have been given no effect for the full year 1994, as the result would be
antidilutive.
(6) Redeemable senior preferred stock with a liquidation preference of $85.0
was exchanged for 9,750,000 shares of Class A Common Stock on December 30,
1994. As of June 30, 1997, the Company had repurchased 2,093,514 shares of
Class A Common Stock in the open market for an aggregate cost of
approximately $50 million.
10
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors
relating to the Company and the Offerings, together with the information and
financial data set forth elsewhere in this Prospectus, prior to making an
investment decision.
COMPETITION
The markets for printers and associated supplies are highly competitive,
especially with respect to pricing and the introduction of new products and
features. The office desktop laser printer market is dominated by HP, which
has a widely recognized brand name and has been estimated to have an
approximate 65% to 70% market share. Several other large manufacturers such as
Canon, Inc. ("Canon"), Apple Computer, Inc. ("Apple"), Xerox Corporation
("Xerox") and IBM also compete in the office desktop laser printer market. See
"--IBM Relationship" and "Business--IBM Relationship".
The Company's strategy is to target fast growing segments of the office
desktop printer market and to increase market share by providing high quality,
technologically advanced products at competitive prices. This strategy
requires that the Company continue to develop and market new and innovative
products at competitive prices. New product announcements by HP and the
Company's other principal competitors, however, can have and in the past have
had a material adverse effect on the Company's financial results. Such new
product announcements can quickly undermine any technological competitive edge
that one manufacturer may enjoy over another and set new market standards for
quality, speed and function. Knowledge in the marketplace about pending new
product announcements by the Company's competitors may also have a material
adverse effect on the Company inasmuch as purchasers of printers may defer
purchasing decisions until the announcement and subsequent testing of such new
products.
In recent years, the Company and its principal competitors, all of which
have significantly greater financial, marketing and technological resources
than the Company, have regularly lowered prices on printers and are expected
to continue to do so. The Company is vulnerable to these pricing pressures
which, if not mitigated by cost and expense reductions, may result in lower
profitability and could jeopardize the Company's ability to increase or
maintain market share and build an installed base of Lexmark printers. See
"Business--Competition--Printers and Associated Supplies". The Company expects
that, as it competes more successfully with its larger competitors, the
Company's increased market presence may attract more frequent challenges, both
legal and commercial, from its competitors, including claims of possible
intellectual property infringement.
HP is also the market leader in the personal color inkjet printer market
and, with Canon and Seiko Epson Corporation ("Epson"), has been estimated to
account for approximately 80% to 90% of worldwide personal color inkjet
printer sales. As with laser printers, if pricing pressures are not mitigated
by cost and expense reductions, the Company's ability to maintain or build
market share and its profitability could be adversely affected. In addition,
as a relatively new entrant to the retail marketplace with a less widely
recognized brand name, the Company must compete with HP, Canon and Epson for
retail shelf space for its inkjet printers. There can be no assurance that the
Company will be able to continue to penetrate the retail or OEM marketplace.
Like certain of its competitors (including Xerox), the Company is a supplier
of after-market laser cartridges for laser printers utilizing certain models
of Canon engines. There is no assurance that the Company will be able to
compete effectively for a share of the after-market cartridge business for the
installed base of competitors' laser printers. The Company's participation in
this market may have an adverse effect on the Company's relations with certain
of its suppliers. Although Lexmark is currently the exclusive supplier of new
print cartridges for its laser printers, there can be no assurance that other
companies will not develop new compatible cartridges for Lexmark laser
printers. In addition, refill and
11
<PAGE>
remanufactured alternatives for the Company's laser and inkjet cartridges are
available from independent suppliers and, although generally offering lower
print quality, compete with the Company's supplies business. As the installed
base of laser and inkjet printers grows and ages, the Company expects
competitive refill and remanufacturing activity to increase. See "Business--
Competition".
IBM RELATIONSHIP
In connection with the Acquisition, IBM entered into numerous agreements
with the Company to support the Company's operations for a five-year term,
including an IBM agreement not to compete with the Company's products. These
agreements expired on March 27, 1996. IBM accounted for approximately 22%,
20%, 8% and 5% of the Company's consolidated revenues in 1994, 1995, 1996 and
the six months ended June 30, 1997, respectively. When keyboard sales to IBM
are excluded, IBM accounted for revenues of approximately 12%, 12%, 7% and 5%
in 1994, 1995, 1996 and the six months ended June 30, 1997, respectively.
As a result of new agreements with IBM which generally became effective on
March 27, 1996, the Company's sales of IBM-branded printer supplies,
typewriters and typewriter supplies have been less profitable. These new
arrangements provide for the Company to pay IBM a share of its profits on
certain sales of IBM-branded products and to pay IBM royalties for the use of
its logo on typewriters, typewriter supplies and other IBM-branded supplies.
Since these new arrangements became effective on March 27, 1996, the Company
estimates that operating income has been reduced approximately $7 million to
$9 million a quarter. See "Business--IBM Relationship".
CHANGING TECHNOLOGIES
To compete effectively in the printer and associated supplies markets, the
Company must continue to introduce new products and features that address the
needs and preferences of its target markets. The printer market is
characterized by short product development cycles that are driven by rapidly
changing technology and consumer preferences as well as declining product
prices. There can be no assurance that the Company will be able to continue to
introduce new competitively priced products, that the market will be receptive
to its new products or features or that its competitors will not introduce
advancements ahead of Lexmark. Furthermore, there can be no assurance that the
Company will have access to new competitive technology to permit it to
introduce new products and features for its target markets. In addition, the
Company must make strategic decisions from time to time as to which new
technologies will produce products in market segments that will experience the
greatest future growth. If the Company is not successful in continuing to
introduce new products in the growing segments of the market, there could be a
material adverse effect on the Company's business and financial results.
OTHER OFFICE IMAGING PRODUCTS
The Company's traditional other office imaging products business includes
consumable supplies for IBM and other OEM products, typewriters and typewriter
supplies. This business accounted for 28%, 23%, 22% and 21% of the Company's
revenues in 1994, 1995, 1996 and six months ended June 30, 1997, respectively.
Although the Company is less dependent on revenue and profitability from its
other office imaging products business than it has been historically and
intends to focus on the growing portions of that market, such as the after-
market laser cartridge supplies category, there is no assurance that the
Company will be able to compete in the after-market supplies business
effectively or that the declining market areas in its other office imaging
products business will not adversely affect the Company's operating results.
KEY SUPPLIES AND SUPPLIERS
The Company procures a wide variety of components for the manufacture of its
products, some of which are sourced from preferred suppliers. The Company
generally must place commitments for
12
<PAGE>
its projected component needs approximately three to six months in advance and
may face capacity constraints when there has been more demand for its printers
and associated supplies than initially projected. Certain finished products,
certain print engines and certain components of the Company's products are
only available from one supplier and should such products, print engines and
components not be available, there can be no assurance that production of the
Company's products would not be disrupted for significant periods of time or
that certain of the Company's products would be available. Such a disruption
could interfere with the Company's ability to manufacture and sell products
and materially adversely affect the Company's financial results. See
"Business--Raw Materials".
DEPENDENCE ON KEY PERSONNEL
As is typical of technology based companies, the Company is dependent on
certain key personnel, including senior members of its research and
development staff. The future success of the Company's research and
development efforts depends on its continuing ability to attract and retain
highly qualified technical personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The loss of the services of such key
personnel, or the inability to attract additional qualified personnel, could
have a material adverse effect on the Company's business.
INTERNATIONAL OPERATIONS
Revenues from international operations, including exports from the United
States, represent approximately half of consolidated revenues, with European
revenues accounting for about 69% of international revenues. Currency
translation has significantly affected international revenues and cost of
revenues and had a slightly unfavorable impact on operating income in 1996 and
the first six months of 1997. Although the Company manages its net exposure to
exchange rate fluctuations through operational hedges, such as pricing actions
and product sourcing changes, and financial instruments, such as forward
exchange contracts and currency options, there can be no assurances that
currency fluctuations will not have a material impact on operating income in
the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Effect of Currency Exchange Rates and Exchange Rate
Risk Management". As the Company's international operations continue to grow,
more management effort will be required to focus on the operation and
expansion of the Company's global business and to manage the cultural,
language and legal differences inherent in international operations. In
addition, the Company believes that international operations in new geographic
markets will be less profitable than operations in U.S. and European markets
as a result, in part, of the higher investment levels for marketing, selling
and distribution required to enter these markets.
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends in part on its ability to obtain patents,
copyrights and trademarks, maintain trade secret protection and operate
without infringing the proprietary rights of others.
As is typical in technology industries, the Company receives notices from
time to time by third parties claiming infringement of certain patent and/or
other intellectual property rights of others. As the Company competes more
successfully with its larger competitors, the Company's increased market
presence may attract more frequent legal challenges from its competitors,
including claims of intellectual property infringement and other intellectual
property disputes. If the Company were infringing the intellectual property
rights of others and were unable to obtain licenses to use the protected
technology, the Company could incur substantial costs to redesign its products
or to defend against infringement actions. The Company's inability to obtain
such licenses on favorable terms or a finding of infringement could have a
material adverse effect on the Company. In October 1996, the Company entered
into a new patent cross-license agreement with HP which resolved issues of
patent infringement that had been raised by both companies. See "Business--
Intellectual Property".
13
<PAGE>
In addition, the Company also relies on trade secrets, technical know-how
and other unpatented proprietary information relating to its product
development and manufacturing activities which it seeks to protect, in part,
through confidentiality agreements. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any such breach or that the Company's trade secrets and know-how will not
otherwise become known or independently discovered by others. The Company
could also incur significant expenses in enforcing its intellectual property
rights against others. See "Business--Intellectual Property".
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
Part of the Company's business strategy is to expand its business through
the acquisition of related businesses. There can be no assurance that suitable
acquisitions can be accomplished on terms favorable to the Company. Further,
there can be no assurance that the Company will be able to operate profitably
any businesses or other assets it may acquire, effectively integrate the
operations of such acquisitions or otherwise achieve the intended benefits of
such acquisitions.
PRINCIPAL STOCKHOLDER
Upon completion of the Offerings, C&D Fund IV, a private investment fund
managed by CD&R, will own approximately 12% of the then outstanding Common
Stock (approximately 11% on a fully diluted basis assuming the exercise of all
outstanding options) and will retain the power to significantly influence the
Company's corporate policies, the persons constituting its management and
Board of Directors and the outcome of corporate actions requiring stockholder
approval. Two of the Company's eleven directors are principals of CD&R. See
"Management--Directors and Executive Officers" and "Certain Transactions and
Relationships".
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
Although the Offerings will not constitute a "change of control", several of
the patent cross-licenses that the Company considers to be material to its
business, including those that permit the Company to manufacture its current
design of laser and inkjet printers and after-market laser cartridges for OEM
printers, terminate as to future products upon certain "changes of control" of
the Company. Similarly, a trademark license agreement and other agreements
entered into by the Company with IBM permit IBM to terminate those agreements
upon certain "changes of control" of the Company. Although the definition of
"change of control" in the Company's cross-licenses and trademark license
agreement vary from agreement to agreement, generally in order for a "change
of control" to occur under such agreements either (a) more than 50% of the
voting stock of the Company must be acquired by an unaffiliated party which,
in some instances, must be engaged in the business of manufacturing or
marketing printers or related products or (b) a third party must obtain the
power to control or direct the affairs of the Company, either through the
ownership of voting stock or otherwise, except that a change of control can be
deemed to occur, in very limited circumstances, upon an acquisition of
substantially less than 50% of the Company's voting shares. Such provisions
could discourage potential acquirors from making a bid to acquire control of
the Company. See "Business--IBM Relationship" and "Business--Intellectual
Property".
RESTRICTIONS IMPOSED BY LENDERS
The discretion of the Company's management with respect to certain business
matters is limited by covenants in the Company's senior credit facility and
other debt instruments. Such covenants include, among other things,
limitations on the acquisition of new businesses, the sale of assets, fixed
charge coverage ratios, the incurrence of additional debt and the payment of
dividends. For a discussion of how these covenants may affect the Company's
sources of liquidity and capital expenditure plans, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources".
14
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, approximately 13,004,237 shares of the
outstanding Class A Common Stock and (based upon shares outstanding at
September 30, 1997) approximately 379,493 shares of the outstanding Class B
Common Stock will constitute "restricted" securities, within the meaning of
Rule 144 under the Securities Act, that are not publicly traded. All of these
restricted outstanding shares are eligible for sale into the public market
pursuant to Rule 144 under the Securities Act, and approximately 32% of these
restricted shares are eligible for sale into the public market without regard
to the volume limit and certain other requirements of Rule 144. In addition,
upon completion of the Offerings, approximately 6,923,578 shares of Class A
Common Stock will be issuable upon the exercise of outstanding stock options
(vested and unvested). The holders of nearly all of the restricted shares of
Class A Common Stock have agreed to restrict public sales of such shares for
90 days after the date of this Prospectus. Sales of substantial amounts of
Class A Common Stock, or the perception that such sales could occur at the
expiration of such 90-day period, may materially adversely affect the market
price of the Class A Common Stock prevailing from time to time. In addition,
under the Registration and Participation Agreement, dated as of March 27, 1991
(as amended, the "Registration and Participation Agreement"), among the
Company, C&D Fund IV and original or certain other stockholders of the
Company, the Company's original or certain other stockholders have certain
demand and "piggy-back" registration rights in connection with future
offerings of Class A Common Stock which may be exercised after the expiration
of the 90-day holdback period. See "Shares Eligible for Future Sale" and
"Underwriting".
DILUTION
Purchasers of Class A Common Stock in the Offerings will experience
immediate and substantial dilution in the net tangible book value of their
Class A Common Stock. At an initial public offering price of $31.125 per
share, based on net tangible book value as of June 30, 1997, purchasers of
shares in the Offerings will experience dilution in net tangible book value of
$23.52 per share.
15
<PAGE>
PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDEND POLICY
Since November 15, 1995, as part of the Company's IPO, the Class A Common
Stock has been traded on the NYSE under the symbol "LXK". The following table
sets forth the high and low reported sale prices for the Class A Common Stock
as quoted by the NYSE for the periods indicated.
<TABLE>
<CAPTION>
MARKET PRICE
------------- ---
<S> <C> <C> <C>
HIGH LOW
------ ------
1995
Fourth Quarter (from November 15, 1995).................... $22.38 $15.50
1996
First Quarter.............................................. $23.25 $16.00
Second Quarter............................................. $23.13 $17.88
Third Quarter.............................................. $20.88 $13.38
Fourth Quarter............................................. $27.75 $18.88
1997
First Quarter.............................................. $29.63 $22.00
Second Quarter............................................. $30.50 $19.13
Third Quarter.............................................. $36.31 $26.88
Fourth Quarter (through October 9, 1997)................... $33.06 $30.63
</TABLE>
The last reported sale price for the Class A Common Stock by the NYSE on
October 9, 1997 was $31.00 per share. As of September 30, 1997 the Company had
approximately 69,991,581 shares of Class A Common Stock outstanding (excluding
3,221,414 shares held in treasury) and 682,723 shares of Class B Common Stock
outstanding. As of September 30, 1997, there were approximately 1,177 holders
of record of the Class A Common Stock, and five holders of record of the Class
B Common Stock.
The Company has never declared or paid any dividends on the Class A Common
Stock and has no current plans to pay dividends on the Class A Common Stock.
The Company presently intends to retain earnings to support the growth of the
Company's business. The payment of any future dividends will be determined by
the Board of Directors in light of conditions then existing, including the
Company's earnings, financial condition and capital requirements, restrictions
in financing agreements, business conditions, certain corporate law
requirements and other factors.
The Company is a holding company and thus its ability to pay dividends on
the Class A Common Stock depends on the Company's subsidiaries' ability to pay
dividends to the Company. The Company's financing agreements generally
restrict the payment of dividends by the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".
16
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents,
short-term debt and capitalization of the Company as of June 30, 1997. This
table should be read in conjunction with the Consolidated Financial Statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
(IN MILLIONS)
<S> <C>
CASH AND CASH EQUIVALENTS........................................ $ 39.1
======
SHORT-TERM DEBT:
Short-term debt................................................ $ 69.5
Current portion of long-term debt.............................. 12.1
------
Total short-term debt........................................ 81.6
======
LONG-TERM DEBT, LESS CURRENT PORTION:
Term loan...................................................... $ 25.0
Other.......................................................... 0.4
------
Total long-term debt......................................... 25.4
STOCKHOLDERS' EQUITY(1):
Preferred stock, $.01 par value, 1,600,000 shares authorized,
no
shares outstanding............................................ --
Class A common stock, $.01 par value, 160,000,000 shares autho-
rized,
70,108,382 outstanding........................................ 0.7
Class B common stock, $.01 par value, 10,000,000 shares autho-
rized,
1,307,923 outstanding......................................... --
Additional paid-in capital..................................... 526.8
Retained earnings.............................................. 70.8
Accumulated translation adjustment............................. (15.4)
Treasury stock, at cost........................................ (49.5)
------
Total stockholders' equity................................... 533.4
------
Total capitalization......................................... $558.8
======
</TABLE>
- --------
(1) In April 1996, the Company's board of directors authorized the repurchase
of up to $50 million of its Class A Common Stock. In May 1997, the
Company's board of directors authorized the repurchase of an additional
$150 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 June 30, 1997, the Company had repurchased
2,093,514 shares in the open market at prices ranging from $21.25 to
$27.50 per share for an aggregate cost of approximately $50 million. 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 $200 million of its Class A Common Stock. Subsequent
to June 30, 1997, through September 30, 1997, the Company repurchased an
additional 1,127,900 shares in the open market at prices ranging from
$30.38 to $33.75 per share for an aggregate cost of approximately $36
million.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT SHARE DATA)
The following table sets forth selected financial data of the Company on a
consolidated basis. The statement of operations data for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 and the statement of financial
position data as of December 31, 1992, 1993, 1994, 1995 and 1996 were derived
from the audited Consolidated Financial Statements of the Company. The
statement of operations data for the six months ended June 30, 1996 and 1997
and the statement of financial position data as of June 30, 1996 and 1997 were
derived from the unaudited consolidated financial statements of the Company
and include, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations and financial position as of and for such periods. Results of
operations for the six months ended June 30, 1997 are not necessarily
indicative of results for the full year or for any future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- ---------------------
1992 1993 1994 1995(1) 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 1,763.9 $ 1,675.7 $ 1,852.3 $ 2,157.8 $ 2,377.6 $ 1,143.1 $ 1,139.7
Cost of revenues........ 1,130.5 1,107.4 1,298.8 1,487.9 1,630.2 788.5 746.5
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............ 633.4 568.3 553.5 669.9 747.4 354.6 393.2
Research and
development............. 135.7 111.7 101.0 116.1 123.9 63.5 62.4
Selling, general and
administrative......... 367.9 322.0 292.9 359.1 388.0 189.1 217.6
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income before
option compensation
related to IPO and
amortization of
intangibles............ 129.8 134.6 159.6 194.7 235.5 102.0 113.2
Option compensation
related to IPO......... -- -- -- 60.6 -- -- --
Amortization of
intangibles(2)......... 89.2 64.0 44.7 25.6 5.1 5.1 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income(3)..... 40.6 70.6 114.9 108.5 230.4 96.9 113.2
Interest expense........ 70.7 63.9 50.6 35.1 20.9 10.5 6.3
Amortization of deferred
financing costs and
other expense.......... 16.5 13.1 13.6 10.1 7.9 3.8 4.4
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
income taxes........... (46.6) (6.4) 50.7 63.3 201.6 82.6 102.5
Provision for income
taxes.................. 10.7 3.0 6.1 15.2 73.8 30.2 37.5
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
extraordinary item..... (57.3) (9.4) 44.6 48.1 127.8 52.4 65.0
Extraordinary loss(4)... -- -- -- (15.7) -- -- (14.0)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)..... $ (57.3) $ (9.4) $ 44.6 $ 32.4 $ 127.8 $ 52.4 $ 51.0
========== ========== ========== ========== ========== ========== ==========
Earnings (loss) per
common share before
extraordinary item(5).. $ (1.12) $ (0.34) $ (0.46) $ 0.64 $ 1.68 $ 0.69 $ 0.85
Net earnings (loss) per
common share(5)........ $ (1.12) $ (0.34) $ (0.46) $ 0.43 $ 1.68 $ 0.69 $ 0.67
Shares used in per share
calculation(6)......... 61,419,631 61,458,241 61,430,896 74,932,103 76,221,843 75,469,183 76,611,158
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- ------ -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL
POSITION DATA:
Working capital......... $ 347.5 $ 293.6 $237.5 $ 227.7 $ 343.8 $ 260.0 $ 209.7
Total assets............ 1,440.2 1,215.0 960.9 1,142.9 1,221.5 1,139.7 1,138.8
Total long-term debt
(including current
portion)................ 759.2 650.7 290.0 195.0 163.2 175.0 37.5
Redeemable senior
preferred stock(7)...... 85.0 85.0 -- -- -- -- --
Stockholders'
equity(7)............... 197.4 173.7 295.5 390.2 540.3 457.1 533.4
</TABLE>
- --------
(1) The Company recognized a non-cash compensation charge of $60.6 ($38.5 net
of tax benefit) in the fourth quarter of 1995 and will recognize
additional amounts totalling $2.2 ($1.4 net of tax benefit) in the years
1996-2000, resulting from the vesting of certain of the Company's
outstanding employee stock options at the time of the IPO.
(2) Acquisition-related intangibles were fully amortized at March 31, 1996.
(3) Operating income in 1992 is net of a $40.0 provision related to the
Company's restructuring of its operations.
(4) Represents extraordinary after-tax loss caused by early extinguishments of
debt related to the refinancing of the Company's term loan in April 1995
and prepayment of the Company's senior subordinated notes in March 1997.
(5) Earnings (loss) per common share are net of dividends of $11.5, $11.5 and
$11.8 paid on the Company's redeemable senior preferred stock in 1992,
1993 and 1994, respectively. Earnings attributable to common stock in 1994
are also net of a $61.3 preferred stock redemption premium related to the
exchange of redeemable senior preferred stock for Class A Common Stock on
December 30, 1994. No senior preferred stock is currently outstanding.
(6) Earnings (loss) per common share is determined by dividing the earnings
(loss) attributable to common stock by the weighted average number of
common shares outstanding. The earnings (loss) attributable to common
stock is determined by deducting preferred stock dividends and preferred
stock redemption premium from net earnings (loss). The weighted average
number of common shares outstanding in each year from 1992 to 1994 has
been increased by 2,577,480 shares to give effect to the assumption that
all stock, including Class A Common Stock issued upon the exchange of
redeemable senior preferred stock for Class A Common Stock described in
note (5) above, and stock options issued within one year of the filing of
the IPO were outstanding for all years presented, even though their impact
is antidilutive. The number of such shares assumed to be outstanding is
calculated using the treasury stock method based on the IPO price of $20
per share. Outstanding options, warrants and other potentially dilutive
securities not issued within one year of the filing of the IPO have been
given no effect in the full years 1992 to 1994, as the result would be
antidilutive.
(7) Redeemable senior preferred stock with a liquidation preference of $85.0
was exchanged for 9,750,000 shares of Class A Common Stock on December 30,
1994. As of June 30, 1997, the Company had repurchased 2,093,514 shares of
Class A Common Stock in the open market for an aggregate cost of
approximately $50 million.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is a global developer, manufacturer and supplier of laser and
inkjet printers and associated consumable supplies. The Company also sells dot
matrix printers for printing single and multi-part forms by business users.
The Company's core printer business targets the office and home markets. In
addition to its core printer business, Lexmark develops, manufactures and
markets a broad line of other office imaging products which include supplies
for IBM-branded printers, after-market supplies for other OEM products, and
typewriters and typewriter supplies that are sold under the IBM trademark. The
Company's "keyboards and other" product category was phased out by the end of
the first quarter of 1996.
In the past few years, the worldwide printer industry has seen substantial
growth in demand for laser and inkjet printers as a result of increasing
penetration of personal computers into the office and home markets. During
this period, the Company's own product mix has evolved, with its laser and
inkjet printers and associated supplies representing an increasingly larger
percentage of its sales volume and revenues, particularly as the increasing
base of installed Lexmark printers generates additional revenues from
recurring sales of the Company's supplies for those printers (primarily laser
and inkjet cartridges).
The following table sets forth, for the periods indicated, revenues for each
major product category (dollars in millions, unaudited):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
% % % % %
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
REVENUES:
Printers and associated
supplies............... $1,083 58% $1,478 69% $1,832 77% $845 74% $900 79%
Other office imaging
products............... 513 28 501 23 513 22 265 23 240 21
Keyboards and other..... 256 14 179 8 33 1 33 3 -- --
------ ----- ------ ----- ------ ----- ------ ----- ------ ----
Total revenues.......... $1,852 100% $2,158 100% $2,378 100% $1,143 100% $1,140 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
TRENDS
The Company's revenues from printers and associated supplies, which is the
Company's core business, increased by 36% from 1994 to 1995, 24% from 1995 to
1996 and by 6% from the first six months of 1996 to the first six months of
1997. Most of this growth was derived from increasing sales of laser and
inkjet printers and printer cartridge supplies, offset in part by reduced
demand for dot matrix printers which depend on older impact-printing
technology.
The Company believes that its total revenue will continue to grow due to
overall market growth and increases in the Company's market share in both the
network and color inkjet segments. Management believes this growth will more
than offset reduced demand for dot matrix impact printers, and the
discontinuance of the Company's keyboard product line.
20
<PAGE>
In recent years, the Company's growth rate in sales of printer units
generally exceeded the growth rate of its printer revenues due to price
pressures and the introduction of new lower priced products in both the laser
and inkjet printer markets. In the laser printer market, unit price pressure
is partially offset by the tendency of customers to move up to higher price
printer models with faster speeds, greater network connectivity and other new
features. In the inkjet printer market, advances in color inkjet technology
have resulted in lower prices for printers with sharper resolution and
improved performance. The greater affordability of color inkjet printers has
been an important factor in the recent growth of this market.
The Company manufactures and sells its own brand of supplies that are
designed to optimize the performance of its various printers. In the case of
its laser and inkjet printers, the Company is the exclusive source of new,
replacement printer cartridges. Supplies for the Company's printers generally
face significantly less competitive price pressure than the printer units, and
the Company expects greater sales of its supplies as the installed base of its
printers increases.
The Company's other office imaging products category includes many mature
products, such as supplies for IBM printers, typewriters and typewriter
supplies and other impact supplies, that require little investment but provide
a significant source of cash flow. The markets for most of these products are
declining as non-impact printers replace typewriters and impact printers
currently in service. The Company believes this trend will continue, resulting
in a continued decline in revenues from these products. In addition, as a
result of the Company's new arrangement with IBM to share the profit on
supplies for some existing IBM-branded products and to pay a royalty on IBM-
branded typewriters and typewriter supplies and certain other IBM-branded
supplies, profitability from sales of those products has been reduced, and the
Company expects this trend to continue. Although the Company and IBM have
entered into a number of new agreements, which extend some of the original
agreements (although on less favorable terms) and provide for an ongoing
relationship in other areas, management expects that future revenue and profit
attributable to sales to IBM will continue to decline. Since these new
arrangements became effective on March 27, 1996, the Company estimates that
operating income has been reduced approximately $7 million to $9 million a
quarter. See "Risk Factors--IBM Relationship" and "Business--IBM
Relationship". The Company will attempt to mitigate the effect of the decline
in sales of typewriters and impact printing supplies through the introduction
of new supplies products for non-impact technologies, such as after-market
laser cartridges, where management believes the market will grow. Lexmark
introduced its first after-market laser cartridges in May 1995 for the large
installed base of a range of laser printers sold by other manufacturers. The
Company's strategy for other office imaging products is to pursue the after-
market OEM laser supplies opportunity while at the same time managing its
mature businesses for cash flow.
The Company expects that its overall margins will remain relatively stable
as its associated printer supplies business becomes an increasingly larger
part of its business, offsetting the decline in the Company's other office
imaging products supplies business and the phase-out of its lower margin
keyboard business.
21
<PAGE>
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected in the Company's
Statements of Operations:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------
1994 1995 1996 1996 1997
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues.............................. 100% 100% 100% 100% 100%
Cost of revenues...................... 70 69 69 69 65
------- ------- ------- ----- -----
Gross profit.......................... 30 31 31 31 35
Research and development.............. 6 5 5 5 6
Selling, general and administrative... 16 17 16 17 19
------- ------- ------- ----- -----
Operating income before option
compensation related to IPO and
amortization of intangibles.......... 8 9 10 9 10
Option compensation related to IPO.... -- 3 -- -- --
Amortization of intangibles........... 2 1 -- -- --
------- ------- ------- ----- -----
Operating income...................... 6% 5% 10% 9% 10%
======= ======= ======= ===== =====
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
For the six months ended June 30, 1997, consolidated revenues were $1,140
million, a slight decrease from the same period of 1996. Printers and
associated supplies revenues were $900 million, an increase of 6% from 1996.
Revenues from other office imaging products were $240 million, a decrease of
9% from 1996. Excluding the keyboard business in 1996, revenues for the first
six months of 1997 were up $30 million or 3% from 1996. Total U.S. revenues
were down $54 million or 9%, and international revenues were up $51 million or
10%.
The Company made two major product announcements during the second quarter
of 1997 with the Optra S family of monochrome and color laser printers and the
7000 Color Jetprinter. Even though the product line was in transition, printer
volumes grew at double-digit rates and associated printer supplies revenues
have increased compared to the first half of 1996 due to the continued growth
of the Company's installed printer base. However, revenues, operating income
and earnings were affected by lower prices and price protection to the
Company's product distribution channels on Lexmark's predecessor printers held
in their inventory. In the second quarter, competitors reduced prices up to
20% on their laser printers. Prices were reduced on the Company's predecessor
Optra product line which accounted for the majority of the network laser
printers sold in the second quarter. Revenues were also adversely affected by
lower foreign currency rates. Unfavorable foreign currency translation effects
on revenue were $42 million for the six months ended June 30, 1997, due to the
strengthening of the U.S. dollar.
For the six months ended June 30, 1997, consolidated gross profit was $393
million, an increase of 11% over the corresponding period of 1996. This was
mainly driven by margin improvements in printers and associated supplies.
Gross profit as a percentage of revenues increased to 35% from 31% in 1996.
Gross profit attributable to printers and associated supplies increased 17%,
primarily due to growth in associated consumable supplies and product cost
reductions.
Total operating expenses increased 9% in the first six months of 1997,
compared to the same period of 1996. Expenses as a percentage of revenues for
the first six months were 25% compared to 23% for the same period of 1996.
This increase versus 1996 principally reflects increased marketing
22
<PAGE>
and sales efforts in support of new product announcements and marketing
investments to drive printer growth.
Consolidated operating income was $113 million for the six months ended June
30, 1997, an increase of 17% over the corresponding period of 1996. This
increase was due principally to growth in associated consumable supplies,
product cost reductions and the absence of amortization of intangibles, which
were fully amortized in the first quarter of 1996.
Earnings before extraordinary item were $65 million for the first six months
of 1997, up 24% over the corresponding period of 1996, principally due to the
operating performance and lower interest expense as a result of lower debt
levels and lower interest rates. The income tax provision was approximately
37% of earnings before tax for the first six months of 1997 and 1996. Earnings
per share before extraordinary item were $0.85 for the six months ended June
30, 1997, compared to $0.69 for the same period of 1996, an increase of 22%.
Net earnings for the first six months of 1997 were $51 million, a decrease
of 3% compared to the same period of 1996, due to an extraordinary charge of
$22 million ($14 million net of tax benefit) caused by the prepayment premium
and other fees associated with the prepayment of the Company's senior
subordinated notes in the first quarter of 1997. Net earnings per share were
$0.67 for the six months ended June 30, 1997, compared to $0.69 for the same
period of 1996, a decrease of 4%.
Looking forward, it is anticipated that operating income margins will be
maintained in the second half of 1997 compared to the first half. The
previously mentioned new product introductions of the Optra S family of
monochrome and color laser printers and the 7000 Color Jetprinter, along with
the Company's 3000 Color Jetprinter and the 1000 Color Jetprinter, are
expected to contribute to continued growth in printer unit volumes and drive
profit growth from consumables. It is expected that consumables revenues will
also be aided by the new high-yield Optra S "Prebate" laser cartridge
marketing program. The Prebate cartridge provides Lexmark customers with an
up-front discount compared to the price of a standard cartridge. The Prebate
cartridge is sold with a license for a one-time use and empty Prebate
cartridges can be returned easily to Lexmark for recycling at no cost to the
consumer.
1996 COMPARED TO 1995
Consolidated revenues in 1996 were $2,378 million, an increase of 10% over
1995. Printers and associated supplies revenues were $1,832 million, an
increase of 24%, and revenues from other office imaging products were $513
million, an increase of 2%. The transition out of the keyboard business was
completed in March 1996 and, excluding this business, revenues were up $365
million or 18%. Total U.S. revenues increased $10 million or 1%, and excluding
the keyboard business, were up 14%. International revenues were up $210
million, or 24%.
The increase in consolidated revenues was principally due to growth in the
core printer and associated supplies business. Hardware volumes showed
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 1996 compared to 1995.
Revenues from other office imaging products increased primarily due to the
growth of the after-market laser cartridge business, which more than offset
the declines in the traditional IBM-branded supplies business.
The color inkjet market, the fastest growing segment of the personal printer
market, is expanding rapidly due to growth in personal computers and home
offices, and the development of easy-to-use
23
<PAGE>
color inkjet technology with good quality color print capability at low
prices. Lexmark introduced its first color inkjet printer using its own
technology in 1994 and has experienced strong sales growth through retail
outlets. The Company has increased its product distribution through retail
outlets, with the number of such outlets worldwide rising from approximately
5,000 retail outlets in 1995 to more than 15,000 in 1996. The Company has made
substantial capital investments in its inkjet production capacity in 1995 and
1996 to address the growing demand for its color inkjet products.
The Company's laser printers primarily compete in the office desktop
segment, which the Company believes is one of the fastest growing segments of
the laser printer market. Office desktop laser printer growth is being driven
by the office migration from large mainframe computers to local area networks
that link various types of computers using a variety of protocols and
operating systems.
The Company's installed base of printers supports a large and profitable
printer supplies business. Because consumable supplies must be replaced on
average one to three times a year, depending on type of printer and usage,
demand for laser and inkjet print cartridges is increasing at a higher rate
than their associated printer shipments. The Company expects this recurring
and relatively high margin business to contribute to the stability of the
Company's earnings over time.
Consolidated gross profit was $747 million for 1996, an increase of 12% from
1995, principally due to increased printer and associated supplies volumes,
lower costs through better 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 was 31.4% in 1996, slightly better than 31.0% in
1995.
Gross profit attributable to printers and associated supplies increased 25%,
principally due to higher revenues and the mix of these revenues. Gross profit
margin held steady as competitive price pressures on printers were offset by
lower costs and growth in the higher margin associated consumable supplies.
Total operating expenses decreased 8% for 1996 compared to 1995. In 1995,
operating expenses included a non-cash option compensation charge of $61
million ($39 million net of tax benefit) recognized for certain of the
Company's outstanding employee stock options upon the consummation of the IPO.
Operating expense comparisons were also affected by amortization of intangible
assets, which were fully amortized by March 1996. Excluding the 1995 non-cash
option compensation charge and the amortization of intangibles, operating
expenses as a percentage of revenues were 21.5% in 1996 versus 22.0% in 1995.
Consolidated operating income was $230 million for 1996, an increase of 112%
over 1995. Excluding the non-cash option compensation charge and the
amortization of intangibles, consolidated operating income was up 21%. This
increase was due to stronger 1996 sales volumes and cost and expense controls.
Earnings before income taxes and extraordinary item were $202 million, up
218% over 1995 and up 63% before the non-cash option compensation charge
referred to above, principally due to the stronger operating performance and
lower interest expense as a result of lower debt levels and lower interest
rates.
The income tax provision was approximately 37% of earnings before tax for
1996 as compared to 24% in 1995. The effective tax rate for 1995 was favorably
impacted by research and development tax credits and the benefit of a foreign
sales corporation.
24
<PAGE>
Net earnings were $128 million, up 294%, and up 166% over earnings before
extraordinary item in 1995. Excluding the non-cash option compensation charge,
earnings before extraordinary item increased 48% to $128 million, up from $87
million in 1995. Net earnings per share were $1.68 for 1996, compared to
$0.43, or $0.64 before extraordinary item in 1995, an increase of 287% and
161%, respectively.
1995 COMPARED TO 1994
Consolidated revenues in 1995 were $2,158 million, an increase of 16% over
1994. Printers and associated supplies revenues were $1,478 million, an
increase of 36%, and revenues from other office imaging products were $501
million, a decrease of 2%. Total U.S. revenues increased $126 million or 11%,
and international revenues were up $180 million or 25%, primarily due to more
competitive products, improved marketing, more effective sales efforts, and
improved economic conditions in Europe. The strengthening of European
currencies in relation to the U.S. dollar contributed approximately $61
million to the increase.
The increase in printer and associated supplies revenues was principally due
to higher volumes, with associated supplies revenues growing at a faster rate
than printer hardware revenues. The increase in hardware volumes was primarily
driven by increased inkjet sales, as a result of the Company's entry into the
low-end color inkjet market with the ExecJet IIc in the third quarter of 1994,
and increased laser printer sales which experienced volume and market share
growth in the office desktop category.
Revenues from other office imaging products decreased due to lower
typewriter and impact printing supplies volumes, reflecting the continued
decline of these markets, and lower sales to IBM.
"Keyboards and other" revenues were $178 million, a decrease of 30%,
principally due to the Company's decision in the second half of 1994 to phase
out its notebook computer product line. In the third quarter of 1995, the
Company recorded a $15 million reserve for keyboard asset write-offs as a
result of the Company's decision to phase out its keyboard product line
following the expiration in March 1996 of the Company's keyboard agreement
with IBM and management's expectations that the keyboard industry would
continue to experience price declines resulting in low margins and a low
return on assets. Sales to IBM have accounted for substantially all of the
Company's keyboard sales, which totaled $201, $177 and $32 million in 1994,
1995 and 1996, respectively.
Consolidated gross profit was $670 million, an increase of 21% primarily due
to increased printer and associated supplies volumes. Gross profit as a
percentage of revenues increased slightly to 31%, reflecting the improved
profitability in 1995 of the keyboards and other business as a result of
phasing out the notebook computer product line during 1994. Gross profit
attributable to printers and associated supplies increased 36%, reflecting
increased volumes of both printers and associated supplies. Gross profit as a
percentage of revenues remained constant at 31%.
Operating expenses increased as a result of higher ongoing marketing and
selling expenses resulting from the expansion of retail and other channels in
the latter part of 1994 and higher research and development spending. These
increases were partially offset by lower amortization of intangibles acquired
in connection with the purchase of the Company. From its inception, the
Company's pre-tax earnings have been significantly impacted by the
amortization of intangibles. Unamortized intangibles related to the
Acquisition were approximately $5 million at December 31, 1995 and were fully
amortized by March 31, 1996.
Consolidated operating income was $109 million, a decrease of 6%. The $116
million increase in gross profit was more than offset by a non-cash option
compensation charge of $61 million ($39 million
25
<PAGE>
net of tax benefit) recognized for certain of the Company's outstanding
employee stock options upon the consummation of the IPO, and an additional $61
million increase in other operating expenses.
Earnings before extraordinary item were $48 million, up 8% over 1994,
principally due to lower interest expense primarily as a result of lower
average debt balances. The decrease in interest expense was partially offset
by an increase in the provision for income taxes to approximately 24% of
earnings before tax in 1995 as compared to 12% in 1994, which benefited from
the utilization of loss carryforwards. Had the Company not incurred the non-
cash option compensation charge in 1995, earnings before extraordinary item
would have been $87 million.
Net earnings were $32 million, a decrease of 27%, due to an extraordinary
charge of $22 million ($16 million net of tax benefit) caused by an early
extinguishment of debt related to the Company's refinancing of its term loan.
This charge reflects the write-off of deferred financing costs of $5 million
and the mark to market of hedging instruments of $17 million related to the
extinguished debt. The refinancing resulted in more flexible credit terms and
lower interest rates.
Earnings per common and common equivalent share were $0.43 in 1995, compared
to a net loss of $0.46 per share in 1994. Earnings per common and common
equivalent share were significantly impacted by unusual charges in 1995 and
1994. In 1995, net earnings were reduced by both the non-cash option
compensation charge incurred in connection with the IPO and the extraordinary
loss on extinguishment of debt. In 1994, a preferred stock redemption premium
reduced net earnings attributable to common stock by $61 million. This premium
was recognized as a result of the exchange of the Company's senior redeemable
preferred stock into Class A Common Stock in December 1994.
LIQUIDITY AND CAPITAL RESOURCES
Lexmark's primary source of liquidity has been cash generated by operations,
which totaled $362, $307, $118 and $76 million in 1994, 1995, 1996 and the six
months ended June 30, 1997, respectively. Cash from operations has been
sufficient to allow the Company to repay significant amounts of debt, fund the
Company's working capital needs and finance its capital expenditures during
these periods.
The decrease in cash provided by operating activities for 1996 over 1995
primarily reflects higher working capital requirements in support of sales
growth. Trade receivables were up principally due to higher revenues, while
accounts payable and accrued liabilities were down primarily due to timing of
payments. Cash from operations in 1996 was reduced by $21 million due to fewer
trade receivables being outstanding under the Company's trade receivables
financing programs than in 1995. Cash from operations was favorably impacted
by $25 million due to effective management of inventory levels. Cash from
operations in 1995 and 1994 was unusually high. Cash from operations for 1995
was favorably impacted by $30 million increased sales of trade receivables in
an accounts receivable financing program and increases in accounts payable and
accrued liabilities of $148 million primarily due to the timing of payments.
Cash generated by operations in 1994 was unusually high primarily due to $70
million in proceeds from an accounts receivable financing program, $42 million
in higher earnings before depreciation and amortization, lower working capital
levels, $27 million attributable to termination proceeds from certain IBM
contracts, and an $18 million tax refund from the carryback of 1993 losses.
The increase in cash provided by operating activities for the six months ended
June 30, 1997 as compared to the same period in 1996 primarily reflects the
sale of receivables under the trade accounts receivable programs, stronger
earnings before extraordinary loss and favorable changes in working capital
accounts.
In April 1995, the Company refinanced its $150 million term loan and $150
million revolving credit facility with a new $150 million term loan, which had
a balance of $37 million at June 30, 1997, and a $250 million revolving credit
facility, which had a balance of $65 million at June 30, 1997. The new
26
<PAGE>
term loan is to be repaid in equal quarterly installments of $12.5 million.
Due to an $18 million prepayment in the fourth quarter of 1996 and to $95
million of prepayments during the third and fourth quarters of 1995, the next
scheduled quarterly installment will be due on June 30, 1998. Any unpaid
borrowings under the revolving credit facility are due at the maturity of the
facility in January 1999. The revolving credit facility is available for
general corporate purposes, including acquisitions and share repurchases, and
is expected to be sufficient to meet the Company's working capital and capital
expenditure requirements. See "--Capital Expenditures".
As of June 30, 1997, the Company had other short term debt outstanding of
$4.5 million and other long-term debt outstanding of $0.5 million.
In March 1997, the Company prepaid its $120 million 14.25% senior
subordinated notes due in 2001. The prepayment resulted in an extraordinary
charge of $22 million ($14 million net of tax benefit) caused by a prepayment
premium and other fees.
In March 1997, the Company entered into three-year interest rate swaps with
a total notional amount of $60 million, whereby the Company pays interest at a
fixed rate of approximately 6.5% and receives interest at a floating rate
equal to the three-month London Interbank Offered Rate (LIBOR). The swaps
serve as a hedge of financings based on floating interest rates.
Through its hedging programs, the Company attempts to insulate a portion of
its foreign denominated cash flows from the impact of exchange rate
fluctuations. The Company utilizes interest rate/currency swaps and has
utilized interest rate caps to reduce its interest rate risks. Interest
expense incurred in connection with these instruments amounted to $10, $8, $1
and $0 million, respectively, for the years ended December 31, 1994, 1995,
1996 and the six months ended June 30, 1997.
Substantially all tangible and intangible assets of the Company (including
shares of capital stock of the Company's subsidiaries) serve as collateral for
the term loan and revolving credit facility. The credit agreement contains
customary default provisions, including a default upon a "change of control"
which includes the acquisition by one person or a related group of persons
(other than C&D Fund IV and IBM) of 25% or more of the Company's voting
securities unless C&D Fund IV owns a greater percentage of the Company's
voting securities than such person or related group. After the Offerings, C&D
Fund IV will hold approximately 12% of the Company's outstanding voting
securities. The credit agreement also contains certain net worth, leverage and
fixed charge coverage restrictions and other covenants which, among other
things, restrict the payment of dividends on common stock, incurrence of
additional debt, investments and joint ventures, repurchases of common stock,
mergers or consolidations and sales of assets. The Company was in compliance
with these requirements as of June 30, 1997.
In October 1995, 50,000 shares of junior preferred stock owned by the
Company's savings plan were exchanged for 750,000 shares of Class A Common
Stock. The junior preferred stock was then retired.
In December 1994, 850,000 shares of redeemable preferred stock with a
liquidation value of $85 million were exchanged for 9,750,000 shares of Class
A Common Stock with an estimated fair market value of $146 million at the date
of exchange. The resulting premium of $61 million is reflected in the 1994
loss per share calculation. As a result of the exchange, the Company will
avoid dividend payments totalling $101 million through 2003.
27
<PAGE>
The Company is party to an agreement to sell, on a limited recourse basis,
up to $100 million of its U.S. trade receivables under a revolving
arrangement. Proceeds from any such sales are available for general corporate
purposes. The initial proceeds in 1994 of $70 million from this program were
used to prepay term debt. At June 30, 1997, proceeds from the sale of trade
receivables of approximately $91 million remained outstanding. The agreement,
which contains net worth and fixed charge coverage restrictions similar to,
but less restrictive than, those in the credit agreement, must be renewed
annually, and was renewed in March 1997 with substantially the same financial
covenants as the previous agreement. This arrangement provides the Company
with lower cost funding than is currently available under its revolving credit
facility.
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 June 30, 1997, 22 million deutsche marks of receivables
(approximately $13 million at June 30, 1997 exchange rates) were outstanding
under this program and, as collections reduce previously sold receivables, the
Company may replenish these new receivables.
In April 1996, the Company's board of directors authorized the repurchase of
up to $50 million of its Class A Common Stock. In May 1997, the Company's
board of directors authorized the repurchase of an additional $150 million of
its Class A Common Stock. The repurchase authority allows the Company at
management's discretion 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. The Company's credit facilities were amended
to permit, among other things, the Company's repurchase of up to $200 million
of Class A Common Stock. As of June 30, 1997, the Company had repurchased
2,093,514 shares in the open market at prices ranging from $21.25 to $27.50
per share for an aggregate cost of approximately $50 million. Subsequent to
June 30, 1997, through September 30, 1997, the Company repurchased an
additional 1,127,900 shares in the open market at prices ranging from $30.38
to $33.75 per share for an aggregate cost of approximately $36 million.
CAPITAL EXPENDITURES
Capital expenditures totaled $58, $107, $145 and $31 million in 1994, 1995,
1996 and for the six months ended June 30, 1997, respectively. The decrease of
$38 million in capital expenditures for the first six months of 1997 compared
to the same period in 1996 is primarily due to the Company's 1996 expansion of
its inkjet printer products manufacturing capacity, including the conversion
of a Lexington facility and the establishment of facilities in Mexico and
Scotland. The 1996 capital expenditures were funded primarily through cash
from operations. Capital expenditures for 1997 have been and are expected to
be funded primarily through cash from operations.
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT
Revenues from international operations, including exports from the United
States, represent an increasing portion of the Company's consolidated revenues
and have grown from 45% of total revenues in 1994 to 57% of total revenues for
the six months ended June 30, 1997, with European revenues accounting for
about 69% of international revenues. Substantially all foreign subsidiaries
maintain their accounting records in their local currencies. Consequently,
period-to-period comparability of results of operations is affected by
fluctuations in exchange rates. While currency translation has significantly
affected international revenues and cost of revenues, it did not have a
material impact on operating income in 1994 and 1995. For 1996 and for the six
months ended June 30, 1997, currency translation effects on the Company's
operating income were slightly unfavorable. The Company attempts to reduce its
exposure to exchange rate fluctuations through the use of operational hedges,
such as pricing actions and product sourcing decisions.
28
<PAGE>
The Company's exposure to exchange rate fluctuations generally cannot be
minimized solely through the use of operational hedges. Therefore, the Company
utilizes financial instruments such as forward exchange contracts and currency
options to reduce the impact of exchange rate fluctuations on firm and
anticipated cash flow exposures and certain assets and liabilities denominated
in currencies other than the functional currency. Nevertheless, the Company
cannot fully protect itself from exchange rate fluctuations. The Company does
not purchase currency related financial instruments for purposes other than
exchange rate risk management.
In addition, the Company believes that international operations in new
geographic markets will be less profitable than operations in U.S. and
European markets as a result, in part, of the higher investment levels for
marketing, selling and distribution required to enter these markets.
TAX MATTERS
The Company's effective tax rate for 1996 was approximately 37%, and for
1995 was 24%. The effective tax rate in 1995 was favorably impacted by
research and development tax credits and the benefits of a foreign sales
corporation. In 1994, the Company's effective tax rate was 12%, primarily due
to the utilization of U.S. tax loss carryforwards for which no benefit had
previously been recognized.
As of December 31, 1996, the Company had $6 million of alternative minimum
tax credits available to offset future U.S. federal income taxes on an
indefinite carryforward basis. The Company had non-U.S. tax loss carryforwards
of $68 million, which expire between the years 1997 and 2014 for which no
benefit had been recorded. A portion of these non-U.S. tax loss carryforwards
(approximately $38 million) are not expected to provide a future benefit
because they are attributable to income of certain non-U.S. entities that are
also taxable in the U.S.
INFLATION
The Company is subject to the effects of changing prices. The Company
operates in an industry where product prices are very competitive and subject
to downward price pressures. As a result, future increases in production costs
or raw material prices could have an adverse effect on the Company's business.
However, the Company actively manages its product costs and manufacturing
processes in an effort to minimize the impact on earnings of any such
increases.
NEW ACCOUNTING STANDARDS
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 125, Accounting for the Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. The adoption
of this accounting standard did not have a material impact on the Company's
financial position, results of operations or liquidity.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings per Share. This statement establishes standards for
computing and presenting earnings per share ("EPS") and generally applies to
all publicly held companies. This statement replaces the presentation of
primary EPS and fully diluted EPS with a presentation of basic EPS and diluted
EPS, respectively. Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. Similar
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<PAGE>
to fully diluted EPS, diluted EPS reflects the potential dilution of
securities that could share in the earnings. This statement is effective for
the Company's financial statements for the year ended December 31, 1997.
Restatement of all prior period EPS data presented is required. EPS calculated
under SFAS No. 128 are not expected to be materially different from EPS
calculated under the current method.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. This statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This statement does not require a specific format for that
financial statement but requires that an entity display an amount representing
total comprehensive income for the period in that financial statement. This
statement requires that an entity classify items of other comprehensive income
by their nature in a financial statement. For example, other comprehensive
income may include foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on certain investments in debt
and equity securities. In addition, the accumulated balance of other
comprehensive income must be displayed separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. Reclassification of financial statements for earlier periods,
provided for comparative purposes, is required. The Company has not determined
the impact that the adoption of this new accounting standard will have on its
consolidated financial statements. The Company will adopt this accounting
standard on January 1, 1998, as required.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
enterprise's chief operating decision maker in deciding how to allocate
resources and in assessing performance. This statement requires reporting
segment profit or loss, certain specific revenue and expense items and segment
assets. It also requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts reported in the consolidated financial
statements. Restatement of comparative information for earlier periods
presented is required in the initial year of application. Interim information
is not required until the second year of application, at which time
comparative information is required. The Company has not determined the impact
that the adoption of this new accounting standard will have on its
consolidated financial statement disclosures. The Company will adopt this
accounting standard on January 1, 1998, as required.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Prospectus and in documents
incorporated herein by reference may be considered forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, including, without limitation, (i) the statements in "--Trends"
and "--Results of Operations" concerning (a) the Company's belief that its
total revenue will continue to grow due to overall market growth and increases
in its market share and that such growth will more than offset expected
declines in sales of certain of its products, (b) the Company's belief
concerning the growth of the market for non-impact technologies, (c) the
Company's expectation that its overall margins will remain stable as new
product introductions contribute to growth in printer unit volumes and the
associated printing supplies business becomes a larger part of the Company's
business, offsetting the decline in sales of certain of the Company's other
office imaging products and the phase-out of its lower margin keyboard
business, (d) the Company's belief that its operating income margins will be
maintained in the second half of 1997 compared to the first half as a result
of
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<PAGE>
new product introductions and the launch of the "Prebate" laser cartridge
marketing program and (e) the Company's belief that office desktop printers
are one of the fastest growing segments of the laser printer market, (ii) the
statements in "Prospectus Summary" (a) "--The Company--Inkjet Printers"
concerning the Company's belief about continuing substantial growth in the
market for inkjet printers in the future and (b) "--Supplies" and "--Strategy"
regarding the Company's expectations for the growth and earnings potential of
the associated supplies business, (iii) the statements in "Business--Market
Overview and Strategy--Printers and Associated Supplies" concerning the
Company's belief about growth in the printer hardware market, including
double-digit growth in volume of certain product categories such as office
desktop laser printers and color inkjet printers, continued growth in the
Company's associated printer supplies business, and the after-market laser
cartridge market being a market with significant growth potential, (iv) the
statements in "Business--Legal Proceedings" concerning the Company's belief
with respect to the possible effect of certain legal proceedings, and current
or future claims of intellectual property infringement on its financial
position or results of operations, (v) other statements as to management's
expectations and belief presented in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and (vi) variations
in the foregoing statements whenever they appear in this Prospectus and the
documents incorporated herein by reference. Forward-looking statements are
made based upon management's current expectations and belief concerning future
developments and their potential effects upon the Company. There can be no
assurance that future developments affecting the Company will be those
anticipated by management. There are certain important factors that could
cause actual results to differ materially from estimates or expectations
reflected in such forward-looking statements including without limitation the
matters discussed in "Risk Factors" and the factors set forth below:
. 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 technologies and products offering improved features
and functionality. The Company's major competitors, all of which have
significantly greater financial, marketing and technological resources
than the Company, have regularly lowered prices on their laser and inkjet
printers and are expected to continue to do so. In particular, the inkjet
printer market has experienced and is expected to continue to experience
significant printer price pressure from the Company's major competitors.
Price reductions beyond expectations or the inability to reduce costs,
contain expenses or increase sales as currently expected, as well as
price protection measures, could result in lower profitability and
jeopardize the Company's ability to grow or maintain its market share.
. The life cycles of the Company's products, as well as delays in product
development and manufacturing, variations in the cost of component parts,
delays in customer purchases of existing products in anticipation of new
product introductions by the Company or its competitors and market
acceptance of new products and programs, 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.
The competitive pressure to develop technology and products also could
cause significant changes in the level of the Company's operating
expenses.
. Revenues derived from international sales, including exports from the
United States, represent an increasing portion of the Company's
consolidated revenues and have grown from 45% of total revenues in 1994
to 57% of total revenues for the six months ended June 30, 1997.
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. Moreover, margins on international sales tend to
be lower than those on domestic sales, and the Company believes that
international operations in new geographic
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<PAGE>
markets will be less profitable than operations in the U.S. and European
markets as a result, in part, of the higher investment levels for
marketing, selling and distribution required to enter these markets.
. The Company's success depends in part on its ability to obtain patents,
copyrights and trademarks, maintain trade secret protection and operate
without infringing the proprietary rights of others. Current or future
claims of intellectual property infringement could prevent the Company
from obtaining technology and could otherwise adversely affect its
operating results, cash flows, financial position or business, as could
expenses incurred by the Company in enforcing its intellectual property
rights against others.
. Factors unrelated to the Company's operating performance, including
economic and business conditions, both national and international; the
loss of significant customers or suppliers; changes in and execution of
the Company's business strategy, including the impact of acquisitions;
and the ability to retain and attract key personnel.
While the Company reassesses material trends and uncertainties affecting the
Company's financial condition and results of operations, in connection with
its preparation of management's discussion and analysis of financial condition
and results of operations contained in its quarterly and annual reports, the
Company does not intend to review or revise any particular forward-looking
statement referenced in this Prospectus or incorporated herein by reference in
light of future events.
The information referred to above should be considered by investors when
reviewing any forward-looking statements contained in this Prospectus, in any
documents incorporated herein by reference, in any of the Company's public
filings or press releases or in any oral statements made by the Company or any
of its officers or other persons acting on its behalf. By means of this
cautionary note, the Company intends to avail itself of the safe harbor from
liability with respect to forward-looking statements that is provided by
Section 27A and Section 21E referred to above.
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<PAGE>
BUSINESS
Lexmark is a global developer, manufacturer and supplier of laser and inkjet
printers and associated consumable supplies for the office and home markets.
Lexmark also sells dot matrix printers for printing single and multi-part
forms by business users. In 1996, revenues from the sale of printers and
associated printer supplies increased 24% from 1995 and accounted for 77% of
total Company revenues of approximately $2.4 billion. In the first six months
of 1997, revenues from the sale of printers and associated printer supplies
increased 6% from the prior year period and accounted for 79% of the total
Company revenues of approximately $1.1 billion.
The Company's installed base of printers supports a large and profitable
printer supplies business. Because consumable supplies must be replaced on
average one to three times a year, depending on type of printer and usage,
demand for laser and inkjet print cartridges is increasing at a higher rate
than their associated printer shipments. This is a relatively high margin,
recurring business that management expects to contribute to the stability of
Lexmark's earnings over time.
In addition to its core printer business, Lexmark develops, manufactures and
markets a broad line of other office imaging products which include supplies
for IBM branded printers, after-market supplies for OEM products, and
typewriters and typewriter supplies that are sold under the IBM trademark. In
1996, revenues from the sale of other office imaging products increased 2%
from 1995 and accounted for 22% of total Company revenues. In the first six
months of 1997, revenues from the sale of other office imaging products
decreased 9% from the prior year period, primarily as a result of lower
typewriter and impact printing supplies volumes reflecting the continued
decline of these markets, and accounted for 21% of total Company revenues.
Approximately half of the Company's 1996 revenues were derived from sales
outside the United States. Revenues derived from international sales,
including exports from the United States, have increased from 45% of total
revenues in 1994 to 57% of total revenues for the six months ended June 30,
1997. Lexmark's products are sold in nearly 150 countries in North and South
America, Europe, the Middle East, Africa, Asia, the Pacific Rim and the
Caribbean. As of June 30, 1997, the Company had approximately 7,700 employees
worldwide.
PRINTERS AND ASSOCIATED SUPPLIES
Lexmark competes primarily in the markets for office desktop laser and color
inkjet printers--two of the fastest growing printer categories. Laser printers
that print at speeds of 11-30 ppm are referred to herein as "office desktop"
or "network" printers, while lower-speed (1-10 ppm) laser printers and inkjet
printers are referred to herein as "personal" printers. Sales of office
desktop laser and color inkjet printers and their associated supplies together
represented approximately 86% and 87% of Lexmark's total printer and
associated supplies revenues in 1996 and for the first six months of 1997,
respectively.
LASER PRINTERS. Network laser printer growth is being driven by the office
migration from large mainframe computers to local area networks that link
various types of computers using a variety of protocols and operating systems.
This shift has created strong demand for office desktop laser printers with
network connectivity attributes. With its Optra S laser printers, a majority
of the Company's laser printers are office desktop printers, which the Company
believes is one of the fastest growing segments of the laser printer market.
For further discussion of the evolving nature of laser printer
classifications, see "Business--Market Overview and Strategy--Printers and
Associated Supplies".
Lexmark develops and owns most of the technology for its laser printers and
consumable supplies, which differentiates the Company from a number of its
major competitors, including HP, which purchase laser engines from third
parties. Lexmark's integration of research and development, manufacturing and
marketing has enabled the Company to design laser printers with features
desired by specific customer and application groups and has resulted in
substantial market presence for Lexmark within certain industry segments such
as banking, retail/pharmacy, automobile distribution and health care. The
Company's critical technology and manufacturing capabilities have also allowed
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<PAGE>
Lexmark to effectively manage quality and to reduce its typical new product
introduction cycle times, for example, in the case of laser printers from 24
months to approximately 12 to 16 months. Management believes its cycle times
are among the fastest in the industry and that these capabilities have
contributed to the Company's success over the last several years.
INKJET PRINTERS. The color inkjet printer market, the fastest growing
segment of the personal printer market, is expanding rapidly due to growth in
personal computers at home and in business and the development of easy-to-use
color inkjet technology with high quality color and black print capability at
low prices. Based on data from industry analysts, management believes that the
inkjet market grew from 4 million units in 1992 to 27 million units in 1996
and will continue to grow substantially as a result of the increase in the
number of personal computers and as the inkjet market continues to shift from
monochrome to color and as inkjet printers continue to replace low-speed laser
printers. Lexmark introduced its first color inkjet printer using its own
technology in 1994 and has experienced strong sales growth through retail
outlets. The Company has increased its product distribution through retail
outlets, with the number of such outlets worldwide rising from approximately
5,000 retail outlets in 1995 to more than 15,000 in 1996. The Company has made
substantial capital investments in its inkjet production capacity in 1995 and
1996 to address the growing demand for its color inkjet printers.
SUPPLIES. The Company is currently the exclusive source for new print
cartridges for the laser and inkjet printers it manufactures. Management
expects that an increasing percentage of future Company earnings will come
from its consumable supplies business, due to the consumer's continual usage
and replacement of cartridges. In 1996, the Company substantially expanded its
inkjet cartridge manufacturing capacity in both North America and Europe.
OTHER OFFICE IMAGING PRODUCTS
The Company's other office imaging products category includes many mature
products such as supplies for IBM printers, typewriters and typewriter
supplies and other impact supplies that require little investment but provide
a significant source of cash flow. The Company introduced after-market laser
cartridges in May 1995 for the large installed base of a range of laser
printers sold by other manufacturers. Management believes that the potential
for an after-market laser cartridge business is significant. The Company's
strategy for other office imaging products is to pursue the after-market OEM
laser supplies opportunity while at the same time managing its mature
businesses for cash flow.
KEYBOARDS AND OTHER
In the first quarter of 1996, the Company completed the phase-out of its
keyboard business. Keyboard sales accounted for 8% and 3%, respectively, of
the Company's revenue and gross profit for 1995.
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MARKET OVERVIEW AND STRATEGY
PRINTERS AND ASSOCIATED SUPPLIES
MARKET OVERVIEW
In 1996, estimated industry-wide revenue for printer hardware in the 1-30
ppm speed category, including network, personal and dot matrix, was
approximately $26 billion. Management believes, based on industry analysts'
estimates, that this market will in the aggregate continue to experience
modest growth through 2000. However, the Company believes that certain product
categories within this market that it has targeted, such as office desktop
laser printers and color inkjet printers, will experience, on average, double-
digit growth in volume. An overview of the printer markets in which the
Company competes is summarized below:
<TABLE>
<CAPTION>
U.S. PRIMARY PAPER
SPEED PRICE RANGE PRINT QUALITY MARKET MEDIA
--------- ------------ ------------------------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Color Laser............. 2-5 ppm $3,000-8,000 Better/Best (300-600 dpi) Office Plain
Mono Laser.............. $ 400-5,000 Best (1200 x 1200 dpi) Office Plain
Personal............... 1-10 ppm
Office Desktop/
Network............... 11-30 ppm
Color Inkjet............ 0.3-3 ppm $ 140-3,000 Better (300-1440 dpi) Home Plain/Coated
Dot Matrix.............. 2-4 ppm $ 100- 500 Good (240-360 dpi) Office Plain/Multi Parts
</TABLE>
LASER PRINTERS. The laser printer market is categorized by print speeds.
Office desktop or network laser printers are those that print 11-30 ppm while
low-speed lasers typically print 1-10 ppm*. Management believes that the
overall printer market is bifurcating into two principal segments: office
desktop printers suitable for an office environment and low-speed, lower cost
printers suitable for recreational and home office use by individuals.
In recent years, businesses have shifted from relying on large mainframe
computers to using local area networks ("LAN") that connect various types of
computers using a variety of protocols and operating systems. With this shift
has come the need for network printers that can communicate with, and adapt
to, the various configurations of the computers they serve. The ability to
process jobs quickly is also important. Most printers employed in the network
environment are office desktop printers with sophisticated software management
tools. Management expects network printers to continue to increase in speed
and that special features will proliferate to enhance network connectivity.
Low-speed laser printers are generally used as personal printers and are not
connected to networks. This segment is characterized by intense price pressure
and is vulnerable to replacement by low cost, color inkjet printers.
Based on the available market data, management believes that between 1991
and 1996 there was steady growth in overall shipments of network and personal
laser printers (1-30 ppm), although different segments of the market
experienced different growth rates. The Company's shipments of network and
personal laser printers taken as a whole during 1991 to 1996 increased at a
compound
- --------
* Data available from industry analysts as to the size of the laser and inkjet
printer market varies widely. The variance in laser printer market data is
caused in part by the rapid pace of change in laser printer speeds which
makes comparative analyses based on comparable product categories difficult
over a recent historical period. The Company bases its analysis of
historical market trends on the data available from several different
industry analysts. The ranges of printing speed used to define and
distinguish between laser printer categories described in this Prospectus
are based on the Company's own internal analysis of the laser printer
categories currently used by certain industry analysts to measure the laser
printer market.
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annual rate, which management believes reflected the overall rate of growth of
the market as a whole. Within the office desktop network laser printer
category, Lexmark shipments increased at a rate which enabled the Company to
gain market share. Lexmark shipments of low-speed laser printers also grew
during the same period but not as fast as the market growth within that
category. Management expects the market unit volume for low-speed laser
printers to grow moderately but that the market for office desktop laser
printers--which includes the Company's Optra S line of laser printers--will
experience, on average, double-digit growth through 2000.
Laser printer unit growth in recent years has generally exceeded the growth
rate of laser printer revenues due to unit price pressure. This is partially
offset by the tendency for customers in the network segment of the market to
trade up to models with faster speeds, greater network connectivity, and other
new features. New models with such enhanced features generally sell at higher
price points and carry higher gross profit margins than the models they
replace.
INKJET PRINTERS. Growth in the market for inkjet printers, which are mainly
used as personal printers, reflects increased penetration of personal
computers for recreational and home office use. Strong market demand also
reflects the availability of low-cost technology capable of providing
customers with good quality printing at affordable prices. Lexmark's shipments
of inkjet printers increased at or near triple-digit rates annually from 1993
through 1996 and at double-digit rates for the first six months of 1997 which
has enabled the Company to gain market share. Lexmark entered the color inkjet
printer market with its own technology in 1994.
Growth in inkjet printer revenue has been slower than unit growth due to
rapidly declining prices. The greater affordability of color inkjet printers
has been an important factor in the explosive growth of this market.
DOT MATRIX PRINTERS. The market for dot matrix printers has been declining
for several years and volumes are expected to continue to decline in the
future due in large part to replacement by inkjet printers with higher print
quality.
ASSOCIATED PRINTER SUPPLIES. Printer supplies products are defined by the
printing technology. Impact supplies are used in printers and typewriters that
put marks on paper through the use of some form of physical force, usually a
wire or hammer which applies force to a ribbon. The majority of impact
supplies are either fabric or film ribbons. Non-impact supplies are used in
printers that do not use force to put marks on paper. For example, the laser
printer uses electrophotography to place toner on paper. Non-impact supplies
include toner and photoconductor as well as ink cartridges used in inkjet
printers.
The principal supply product for laser printers is a laser cartridge, which
includes toner and photoconductor. The principal supply product for inkjet
printers is an inkjet print cartridge, which includes ink and a circuit
assembly. The principal supply product for Lexmark's dot matrix printers is an
inked fabric ribbon. As the installed base of Lexmark laser and inkjet
printers continues to grow, the market for their associated supplies will grow
as such supplies are continually purchased throughout the life of the
printers.
STRATEGY
Lexmark's laser printer strategy is to target fast growing industry segments
of the network printer market and to increase market share by providing high
quality, technologically advanced products at competitive prices. To promote
Lexmark brand awareness and market penetration, Lexmark will continue to
identify and focus on customer segments where Lexmark can differentiate itself
by supplying laser printers with features that meet specific customer needs
and represent the best total
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<PAGE>
cost of printing solution. Management intends to continue to develop and
market products with more function and capabilities than comparably priced HP
printers. The Company's inkjet printer strategy is to generate demand for the
Lexmark color inkjet printer by offering high-quality products at competitive
prices to retail and OEM customers. Management expects that the Company's
associated printer supplies business will continue to grow as its installed
base of laser and inkjet printers increases.
For the business customer, Lexmark expects to continue to offer an array of
advanced laser printer products with superior features and functions, higher
speeds and better print resolution at competitive prices. The Company believes
that it is well-positioned to take advantage of the growth potential of LAN
printers due to its development and ownership of both the software and
hardware features that provide network connectivity and management tools.
Lexmark has targeted the office desktop laser printer markets and, as it has
with the 1,200 dpi Optra S family, intends to remain one of the few printer
companies that create industry-wide standards for laser printer performance.
Lexmark focuses continually on enhancing the network capability of its laser
printers by introducing new products, like its MarkVision printer management
utility, that enhance the ability of its printers to function efficiently in a
LAN environment and provide significant flexibility to the LAN user.
Lexmark's large account marketing team focuses on demand generation in
Fortune 1000 companies, other large corporations globally and specific
industries where Lexmark can differentiate itself by supplying high function
products with customized features to meet specific needs. These marketing
teams work with Lexmark's development teams to design features requested by
large account customers for specific functions. Lexmark has had recent success
in its large account marketing team's target markets, such as in the finance
sector (whose customers are served by Lexmark's duplex (double-sided printing)
and "flash memory" feature which permits instantaneous printing and updating
of forms in all locations). Another of the Company's strategies is to offer
its advanced network management software in products to enable these financial
institutions to more efficiently manage and control their network printing
activities. Lexmark expects that its marketing strategy focusing on
significant industry segments will promote Lexmark brand awareness and provide
a platform for greater penetration of the laser printer market through sales
by dealers and distributors.
For the office and home user, Lexmark focuses on manufacturing well-priced,
reliable, easy-to-use color inkjet printers. The Company expects that hardware
improvements in this market will result in faster printing and better print
quality. On the software side, the Company expects that enhanced compatibility
with standard PC operating systems, such as Microsoft Windows 95, and software
features that take advantage of the computing power of the PC for printing
functions will permit the Company to reduce manufacturing costs for the
printers and to produce a product that is easier to use. Lexmark believes that
its core product offerings in this market will also permit it to build brand
recognition in the retail channels.
On the manufacturing side, the Company is continually focusing on ways to
reduce costs and expand capacity while maintaining high quality. The Company
will also consider strategic acquisitions in the future to leverage its
technological expertise.
OTHER OFFICE IMAGING PRODUCTS
MARKET OVERVIEW
Other office imaging products include typewriters for office use and
associated supplies sold under the IBM name, impact supplies for Lexmark
printers that are no longer in production, supplies for IBM branded printers
and after-market printer supplies for other OEM printers. The markets for most
of the Company's other office imaging products are generally declining, other
than the market for after-market laser cartridges for other OEM printers,
which the Company believes is a market with significant growth potential.
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In 1996, non-impact supplies were estimated to be an approximately $28
billion opportunity worldwide, compared to the impact supplies opportunity of
approximately $2 billion. Based on available industry data, the Company
estimates that worldwide impact supplies revenue will decline steadily in
future years, while non-impact supplies revenue will continue to grow.
Management expects that office typewriter market revenue will continue to
decline.
STRATEGY
In view of declining revenues and profit margins from sales of typewriters
and typewriter supplies and sales of other office imaging products for IBM
printers, the Company's strategy for other office imaging products is to
pursue the after-market OEM supplies opportunity while at the same time
managing its mature businesses for cash flow. The Company will continue to
compete with other OEMs to provide supplies for their installed bases of laser
printers. The Company may pursue selected acquisitions of other office imaging
products companies.
Lexmark will make minimal further investment in impact supplies and
management expects profit margins on such products to decline as a result of
new agreements with IBM that generally became effective on March 27, 1996. As
a result of its high quality products, the Company benefits from customer
loyalty, which has historically permitted it to continue its premium pricing
strategy.
KEYBOARDS AND OTHER
The Company historically manufactured keyboards primarily for IBM. Following
the expiration in March 1996 of the Company's keyboard agreement with IBM and
management's expectation that the keyboard industry will continue to
experience price declines resulting in low margins and a low return on assets,
the Company completed its transition out of the keyboard business by the end
of the first quarter of 1996. Keyboard sales accounted for 8% and 3%,
respectively, of the Company's revenue and gross profit for 1995.
PRODUCTS
The Company's current product offerings consist primarily of the Lexmark
Optra S laser printer product line and Optra SC color laser printer, the Optra
E+ personal laser printer, a wide range of inkjet printers, a family of
network print servers, typewriters and dot matrix printers. The Company also
designs, manufactures and distributes a variety of print cartridges for use in
its laser and inkjet printers as well as approximately 1,200 other office
imaging products, including typewriter supplies and supplies for other
printers, including IBM printers.
Lexmark's main printer products are listed below:
<TABLE>
<CAPTION>
CATEGORY PRODUCTS U.S. PRICE RANGE
-------- -------- ----------------
<S> <C> <C>
OFFICE DESKTOP/NETWORK
Mono Laser Optra S 1250 $1,150-1,300
Optra S 1650 $1,300-1,900
Optra S 2450 $2,400-3,200
Optra N $2,600-3,400
Color Laser Optra SC 1275 $3,700-5,000
PERSONAL LASER Optra E+ $ 400-700
COLOR INKJET Color Jetprinter 1000, 2030 & 2050 $ 140-200
Color Jetprinter 3000 & 7000 $ 250-400
Color Jetprinter 4079+ $2,650-3,000
DOT MATRIX 23XX $ 300-500
4227 $1,300-1,500
</TABLE>
38
<PAGE>
The Company has upgraded and improved its laser printer product offerings
significantly since the Acquisition with the introduction of several models
adding functionality and performance at lower prices. The Company's current
network laser family, the Optra S line, was introduced in the second quarter
of 1997 and offers six products at various price ranges. The Optra S line
includes models at 12, 16 and 24 ppm and include 1,200 dpi printing, high
performance RISC processors and a wide range of paper handling options. The
Optra SC color laser printers offer high quality business color printing at 12
ppm black and 3 ppm color. Another standard feature of the product line is
MarkVision, Lexmark's printer management program, which permits bi-directional
communication for status management between the user or LAN administrator and
the printer.
In addition to offering connectivity solutions and management tools as
features on its laser printers, Lexmark also designs and manufactures network
print servers. These products provide a means to connect a printer lacking its
own network adapter to a local area network. The Company's current product
offering is the MarkNet XLe, a multiprotocol server capable of supporting 18
different networking environments. MarkNet XLe offers enhancements to
Lexmark's previous product offerings at a lower price.
The Company currently markets a number of personal color inkjet printers for
individual home and office use. These printers generally retail in a range of
$140-$400 and offer sharp color printing, fast performance, compatibility with
leading software applications, and ease of installation and use.
The Company also markets five dot matrix printers in the $300-$1,500 price
range for customers who print large volumes of multi-part forms.
The Company designs, manufactures and distributes a variety of cartridges
for use in its installed base of laser and inkjet printers. Lexmark is
currently the exclusive source for new print cartridges for the printers it
manufactures.
The Company's other office imaging products include over 1,200 products,
including typewriter products and products for IBM and other OEM printers
using both impact and non-impact technology. The Company continues to offer a
broad line of typewriters with the IBM logo, which remain the industry
leaders. The Company also provides a wide range of supplies for the large
installed base of IBM printers including toners, ribbons, photoconductors and
other printer accessories. Lexmark also manufactures and sells after-market
laser cartridges for laser printers sold by other manufacturers.
MARKETING AND DISTRIBUTION
PRINTERS AND ASSOCIATED SUPPLIES
The Company markets and distributes its laser printers primarily through its
well-established dealer network, which includes such dealers as Microage
Computers, Ameridata, Vanstar, Tech Data, Merisel, Ingram Micro and Inacom.
The Company's products are also sold through value-added resellers, who offer
custom solutions to specific markets.
The Company employs large account marketing teams whose mission is to
generate demand for Lexmark printers primarily among Fortune 1000 companies
and other large corporations globally. In recent years, a number of marketing
teams have focused on industry segments such as banking, retail/pharmacy,
automobile distribution and health care. Those teams, in conjunction with the
Company's development and manufacturing teams, are able to design product
capabilities and solutions to meet customer specifications for printing
electronic forms, media handling, duplex printing and other custom solutions.
The majority of customer orders solicited by these marketing teams are filled
through dealers or resellers.
39
<PAGE>
The Company distributes its personal inkjet printers primarily through more
than 15,000 retail outlets worldwide including office superstores such as
Office Depot, Office Max and Staples, computer superstores such as Computer
City, consumer electronics stores such as Circuit City, Best Buy and Radio
Shack, other large regional chains and overseas stores such as Dixons,
Carrefour, Harvey Norman and Vobis.
The Company's international sales are an important component of its
operations. The Company's sales and marketing activities in its global markets
are organized to meet the needs of the local jurisdictions and the size of
their markets. The Company's European marketing operation is structured
similarly to its domestic marketing activity. The Company's products are
available from major information technology resellers such as Northamber and
in large markets from key retailers such as Media Markt in Germany, Dixons in
the United Kingdom and Carrefour in France. Canadian marketing activities,
like those in the United States, focus on large account demand generation and
vertical markets, with orders filled through distributors and retailers. The
Company's Latin American and Asian Pacific markets are served through a
combination of Lexmark sales offices, strategic partnerships and distributors.
The Company also has sales and marketing efforts for OEM opportunities.
The Company's printer supplies and other office imaging products are
generally available at the customer's preferred point of purchase through
multiple channels of distribution. Although channel mix varies somewhat
depending on the geography, substantially all of the Company's supplies
products sold commercially in 1996 were sold through the Company's network of
Lexmark-authorized supplies distributors and resellers who sell directly to
end users or to independent office supply dealers. Lexmark's supplies are also
available at office and computer superstores, consumer electronics stores and
mass merchandisers.
COMPETITION
PRINTERS AND ASSOCIATED SUPPLIES
The markets for printers and associated supplies are highly competitive,
especially with respect to pricing and the introduction of new products and
features. The office desktop laser printer market is dominated by HP, which
has a widely recognized brand name and has been estimated to have an
approximate 65% to 70% market share. Several other large manufacturers such as
Canon, Apple, Xerox and IBM also compete in the laser printer market. See
"Business--IBM Relationship".
The Company's strategy is to target fast growing segments of the network
printer market and to increase market share by providing high quality,
technologically advanced products at competitive prices. This strategy
requires that the Company continue to develop and market new and innovative
products at competitive prices. New product announcements by HP and the
Company's other principal competitors, however, can have and in the past have
had a material adverse effect on the Company's financial results. Such new
product announcements can quickly undermine any technological competitive edge
that one manufacturer may enjoy over another and set new market standards for
quality, speed and function. Furthermore, knowledge in the marketplace about
pending new product announcements by the Company's competitors may also have a
material adverse effect on the Company inasmuch as purchasers of printers may
defer purchasing decisions until the announcement and subsequent testing of
such new products.
In recent years, the Company and its principal competitors, all of which
have significantly greater financial, marketing and technological resources
than the Company, have regularly lowered prices on printers and are expected
to continue to do so. The Company is vulnerable to these pricing pressures
which, if not mitigated by cost and expense reductions, may result in lower
profitability and could jeopardize the Company's ability to grow or maintain
market share and build an installed base of Lexmark printers. The Company
expects that, as it competes more successfully with its larger
40
<PAGE>
competitors, the Company's increased market presence may attract more frequent
challenges, both legal and commercial, from its competitors, including claims
of possible intellectual property infringement.
HP is also the market leader in the personal color inkjet printer market
and, with Canon and Epson, has been estimated to account for approximately 80
to 90% of worldwide personal color inkjet printer sales. As with laser
printers, if pricing pressures are not mitigated by cost and expense
reduction, the Company's ability to maintain or build market share and its
profitability could be adversely affected. In addition, as a relatively new
entrant to the retail marketplace with a less widely recognized brand name,
the Company must compete with HP, Canon and Epson for retail shelf space for
its inkjet printers. There can be no assurance that the Company will be able
to continue to penetrate the retail marketplace.
Like certain of its competitors (including Xerox), the Company is a supplier
of after-market laser cartridges for laser printers using certain models of
Canon engines. There is no assurance that the Company will be able to compete
effectively for a share of the after-market cartridge business for its
competitors' base of laser printers. The Company's participation in this
market may have an adverse effect on the Company's relations with certain of
its suppliers. Although Lexmark is currently the exclusive supplier of new
print cartridges for its laser printers, there can be no assurance that other
companies will not develop new compatible cartridges for Lexmark laser
printers. In addition, refill and remanufactured alternatives for the
Company's cartridges are available from independent suppliers and, although
generally offering lower print quality, compete with the Company's supplies
business. As the installed base of laser and inkjet printers grows and ages,
the Company expects competitive refill and remanufacturing activity to
increase.
OTHER OFFICE IMAGING PRODUCTS
The market for other office imaging products is extremely competitive and
the impact segment of the supplies market is declining. Although the Company
has exclusive rights to market certain IBM branded supplies until April 1999,
there are more than 100 independent ribbon manufacturers and more than 25
independent toner manufacturers competing to provide compatible supplies for
IBM branded printing products. Independent manufacturers compete for the
after-market ribbon business under either their own brand, private label, or
both, using price, aggressive marketing programs, and flexible terms and
conditions to attract customers. Depending on the product, prices for
compatible products produced by independent manufacturers generally range from
15% to 70% below the Company's prices.
The Company is less dependent on revenue and profitability from its other
office imaging products business than it has been historically and intends to
focus on the growing portions of that market such as the after-market laser
cartridge supplies category. There is no assurance that the Company will be
able to compete in the after-market laser supplies business effectively or
that the declining market areas in its other office imaging products business
will not adversely affect the Company's operating results.
The Company does not expect any major new entrants into the ribbon market.
However, in response to the declining impact supplies opportunity, many
established competitors are investing in non-impact capacity and joining
forces through acquisitions on a worldwide basis. The Company's primary U.S.
competitors in the overall supplies market include Nu-kote, Turbon, GRC and
NER. Internationally, the Company's primary competitors are Turbon, Armor,
TBS, and Pelikan (acquired by Nu-kote) in Europe and Fullmark in the Far East.
The Company is increasing its efforts to provide laser supplies for other
OEM printers. As an after-market supplier in the all-in-one laser cartridge
business, the Company faces competition from both the OEMs and cartridge
remanufacturers. In order to become an effective worldwide supplier of after-
market cartridges, the Company will need to compete with HP, Canon and Xerox.
41
<PAGE>
The Company believes the current number of competitors in the declining
worldwide office typewriter market is fewer than 10, down significantly from
over 40 in the mid-1980's. The four primary competitors in the U.S. market are
Canon, Nakajima, Panasonic and Swintec. The Company believes that it is
dominant in the U.S. office typewriter market. Remaining office typewriter
competitors with multiple product lines continue to shift focus to other
products in their portfolios (copier, fax, PC, multifunction, etc.). No
significant new office typewriter product announcements have been made by any
key competitor since 1993.
MANUFACTURING
The Company's manufacturing facilities are located in Lexington, Kentucky,
Boulder, Colorado, Orleans, France and Sydney, Australia, all of which are ISO
9000 certified. The Company opened new facilities during 1996 in Rosyth,
Scotland and Juarez, Mexico. Most of the Company's laser and inkjet
technologies are developed in Lexington. The Company's manufacturing strategy
is to keep processes that are technologically complex, proprietary in nature
and higher value added, such as the manufacture of inkjet cartridges, at the
Company's own facilities. Stable technology, labor intensive and non-strategic
operations, such as the manufacture of dot matrix printers, are typically
performed by lower-cost vendors.
Management believes that the Lexington manufacturing facility employs some
of the most modern techniques in the industry. In order to make its facility
capable of implementing new products with a shorter cycle time, the Company
revamped the Lexington facility from a fully automated plant to a more
flexible facility. Accordingly, the Company has the ability to adapt the plant
to the requirements of a new product and to adopt more efficient manufacturing
techniques as they are developed. The plant's electronic card assembly and
test facility with surface mount technologies also enhances the Company's
manufacturing capability.
The Company's development and manufacturing operations for laser printer
supplies which include toners, photoconductor drums, developers, charge rolls
and fuser rolls, are located in Boulder. The Company has made significant
capital investments in the Boulder facility to expand toner and photoconductor
drum processes.
RAW MATERIALS
The Company procures a wide variety of components used in the manufacturing
process, including semiconductors, electro-mechanical components and
assemblies, as well as raw materials, such as plastic resins. Although many of
these components are standard off-the-shelf parts that are available from
multiple sources, the Company often utilizes preferred supplier relationships
to better ensure more consistent quality, cost, and delivery. Typically, these
preferred suppliers maintain alternate processes and/or facilities to ensure
continuity of supply. The Company generally must place commitments for its
projected component needs approximately three to six months in advance. The
Company occasionally faces capacity constraints when there has been more
demand for its printers and associated supplies than initially projected.
Some components of the Company's products are only available from one
supplier, including certain custom chemicals, microprocessors, application
specific integrated circuits and other semiconductors. In addition, the
Company sources some printer engines and finished products from OEMs. Although
the Company purchases in anticipation of its future requirements, should these
components not be available from any one of these suppliers, there can be no
assurance that production of certain of the Company's products would not be
disrupted. Such a disruption could interfere with the Company's ability to
manufacture and sell products and materially adversely affect the Company's
business.
42
<PAGE>
RESEARCH AND DEVELOPMENT
The Company's research and development activity has focused on laser and
inkjet printers and associated supplies and on network connectivity products.
The Company is selective in targeting its research and development efforts.
For example, anticipating the industry trend, the Company minimized investing
in dot matrix technology in 1991 and has instead devoted its research and
development resources to the faster growing markets for laser and inkjet
printers. The Company has been able to keep pace with product development and
improvement while spending less than its larger competitors on research and
development and has even been able to achieve significant productivity and
minimize research and development costs. In the case of certain products, the
Company may elect to purchase products and key components from third party
suppliers.
The Company is committed to being a technology leader in its targeted areas
and is actively engaged in the design and development of additional products
and enhancements to its existing products. Its engineering effort focuses on
laser, inkjet, and connectivity technologies as well as design features that
will increase efficiency and lower production costs. The process of developing
new technology products is complex and requires innovative designs that
anticipate customer needs and technological trends. Research and development
expenditures were $101 million in 1994, $116 million in 1995, $124 million in
1996 and $62 million during the first six months of 1997. In addition, the
Company must make strategic decisions from time to time as to which new
technologies will produce products in market segments that will experience the
greatest future growth. There can be no assurance that the Company can
continue to develop the more technologically advanced products required to
remain competitive.
IBM RELATIONSHIP
In connection with the Acquisition, IBM entered into numerous agreements to
support the Company's operations for a five-year term. These agreements, which
expired on March 27, 1996, included a keyboard supply agreement (which
obligated IBM to acquire essentially all of its desktop keyboard requirements
from the Company), an internal use agreement (which obligated IBM to acquire
substantially all of its requirements for desktop printers, typewriters and
associated supplies from the Company), an IBM trademark license agreement
(which permitted the Company to use the IBM trademark on certain of its
products) and a non-competition agreement (pursuant to which IBM was
prohibited from competing with the Company's products).
The Company completed its transition out of the keyboard business by the end
of the first quarter of 1996 and entered into an agreement with IBM providing
for the orderly transition of the Company's keyboard business to IBM or other
vendors. Under this agreement with IBM, IBM paid the Company $36.5 million of
which $24 million related to amounts recorded by the Company through September
30, 1995, $6 million of profit recorded through March 1996, and $6.5 million
for the purchase of certain keyboard assets. The Company's keyboard business,
of which IBM represented approximately 95%, accounted for revenues of $201,
$177 and $32 million for the years 1994, 1995 and 1996, respectively. Under
the original agreement with IBM, the Company's keyboard business was
guaranteed a minimum gross profit, and in the years ended 1994, 1995 and 1996,
the keyboard business contributed $28, $18 and $6 million, respectively,
toward the Company's consolidated gross profit.
Sales to IBM (excluding sales of keyboards) were $215, $258, $163 and $54
million for the years 1994, 1995, 1996, and the six months ended June 30,
1997, respectively. The Company believes IBM will continue to be a significant
customer but that future revenue and profitability from IBM sales will
continue to decline as the Company's core printer and associated supplies
business represents a larger percentage of the Company's total business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Trends".
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<PAGE>
In the third quarter of 1995, the Company entered into a profit sharing
supplies agreement with IBM and a related agreement for an extension of the
IBM trademark agreement that allows the Company to continue to use the IBM
logo on certain existing printer supplies in its other office imaging products
line through March 31, 1999. Under these agreements, Lexmark has been required
since April 1996 to share the profits from the Company's sale of certain
products bearing the IBM logo. The Company also entered into a royalty
agreement for an extension of the right to use the IBM logo on typewriters,
typewriter supplies and certain other IBM branded printer supplies through
March 27, 2001. Since these new arrangements became effective on March 27,
1996, the Company estimates that operating income has been reduced
approximately $7 million to $9 million a quarter.
Since March 27, 1996, IBM is no longer required to purchase its desktop
printers and typewriters from the Company. However, IBM subsequently entered
into an agreement to use its best efforts to buy its printer and typewriter
supplies from the Company through March 31, 1999. In addition, since March 27,
1996, IBM is no longer prohibited from competing with the Company's printer
business, and in June 1996 IBM introduced laser printer products that compete
with the Company's products. See "Risk Factors--Competition".
Although the Company and IBM have entered into agreements providing for an
ongoing relationship, the Company expects that future revenue and profit
received from IBM will decline significantly and that such decline could have
a material adverse effect on the Company. However, the Company anticipated the
expiration of these agreements and has redeployed the resources previously
utilized on the declining keyboard and other businesses associated with the
majority of the IBM agreements to the Company's strategically important
businesses.
LARGE CUSTOMERS
No customer other than IBM has accounted for more than 10% of the Company's
consolidated revenues since 1994.
BACKLOG
The Company generally ships its products within 30 days of receiving orders
and therefore has a backlog of generally less than 30 days at any time, which
backlog the Company does not consider material to its business.
EMPLOYEES
As of June 30, 1997, the Company had approximately 7,700 employees worldwide
of which 5,600 were located in the U.S. and the remaining 2,100 in Europe,
Canada, Latin America and Asia Pacific. None of the U.S. employees are
represented by any union. Employees in France, Germany and the Netherlands are
represented by Statutory Works Councils. Substantially all regular employees
have stock options. The Company's employees have been organized in employee
teams that are able to make rapid decisions and to implement those decisions
to achieve faster development and manufacturing cycle times.
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<PAGE>
PROPERTIES
The Company's manufacturing and other material operations are conducted at
the facilities set forth below:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET ACTIVITIES STATUS
-------- ----------- ---------- --------
<C> <C> <S> <C>
Lexington, KY......... 2,966,000 Headquarters, Manufacturing,
Development, Administrative,
Distribution, Warehouse,
Marketing Owned
266,000 Warehouses, Development Leased(1)
Manufacturing, Development,
Boulder, CO........... 332,000 Warehouse Leased(2)
Dietzenbach, Germany.. 49,000 Administrative, Warehouse Leased(3)
Juarez, Mexico........ 95,000 Manufacturing, Administrative Owned
Administrative, Marketing,
Markham, Ontario...... 31,000 Warehouse Leased(4)
Manufacturing, Administrative,
Orleans, France....... 452,000 Warehouse Owned
Ormes, France......... 192,000 Warehouse Leased(5)
Paris, France......... 30,000 Administrative, Marketing Leased(6)
48,000 Administrative, Marketing Leased(7)
Rosyth, Scotland...... 92,000 Manufacturing, Administrative Owned
Sydney, Australia..... 64,000 Manufacturing, Administrative,
Warehouse, Marketing Leased(8)
</TABLE>
- --------
(1) Leases covering 151,000 square feet expire September 1998 and carry one-
year renewal options. Lease covering 115,000 square feet expires August
1998 and carries five three-year renewal options.
(2) Lease covering 278,000 square feet expires May 2001 and carries three
five-year renewal options. Lease covering 54,000 square feet expires
January 1998 and carries three one-year renewal options.
(3) Leases covering this property expire September 2004 and there are no
renewal options.
(4) Lease covering this property expires September 2001 and carries two five-
year renewal options.
(5) Lease covering this property expires February 1999 and carries one three-
year renewal option.
(6) Leases covering this property have terminated and the Company expects to
vacate these premises and resume its activities in new facilities,
described below, in December 1997.
(7) Leases covering this property commence December 1997 and expire December
2006, and there are no renewal options.
(8) Lease covering this property expires March 2002 and carries one six-year
renewal option.
The Company believes its facilities are in good operating condition. Except
for the Juarez, Mexico and Rosyth, Scotland facilities, properties owned by
the Company serve as collateral for the Company's term loan and revolving
credit facility. See "Management's Discussion and Analysis--Liquidity and
Capital Resources".
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<PAGE>
INTELLECTUAL PROPERTY
The Company's intellectual property is one of its major assets and the
ownership of the technology used in its products is important to its
competitive position. The Company has about 120 patent cross-license
agreements of various types with various third parties. These license
agreements include agreements with, for example, Canon and HP. Most of these
license agreements provide cross-licenses to patents arising from patent
applications first filed by the parties to the agreements before certain dates
in the early 1990s, with the date varying from agreement to agreement. Each of
the IBM, Canon and HP cross-licenses grants worldwide, royalty-free, non-
exclusive rights to the Company to use the covered patents to manufacture
certain of its products. Certain of the Company's material license agreements,
including those that permit the Company to manufacture its current design of
laser and inkjet printers and after-market laser cartridges for certain OEM
printers, terminate as to future products upon certain "changes of control" of
the Company. See "Risk Factors--Certain Provisions Relating to Changes in
Control". The Company also holds a number of specific patent licenses obtained
from third parties to permit the production of particular features in
products.
The Company holds approximately 1,325 patents worldwide and has
approximately 500 pending patent applications worldwide covering a range of
subject matter. The Company has filed over 600 worldwide patent applications
since its inception in 1991. The Company's patent strategy includes obtaining
patents on key features of new products which it develops and patenting a
range of inventions contained in new supply products such as toner and ink
cartridges for printers. Where appropriate, the Company seeks patents on
inventions flowing from its general research and development activities. While
no single patent or series of patents is material to the Company, the
Company's patent portfolio in the aggregate serves to protect its product
lines and offers the possibility of entering into license agreements with
others.
The Company designs its products to avoid infringing the intellectual
property rights of others. The Company's major competitors, such as HP and
Canon, have extensive, ongoing worldwide patenting programs. As is typical in
technology industries, disputes arise from time to time about whether the
Company's products infringe the patents or other intellectual property rights
of major competitors and others. As the Company competes more successfully
with its larger competitors, more frequent claims of infringement may be
asserted.
In October 1996, Lexmark International entered into an agreement with HP to
cross-license each other's patents filed prior to a specified date (the "HP
Agreement"). The HP Agreement generally gives both parties a worldwide non-
exclusive 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 HP 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 HP Agreement
generally permits licenses granted thereunder to be terminated in the event of
a "change in control," which includes, in very limited circumstances, an
acquisition of substantially less than 50 percent of LIG's or Lexmark
International's voting shares.
The Company has trademark registrations or pending trademark applications
for the name LEXMARK in approximately 70 countries for various categories of
goods. The Company also owns a number of trademark applications and
registrations for product names, such as the OPTRA laser printer name.
Although the Company believes the LEXMARK trademark is material to its
business, it does not believe any other trademarks are material.
The Company holds worldwide copyrights in computer code, software and
publications of various types.
ENVIRONMENTAL AND REGULATORY MATTERS
The Company's operations, both domestically and internationally, are subject
to numerous laws and regulations, particularly relating to environmental
matters that impose limitations on the discharge
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<PAGE>
of pollutants into the air, water and soil and establish standards for the
treatment, storage and disposal of solid and hazardous wastes. The Company is
also required to have permits from a number of governmental agencies in order
to conduct various aspects of its business. Compliance with these laws and
regulations has not had and is not expected to have a material effect on the
capital expenditures, earnings or competitive position of the Company. There
can be no assurance, however, that future changes in environmental laws or
regulations, or in the criteria required to obtain or maintain necessary
permits, will not have an adverse effect on the Company's operations.
LEGAL PROCEEDINGS
The Company is party to routine litigation incidental to the Company's
business. The Company does not believe that any legal proceedings to which it
is a party or to which any of its property is subject, including any such
routine litigation, will have a material adverse effect on the Company's
financial position or results of operations. As the Company competes more
successfully with its larger competitors, the Company's increased market
presence may attract more frequent legal challenges from its competitors,
including claims of possible intellectual property infringement. Although the
Company does not believe that the outcome of any current claims of
intellectual property infringement is likely to have a material adverse effect
on the Company's future operating results and financial condition, there can
be no assurance that such claims will not result in litigation. In addition,
there can be no assurance that any litigation that may result from the current
claims or any future claims by these parties or others would not have a
material adverse effect on the Company's business.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their respective
ages, positions, principal occupations and years of service with the Company,
as of September 30, 1997, are set forth below.
<TABLE>
<CAPTION>
YEARS
WITH
NAME OF INDIVIDUAL THE
AGE POSITION AND PRINCIPAL OCCUPATION COMPANY
------------------ --- --------------------------------- -------
Chairman of the Board and Chief
Marvin L. Mann.............. 64 Executive Officer 6
<C> <C> <S> <C>
Director, President and Chief
Paul J. Curlander........... 44 Operating Officer 6
Vice President and Chief Financial
Gary E. Morin............... 48 Officer 1
Kathleen J. Affeldt......... 48 Vice President, Human Resources 6
Daniel P. Bork.............. 46 Director of Taxes *
Terence P. Chin............. 42 Treasurer 1
Vice President, General Counsel and
Vincent J. Cole, Esq. ...... 40 Secretary 6
David L. Goodnight.......... 44 Corporate Controller 3
Vice President, Corporate
Clifford D. Gookin.......... 40 Development 1
Thomas B. Lamb.............. 39 Vice President 1
Bernard V. Masson........... 49 Vice President 1
John C. Mitchell............ 50 Vice President *
Donald C. Shropshire, Jr. .. 58 Vice President and General Manager 6
Vice President and President of
John A. Stanley............. 60 Lexmark Europe 6
Alfred A. Traversi.......... 45 Vice President, Information Systems *
and Operations
B. Charles Ames............. 72 Director, Principal of CD&R, and 6
general partner of Associates IV
Sir Roderick H. Carnegie.... 64 Director, Chairman of Hudson Conway 2
Ltd. (since 1987) and Chairman of
Newcrest Mining Ltd. (since 1994)
Frank T. Cary............... 76 Director, Former Chief Executive 6
Officer and Chairman of IBM
William R. Fields........... 48 Director, President, Chief *
Executive Officer and Director of
Hudson's Bay Company and former
Chairman and Chief Executive
Officer of Blockbuster
Entertainment Group and former
Executive Vice President of Wal-
Mart, Inc. and President and Chief
Executive Officer of Wal-Mart
Stores division
Donald J. Gogel............. 48 Director, President of CD&R, 6
Principal of CD&R and general
partner of Associates IV
Ralph E. Gomory............. 68 Director, President of the Alfred 6
P. Sloan Foundation and former
Senior Vice President for Science
and Technology at IBM
Stephen R. Hardis........... 62 Director, Chairman and Chief *
Executive Officer of Eaton
Corporation
Michael J. Maples........... 55 Director, former Executive Vice 1
President of Worldwide Products
Group and former member of the
Office of the President of
Microsoft Corporation
Martin D. Walker............ 65 Director, Chairman of the Board of *
M.A. Hanna Company
</TABLE>
- --------
* Tenure with the Company is less than one year.
CLASSES OF THE BOARD
The Third Restated Certificate of Incorporation divides the Board of
Directors into three classes. Of the eleven current members of the Board, four
(Sir Roderick and Messrs. Cary, Curlander and Walker) have been elected as
Class I directors with terms expiring at the time of the Annual Meeting
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<PAGE>
of Stockholders to be held in 1998; four (Messrs. Ames, Gogel, Gomory and
Mann) have been elected as Class II directors with terms expiring at the time
of the Annual Meeting of Stockholders to be held in 1999; and three (Messrs.
Fields, Hardis and Maples) have been elected as Class III directors with terms
expiring at the time of the Annual Meeting of Stockholders to be held in 2000.
At each succeeding Annual Meeting of Stockholders, the respective successors
of the directors whose terms are expiring shall be elected for terms expiring
at the Annual Meeting of Stockholders held in the third succeeding year.
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<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
CD&R AND C&D FUND IV
C&D Fund IV, which is the Company's largest stockholder, is a private
investment fund managed by CD&R. Amounts contributed to C&D Fund IV by its
limited partners are invested at the discretion of the general partner in
equity or equity-related securities of entities formed to effect leveraged
buy-out transactions and in the equity of corporations where the infusion of
capital coupled with the provision of managerial assistance by CD&R can be
expected to generate returns on investments comparable to returns historically
achieved in leveraged buy-out transactions. The general partner of C&D Fund IV
is Clayton & Dubilier Associates IV Limited Partnership ("Associates IV"). B.
Charles Ames, Donald J. Gogel, Andrall E. Pearson and Joseph L. Rice, III,
each of whom is a principal of CD&R and a general partner of Associates IV,
have served as directors of the Company since the Acquisition. Messrs. Pearson
and Rice resigned from the Board of Directors in February 1997. See
"Management--Directors and Executive Officers". LIG was formed by CD&R to
effect the Acquisition. C&D Fund IV currently owns 15,993,993 shares of Class
A Common Stock of which 7,103,717 shares are being offered hereby. See
"Selling Stockholders".
The Company paid CD&R a fee of $500,000 during each of 1994, 1995 and 1996,
respectively, for advisory, management consulting and monitoring services and
it is expected that such fees will continue in the future. Under the terms of
the Company's lending arrangements, such fees must be determined by arms
length negotiation and must be reasonable. Under the Registration and
Participation Agreement, such fees may not exceed $1 million during any fiscal
year. None of the principals of CD&R who serve as directors of the Company
receive directors' fees. Two principals of CD&R, Messrs. Ames and Gogel,
continue to serve as Class II directors.
The Company paid fees to the law firm of Debevoise & Plimpton during 1996
and 1997 for legal services rendered. Franci J. Blassberg, Esq., a member of
Debevoise & Plimpton, is married to Joseph L. Rice, III, who was until
February 1997 a director of the Company and who is currently a general partner
of the general partner of C&D Fund IV.
The Company has entered into an indemnification agreement with CD&R and C&D
Fund IV pursuant to which the Company has agreed, subject to certain
exceptions, to indemnify the members of its boards of directors, as well as
CD&R, C&D Fund IV and certain of their associates and affiliates (the
"Indemnitees"), to the fullest extent allowable under applicable Delaware law
and to indemnify the Indemnitees against any suits, claims, damages or
expenses which may be made against or incurred by them under applicable
securities laws in connection with offerings of securities of the Company,
including the Offerings, liabilities to third parties arising out of any
action or failure to act by the Company, and, except in cases of gross
negligence or intentional misconduct, the provision by CD&R of advisory,
management consulting and monitoring services.
MANAGEMENT LOANS
Shortly following the completion of the Acquisition, and from time to time
in the years following the Acquisition, executive officers, senior managers
and outside directors have purchased shares of Class A Common Stock from the
Company. Although the Company does not currently intend to make loans to
existing management in the future, in the past a portion of the purchase price
paid for the Class A Common Stock purchased by certain management and director
investors was financed by full-recourse loans from the Company to the
management investors at the Applicable Federal Rate (as defined in Section
1274(d) of the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder) then in effect. The Company may, however, make loans
to management from time to time in the future. Since January 1, 1996, Sir
Roderick Carnegie, a director of the Company, has had a loan outstanding from
the Company. The largest aggregate amount of indebtedness outstanding on such
loan since January 1, 1996 was $60,160, and as of July 31, 1997, no amount was
outstanding on such loan.
50
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders and their beneficial ownership of the Class A Common
Stock as of September 30, 1997 and as adjusted to reflect the sale of the
Class A Common Stock offered by the Selling Stockholders hereby, and other
than as noted below, includes information with respect to positions, offices
or other material relationships of the Selling Stockholders with the Company
or any predecessor or affiliate thereof, other than as a stockholder thereof,
during the past three years. For information with respect to material
relationships during the past three years between the Company and C&D Fund IV
and the Institutional Investors, see "Certain Transactions and Relationships".
Unless otherwise indicated, each Selling Stockholder named has sole voting and
dispositive power with respect to its shares.
The information presented in the preceding discussion and in the following
table assumes that the over-allotment options are exercised in full.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED SHARES
NAME AND ADDRESS OF PRIOR TO NUMBER OF BENEFICIALLY OWNED
BENEFICIAL OWNER OFFERINGS(1) SHARES AFTER OFFERINGS(1)
------------------- ------------------ --------- -------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
---------- ------- --------- ---------- --------
The Clayton & Dubilier
Private Equity
Fund IV Limited
Partnership................. 15,993,993 22.48% 8,169,274 7,824,719 11.00%
<S> <C> <C> <C> <C> <C>
270 Greenwich Avenue
Greenwich, CT 06830
Leeway & Co.(2).............. 5,849,216 8.22% 2,987,612 2,861,604 4.02%
Mellon Bank, N.A., as trustee
for First
Plaza Group Trust(3)......... 4,029,941 5.67% 2,058,378 1,971,563 2.77%
One Mellon Bank Center
Pittsburgh, PA 15258
Keys Foundation(4)........... 462,088 * 236,021 226,067 *
The Equitable Life Assurance
Society of the United
States(5)................... 133,339 * 68,105 65,234 *
Equitable Deal Flow Fund,
L.P.(5)...................... 96,301 * 49,188 47,113 *
Equitable Capital Partners
(Retirement Fund), L.P.(5).. 115,883 * 59,189 56,694 *
Equitable Capital Partners,
L.P.(5) 154,054 * 78,687 75,367 *
Equitable Capital Private
Income and Equity
Partnership II, L.P.(5)..... 183,146 * 93,546 89,600 *
</TABLE>
- --------
* Less than 1% of class.
- ----------------
(1) The percentage of the issued and outstanding shares of Common Stock of the
Company held by each individual or group has been calculated on the basis
of 71,136,392 shares which includes (i) 69,991,581 shares of Class A
Common Stock issued and outstanding (excluding 3,221,414 shares held in
treasury) on September 30, 1997, (ii) 682,723 shares of Class A Common
Stock issuable upon conversion of all outstanding shares of Class B Common
Stock and (iii) 462,088 shares of Class A Common Stock issuable upon
exercise of the Keys Warrant.
(2) As nominee for the Long-Term investment trust, a trust for the benefit of
the AT&T and Lucent pension plans. The address is: Leeway & Co., State
Street Bank & Trust Co., Master Trust Division, One Enterprise Drive,
Solomon Willard Bldg., North Quincy, MA 02171.
(3) Mellon Bank, N.A., acts as the trustee (the "Trustee") for First Plaza
Group Trust ("FPGT"), a trust under and for the benefit of certain
employee benefit plans for General Motors Corporation ("GM") and its
subsidiaries. These shares may be deemed to be owned beneficially by
General Motors Investment Management Corporation ("GMIMCo"), a wholly-
owned subsidiary of GM. GMIMCo's principal business is providing
investment advice and investment management services with respect to the
assets of certain employee benefit plans of GM and its subsidiaries and
with respect to the assets of certain direct and indirect subsidiaries of
GM and associated entities. GMIMCo is serving as FPGT's investment manager
with respect to these shares and in that capacity it has the sole power to
direct the Trustee as to the voting and disposition of these shares.
Because of the Trustee's limited role, beneficial ownership of the shares
by the Trustee is disclaimed.
51
<PAGE>
(4) Shares beneficially owned represents the number of shares of Class A
Common Stock that may be purchased pursuant to a warrant (the "Keys
Warrant") originally issued in April 1991 to Spectrum Sciences B.V.
("Spectrum") that remains exercisable for 462,088 shares of Class A Common
Stock, at an exercise price of $6.67 per share, in connection with a
license agreement relating to certain printer technology entered into by
the Company with Spectrum. The Keys Warrant was transferred by Spectrum to
Gemini Systems Corporation B.V. ("Gemini") in April 1991 and from Gemini
to Keys Foundation ("Keys") in 1992. The Company has been informed that
the Keys Warrant will be exercised with respect to all 462,088 shares
prior to the completion of the Offerings and 205,236 shares issued upon
exercise thereof will be included in the Offerings. The address for Keys
Foundation is: De Ruykertade 58a, Curacao, Netherlands Antilles.
(5) Represents shares of Class B Common Stock. The table assumes the
conversion of 348,715 shares of Class B Common Stock held by the Equitable
Investors for 348,715 shares of Class A Common Stock. Following the
Offerings, the Equitable Investors will hold in the aggregate 334,008
shares of Class B Common Stock, representing all of the outstanding shares
of Class B Common Stock. The address for each of the Equitable Investors
is: c/o Alliance Corporate Finance Group Incorporated, 1345 Avenue of the
Americas, 39th Floor, New York, New York 10105.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, approximately 13,004,237 shares of the
outstanding Class A Common Stock and (based upon shares outstanding at
September 30, 1997) approximately 379,493 shares of the outstanding Class B
Common Stock will constitute "restricted" securities, within the meaning of
Rule 144 under the Securities Act, that are not publicly traded. All of these
restricted outstanding shares are eligible for sale into the public market
pursuant to Rule 144 under the Securities Act, and approximately 32% of these
restricted outstanding shares are eligible for sale into the public market
without regard to the volume limit and other requirements of Rule 144. In
addition, upon completion of the Offerings, approximately 6,923,578 shares of
Class A Common Stock will be issuable upon the exercise of outstanding stock
options (vested and unvested).
"HOLDBACK" ARRANGEMENTS
The Selling Stockholders and the directors and executive officers (as
defined in Section 16 of the Exchange Act) of the Company who own Class A
Common Stock have each agreed not to enter into any agreement providing for,
or to effect, any public sale, distribution or other disposition of any shares
of Common Stock, including sales pursuant to Rule 144 or Rule 144A under the
Securities Act, or grant any public option for any such sale, or otherwise
cause the Company to register any securities of the Company, for a period of
90 days after the date of this Prospectus without the prior written consent of
Goldman, Sachs & Co. on behalf of the Underwriters, except for the shares of
Class A Common Stock offered in connection with the Offerings. After the
expiration of such 90-day period, such stockholders will in general be
entitled to dispose of their shares that are currently outstanding pursuant to
Rule 144 under the Securities Act and those who are not "affiliates" of the
Company may do so without regard to the volume limit and certain other
requirements of Rule 144.
REGISTRATION AND PARTICIPATION AGREEMENT
Pursuant to the terms of the Registration and Participation Agreement, as of
September 30, 1997, existing stockholders of the Company who will collectively
own approximately 26,944,970 shares of Class A Common Stock (including 462,088
shares issuable upon the exercise of the Keys Warrant) and 682,723 shares of
Class B Common Stock have certain registration rights with respect to their
shares of Common Stock. After the completion of the Offerings and the
expiration of the 90-day "holdback" period described above, the holders of at
least 12% of the Company's Registrable Securities (as defined in the
Registration and Participation Agreement), but in no event less than 2,925,000
shares, may request that the Company register some or all of their shares of
Common Stock. In addition, if the Company decides to register additional
shares of Common Stock (other than, among other limitations, shares of Common
Stock to be issued pursuant to employee benefit or option plans), such
existing stockholders are entitled to participate in such registration. All
the shares of Class A Common Stock offered by the Selling Stockholders hereby
are being registered pursuant to such registration rights. The Registration
and Participation Agreement requires the Company to pay all expenses incurred
by the Selling Stockholders with respect to the Offerings, other than
underwriting discounts and commissions, transfer taxes applicable to the Class
A Common Stock to be sold by the Selling Stockholders and certain legal fees.
The expenses to be paid by the Company under the Registration and
Participation Agreement also include the fees and expenses of one law firm to
represent certain Selling Stockholders in connection with the Offerings. The
Company has agreed to indemnify the Selling Stockholders and the Underwriters
as to certain information included in this Prospectus, and each of the Selling
Stockholders has agreed to indemnify the Company, its directors, controlling
persons and officers who have signed the Registration Statement of which this
Prospectus is a part and the underwriters as to certain information relating
to such Selling Stockholder.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport to
be complete and is qualified in its entirety by reference to applicable
Delaware law and to the provisions of the Company's Third Restated Certificate
of Incorporation and By-laws, as amended and restated. Copies of the Third
Restated Certificate of Incorporation and By-laws have been filed as exhibits
to the Registration Statement of which this Prospectus forms a part.
The Company's authorized capital stock consists of 160,000,000 shares of
Class A Common Stock, par value $.01 per share, 10,000,000 shares of Class B
Common Stock, par value $.01 per share, and 1,600,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"). As of September 30, 1997,
the Company had 69,991,581 shares of Class A Common Stock (excluding 3,221,414
shares held in treasury) and 682,723 shares of Class B Common Stock issued and
outstanding. As of September 30, 1997 there were approximately 1,177 holders
of record of Class A Common Stock and five holders of record of Class B Common
Stock.
CLASS A COMMON STOCK
VOTING RIGHTS
Each holder of shares of Class A Common Stock is entitled to one vote per
share on all matters to be voted on by stockholders. Holders of Class A Common
Stock are not entitled to cumulative votes in the election of directors.
DIVIDEND RIGHTS
The holders of Class A Common Stock are entitled to dividends and other
distributions if, as and when declared by the Board of Directors out of assets
legally available therefor, subject to the rights of any holder of preferred
stock, restrictions set forth in the Company's amended credit facility and
restrictions, if any, imposed by other indebtedness outstanding from time to
time. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources". The holders of Class A Common Stock and Class B Common Stock are
entitled to equivalent per share dividends and distributions.
OTHER RIGHTS
Upon the liquidation, dissolution or winding up of the Company, the holders
of shares of Class A Common Stock would be entitled to share pro rata (on an
equal basis with the holders of the Class B Common Stock) in the distribution
of all of the Company's assets remaining available for distribution after
satisfaction of all its liabilities and the payment of the liquidation
preference of any outstanding preferred stock. The holders of Class A Common
Stock have no preemptive or other subscription rights to purchase shares of
the Company, nor are they entitled to the benefits of any sinking fund
provisions. No share of Class A Common Stock issued in connection with or
outstanding prior to the Offerings is subject to any further call or
assessment.
EXCHANGE RIGHTS
In the event that a limited partnership (such as C&D Fund IV) makes a
distribution of shares of Class A Common Stock to its limited partners and,
following such distribution, one or more of its limited partners would then be
subject to limitations under the Bank Holding Company Act or other applicable
law on its ability to hold more than 5% of the voting stock of the Company,
such limited partnership is entitled to exchange a certain number of shares of
its Class A Common Stock into the same number of shares of Class B Common
Stock so as to permit it to distribute shares of Class B Common Stock to such
limited partners without exceeding the limitations under the Bank Holding
Company Act or such other law. This exchange right is only available to
limited partnerships under the limited circumstances outlined herein.
54
<PAGE>
CLASS B COMMON STOCK
The Class B Common Stock is identical to the Class A Common Stock in all
respects except that the holders of Class B Common Stock will have no right to
vote, except as required by law. Shares of Class B Common Stock automatically
convert into the same number of shares of Class A Common Stock upon the sale
or transfer by the holder thereof to a person who is not an affiliate of such
holder or who is not restricted by applicable law with respect to its
ownership of voting securities. To the extent permitted by law, each holder of
Class B Common Stock is entitled to convert any or all shares of Class B
Common Stock held into the same number of shares of Class A Common Stock
except that, other than in connection with a registered public offering of the
Class A Common Stock, the Equitable Life Assurance Society of the United
States ("Equitable") and certain of its affiliates are not entitled to convert
shares of Class B Common Stock into shares of Class A Common Stock except
pursuant to an automatic conversion in connection with a sale or transfer of
the Class B Common Stock. The Class B Common Stock may not be issued other
than in connection with an exchange of shares of Class A Common Stock. Because
shares of Class B Common Stock are issuable only upon the exchange of shares
of Class A Common Stock, the issuance of shares of Class B Common Stock would
not increase the total number of shares of Common Stock outstanding on such
date.
Following the Offerings, C&D Fund IV will hold 8,890,276 shares of Class A
Common Stock. C&D Fund IV has no present plans to make a distribution of
shares of Class A Common Stock held by it to any of its investors.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
stockholder action, to issue any or all of the shares of authorized preferred
stock in one or more series and to fix and determine the designations, powers,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereon, of any series so
established, including voting powers, dividend rights, liquidation
preferences, redemption rights and conversion privileges. Although the Company
has no present intention to issue shares of preferred stock, the issuance of
shares of preferred stock or the issuance of rights to purchase such shares,
may have the effect of delaying, deferring or preventing a change in control
of the Company or any unsolicited acquisition proposal. For instance, the
issuance of a series of preferred stock might impede a business combination by
including class voting rights which would enable the holder to block such a
transaction or facilitate a business combination by including voting rights
which would provide a required percentage vote of the stockholders. In
addition, under certain circumstances, the issuance of preferred stock could
adversely affect the voting power of the holders of the Class A Common Stock.
Although the Board of Directors is required to make any determination to issue
such stock based on its judgment as to the best interests of the stockholders
of the Company, the Board of Directors could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a
majority, of the stockholders might believe to be in their best interest or in
which stockholders might receive a premium for their stock over the then
market price of such stock. The Board of Directors does not at present intend
to seek stockholder approval prior to any issuance of currently authorized
preferred stock, unless otherwise required by law.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services has been appointed as the transfer agent
and registrar for the shares of Common Stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
After consummation of the Offerings, the Company will have approximately
72,967,194 unissued and unreserved shares of Class A Common Stock. These
additional shares may be utilized for a
55
<PAGE>
variety of corporate purposes, including future public offerings to raise
additional capital and for facilitating corporate acquisitions. Except
pursuant to the stock option plans described herein, the Company does not
currently have any plans to issue additional shares of Common Stock. One of
the effects of unissued and unreserved shares of capital stock may be to
enable the Board of Directors to render more difficult or discourage an
attempt to obtain control of the Company by means of a merger, tender offer,
proxy contest or otherwise, and thereby to protect the continuity of the
Company's management. If, for example, the Board of Directors were to
determine that a takeover proposal was not in the Company's best interests,
such shares could be issued by the Board of Directors without stockholder
approval in one or more private transactions or other transactions that might
prevent or render more difficult or costly the completion of the takeover
transactions by diluting the voting or other rights of the proposed acquirer
or insurgent stockholder group, by creating a substantial voting block in
institutional or other hands that might undertake to support the position of
the incumbent Board of Directors, by effecting an acquisition that might
complicate or preclude the takeover, or otherwise.
CLASSIFIED BOARD OF DIRECTORS
The Third Restated Certificate of Incorporation divides the Board of
Directors into three classes, which are required to be as nearly equal in
number as possible. At each annual meeting of stockholders, only one class of
directors will come up for election and directors will be elected to succeed
those directors whose terms have expired. Each director elected at an Annual
Meeting of Stockholders will serve for a three-year term. The Company believes
that a classified Board of Directors will help assure the continuity and
stability of the Board of Directors and the Company's business strategies and
policies. Because a director serving on a classified board may only be removed
for cause, the classified board provision could increase the likelihood that,
in the event of a takeover of the Company, incumbent directors will retain
their positions until the expiration of their respective terms which would
make it more difficult for a potential acquiror to obtain control of the
Company. The By-Laws provide that vacancies on the Board of Directors may be
filled by the Board.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The By-Laws establish advance notice procedures with regard to stockholder
proposals and the nomination, other than by or at the direction of the Board
of Directors or a committee thereof, of candidates for election as directors.
These procedures provide that notice of stockholder proposals and stockholder
nominations for the election of directors at an annual meeting must be in
writing and received by the Secretary of the Company no later than 60 days
prior to such annual meeting (or if less than 60 days' notice of a meeting of
stockholders is given, stockholder proposals and nominations must be delivered
to the Secretary of the Company no later than the close of business on the
seventh day following the day notice was mailed). Stockholder proposals and
nominations for the election of directors at a special meeting must be in
writing and received by the Secretary of the Company no later than the close
of business on the tenth day following the day on which notice of the meeting
was mailed or public disclosure of the date of the meeting was made, whichever
occurs first. The form of written notice of stockholder nominations must set
forth certain information with respect to each nominee who is not an incumbent
director.
56
<PAGE>
VALIDITY OF THE SHARES
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Debevoise & Plimpton, New York, New York, and
for the Underwriters by Sullivan & Cromwell, New York, New York. Debevoise &
Plimpton also acts and may hereafter act as counsel to CD&R and its affiliates
and to the Company and its affiliates. Franci J. Blassberg, Esq., a member of
Debevoise & Plimpton, is married to Joseph L. Rice, III, who was until
February 1997 a director of the Company and who is currently a general partner
of the general partner of C&D Fund IV.
EXPERTS
The consolidated statements of financial position as of December 31, 1995
and 1996 and the consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1996 included or incorporated by reference in this Prospectus have been
included or incorporated by reference herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
57
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS--as of December 31, 1995 and 1996 and for the years
ended December 31, 1994, 1995, and 1996
Report of Independent Accountants...................................... F-2
Consolidated Statements of Financial Position.......................... F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Cash Flows.................................. F-5
Consolidated Statements of Stockholders' Equity........................ F-6
Notes to Consolidated Financial Statements............................. F-7
UNAUDITED CONDENSED FINANCIAL STATEMENTS--as of June 30, 1997 and for the
six months ended June 30, 1996 and 1997
Consolidated Condensed Statement of Financial Position................. F-22
Consolidated Condensed Statements of Operations........................ F-23
Consolidated Condensed Statements of Cash Flows........................ F-24
Notes to Consolidated Condensed Financial Statements................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the board of directors of Lexmark International Group, Inc.
We have audited the accompanying consolidated statements of financial
position of Lexmark International Group, Inc. and subsidiaries as of December
31, 1995 and 1996, and the related consolidated statements of operations, cash
flows and stockholders' equity for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Lexmark International Group, Inc. and subsidiaries as of December 31, 1995
and 1996, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Lexington, Kentucky
February 13, 1997
F-2
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 1995 AND 1996
(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 150.5 $ 119.3
Trade receivables, net of allowance of $27 in 1995 and $18
in 1996.................................................. 213.6 304.7
Inventories............................................... 296.3 271.0
Prepaid expenses and other current assets................. 55.3 70.1
-------- --------
Total current assets.................................. 715.7 765.1
Property, plant and equipment, net.......................... 361.2 434.1
Other assets................................................ 66.0 22.3
-------- --------
Total assets.......................................... $1,142.9 $1,221.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................... $ -- $ 2.1
Current portion of long-term debt......................... 20.0 --
Accounts payable.......................................... 209.6 197.2
Accrued liabilities....................................... 258.4 222.0
-------- --------
Total current liabilities............................. 488.0 421.3
Long-term debt.............................................. 175.0 163.2
Other liabilities........................................... 89.7 96.7
-------- --------
Total liabilities..................................... 752.7 681.2
-------- --------
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; 64,303,619 and
70,213,603 outstanding................................. 0.6 0.7
Class B, 10,000,000 shares authorized; 5,888,623 and
2,446,523 outstanding.................................. 0.1 --
Capital in excess of par.................................. 494.6 519.3
Retained earnings (deficit)............................... (108.0) 19.8
Accumulated translation adjustment........................ 2.9 0.5
-------- --------
Total stockholders' equity............................ 390.2 540.3
-------- --------
Total liabilities and stockholders' equity............ $1,142.9 $1,221.5
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (including revenues from IBM of
$404, $421 and $192, respectively)........ $1,852.3 $2,157.8 $2,377.6
Cost of revenues........................... 1,298.8 1,487.9 1,630.2
---------- ---------- ----------
Gross profit............................. 553.5 669.9 747.4
Research and development................... 101.0 116.1 123.9
Selling, general and administrative........ 292.9 359.1 388.0
Option compensation related to IPO......... -- 60.6 --
Amortization of intangibles................ 44.7 25.6 5.1
---------- ---------- ----------
Operating expenses....................... 438.6 561.4 517.0
---------- ---------- ----------
Operating income......................... 114.9 108.5 230.4
Interest expense........................... 50.6 35.1 20.9
Amortization of deferred financing costs
and other................................. 13.6 10.1 7.9
---------- ---------- ----------
Earnings before income taxes and extraor-
dinary item............................. 50.7 63.3 201.6
Provision for income taxes................. 6.1 15.2 73.8
---------- ---------- ----------
Earnings before extraordinary item....... 44.6 48.1 127.8
Extraordinary loss on extinguishment of
debt (net of related tax benefit of
$6.4)..................................... -- (15.7) --
---------- ---------- ----------
Net earnings............................. 44.6 32.4 127.8
Preferred dividends........................ 11.8 -- --
Preferred stock redemption premium......... 61.3 -- --
---------- ---------- ----------
Net earnings (loss) attributable to com-
mon stock............................... $ (28.5) $ 32.4 $ 127.8
========== ========== ==========
Earnings (loss) per common and common
equivalent share, primary and fully
diluted:
Before extraordinary item................ $ (0.46) $ 0.64 $ 1.68
Extraordinary loss....................... -- (0.21) --
---------- ---------- ----------
Net earnings (loss)...................... $ (0.46) $ 0.43 $ 1.68
========== ========== ==========
Shares used in per share calculation....... 61,430,896 74,932,103 76,221,843
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings......................................... $ 44.6 $ 32.4 $ 127.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization...................... 127.3 99.1 69.2
Option compensation related to IPO................. -- 60.6 --
Extraordinary loss................................. -- 15.7 --
Deferred taxes..................................... -- (30.8) 12.3
Other non-cash charges to operations............... 54.2 45.5 22.6
------ ------- -------
226.1 222.5 231.9
Change in assets and liabilities:
Trade receivables................................ (39.7) (52.5) (70.1)
Trade receivables programs....................... 70.0 30.0 (21.0)
Inventories...................................... 28.5 (17.3) 25.3
Accounts payable................................. 17.0 71.3 (12.4)
Accrued liabilities.............................. 29.2 76.5 (36.4)
Other assets and liabilities..................... 30.8 (23.0) 0.7
------ ------- -------
Net cash provided by operating activities...... 361.9 307.5 118.0
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment......... (58.1) (106.8) (145.0)
Proceeds from sale of property, plant and equip-
ment.............................................. 2.2 6.6 3.6
------ ------- -------
Net cash used for investing activities......... (55.9) (100.2) (141.4)
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt........................ -- -- 2.1
Proceeds from issuance of long-term debt, net of
issue
costs of $2.8 in 1995............................. -- 147.2 5.7
Principal payments on long-term debt............... (360.7) (245.0) (38.0)
Exercise of stock options and warrants............. (0.1) -- 23.0
Preferred dividends paid........................... (9.5) (2.2) --
------ ------- -------
Net cash used for financing activities......... (370.3) (100.0) (7.2)
------ ------- -------
Effect of exchange rate changes on cash.............. 1.3 1.2 (0.6)
------ ------- -------
Net increase (decrease) in cash and cash equiva-
lents............................................... (63.0) 108.5 (31.2)
Cash and cash equivalents--beginning of period....... 105.0 42.0 150.5
------ ------- -------
Cash and cash equivalents--end of period............. $ 42.0 $ 150.5 $ 119.3
====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNIOR CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
------------------ ------------------ -------------------
RETAINED ACCUMULATED
CAPITAL IN EARNINGS TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EXCESS OF PAR (DEFICIT) ADJUSTMENT TOTAL
--------- ------- ---------- ------ ---------- ------ ------------- --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER
31, 1993........... 50,000 $ 5.0 50,616,795 $0.5 8,250,000 $0.1 $357.2 $(185.0) $(4.1) $173.7
Issuance of
9,750,000 shares of
Class A common
stock in exchange
for 850,000 shares
of redeemable
senior preferred
stock (net of $0.1
stock issuance
costs)............. 9,750,000 0.1 84.8 84.9
Issuance of common
stock less notes
receivable of
$0.4............... 39,060 --
Dividends on
redeemable senior
preferred stock
($13.88 per
share)............. (11.8) (11.8)
Purchase of treasury
stock.............. (18,750) (0.2) (0.2)
Cash received for
payments on notes
receivable for
common stock issued
to management and
certain other
individuals........ 0.2 0.2
Translation
adjustment......... 4.1 4.1
Net earnings........ 44.6 44.6
--------- ------ ---------- ---- ---------- ---- ------ ------- ----- ------
BALANCE AT DECEMBER
31, 1994........... 50,000 5.0 60,387,105 0.6 8,250,000 0.1 430.2 (140.4) -- 295.5
Issuance of common
stock less notes
receivable of
$0.1............... 3,600 --
Conversion of Class
B to Class A common
stock.............. 2,361,377 (2,361,377) --
Conversion of junior
preferred stock to
Class A common
stock.............. (50,000) (5.0) 750,000 5.0 --
Warrant exercise at
$6.67 per warrant.. 254,385 1.7 1.7
Option compensation
related to IPO..... 58.7 58.7
Long-term incentive
plan compensation.. 0.6 0.6
Shares issued upon
exercise of
options............ 692,588 --
Treasury shares
received from
option exercises... (439,956) (2.7) (2.7)
Treasury shares
issued upon
exercise of
options............ 294,520 0.9 0.9
Cash received for
payments on notes
receivable for
common stock issued
to management and
certain other
individuals........ 0.2 0.2
Translation
adjustment......... 2.9 2.9
Net earnings........ 32.4 32.4
--------- ------ ---------- ---- ---------- ---- ------ ------- ----- ------
BALANCE AT DECEMBER
31, 1995........... -- -- 64,303,619 0.6 5,888,623 0.1 494.6 (108.0) 2.9 390.2
Conversion of Class
B to Class A common
stock............... 3,442,100 0.1 (3,442,100) (0.1) --
Option compensation
expense............. 1.2 1.2
Long-term incentive
plan compensation... 0.8 0.8
Shares issued upon
exercise of
options............. 2,239,948 15.1 15.1
Tax benefit related
to stock options and
warrants............ 7.4 7.4
Treasury shares
received from option
exercises........... (199,881) --
Treasury shares
issued upon exercise
of options.......... 427,817 --
Cash received for
payments on notes
receivable for
common stock issued
to management and
certain other
individuals......... 0.2 0.2
Translation
adjustment.......... (2.4) (2.4)
Net earnings........ 127.8 127.8
--------- ------ ---------- ---- ---------- ---- ------ ------- ----- ------
BALANCE AT DECEMBER
31, 1996........... -- $ -- 70,213,603 $0.7 2,446,523 $-- $519.3 $ 19.8 $ 0.5 $540.3
========= ====== ========== ==== ========== ==== ====== ======= ===== ======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION AND BUSINESS
Lexmark International Group, Inc. (formerly Lexmark Holding, Inc.) (together
with its subsidiaries, the "Company") is a global developer, manufacturer and
supplier of laser and inkjet printers and associated consumable supplies. The
Company also sells dot matrix printers for printing single and multi-part
forms by business users. The Company's core printer business targets the
office and home markets. In addition to its core printer business, the Company
develops, manufactures and markets a broad line of other office imaging
products which include supplies for International Business Machines
Corporation ("IBM") branded printers, after-market supplies for other original
equipment manufacturer ("OEM") products, and typewriters and typewriter
supplies that are sold under the IBM trademark. The Company's "keyboards and
other" product category was phased out by March 1996 (see Note 16). The
principal customers for the Company's products are dealers, retailers and
distributors worldwide. The Company employs marketing teams which target large
accounts to generate demand in selected industries worldwide. The Company's
products are sold in nearly 150 countries in North and South America, Europe,
the Middle East, Africa, Asia, the Pacific Rim and the Caribbean.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of Lexmark International Group, Inc. and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Foreign Exchange: The functional currency for the Company's significant
foreign subsidiaries is the applicable local currency. For those subsidiaries,
assets and liabilities are translated into U.S. dollars at period-end exchange
rates. Income and expense accounts are translated at average exchange rates
prevailing during the period. Adjustments arising from the translation of
assets and liabilities are accumulated as a separate component of
stockholders' equity. The effects of translation of intercompany loans to
international subsidiaries which have been designated as long-term investments
are also included in this separate component of stockholders' equity.
The Company enters into foreign currency swaps, options, and forward
exchange contracts in its management of foreign currency exposures. Realized
and unrealized gains and losses on contracts that are designated as hedges are
recognized in earnings in the same period as the underlying hedged
transaction. Contracts that do not qualify as hedges for accounting purposes,
including the currency portion of interest rate/currency swaps, are marked to
market and the resulting gains and losses are recognized in current earnings.
The cash flows resulting from hedge contracts are classified as cash flows
from operating activities.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Estimates are used when accounting for such items as the allowance
for doubtful accounts, inventory reserves, product warranty, depreciation,
employee benefit plans and taxes.
Cash Equivalents: All highly liquid investments with an original maturity of
three months or less at the Company's date of purchase are considered to be
cash equivalents.
Inventories: Inventories are stated at the lower of weighted average cost or
market. The Company considers all raw materials to be in production upon their
receipt.
F-7
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment: Property, plant and equipment are stated at
cost, and depreciated over their estimated useful lives using the straight-
line method. Property, plant and equipment accounts are relieved of the cost
and related accumulated depreciation when assets are disposed of or otherwise
retired.
Intangible Assets: Intangible assets (including trademark, patent and
license, software license and non-competition agreements) are stated at cost
and are amortized on an accelerated basis over the estimated period of
economic benefit but not more than five years. Intangible assets were fully
amortized by March 1996.
Revenue Recognition: Sales are recognized when products are shipped to
customers.
Advertising Costs: The Company expenses advertising costs when incurred.
Advertising expense was approximately $43.0 and $49.3 in 1995 and 1996,
respectively.
Earnings (Loss) Per Common Share: Earnings (loss) per common share is
determined by dividing earnings (loss) attributable to common stock by the
weighted average number of common shares, and when dilutive, common equivalent
shares, outstanding.
Net earnings (loss) attributable to common stock is determined by deducting
preferred stock dividends and the preferred stock redemption premium from net
earnings. The weighted average number of common and common equivalent shares
outstanding have been increased by 2,577,480 shares in 1994 to give effect to
the assumption that all stock and stock options, including the effect of the
exchange of redeemable senior preferred stock for Class A common stock, issued
within one year of the filing of the Company's initial public offering were
outstanding for all periods presented, even where their impact is
antidilutive. The number of such shares assumed to be outstanding was
calculated using the treasury stock method based on the initial public
offering price. 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.
3. INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Work in process................................................ $167.7 $144.6
Finished goods................................................. 128.6 126.4
------ ------
$296.3 $271.0
====== ======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Land and improvements......................................... $ 14.1 $ 15.9
Buildings and improvements.................................... 154.4 184.9
Machinery and equipment....................................... 353.6 392.2
Information systems and furniture............................. 100.0 118.7
------ ------
622.1 711.7
Less accumulated depreciation................................. 260.9 277.6
------ ------
$361.2 $434.1
====== ======
</TABLE>
Depreciation expense was $71.8, $71.2 and $62.3 for 1994, 1995 and 1996,
respectively.
F-8
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Compensation................................................... $ 69.2 $ 57.6
Income taxes payable........................................... 22.2 7.0
Fixed assets................................................... 29.6 26.8
Warranty....................................................... 21.8 31.0
Value added tax................................................ 16.8 15.5
Deferred revenue............................................... 9.8 17.4
Other.......................................................... 89.0 66.7
------ ------
$258.4 $222.0
====== ======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Term loan................................................... $ 55.0 $ 37.0
Senior notes, Series B, 12.125% interest rate, due in 1998.. 20.0 --
Senior subordinated notes, 14.25% interest rate, due in
2001....................................................... 120.0 120.0
Other....................................................... -- 6.2
------ ------
195.0 163.2
Less current portion........................................ (20.0) --
------ ------
$175.0 $163.2
====== ======
</TABLE>
In April 1995, the Company refinanced its $150.0 non-revolving term loan and
its $150.0 revolving credit facility prior to their maturity with a new $150.0
non-revolving term loan and a $250.0 revolving credit facility held by a group
of banks. This early extinguishment of debt resulted in an extraordinary
charge of $22.1 ($15.7 net of tax benefit) caused by the write-off of deferred
financing costs of $4.9 and the mark to market of hedging instruments related
to the extinguished debt of $17.2. During 1995, $95.0 of the term loan was
prepaid, and in 1996 an additional $18.0 was prepaid on the term loan.
Under the amended and restated credit agreement (as amended), interest on
the term loan and any amount outstanding under the revolving credit facility
is calculated using either of two methods at the option of the Company. The
first method provides for a rate, based on the Company's performance, ranging
from 0.0% to 0.75% above the base rate, with the base rate equal to the higher
of the bank's prime rate or the federal funds rate plus 0.5% per annum. The
second method provides for a rate, based on the Company's performance, ranging
from 0.75% to 2.0% above adjusted LIBOR (London Inter Bank Offered Rate).
Principal payments on the term loan are due quarterly, with the next scheduled
payment due on June 30, 1998 and the final payment due on December 31, 1998.
Any amounts outstanding under the revolving credit facility are due upon the
maturity of the facility in January 1999. In certain situations, a portion of
the proceeds from the sale of assets, casualty events or debt financings must
be used to repay the term loan.
Although not required under the amended and restated credit agreement, the
Company was required under the terms of the original credit agreement to cap
the interest rate paid on a portion of the term loan at a rate of 13% or
below, and entered into interest rate/currency swaps to meet this requirement.
Because portions of the original U.S. dollar loan proceeds were recorded on
the books
F-9
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of foreign subsidiaries, or used by the U.S. parent company to fund
intercompany loans to foreign subsidiaries, currency swaps were used to
neutralize the effect of currency fluctuations. An interest rate/currency swap
with a notional amount of $36.7 continues and was marked to market at the time
the term loan was refinanced and redesignated as a hedge of the new facility.
The interest rate/currency swap matures on March 27, 1998. The effective rate
of interest on the term loan (after giving effect to the interest
rate/currency swap) was 7.0% at December 31, 1996.
In March 1996, the senior notes in the amount of $20.0 were redeemed.
The senior subordinated notes are held by financial institutions. Interest
is payable at the end of each calendar quarter through March 31, 2001.
Mandatory principal payments are due annually from March 31, 1999 through
March 31, 2001. In the event of a change in control, holders have the option
to require prepayment of the senior subordinated notes plus accrued interest
and a prepayment charge. The Company must offer to repurchase the senior
subordinated notes if cash proceeds from sales of assets exceed a specific
amount, as defined in the Note and Stock Purchase Agreement (as amended);
however, payment is subject to the full payment of all term loans and senior
notes. The Company executed an interest rate swap agreement related to these
notes on a notional amount of $40.0 through September 30, 1998 whereby the
Company receives a fixed rate of 5.4% and pays a variable rate equal to LIBOR.
The variable rate the Company pays on this swap is capped at 7.7%.
At December 31, 1996, the Company had unused lines of credit of
approximately $250.0. The amended and restated credit agreement provides for
the quarterly payment of a commitment fee on all unused commitments ranging
from 0.2% to 0.5% per annum, based on the Company's performance.
Interest expense of $10.3, $7.7 and $1.2 in 1994, 1995 and 1996,
respectively, related to the swaps discussed above, previously outstanding
interest rate/currency swaps and interest rate caps and options is included in
interest expense in the statement of operations.
Substantially all tangible and intangible assets of the Company serve as
collateral for the term loan and revolving credit facility. The senior
subordinated notes are unsecured but are guaranteed by the Company and by the
domestic subsidiaries of Lexmark International, Inc., a wholly owned
subsidiary of the Company. The credit agreements contain customary default
provisions, including a default upon a "change of control" which includes the
acquisition by one person or a related group of persons other than Clayton &
Dubilier Private Equity Fund IV Limited Partnership (C&D Fund IV) and IBM of
25% or more of the Company's voting securities, unless C&D Fund IV owns a
greater percentage of the Company's voting securities than such person or
related group. The senior subordinated note agreement allows the holder to put
the notes to Lexmark International, Inc. upon the acquisition, by a person or
a related group of persons, of 20% of the Company's voting securities and the
cessation of control of the Company by C&D Fund IV and certain other
stockholders. The credit agreements also contain certain net worth, leverage
and fixed charge coverage restrictions and other covenants which, among other
things, restrict the payment of dividends on common stock, incurrence of
additional debt, investments and joint ventures, repurchases of common stock,
mergers or consolidations and sales of assets.
The aggregate annual long-term debt payment requirements are as follows for
the five years ending December 31: 1997-$0.0; 1998-$37.0; 1999-$40.0; 2000-
$40.0; 2001-$40.0; and thereafter-$6.2.
F-10
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total cash paid for interest amounted to $50.2, $41.4 and $24.2 in 1994,
1995 and 1996, respectively.
7. STOCKHOLDERS' EQUITY
The Company authorized and issued 850,000 shares of redeemable senior
preferred stock and 50,000 shares of junior preferred stock in connection with
the acquisition of IBM Information Products Corporation in 1991. The
redeemable senior preferred stock was canceled and exchanged for 9,750,000
shares of Class A common stock on December 30, 1994. This was a non-cash
exchange and thus does not appear in the statement of cash flows. The excess
of the fair value of the common stock issued to the holders of the redeemable
senior preferred stock over the carrying amount of the redeemable senior
preferred stock has been subtracted from net earnings in arriving at net loss
attributable to common stock in the calculation of net loss per common share
in 1994. The junior preferred stock, which was contributed to the Company's
savings plan on March 27, 1991, was exchanged for 750,000 shares of Class A
common stock on October 25, 1995. The junior preferred stock was then retired.
This was a non-cash exchange and thus, does not appear in the statement of
cash flows.
The Class A common stock is voting and exchangeable for Class B common stock
in very limited circumstances. The Class B common stock is non-voting and is
convertible, subject to certain limitations, into Class A common stock. In
1995 and 1996, 2,361,377 and 3,442,100 shares, respectively, of Class B common
stock were converted to Class A common stock.
At December 31, 1996, approximately 74,000,000 and 1,750,000 shares of Class
A and Class B common stock were unissued and unreserved. These shares are
available for a variety of general corporate purposes, including future public
offerings to raise additional capital and for facilitating acquisitions.
In connection with a technology agreement with an unrelated party, the
Company has outstanding an exercisable warrant to purchase 634,365 shares of
Class A common stock at $6.67 per share. The warrant expires on March 27,
1998.
8. STOCK INCENTIVE PLANS
The Company has established various stock incentive plans to encourage
employees and non-employee directors to remain with the Company and to more
closely align their interests with those of the Company's stockholders. Under
the employee plans, approximately 13,140,000 shares of Class A common stock
have been reserved for grant in the form of stock options, stock appreciation
rights, restricted stock, performance shares or deferred stock units. Under
the director plan, approximately 150,000 shares of Class A common stock have
been reserved for grant in the form of stock options and deferred stock units.
As of December 31, 1996, awards under the programs have been limited to stock
options, restricted stock and deferred stock units. Additionally, performance
shares will be earned by certain members of executive management if specific
performance objectives are attained by the Company over a three year period
ending December 31, 1997.
The exercise price of options awarded under these plans is equal to the fair
market value of the underlying common stock on the date of grant. All options
expire ten years from the date of grant and become fully vested at the end of
five years based upon continued employment or three years of service on the
Board of Directors.
The Company recognized a non-cash compensation charge in 1995 of $60.6
($38.5 net of tax benefit) for certain stock options outstanding prior to the
initial public offering in November 1995.
F-11
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its plans.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plans other than for restricted stock, performance-based awards
and the non-cash compensation charge mentioned in the preceding paragraph. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-based
Compensation, net earnings and earnings per share would have been reduced to
the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1995 1996
----- ------
<S> <C> <C>
Net earnings--as reported......................................... $32.4 $127.8
Net earnings--pro forma........................................... 29.9 125.0
Net earnings per share--as reported............................... $0.43 $ 1.68
Net earnings per share--pro forma................................. 0.40 1.64
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Expected dividend yield............................................. -- --
Expected stock price volatility..................................... 45% 45%
Weighted average risk-free interest rate............................ 5.9% 5.8%
Weighted average expected life of options (years)................... 4.4 3.9
</TABLE>
The weighted average fair value of options granted during 1995 and 1996 was
$8.16 and $7.67 per share, respectively.
The pro forma effects on net income for 1995 and 1996 are not representative
of the pro forma effect on net income in future years because they do not take
into consideration pro forma compensation expense related to grants made prior
to 1995.
A summary of the status of all of the Company's stock incentive plans as of
December 31, 1994, 1995 and 1996 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1994.................. 8,157,420 $ 7.07
Granted....................................... 372,750 11.33
Exercised..................................... -- --
Forfeited or Canceled......................... (482,160) 7.19
----------
Outstanding at December 31, 1994................ 8,048,010 7.26
Granted....................................... 2,609,007 19.14
Exercised..................................... (987,108) 7.09
Forfeited or Canceled......................... (241,128) 8.20
----------
Outstanding at December 31, 1995................ 9,428,781 10.54
Granted....................................... 508,532 19.39
Exercised..................................... (2,664,363) 7.11
Forfeited or Canceled......................... (321,088) 14.81
----------
Outstanding at December 31, 1996................ 6,951,862 $12.31
==========
</TABLE>
F-12
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1994, 1995, and 1996 there were 1,145,850, 6,787,426 and
4,574,734, options exercisable, respectively.
The following tables summarize information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -----------------------
WEIGHTED
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER AVERAGE
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT EXERCISE
EXERCISE PRICES 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE 12/31/96 PRICE
- --------------- -------------- ---------------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
$6.67 to $14.75 4,059,682 4.9 years $ 7.38 3,829,665 $ 7.19
15.00 to 19.75 671,402 8.3 16.21 240,689 16.10
20.00 to 26.75 2,220,778 8.8 20.14 504,380 20.12
- --------------- --------- ---------
$6.67 to $26.75 6,951,862 6.5 $12.31 4,574,734 $ 9.08
========= =========
</TABLE>
Approximately 2,370,000 shares were available for future awards under the
stock incentive plans at December 31, 1996.
9. INCOME TAXES
The Company utilizes the liability method of accounting for income taxes, as
set forth in SFAS No. 109, Accounting for Income Taxes. SFAS 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------ -----
<S> <C> <C> <C>
Currently payable:
Federal............................................... $ 2.1 $ 32.3 $50.0
Non-U.S............................................... 3.1 5.1 5.3
State and local....................................... 0.9 8.6 6.2
----- ------ -----
6.1 46.0 61.5
Deferred payable (benefit):
Federal............................................... -- (23.9) 12.0
Non-U.S............................................... -- (0.4) 0.1
State and local....................................... -- (6.5) 0.2
----- ------ -----
-- (30.8) 12.3
----- ------ -----
Provision for income taxes.............................. $ 6.1 $ 15.2 $73.8
===== ====== =====
</TABLE>
Earnings before income taxes were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
U.S..................................................... $36.7 $ 27.3 $129.6
Non-U.S................................................. 14.0 36.0 72.0
----- ------ ------
Earnings before income taxes............................ $50.7 $ 63.3 $201.6
===== ====== ======
</TABLE>
F-13
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The U.S. and non-U.S. earnings before income taxes reflect write-offs of
certain intercompany obligations owed to the U.S. totaling $13.0 and $10.6, in
1994 and 1995, respectively.
The Company realized an income tax benefit from the exercise of certain
stock options and warrants in 1996. This benefit resulted in a decrease in
current income taxes payable and an increase in capital in excess of par of
$7.4 in 1996.
Significant components of deferred income taxes were as follows:
<TABLE>
<CAPTION>
1995 1996
------ -----
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards...................................... $ 61.6 $24.2
Intangible assets........................................... 29.2 10.3
Research and development tax credits........................ 13.2 --
Alternative minimum tax credits............................. 4.0 6.3
Unexercised stock options................................... 22.1 12.4
Inventory................................................... 16.3 20.2
Valuation allowance......................................... (77.2) (32.3)
------ -----
Total deferred tax assets................................. 69.2 41.1
------ -----
Deferred tax liabilities:
Prepaid expenses............................................ 6.8 4.6
Property, plant and equipment............................... 19.0 17.2
Other....................................................... 12.5 0.7
------ -----
Total deferred tax liabilities............................ 38.3 22.5
------ -----
Net deferred tax asset........................................ $ 30.9 $18.6
====== =====
</TABLE>
The net decrease in the total valuation allowance for the years ended
December 31, 1995 and 1996 was $33.6 and $44.9, respectively. As of December
31, 1996, the Company has $6.3 of alternative minimum tax credits available to
offset future U.S. federal income taxes on an indefinite carryforward basis.
The Company has non-U.S. tax loss carryforwards of $68.4 which expire between
the years 1997 and 2014. Of these non-U.S. tax loss carryforwards, $38.1 are
not expected to provide a future benefit because they are attributable to
certain non-U.S. entities that are also taxable in the U.S.
F-14
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the provision for income taxes using the U.S. statutory
rate and the Company's effective tax rate was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -----
<S> <C> <C> <C>
Provision for income taxes at statutory rate............ $ 17.7 $ 22.2 $70.5
State and local income taxes, net of federal tax bene-
fit.................................................... 0.6 1.4 6.4
Losses providing no tax benefit......................... 3.7 31.2 45.1
U.S. tax loss carryforward.............................. (11.2) -- --
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets affecting
provision.............................................. -- (33.6) (44.9)
Research and development credit......................... -- (3.8) (2.9)
Foreign sales corporation............................... -- (2.3) (5.0)
Non-U.S. income exempt from tax......................... (5.0) (3.7) --
Other................................................... 0.3 3.8 4.6
------ ------ -----
Provision for income taxes.............................. $ 6.1 $ 15.2 $73.8
====== ====== =====
</TABLE>
Cash paid for income taxes was $4.9, $24.1 and $60.7 in 1994, 1995 and 1996,
respectively.
10. EMPLOYEE PENSION PLANS
The Company and its subsidiaries have retirement plans covering
substantially all regular employees. The total pension expense of all defined
benefit plans is determined using the projected unit credit actuarial method.
Certain of the Company's non-U.S. subsidiaries recognized $0.1 and $0.9 for
settlement and curtailment losses during 1994 and 1996, respectively.
Plan assets are invested in government securities, corporate debt, annuity
contracts and equity securities. It is the Company's policy to fund amounts
for pensions sufficient to meet the minimum requirements prescribed by various
government regulations and such additional amounts as the Company may
determine to be appropriate.
U.S. Plans: Regular full-time employees in the U.S. are covered by a
noncontributory defined benefit plan, which is funded by Company contributions
to an irrevocable trust fund held for the sole benefit of employees. Monthly
retirement benefits are based on service and compensation. Benefits become
vested upon completion of five years of service. The Company has a
supplemental retirement plan for employees whose benefits under the defined
benefit plan are limited because of restrictions imposed by federal tax laws.
Non-U.S. Plans: Most subsidiaries have retirement plans covering
substantially all employees funded through various fiduciary-type
arrangements. Retirement benefits are generally based on years of service and
compensation during a fixed number of years immediately prior to retirement.
Net periodic pension expense included the following components:
<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
--------------------- -------------------
1994 1995 1996 1994 1995 1996
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Service cost...................... $ 15.4 $ 12.3 $15.5 $ 1.8 $ 1.9 $ 2.0
Interest cost..................... 17.9 20.3 23.0 3.3 4.5 4.5
Actual (gain) loss return on plan
assets........................... 16.9 (82.4) (27.2) (0.4) (4.9) (4.3)
Net amortization and deferral..... (44.9) 56.3 (5.8) (2.7) 1.3 0.6
Settlement/curtailment losses..... -- -- -- 0.1 -- 0.9
------ ------ ----- ----- ----- -----
Net periodic pension expense...... $ 5.3 $ 6.5 $ 5.5 $ 2.1 $ 2.8 $ 3.7
====== ====== ===== ===== ===== =====
</TABLE>
F-15
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status at December 31 was as follows:
<TABLE>
<CAPTION>
NON-
U.S. PLANS U.S. PLANS
-------------- --------------
1995 1996 1995 1996
------- ------ ------ ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obliga-
tions:
Vested benefit obligation................... $ 234.0 $218.5 $ 45.9 $ 53.7
======= ====== ====== ======
Accumulated benefit obligation.............. $ 280.8 $256.0 $ 54.8 $ 57.3
======= ====== ====== ======
Plan assets at fair value..................... $ 337.1 $322.8 $ 53.9 $ 54.9
Projected benefit obligation.................. 327.8 303.2 66.9 66.7
------- ------ ------ ------
Plan assets in excess of (or less than)
projected benefit obligation................. 9.3 19.6 (13.0) (11.8)
Unrecognized net (gain) loss.................. 3.8 (11.8) 5.1 3.9
Additional minimum liability.................. -- -- -- (2.5)
------- ------ ------ ------
Prepaid pension cost (pension liability)...... $ 13.1 $ 7.8 $ (7.9) $(10.4)
======= ====== ====== ======
</TABLE>
Significant actuarial assumptions used to determine the projected benefit
obligation and to compute the expected long-term return on assets were as
follows:
<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
---------------- ----------------
1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate.............................. 9.0% 7.0% 7.5% 7.4% 7.5% 6.8%
Long-term rate of compensation increase.... 6.5% 4.5% 5.0% 4.5% 4.8% 4.3%
Expected long-term rate of return on plan
assets.................................... 10.0% 10.0% 10.0% 8.0% 8.1% 7.4%
</TABLE>
The actuarial assumptions for non-U.S. plans represent weighted averages
reflecting the combined assumptions for all non-U.S. plans.
The Company also sponsors various defined contribution plans for employees
in certain countries. Company contributions are based upon a percentage of
employees' contributions. The Company's expense under these plans amounted to
$2.4, $2.9 and $4.4 in 1994, 1995 and 1996, respectively.
11. OTHER POSTRETIREMENT BENEFIT PLANS
The Company and certain of its non-U.S. subsidiaries have medical, dental
and life insurance plans for retirees. Most retirees outside the U.S. are
covered by government-sponsored programs. The Company provides U.S. retirees
with medical benefits similar to those provided to full-time employees,
subject to certain maximums. The Company does not fund its postretirement
benefits plans. All U.S. full-time employees who meet certain years of service
requirements are eligible for postretirement benefits. The U.S. plan was
amended in 1994 to add a cost sharing provision as the Company continues its
efforts to control costs.
Net periodic U.S. postretirement benefit expense included the following
components:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Service cost.............................................. $ 1.9 $ 1.7 $ 3.1
Interest cost............................................. 1.1 1.4 1.8
Amortization of net loss from earlier periods............. -- -- 0.2
----- ----- -----
Net periodic U.S. postretirement benefit expense.......... $ 3.0 $ 3.1 $ 5.1
===== ===== =====
</TABLE>
F-16
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The U.S. postretirement benefit liability at December 31 was as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Active employees, not fully eligible for benefits............ $ 19.6 $ 22.3
Fully eligible active plan participants...................... 4.2 4.8
------ ------
Accumulated postretirement benefit obligation................ 23.8 27.1
Unrecognized net loss........................................ (4.7) (3.0)
------ ------
Postretirement benefit liability............................. $ 19.1 $ 24.1
====== ======
</TABLE>
Assumed medical cost inflation for 1997 is projected to be 9.5%. For the
years 1997 thru 1999, the medical inflation rate is assumed to trend downward
slightly by 0.8% each year and by 1.6% in year 2000, for an average annual
medical cost increase over the next four years of 8.1%. No medical inflation
is assumed after 2000, by which time medical costs are assumed to have doubled
from 1991 levels. Since the plan caps medical costs at twice the 1991 levels,
the effect of a 1% increase in the assumed medical inflation rate is not
material. The assumed discount rate for postretirement medical benefits is
9.2%, 7.2% and 7.7% for 1994, 1995 and 1996, respectively.
IBM agreed to pay for its pro rata share (currently estimated at $77.1) of
future postretirement benefits for all Company employees based on relative
years of service with IBM and the Company. As of March 31, 1996, certain of
the Company's U.S. employees who met established eligibility requirements
elected to return to IBM and retire as IBM employees. Accordingly, IBM will
pay all postretirement and pension benefits for these employees.
12. COMMITMENTS
The Company is committed under operating leases (containing various renewal
options) for rental of office and manufacturing space and equipment. Rent
expense (net of rental income of $5.1, $5.6 and $5.8) was $12.0, $9.9 and
$13.0 in 1994, 1995 and 1996, respectively. Future minimum rentals under terms
of non-cancelable operating leases at December 31 are: 1997-$17.7; 1998-$15.0;
1999-$11.0; 2000-$8.5; 2001-$6.9; and thereafter-$12.2.
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates internationally, giving rise to market risks from
changes in foreign exchange rates. The Company is also exposed to interest
rate risk on its borrowings. The Company utilizes derivative financial
instruments to reduce these risks, and does not hold or issue financial
instruments for trading purposes. The Company is exposed to credit-related
losses in the event of non-performance by counterparties to financial
instruments, but it does not expect any counterparties to fail to meet their
obligations given their high credit ratings. Where appropriate, the Company
arranges master netting agreements.
Interest Rate Risk Management: The Company utilizes interest rate swaps,
caps and options to maintain an appropriate balance between fixed and floating
rate debt in order to minimize the effect of changing interest rates on
earnings.
Interest rate swaps and interest rate/currency swaps are included in the
statement of financial position as accrued liabilities and other liabilities,
respectively. Premiums paid for interest rate cap and option agreements are
included in the statement of financial position as current assets and non-
current assets and are charged to interest expense over the terms of the
agreements or when written off, if the option expires unexercised. Amounts
receivable under cap agreements and gains realized on options are recognized
as reductions of interest expense over the terms of the agreements.
F-17
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For additional information related to derivative financial instruments used
to manage interest rate risk, see Note 6.
Foreign Exchange Risk Management: The Company enters into various types of
foreign exchange contracts in managing its foreign exchange risk. Notional
amounts at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Forward contracts.......................................... $ 208.3 $ 102.4
Options purchased.......................................... 152.4 241.3
Options written............................................ (76.2) (97.3)
</TABLE>
Forward contracts and purchased options are used to hedge firm and
anticipated purchases of inventory and are included in the statement of
financial position as current assets and accrued liabilities. These
instruments have remaining terms of one year or less. Gains and losses
receiving hedge accounting treatment are recognized in earnings in the same
period as the underlying hedged transactions.
A hedging loss of $0.3 was deferred at December 31, 1995. The Company also
purchased and wrote offsetting foreign currency options, which do not qualify
for hedge accounting treatment, for the purpose of reducing the net cost of
its hedging strategies. These instruments are included in the statement of
financial position as current assets and accrued liabilities, respectively.
Instruments which do not qualify for hedge accounting treatment are marked to
market, with the resulting gains and losses included in earnings.
Concentrations of Credit Risk: The Company's main concentrations of credit
risk consist primarily of temporary cash investments and trade receivables.
Temporary cash investments are placed with various financial institutions.
Company guidelines have been established relating to the amount of deposits or
investments that may be held by each financial institution. IBM is the most
significant trade customer of the Company (see Note 16); otherwise, credit
risk related to trade receivables is dispersed across a large number of
customers located in various geographic areas. The Company also has off-
balance sheet credit risk for the reimbursement from IBM of its pro rata share
of postretirement benefits to be paid by the Company. (see Note 11).
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the carrying amounts and fair values of
financial instruments with fair values different than their carrying amounts
at December 31:
<TABLE>
<CAPTION>
1995 1996
ASSET (LIABILITY) ASSET (LIABILITY)
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NON-DERIVATIVES:
Long-term debt (senior and senior
subordinated notes)................. $ (140.0) $ (159.8) $ (120.0) $ (129.0)
DERIVATIVES:
Prepaid expenses and other current
assets.............................. 0.9 0.6 1.5 2.2
Other assets......................... -- 0.1 -- 0.1
Accrued liabilities.................. -- (0.1) -- (0.6)
Other liabilities.................... (10.8) (12.7) (6.0) (7.8)
</TABLE>
F-18
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The carrying amounts in the table are included in the statement of financial
position under the indicated captions. The amounts in the table are presented
net of amounts offset in accordance with FASB Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts.
Cash and cash equivalents and trade receivables are valued at their carrying
amounts as recorded in the statement of financial position, and are reasonable
estimates of fair value given the relatively short period to maturity for
these instruments. The carrying value of the term loan approximates its fair
value given its variable rate interest provisions. Derivative financial
instruments which do not qualify for hedge accounting are recorded in the
statement of financial position at their fair value. The fair value of the
senior subordinated notes is estimated based on current rates available to the
Company for debt with similar characteristics. Fair values for the Company's
derivative financial instruments are based on quoted market prices of
comparable instruments or, if none are available, on pricing models or
formulas using current assumptions.
15. SALES OF RECEIVABLES
The Company entered into an agreement in 1994 (which was subsequently
amended), to sell up to $100.0 of U.S. trade receivables on a limited recourse
basis. As collections reduce previously sold receivables, the Company may
replenish these with new receivables. At December 31, 1996, U.S. trade
receivables of $65.0 had been sold and, due to the revolving nature of the
agreement, $65.0 also remained outstanding. At December 31, 1995, trade
receivables of $100.0 were sold and outstanding. The agreement, which contains
net worth and fixed charge coverage restrictions similar to, but less
restrictive than, those in the credit agreements, must be renewed annually,
and is expected to be renewed upon its expiration in June 1997. The risk the
Company bears from bad debt losses on U.S. trade receivables sold is limited
to approximately 10% of the outstanding balance of receivables sold. The
Company addresses this risk of loss in its allowance for doubtful accounts.
Receivables sold may not include amounts over 60 days past due or
concentrations over certain limits with any one customer.
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 December 31, 1996, Germany trade receivables of 21.8 million
deutsche marks ($14.0 at December 31, 1996 exchange rates) were outstanding
under this program and, as collections reduce previously sold receivables, the
Company may replenish these with new receivables.
The Company sells a portion of its non-U.S. trade receivables on a recourse
basis. Proceeds from these sales totaled $136.3, $86.9 and $48.9 in 1994, 1995
and 1996, respectively. Approximately $5.5 and $5.3 remained uncollected at
December 31, 1995 and 1996, respectively. In addition, the Company sold
receivables to affiliates of IBM (a related party in 1994) on a non-recourse
basis totaling $181.7 in 1994.
Expenses incurred under these programs totaling $3.0, $3.5 and $5.4 for
1994, 1995, and 1996, respectively are included in other non-operating
expense.
16. MAJOR CUSTOMER
The Company transacts a significant amount of business with IBM, which prior
to 1995 was considered a related party due to its ownership interest in the
Company. In 1994, while IBM was a related party, the Company purchased
inventory, products, and various services from IBM totaling $167.2
IBM was also considered a major customer prior to 1996, accounting for
approximately 22%, 20% and 8% of total revenues in 1994, 1995 and 1996,
respectively. At December 31, 1995, the total
F-19
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amount due from IBM was $46.3. In August 1995, the Company concluded
negotiations with IBM regarding IBM's purchase of keyboards from the Company.
As a result of these negotiations and the Company's analysis of the long-term
profitability of the keyboard industry, the Company decided to phase out its
keyboard product line and recorded a $15.0 reserve in the third quarter of
1995. The reduction of IBM revenue related to keyboard sales was a factor in
IBM no longer being considered a major customer in 1996.
In August 1995, the Company entered into a profit sharing agreement for an
extension of the IBM trademark agreement that allows the Company to continue
to use the IBM logo on certain existing printer supplies in its other office
imaging products line through March 31, 1999. The Company also entered into a
royalty agreement for an extension of the right to use the IBM logo on
typewriters and typewriter supplies through March 27, 2001.
17. INTERNATIONAL OPERATIONS
The Company operates in the office products industry segment and
manufactures its products in the U.S., France, Australia, Mexico and Scotland
and markets them throughout the world. Intercompany sales are made at transfer
prices determined using an arm's length methodology which is in compliance
with the tax laws of the United States and the tax laws of the various
jurisdictions in which Company affiliates operate. Revenues from international
operations, including exports from the U.S., represent approximately half of
consolidated revenues. Summarized financial data by region follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues
U.S.
Trade(1)........................................ $1,146.6 $1,272.4 $1,256.5
Intercompany.................................... 342.3 449.7 572.6
-------- -------- --------
Total U.S. ...................................... 1,488.9 1,722.1 1,829.1
Europe........................................... 576.5 734.9 881.8
Other International.............................. 129.2 150.5 239.3
Eliminations..................................... (342.3) (449.7) (572.6)
-------- -------- --------
Total............................................ $1,852.3 $2,157.8 $2,377.6
======== ======== ========
Operating Income:(2)
U.S.............................................. $ 86.5 $ 65.8 $ 154.3
Europe........................................... 22.5 46.2 77.5
Other International.............................. 3.4 2.3 3.5
Eliminations..................................... 2.5 (5.8) (4.9)
-------- -------- --------
Total............................................ $ 114.9 $ 108.5 $ 230.4
======== ======== ========
Total Assets:
U.S.............................................. $ 935.9 $1,016.1 $1,034.3
Europe........................................... 272.8 319.8 385.9
Other International.............................. 45.8 53.8 92.7
Eliminations..................................... (293.6) (246.8) (291.4)
-------- -------- --------
Total............................................ $ 960.9 $1,142.9 $1,221.5
======== ======== ========
</TABLE>
- --------
(1)U.S. trade revenues include exports to international locations.
(2) Includes non-cash compensation charge in 1995 of $45.7, $13.6 and $1.3 for
the U.S., Europe, and other international, respectively.
F-20
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995:
Revenues................ $ 471.4 $ 541.4 $ 514.7 $ 630.3
Gross profit............ 151.8 161.7 153.3 203.1
Operating income........ 30.7 39.8 30.2 7.8
Earnings before extraor-
dinary item............ 11.4 19.9 16.1 0.7
Net earnings............ 11.4 4.2 16.1 0.7
Earnings per share be-
fore extraordinary
item................... 0.15 0.27 0.21 0.01
Net earnings per share.. $ 0.15 $ 0.06 $ 0.21 $ 0.01
1996:
Revenues................ $ 587.8 $ 555.3 $ 547.6 $ 686.9
Gross profit............ 182.4 172.2 173.9 218.9
Operating income........ 44.0 52.9 55.1 78.4
Net earnings............ 21.6 30.8 30.2 45.2
Net earnings per share.. $ 0.29 $ 0.40 $ 0.40 $ 0.59
</TABLE>
Second quarter 1995 net earnings were reduced by an extraordinary charge of
$22.1 ($15.7 net of tax benefit) caused by an early extinguishment of debt
related to the refinancing of the Company's term loan.
Fourth quarter 1995 operating income and net earnings were reduced by a non-
cash compensation charge of $60.6 ($38.5 net of tax benefit) recognized for
certain of the Company's outstanding employee stock options upon consummation
of the initial public offering.
19. NEW ACCOUNTING STANDARD
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities. This statement is effective for the Company's 1997 financial
statements. The Company's analysis of this new statement indicates that it
will not have a material effect on the Company's financial position or results
of operations.
20. SUBSEQUENT EVENT
In January 1997, the Company announced that certain stockholders who
invested to purchase the Company from IBM in 1991 registered with the U.S.
Securities and Exchange Commission to sell up to 11.5 million shares,
including 1.5 million shares for over allotment. At settlement, 10,148,100
shares were sold at a public offering price of $24.875 per share. The Company
and current members of management chose not to sell any shares in the offering
and, therefore, did not receive any of the proceeds from the sale of the
shares.
F-21
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS OF JUNE 30, 1997
(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 39.1
Trade receivables, net of allowance of $18......................... 275.7
Inventories........................................................ 313.4
Prepaid expenses and other current assets.......................... 69.0
--------
Total current assets............................................. 697.2
Property, plant and equipment, net................................... 422.0
Other assets......................................................... 19.6
--------
Total assets..................................................... $1,138.8
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................................... $ 69.5
Current portion of long-term debt.................................. 12.1
Accounts payable................................................... 226.8
Accrued liabilities................................................ 179.1
--------
Total current liabilities........................................ 487.5
Long-term debt....................................................... 25.4
Other liabilities.................................................... 92.5
--------
Total liabilities................................................ 605.4
--------
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; 70,108,382 outstanding... 0.7
Class B, 10,000,000 shares authorized; 1,307,923 outstanding..... --
Capital in excess of par........................................... 526.8
Retained earnings.................................................. 70.8
Accumulated translation adjustment................................. (15.4)
Treasury stock, at cost, 2,093,514 shares.......................... (49.5)
--------
Total stockholders' equity....................................... 533.4
--------
Total liabilities and stockholders' equity....................... $1,138.8
========
</TABLE>
See notes to consolidated condensed financial statements.
F-22
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Revenues..................................................... $1,143.1 $1,139.7
Cost of revenues............................................. 788.5 746.5
-------- --------
Gross profit............................................... 354.6 393.2
Research and development..................................... 63.5 62.4
Selling, general and administrative.......................... 189.1 217.6
Amortization of intangibles.................................. 5.1 --
-------- --------
Operating expenses......................................... 257.7 280.0
-------- --------
Operating income........................................... 96.9 113.2
Interest expense............................................. 10.5 6.3
Amortization of deferred financing costs and other........... 3.8 4.4
-------- --------
Earnings before income taxes and extraordinary item........ 82.6 102.5
Provision for income taxes................................... 30.2 37.5
-------- --------
Earnings before extraordinary item......................... 52.4 65.0
Extraordinary loss on extinguishment of debt (net of related
tax benefit of $8.4)........................................ -- (14.0)
-------- --------
Net earnings............................................... $ 52.4 $ 51.0
======== ========
Earnings per common and common equivalent share, primary and
fully diluted:
Before extraordinary item.................................. $ 0.69 $ 0.85
Extraordinary loss......................................... -- (0.18)
-------- --------
Net earnings............................................... $ 0.69 $ 0.67
======== ========
<CAPTION>
Shares used in per share calculation......................... 75.5 76.6
<S> <C> <C>
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
F-23
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................. $ 52.4 $ 51.0
Adjustments to reconcile net earnings to net cash provided
by (used for)
operating activities:
Depreciation and amortization............................ 34.9 37.2
Extraordinary loss....................................... -- 22.4
Deferred taxes........................................... (7.8) 2.3
Other non-cash charges to operations..................... 7.1 9.8
------- -------
86.6 122.7
Change in assets and liabilities:
Trade receivables...................................... (28.9) 4.4
Trade receivables programs............................. (13.9) 24.6
Inventories............................................ (29.3) (42.4)
Accounts payable....................................... (1.5) 29.6
Accrued liabilities.................................... (58.6) (42.9)
Other assets and liabilities........................... (12.5) (19.8)
------- -------
Net cash provided by (used for) operating activi-
ties................................................ (58.1) 76.2
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................. (69.5) (31.2)
Proceeds from sale of property, plant and equipment........ 2.6 0.2
------- -------
Net cash used for investing activities............... (66.9) (31.0)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt ............................... 14.0 67.4
Proceeds from long-term debt .............................. -- 0.2
Principal payments on long-term debt....................... (20.0) (125.5)
Charges related to extinguishment of debt.................. -- (22.4)
Purchase of treasury stock................................. -- (49.5)
Exercise of stock options and warrants..................... 9.7 6.0
------- -------
Net cash provided by (used for) financing activi-
ties................................................ 3.7 (123.8)
------- -------
Effect of exchange rate changes on cash...................... (0.9) (1.6)
------- -------
Net decrease in cash and cash equivalents.................... (122.2) (80.2)
Cash and cash equivalents--beginning of period............... 150.5 119.3
------- -------
Cash and cash equivalents--end of period..................... $ 28.3 $ 39.1
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
F-24
<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, 1996.
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 include stock
options, warrants, restricted stock and deferred stock units. Primary and
fully diluted earnings per share do not differ by a material amount.
2. INVENTORIES
Inventories as of June 30, 1997 consist of the following:
<TABLE>
<CAPTION>
(DOLLARS
IN MILLIONS)
<S> <C>
Work in process.............................................. $153.6
Finished goods............................................... 159.8
------
$313.4
======
</TABLE>
3. LONG-TERM DEBT
In March 1997, the Company prepaid its $120 million 14.25 percent senior
subordinated notes due in 2001. The prepayment resulted in an extraordinary
charge of $22.4 million ($14.0 million net of tax benefit) caused by a
prepayment premium and other fees.
In March 1997, the Company entered into three-year interest rate swaps with
a total notional amount of $60 million, whereby the Company pays interest at a
fixed rate of approximately 6.5 percent and receives interest at a floating
rate equal to the three-month London Interbank Offered Rate (LIBOR). The swaps
serve as a hedge of financings based on floating interest rates.
4. STOCKHOLDERS' EQUITY
In April 1996, the Company's board of directors authorized the repurchase of
up to $50 million of its Class A common stock. In May 1997, the Company's
board of directors authorized the repurchase of an additional $150 million of
its Class A common stock. The repurchase authority allows the Company at
management's discretion 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 June 30, 1997, the Company had
repurchased 2,093,514 shares in the open market at prices ranging from $21.25
to $27.50 for an aggregate cost of approximately $50 million.
F-25
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
5. DERIVATIVE FINANCIAL INSTRUMENTS
Instruments used as hedges must be effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in market values of hedge
instruments must be highly correlated with changes in market values of
underlying hedged items both at inception of the hedge and over the life of
the hedge contract. Any instrument not qualifying as a hedge or designated but
ineffective as a hedge is marked to market and recognized in earnings
immediately. Gains and losses from terminated forward currency exchange
contracts and interest rate swaps are deferred and recognized consistent with
the terms of the underlying transaction.
6. NEW ACCOUNTING STANDARDS
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. SFAS No. 125 provides
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings and addresses programs such as the
Company's trade receivables programs in the U.S. and Germany. With the
adoption of SFAS No. 125, the Company continues to account for the transfer of
receivables under both programs as sale transactions. In response to SFAS No.
125 for purposes of the U.S. program, the Company formed and sells its
receivables to a wholly owned subsidiary, Lexmark Receivables Corporation
("LRC"), which then sells the receivables to an unrelated third party. LRC is
a separate legal entity with its own separate creditors who, in a liquidation
of LRC, would be entitled to be satisfied out of LRC's assets prior to any
value in LRC becoming available for equity claims of an LRC stockholder.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings per Share. This statement is effective for the
Company's 1997 annual financial statements. Restatement of all prior period
earnings per share ("EPS") data presented is required. This statement replaces
the presentation of primary EPS and fully diluted EPS with a presentation of
basic EPS and diluted EPS, respectively. Basic EPS were $0.74 for the first
six months of 1996, compared to $0.71, $0.90 before extraordinary item, for
the first six months of 1997. Diluted EPS were $0.69 for the six months ended
June 30, 1996, compared to $0.67, $0.85 before extraordinary item, for the six
months ended June 30, 1997.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. This statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This statement does not require a specific format for that
financial statement but requires that an entity display an amount representing
total comprehensive income for the period in that financial statement. This
statement requires that an entity classify items of other comprehensive income
by their nature in a financial statement. For example, other comprehensive
income may include foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on certain investments in debt
and equity securities. In addition, the accumulated balance of other
comprehensive income must be displayed separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. Reclassification of financial statements for earlier periods,
provided for
F-26
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
comparative purposes, is required. The Company has not determined the impact
that the adoption of this new accounting standard will have on its
consolidated financial statements. The Company will adopt this accounting
standard on January 1, 1998, as required.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
enterprise's chief operating decision maker in deciding how to allocate
resources and in assessing performance. This statement requires reporting
segment profit or loss, certain specific revenue and expense items and segment
assets. It also requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts reported in the consolidated financial
statements. Restatement of comparative information for earlier periods
presented is required in the initial year of application. Interim information
is not required until the second year of application, at which time
comparative information is required. The Company has not determined the impact
that the adoption of this new accounting standard will have on its
consolidated financial statement disclosures. The Company will adopt this
accounting standard on January 1, 1998, as required.
F-27
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have agreed to sell to each of the U.S. Underwriters
named below, and each of such U.S. Underwriters has severally agreed to
purchase from the Selling Stockholders, the respective number of shares of
Class A Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OF CLASS
A
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
Morgan Stanley & Co. Incorporated..................................
Smith Barney Inc...................................................
---------
Total............................................................ 9,600,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Class A Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus, and in part to certain securities dealers
at such price less a concession of $0. per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $0. per
share to certain brokers and dealers. After the shares of Class A Common Stock
are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the U.S. Underwriters.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters
of the International Offering (the "International Underwriters" and, together
with the U.S. Underwriters, the "Underwriters") providing for the concurrent
offer and sale of an aggregate of 2,400,000 shares of Class A Common Stock in
an international offering outside the United States. The public offering price
and underwriting discounts and commissions per share for the two offerings are
identical. The closing of the offering made hereby is a condition to the
closing of the International Offering, and vice versa. The several
International Underwriters are Goldman Sachs International, Merrill Lynch
International, Morgan Stanley & Co. International Limited, Smith Barney Inc.
and Morgan Grenfell & Co. Limited.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will offer, sell or deliver the shares of Class A Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase
is located in the United States. Each of the International Underwriters has
agreed pursuant to the Agreement Between that, as a part of the distribution
of the shares offered in the International Offering, and subject to certain
exceptions, it will not, directly or indirectly, offer, sell or deliver shares
of Class A Common Stock in the United States or to any U.S. persons.
U-1
<PAGE>
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so
sold shall be the public offering price, less an amount not greater than the
selling concession.
The Selling Stockholders have granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 1,440,000 additional shares of Class A Common Stock solely to
cover over-allotments, if any. If the U.S. Underwriters exercise their over-
allotment option, the U.S. Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the
foregoing table, bears to the 9,600,000 shares of Class A Common Stock
initially offered hereby. The Selling Stockholders have granted the
International Underwriters a similar option exercisable for up to an aggregate
of 360,000 additional shares of Class A Common Stock.
The Company and the Selling Stockholders have each agreed, for a period of
90 days after the date of this Prospectus, not to file a registration
statement with respect to, enter into any agreement providing for or effect
any public sale, distribution or other disposition (including, without
limitation, any sale pursuant to Rule 144 or Rule 144A under the Securities
Act and any sale in a broker's transaction or through a market maker) of,
except as provided under the Underwriting Agreement and under the
International Underwriting Agreement, any Class A Common Stock, Class B Common
Stock or securities of the Company that are substantially similar to the Class
A Common Stock or Class B Common Stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent
the right to receive, Class A Common Stock, Class B Common Stock or any such
substantially similar securities (other than pursuant to employee benefit or
incentive plans existing on, or upon the conversion or exchange of convertible
or exchangeable securities outstanding as of, the date of this Prospectus),
without the prior written consent of Goldman, Sachs & Co. In addition, the
Selling Stockholders and certain other stockholders of the Company have
entered into "holdback" agreements with the Underwriters. See "Shares Eligible
for Future Sale".
In connection with the Offerings, the Underwriters may purchase and sell the
Class A Common Stock in the open market. These transactions may include over-
allotment and stabilizing transactions and purchases to cover syndicate short
positions created in connection with the Offerings. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or
retarding a decline in the market price of the Class A Common Stock, and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Class A Common Stock than they are required to purchase
from the Company in the Offerings. The Underwriters also may impose a penalty
bid, whereby selling concessions allowed to syndicate members or other broker-
dealers in respect of the Class A Common Stock sold in the Offerings for their
account may be reclaimed by the syndicate if such Class A Common Stock is
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Class A Common Stock, which may be higher than the price that might otherwise
prevail in the open market, and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the New York
Stock Exchange, in the over-the-counter market or otherwise.
The Class A Common Stock is traded on the New York Stock Exchange.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
U-2
<PAGE>
[COLOR PHOTOS OF SELECTED LEXMARK PRODUCTS]
U-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 3
Incorporation of Certain Documents by
Reference............................................................... 3
Prospectus Summary....................................................... 5
Risk Factors............................................................. 11
Price Range of Class A Common Stock
and Dividend Policy..................................................... 16
Capitalization........................................................... 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 33
Management............................................................... 48
Certain Transactions and Relationships................................... 50
Selling Stockholders..................................................... 51
Shares Eligible for Future Sale.......................................... 53
Description of Capital Stock............................................. 54
Validity of the Shares................................................... 57
Experts.................................................................. 57
Index to Consolidated Financial
Statements.............................................................. F-1
Underwriting............................................................. U-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12,000,000 SHARES
LEXMARK
INTERNATIONAL GROUP, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------
LOGO
---------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SMITH BARNEY INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1997
12,000,000 SHARES
LEXMARK INTERNATIONAL GROUP, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
Of the 12,000,000 shares of Class A Common Stock offered, 2,400,000 shares
are being offered hereby in an international offering outside the United States
and 9,600,000 shares are being offered in a concurrent offering in the United
States. The public offering price and the aggregate underwriting discount per
share will be identical for both offerings. See "Underwriting".
All the shares of Class A Common Stock are being sold by the Selling
Stockholders. See "Selling Stockholders". The Company will not receive any of
the proceeds from the sale of the shares.
The last reported sale price of the Class A Common Stock, which is listed
under the symbol "LXK", on the New York Stock Exchange on October 9, 1997 was
$31.00 per share. See "Price Range of Class A Common Stock and Dividend
Policy".
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDERS(2)
-------------- ------------ -------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
Total(3)........................ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Expenses of approximately $1,000,000 are payable by the Company in
connection with the offerings.
(3) The Selling Stockholders have granted the International Underwriters an
option for 30 days to purchase up to an additional 360,000 shares at the
public offering price per share, less the underwriting discount, solely to
cover over-allotments. The Selling Stockholders have granted the U.S.
Underwriters a similar option with respect to an additional 1,440,000
shares as part of the concurrent offering in the United States. If such
options are exercised in full, the total initial public offering price,
underwriting discount and proceeds to Selling Stockholders will be
$ , $ and $ , respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that the shares will be ready for delivery in New York, New York, on
or about October , 1997, against payment therefor in immediately available
funds.
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
SMITH BARNEY INC.
DEUTSCHE MORGAN GRENFELL
-----------
The date of this Prospectus is , 1997.
I-1
<PAGE>
Any statement contained in a document or a portion thereof which is
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
or portion thereof which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified shall
not be deemed to constitute a part of this Prospectus except as so modified,
and any statement so superseded shall not be deemed to constitute part of this
Prospectus.
----------------
IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS
A COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
I-2
<PAGE>
CERTAIN UNITED STATES TAX
CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain United States Federal
income and estate tax consequences of the ownership and disposition of Class A
Common Stock by a person other than (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized
in the United States or under the laws of the United States or of any State,
(iii) an estate whose income is includable in gross income for United States
Federal income tax purposes regardless of its source or (iv) a trust if (x) a
court within the United States is able to exercise primary supervision over
the administration of the trust and (y) at least one United States person has
authority to control all substantial decisions of the trust (referred to
hereafter as a "non-U.S. holder"). Recently enacted legislation authorizes the
issuance of Treasury regulations that, under certain circumstances, could
reclassify as a non-U.S. partnership a partnership that would otherwise be
treated as a U.S. partnership, or could reclassify as a U.S. partnership a
partnership that would otherwise be treated as a non-U.S. partnership. Such
regulations would apply only to partnerships created or organized after the
date that proposed regulations are filed with the Federal Register (or, if
earlier, the date of issuance of a notice substantially describing the
expected contents of the regulations).
The discussion is based on provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), and administrative and judicial interpretations as of
the date hereof, all of which are subject to change, possibly with retroactive
effect. Furthermore, this discussion does not consider specific facts and
circumstances that may be relevant to a particular holder's tax position.
Prospective purchasers are urged to consult a tax adviser with respect to the
United States Federal income and estate tax consequences of owning and
disposing of Class A Common Stock, as well as any tax consequences under the
laws of any other taxing jurisdiction.
INCOME TAX
Dividends. Generally, dividends paid to a non-U.S. holder of Class A Common
Stock will be subject to U.S. Federal income tax. Except in the case of
dividends that are effectively connected with the holder's conduct of a trade
or business within the United States, this tax is imposed and withheld at the
rate of 30% of the amount of the dividend, unless reduced by an applicable
income tax treaty. Currently, dividends paid to an address in a foreign
country are presumed to be paid to a resident of such country in determining
the applicability of a treaty for such purposes.
However, under recently finalized United States Treasury regulations
relating to withholding of tax on non-U.S. holders, which by their terms apply
to dividend and other payments made after December 31, 1998 (the "Final
Withholding Regulations"), a non-U.S. holder who is the beneficial owner
(within the meaning of the Final Withholding Regulations) of dividends paid on
Class A Common Stock and who wishes to claim the benefit of an applicable
treaty is generally required to satisfy certain certification and
documentation requirements. Certain special rules apply to claims for treaty
benefits made by non-U.S. holders that are entities rather than individuals
and to beneficial owners (within the meaning of the Final Withholding
Regulations) of dividends paid to entities in which such beneficial owners are
interest holders.
Except as may be otherwise provided in an applicable income tax treaty,
dividends which are effectively connected with the non-U.S. holder's conduct
of a trade or business within the United States are subject to tax at ordinary
Federal income tax rates, which tax is not collected by withholding (except as
described below under "Backup Withholding and Information Reporting"). All or
part of any effectively connected dividends received by a foreign corporation
may also, under certain circumstances, be subject to an additional "branch
profits" tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Non-U.S. holders of Class A Common Stock must
comply with certain certification and documentation requirements to claim an
exception from withholding under the rules described in this paragraph.
I-3
<PAGE>
A non-U.S. holder that is eligible for a reduced rate of U.S. withholding
tax pursuant to a tax treaty may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the United States
Internal Revenue Service.
Disposition of Class A Common Stock. Generally, non-U.S. holders will not be
subject to United States Federal income tax (or withholding thereof) in
respect of gain recognized on a disposition of Class A Common Stock unless (i)
the gain is effectively connected with the non-U.S. holder's conduct of a
trade or business within the United States (in which case the "branch profits"
tax described above may also apply if the holder is a foreign corporation);
(ii) in the case of a non-U.S. holder who is a non-resident alien individual
and holds Class A Common Stock as a capital asset, such holder is present in
the United States for 183 or more days in the taxable year of the sale and
certain other conditions are met; (iii) the Company is or has been a "United
States real property holding corporation" for Federal income tax purposes
(which the Company does not believe it has been or is currently) and the non-
U.S. holder has held directly or constructively more than 5% of the
outstanding Class A Common Stock within the five-year period ending on the
date of the disposition; or (iv) the non-U.S. holder is an individual who lost
U.S. citizenship within 10-year period immediately preceding the close of the
taxable year of such disposition unless such loss of citizenship did not have
U.S. tax avoidance purpose.
ESTATE TAX
If an individual non-U.S. holder owns, or is treated as owning, Class A
Common Stock at the time of his or her death, such stock would be subject to
U.S. Federal estate tax imposed on the estates of non-resident aliens, in the
absence of a contrary provision contained in any applicable tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. Under current law, dividends paid on Class A Common Stock to a
non-U.S. holder at an address outside the United States are generally exempt
from backup withholding tax and U.S. information reporting requirements (but
not from regular withholding tax discussed above). Under the Final Withholding
Regulations, for dividends paid after December 31, 1998, a non-U.S. holder
must generally provide proper documentation indicating foreign status to a
withholding agent in order to avoid backup withholding tax; however, dividends
paid to certain exempt recipients (not including individuals) will not be
subject to backup withholding even if such documentation is not provided if
the withholding agent is allowed to rely on certain regulatory presumptions of
the recipient's foreign status (including payment to an address outside the
United States).
Broker Sales. Payments of proceeds from the sale of Class A Common Stock by
a non-U.S. holder made to or through a foreign office of a broker generally
will not be subject to information reporting or backup withholding. However,
certain foreign offices, including the foreign offices of a U.S. broker, are
subject to information reporting unless the holder certifies its non-U.S.
status under penalties of perjury or otherwise establishes its entitlement to
an exemption. Payments of proceeds from the sale of Class A Common Stock by a
non-U.S. holder to or through a U.S. office of a broker are currently subject
to both information reporting and backup withholding at a rate of 31% unless
the holder certifies its status as a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption.
A non-U.S. holder may obtain a refund of any excess amounts withheld under
the backup withholding rules by filing the appropriate claim for refund with
the IRS.
VALIDITY OF THE SHARES
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Debevoise & Plimpton, New York, New York, and
for the Underwriters by Sullivan & Cromwell, New York, New York. Debevoise &
Plimpton also acts and may hereafter act as counsel to
I-4
<PAGE>
CD&R and its affiliates and to the Company and its affiliates. Franci J.
Blassberg, Esq., a member of Debevoise & Plimpton, is married to Joseph L.
Rice, III, who until February 1997 was a director of the Company and who is
currently a general partner of the general partner of C&D Fund IV.
EXPERTS
The consolidated statements of financial position as of December 31, 1995
and 1996 and the consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1996 included or incorporated by reference in this Prospectus have been
included or incorporated by reference herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
I-5
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have agreed to sell to each of the International
Underwriters named below, and each of such International Underwriters has
severally agreed to purchase from the Selling Stockholders, the respective
number of shares of Class A Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS A
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman Sachs International.......................................
Merrill Lynch International.......................................
Morgan Stanley & Co. International Limited........................
Smith Barney Inc. ................................................
Morgan Grenfell & Co. Limited.....................................
---------
Total............................................................ 2,400,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
International Underwriters are committed to take and pay for all of the shares
offered hereby, if any are taken.
The International Underwriters propose to offer the shares of Class A Common
Stock in part directly to the public at the initial public offering price set
forth on the cover page of this Prospectus, and in part to certain securities
dealers at such price less a concession of $0. per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $0. per share to certain brokers and dealers. After the shares of
Class A Common Stock are released for sale to the public, the offering price
and other selling terms may from time to time be varied by the International
Underwriters.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "U.S. Underwriting Agreement") with the underwriters of the
United States Offering (the "U.S. Underwriters" and, together with the
International Underwriters, the "Underwriters") providing for the concurrent
offer and sale of an aggregate of 9,600,000 shares of Class A Common Stock in
an offering in the United States. The public offering price and underwriting
discounts and commissions per share for the two offerings are identical. The
closing of the offering made hereby is a condition to the closing of the
United States Offering, and vice versa. The several U.S. Underwriters are
Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated and Smith Barney Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will offer, sell or deliver the shares of Class A Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase
is located in the United States. Each of the International Underwriters has
agreed pursuant to the Agreement Between that, as a part of the distribution
of the shares offered in the International Offering, and subject to certain
exceptions, it will not, directly or indirectly, offer, sell or deliver shares
of Class A Common Stock in the United States or to any U.S. persons.
I-U-1
<PAGE>
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so
sold shall be the public offering price, less an amount not greater than the
selling concession.
The Selling Stockholders have granted the International Underwriters an
option exercisable for 30 days after the date of this Prospectus to purchase
up to an aggregate of 360,000 additional shares of Class A Common Stock solely
to cover over-allotments, if any. If the International Underwriters exercise
their over-allotment option, the International Underwriters have severally
agreed, subject to certain conditions, to purchase approximately the same
percentage thereof that the number of shares to be purchased by each of them,
as shown in the foregoing table, bears to the 2,400,000 shares of Class A
Common Stock initially offered hereby. The Selling Stockholders have granted
the U.S. Underwriters a similar option exercisable for up to an aggregate of
1,440,000 additional shares of Class A Common Stock.
The Company and the Selling Stockholders have each agreed, for a period of
90 days after the date of this Prospectus, not to file a registration
statement with respect to, enter into any agreement providing for or effect
any public sale, distribution or other disposition (including, without
limitation, any sale pursuant to Rule 144 or Rule 144A under the Securities
Act and any sale in a broker's transaction or through a market maker) of,
except as provided under the Underwriting Agreement and under the U.S.
Underwriting Agreement, any Class A Common Stock, Class B Common Stock or
securities of the Company that are substantially similar to the Class A Common
Stock or Class B Common Stock, including but not limited to any securities
that are convertible into or exchangeable for, or that represent the right to
receive, Class A Common Stock, Class B Common Stock or any such substantially
similar securities (other than pursuant to employee benefit or incentive plans
existing on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Prospectus), without the prior
written consent of Goldman Sachs International. In addition, the Selling
Stockholders and certain other stockholders of the Company have entered into
"holdback" agreements with the Underwriters. See "Shares Eligible for Future
Sale".
Each International Underwriter has also agreed that (a) it has not offered
or sold and, prior to the expiry of the period of six months from the Closing
Date, will not offer or sell any shares of Class A Common Stock to persons in
the United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995 of Great Britain, (b) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 of Great Britain
with respect to anything done by it in relation to the shares of Class A
Common Stock in, from or otherwise involving the United Kingdom, and (c) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue of the shares
of Class A Common Stock to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 of Great Britain or is a person to whom such document
may otherwise lawfully be issued or passed on.
Buyers of shares of Class A Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practice of
the country of purchase in addition to the initial public offering price.
In connection with the Offerings, the Underwriters may purchase and sell the
Class A Common Stock in the open market. These transactions may include over-
allotment and stabilizing transactions and purchases to cover syndicate short
positions created in connection with the Offerings. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or
retarding a decline in
I-U-2
<PAGE>
the market price of the Class A Common Stock, and syndicate short positions
involve the sale by the Underwriters of a greater number of shares of Class A
Common Stock than they are required to purchase from the Company in the
Offerings. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the Class A Common Stock sold in the Offerings for their account may be
reclaimed by the syndicate if such Class A Common Stock is repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Class A Common
Stock, which may be higher than the price that might otherwise prevail in the
open market, and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the New York Stock Exchange, in
the over-the-counter market or otherwise. In the United Kingdom, any such
transactions will be effected by Goldman Sachs International.
The Class A Common Stock is traded on the New York Stock Exchange.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
I-U-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 3
Incorporation of Certain Documents by
Reference............................................................... 3
Prospectus Summary....................................................... 5
Risk Factors............................................................. 11
Price Range of Class A Common Stock
and Dividend Policy..................................................... 16
Capitalization........................................................... 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 33
Management............................................................... 48
Certain Transactions and Relationships................................... 50
Selling Stockholders..................................................... 51
Shares Eligible for Future Sale.......................................... 53
Description of Capital Stock............................................. 54
Certain United States Tax Consequences to Non-U.S. Holders............... 55
Validity of the Shares................................................... 57
Experts.................................................................. 57
Index to Consolidated Financial
Statements.............................................................. F-1
Underwriting............................................................. U-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12,000,000 SHARES
LEXMARK
INTERNATIONAL GROUP, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------
LOGO
---------------
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
SMITH BARNEY INC.
DEUTSCHE MORGAN GRENFELL
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses of the issuance and distribution of
the shares of Class A Common Stock being registered, including fees and
expenses previously incurred by the Company, other than any underwriting
compensation.
<TABLE>
<S> <C>
Registration fee................................................. $ 130,180
National Association of Securities Dealers, Inc. filing fee...... $ 35,000
Accounting fees and expenses..................................... $ 125,000
Legal fees and expenses.......................................... $ 125,000
Printing and engraving........................................... $ 170,000
Transfer Agent's fees............................................ $ 10,000
Blue Sky fees and expenses (including counsel fees).............. $ 10,000
Miscellaneous expenses........................................... $ 394,820
----------
Total.......................................................... $1,000,000
==========
</TABLE>
All of the above expenses of the Offering will be borne by the Company as
contemplated by the Registration and Participation Agreement entered into at
the time of the Acquisition.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation in the performance of his duty. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such
officer or director actually and reasonably incurred.
Article VI of the Company's By-Laws provides for indemnification by the
Company of its directors and officers to the full extent permitted by the
Delaware Law. Pursuant to Section 145 of the Delaware Law, the Company has
purchased insurance on behalf of its present and former directors and officers
against any liability asserted against or incurred by them in such capacity or
arising out of their status as such.
Pursuant to specific authority granted by Section 102 of the Delaware Law,
Article FIFTH of the Company's Third Restated Certificate of Incorporation
contains the following provision regarding limitation of liability of
directors and officers:
"(e) No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of his or her fiduciary
duty as a director, provided that nothing
II-1
<PAGE>
contained in this Third Restated Certificate of Incorporation shall
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from
which the director derived an improper personal benefit."
The Company has entered into an Indemnification Agreement with C&D Fund IV
(together with its respective affiliates, directors and officers, the
"Indemnitees"). Pursuant to the Indemnification Agreement and under the Third
Restated Certificate of Incorporation, the Company has agreed to indemnify the
members of the Company's Board of Directors to the fullest extent allowable
under applicable Delaware law. In addition, the Company has agreed to
indemnify the Indemnitees against any suits, claims, damages or expenses that
may be made against or incurred by them under applicable securities laws in
connection with offerings of securities of the Company. However, the Company
will not be obligated to indemnify any Indemnitee in the event that any such
suit, claim, damage or expense is based upon an untrue statement or agreements
related to such offerings of securities in reliance upon written information
furnished by such Indemnitee specifically for use in such documents, contracts
and agreements. See "Underwriting".
Reference is hereby made to Sections 9 and 10 of the Underwriting Agreements
filed as Exhibits 1.1 and 1.2 hereto, for certain indemnification
arrangements.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. (A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<C> <S>
1.1 Form of Underwriting Agreement (U.S. Version).
1.2 Form of Underwriting Agreement (International Version).
Form of Agreement between U.S. and International Underwriting
1.3 Syndicates.
4.1 Third Restated Certificate of Incorporation of Lexmark International
Group, Inc. (the
"Company").(1)
4.2 By-Laws of the Company, as amended and restated as of October 26, 1995,
and amended by Amendment No. 1 dated as of February 13, 1997.(6)
4.3 Note and Stock Purchase Agreement, dated as of March 27, 1991, among
the Company, Lexmark International and The Equitable Life Assurance
Society of the United States and certain of its affiliates (the
"Equitable Investors").(2)
4.4 Amendment No. 1 to Note and Stock Purchase Agreement, dated as of
December 31, 1991 among the Company, Lexmark International, Inc.
("Lexmark International") and the Equitable Investors.(2)
4.5 Amendment No. 2 to Note and Stock Purchase Agreement, dated as of
December 21, 1992, among the Company, Lexmark International and the
Equitable Investors.(2)
4.6 Amendment No. 3 to Note and Stock Purchase Agreement, dated as of
December 31, 1993, among the Company, Lexmark International and the
Equitable Investors.(2)
4.7 Amendment No. 4 to Note and Stock Purchase Agreement, dated as of April
21, 1995, among the Company, Lexmark International and the Equitable
Investors.(2)
4.8 Amendment No. 5 to Note and Stock Purchase Agreement, dated as of
October 17, 1995, among the Company, Lexmark International and the
Equitable Investors.(3)
4.9 Amendment No. 6 to Note and Stock Purchase Agreement, dated as of April
3, 1996, among the Company, Lexmark International and the Equitable
Investors.(4)
4.10 Registration and Participation Agreement, dated as of March 27, 1991,
among the Company, The Clayton & Dubilier Private Equity Fund IV ("C&D
Fund IV") and the stockholders of the Company named therein.(2)
4.11 Amendment, Waiver and Consent Under Registration and Participation
Agreement, dated as of December 21, 1994, executed by C&D Fund IV,
Leeway & Co., Mellon Bank N.A., as Trustee for First Plaza Group Trust
("Mellon Bank", and with Leeway & Co., the "Institutional Investors")
and the Equitable Investors.(2)
4.12 Registration Agreement, dated as of March 27, 1991, among the Company,
Lexmark International, the Equitable Investors and the Institutional
Investors.(2)
4.13 Amendment No. 1 to Registration Agreement, dated as of December 31,
1991, among the Company, Lexmark International, the Equitable Investors
and the Institutional Investors.(2)
4.14 Securities Purchase Agreement, dated as of March 27, 1991, among the
Company and the Institutional Investors.(2)
4.15 Amendment No. 1 to Securities Purchase Agreement, dated as of March 27,
1991, among the Company and the Institutional Investors.(2)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<C> <S>
4.16 Amendment No. 2 to Securities Purchase Agreement, dated as of December
21,
1992, among the Company and the Institutional Investors.(2)
4.17 Specimen of Class A Common Stock certificate.(1)
4.18 Warrant Agreement, dated as of April 1, 1991, among Lexmark
International, Spectrum Sciences B.V., a Netherlands corporation, and
the Company.(2)
4.19 Warrant No. 6, dated February 21, 1997, issued to Keys Foundation.(6)
5 Opinion of Debevoise & Plimpton regarding the validity of the
securities being registered.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Debevoise & Plimpton (included in the Opinion of Debevoise &
Plimpton filed as Exhibit 5).
24 Powers of Attorney.
</TABLE>
- --------
(1) Incorporated herein by reference to the Company's Form S-1 Registration
Statement, Amendment No. 1 (Registration No. 33-97218) filed with the
Commission on October 27, 1995.
(2) Incorporated herein by reference to the Company's Form S-1 Registration
Statement (Registration No. 33-97218) filed with the Commission on
September 22, 1995.
(3) Incorporated herein by reference to the Company's Form S-1 Registration
Statement, Amendment No. 2 (Registration No. 33-97218) filed with the
Commission on November 13, 1995.
(4) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q (File No. 1-14050) for the Quarterly Period ended March 31, 1996.
(5) Incorporated herein by reference to the Company's Annual Report on Form
10-K (File No. 1-14050) for the Fiscal Year ended December 31, 1995.
(6) Incorporated herein by reference to the Company's Annual Report on Form
10-K (File No. 1-14050) for the Fiscal Year ended December 31, 1996.
(B) FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statement Schedules (page S-1).
Financial statement schedules other than those listed above are omitted as
not required or not applicable or because the information is included in the
Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a
II-4
<PAGE>
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) For purposes of determining any liability under the Act, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT CERTIFIES
THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF LEXINGTON, STATE OF KENTUCKY, ON OCTOBER 10, 1997.
Lexmark International Group, Inc.
By /s/ Marvin L. Mann
---------------------
NAME: MARVIN L. MANN
TITLE: Chairman of the Board
&
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE FOLLOWING
CAPACITIES AND ON OCTOBER 10, 1997.
SIGNATURE TITLE
/s/ Marvin L. Mann
___________________________
Chairman of the
MARVIN L. MANN Board/Chief
Executive Officer
(Principal
Executive Officer)
/s/ Gary E. Morin
___________________________
Vice President/Chief
GARY E. MORIN Financial Officer
(Principal
Financial Officer)
/s/ David L. Goodnight
___________________________
Corporate Controller
DAVID L. GOODNIGHT (Principal
Accounting Officer)
/s/ B. Charles Ames
___________________________
Director
B. CHARLES AMES
/s/ Roderick H. Carnegie
___________________________
Director
RODERICK H. CARNEGIE
/s/ Frank T. Cary
___________________________
Director
FRANK T. CARY
/s/ Paul J. Curlander
___________________________
Director
PAUL J. CURLANDER
/s/ William R. Fields
___________________________
Director
WILLIAM R. FIELDS
II-6
<PAGE>
SIGNATURE TITLE
/s/ Donald J. Gogel
__________________________
Director
DONALD J. GOGEL
/s/ Ralph E. Gomory
__________________________
Director
RALPH E. GOMORY
/s/ Stephen R. Hardis
__________________________
Director
STEPHEN R. HARDIS
/s/ Michael J. Maples
__________________________
Director
MICHAEL J. MAPLES
/s/ Martin D. Walker
__________________________
Director
MARTIN D. WALKER
II-7
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES*
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION SEQUENTIALLY
NUMBER OF SCHEDULES NUMBERED PAGE
- -------- ------------------------------- -------------
<S> <C> <C>
II. Valuation & Qualifying Accounts S-3
</TABLE>
- --------
* All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related notes.
S-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the consolidated financial statements of
Lexmark International Group, Inc. and subsidiaries as of December 31, 1995 and
1996, and for each of the years in the three year period ended December 31,
1996 which financial statements are included or incorporated by reference in
the Prospectus, we have also audited the financial statement schedule listed
in Item 16(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Lexington, Kentucky
February 13, 1997
S-2
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1994:
Allowance for doubtful
accounts............. $ 13.4 $ 7.8 $ -- $ (1.8) $ 19.4
Inventory reserves.... 19.0 49.5 -- (32.5) 36.0
Deferred tax assets
valuation
allowance............ 101.0 13.7 -- (3.9) 110.8
Restructuring
reserve............... 1.4 -- -- (1.4) --
1995:
Allowance for doubtful
accounts............. $ 19.4 $13.2 $ -- $ (5.5) $ 27.1
Inventory reserves.... 36.0 36.9 -- (27.9) 45.0
Deferred tax assets
valuation
allowance............ 110.8 4.5 -- (38.1) 77.2
1996:
Allowance for doubtful
accounts............. $ 27.1 $ 3.0 $ -- $(12.1) $ 18.0
Inventory reserves.... 45.0 30.0 -- (41.4) 33.6
Deferred tax assets
valuation
allowance............ 77.2 0.8 -- (45.7) 32.3
</TABLE>
S-3
<PAGE>
EXHIBIT 1.1
Lexmark International Group, Inc.
Class A Common Stock
(par value $.01 per share)
Underwriting Agreement
(U.S. Version)
, 1997
Goldman, Sachs & Co.,
Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated,
Smith Barney Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Certain stockholders named in Schedule II hereto (the "Selling
Stockholders") of Lexmark International Group, Inc., a Delaware corporation
(the "Company"), propose, subject to the terms and conditions stated herein,
to sell to the Underwriters named in Schedule I hereto (the "Underwriters")
an aggregate of .............. shares (the "Firm Shares") and, at the
election of the Underwriters, up to .......... additional shares (the
"Optional Shares") of Class A Common Stock (par value $.01 per share)
("Stock") of the Company (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares").
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale by the
Selling Stockholders of up to a total of .......... shares of Stock (the
"International Shares"), including the overallotment option thereunder,
through arrangements with certain underwriters outside the United States
(the "International Underwriters"), for whom Goldman Sachs International,
Merrill Lynch International, Morgan Stanley & Co. International Limited,
Smith Barney Inc. and Morgan Grenfell & Co. Limited are acting as lead
managers. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement and the International Underwriting
Agreement are hereby expressly made conditional on one another. The
Underwriters hereunder and the International Underwriters are simultaneously
entering into an Agreement between U.S. and International Underwriting
Syndicates (the "Agreement between Syndicates") which provides, among other
things, for the transfer of shares of Stock between the two syndicates. Two
forms of prospectus are to be used in connection with the offering and sale
of shares of Stock contemplated by the foregoing, one relating to the Shares
hereunder and the other relating to the International Shares. The latter
form of prospectus will be identical to the former except for certain
substitute pages as included in the registration statement and amendments
thereto as mentioned below. Except as used in Sections 2, 3, 4, 9 and 11
herein, and except as the context may otherwise require,
<PAGE>
references hereinafter to the Shares shall include all the shares of Stock
which may be sold pursuant to either this Agreement or the International
Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall
include both the U.S. and the international versions thereof.
1. (a) The Company represents and warrants to, and agrees with, each
of the Underwriters and each of the Selling Stockholders that:
(i) A registration statement on Form S-3 (File No. 333-........)
(the "Initial Registration Statement") in respect of the Shares has
been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any post-
effective amendment thereto, each in the form heretofore delivered to
you, and, excluding exhibits thereto but including all documents
incorporated by reference in the prospectus contained therein, to you
for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became or will become effective
upon filing, no other document with respect to the Initial Registration
Statement or document incorporated by reference therein has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any,
has been issued and no proceeding for that purpose has been initiated
or threatened by the Commission (any preliminary prospectus included in
the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Act, is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including (i) the information contained in the form of final prospectus
filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement at the
time it was declared effective and (ii) the documents incorporated by
reference in the prospectus contained in the Initial Registration
Statement at the time such part of the Initial Registration Statement
became effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes effective,
are hereinafter collectively called the "Registration Statement"; such
final prospectus, in the form first filed pursuant to Rule 424(b) under
the Act, is hereinafter called the "Prospectus"; and any reference
herein to any Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Act, as of the date of such
Preliminary Prospectus or Prospectus, as the case may be; any reference
to any amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any documents filed
after the date of such Preliminary Prospectus or Prospectus, as the
case may be, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and incorporated by reference in such Preliminary
Prospectus or Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to refer to and
include any annual report of the Company filed pursuant to Section
13(a) or 15(d) of the Exchange Act after the effective date of the
Registration Statement that is incorporated by reference in the
Registration Statement);
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder, and did not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not
apply to any statements
2
<PAGE>
or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Item 7
of Form S-3;
(iii) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus or any further
amendment or supplement thereto, when such documents become effective
or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein;
(iv) The Registration Statement conforms, and any further
amendments or supplements to the Registration Statement will conform,
in all material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and do not and will not,
as of the applicable effective date of the Registration Statement and
any amendment thereto, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein or by a Selling
Stock holder expressly for use in the preparation of the answers
therein to Item 7 to Form S-3;
(v) The Prospectus conforms, and any further amendments or
supplements to the Prospectus will conform, in all material respects to
the requirements of the Act and the rules and regulations of the
Commission thereunder and do not and will not, as of the applicable
filing date of the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein or by a Selling
Stockholder expressly for use in the preparation of the answers therein
to Item 7 to Form S-3;
(vi) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court
or governmental action, order or decree, which loss or interference has
had a material adverse effect or would reasonably be expected to have a
material adverse effect on the general affairs, financial position,
stockholders' equity or consolidated results of operations of the
Company and its subsidiaries taken as a whole (a "Material Adverse
Effect"), otherwise than as set forth or contemplated in the
Prospectus; and, since the respective dates as of which information is
given in the
3
<PAGE>
Registration Statement and the Prospectus, there has not been any
change in the capital stock (other than pursuant to any employee
incentive or benefit plan in existence on the date of this Agreement)
or increase in the long-term debt of the Company or any of its
subsidiaries in excess of $75,000,000, or any material adverse change,
or any development that would reasonably be expected to involve a
material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results or
operations of the Company and its subsidiaries taken as a whole,
otherwise than as set forth or contemplated in the Prospectus;
(vii) The Company, Lexmark International, Inc. and Lexmark
International, S.N.C. (the latter two companies, the "Material
Subsidiaries") have good title to all principal real properties
(including, without limitation, all such properties described under the
caption "Business -Properties" in the Prospectus) and good title to all
personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as, individually or in the aggregate, do not and
would not reasonably be expected to have a Material Adverse Effect; and
all principal real properties and buildings held under lease by the
Company and its Material Subsidiaries (including, without limitation,
all such properties and buildings described under the caption "Business
- Properties" in the Prospectus) are held by them under valid,
subsisting and enforceable leases with such exceptions as, individually
or in the aggregate, do not and would not reasonably be expected to
have a Material Adverse Effect;
(viii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, except where the failure
to possess such power or authority, or to be so qualified or in good
standing, would not have a Material Adverse Effect; and each Material
Subsidiary of the Company has been duly incorporated and is validly
existing as a corporation, or a societe en nom collectif, as the case
may be, in good standing under the laws of its jurisdiction of
incorporation;
(ix) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares to be sold by the Selling Stockholders
hereunder and under the International Underwriting Agreement and the
shares of the Company's Class B Common Stock (par value $.01 per share)
("Class B Stock")) have been duly and validly authorized and issued,
are fully paid and non-assessable and conform to the description of the
Stock or Class B Stock, as the case may be, contained in the
Prospectus[, provided that with respect to (a) the Shares to be sold by
Keys Foundation, a Netherland Antilles foundation ("Keys Foundation"),
in connection with the sale of Optional Shares to the Underwriters,
such Shares (the "Optional Warrant Shares") shall, upon issuance,
delivery and payment therefor in the manner described in Warrant No. 6,
dated February 21, 1997 (the "Keys Warrant"), issued by the Company to
Keys Foundation, be duly and validly authorized and issued, fully paid
and non-assessable, and (b) ........ Firm Shares to be sold by Keys
Foundation, such Shares (the "Additional Keys Shares") shall, upon
issuance, delivery and payment therefore in the manner as described in
the Keys Warrant, be duly and validly authorized and issued, fully paid
and non-assessable]; all of the issued shares of capital stock of
Lexmark International, Inc. have been duly and validly authorized and
issued, are fully paid and non-assessable and (except for directors'
qualifying shares and except as set forth in the Prospectus) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims; and all of the equity interests of
Lexmark International,
4
<PAGE>
S.N.C. have been duly and validly authorized and issued and are fully
paid and (except for directors' qualifying shares and except as set
forth in the Prospectus) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims;
(x) The compliance by the Company with all of the provisions of
this Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Third Restated Certificate of Incorporation or By-
laws of the Company or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties, except,
in each case (other than with respect to the Third Restated Certificate
of Incorporation or By-Laws of the Company), for such conflicts,
violations, breaches or defaults which would not, individually or in
the aggregate, have a Material Adverse Effect or impair the Company's
ability to perform its obligations hereunder or under the International
Underwriting Agreement; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the consummation by the Company of the
transactions contemplated by this Agreement and the International
Underwriting Agreement, except the registration under the Act of the
Shares and such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters and the International Underwriters;
(xi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound
except, in each case (other than, in the case of the Company, with
respect to its Third Restated Certificate of Incorporation and By-
laws), for such conflicts, violations, breaches or defaults which do
not have or would not reasonably be expected to have a Material Adverse
Effect or impair the Company's ability to perform its obligations
hereunder or under the International Underwriting Agreement;
(xii) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, constitute in all material respects
a fair summary of such terms;
(xiii) The statements set forth in the international version of the
Prospectus under the caption "Certain United States Tax Consequences to
Non-U.S. Holders", insofar as such statements purport to summarize
certain United States federal income and estate tax consequences of the
ownership and dispensation of the Stock by certain non-U.S. holders
(as such term is defined in such Prospectus) of the Shares, provide a
fair summary of such consequences under current law;
(xiv) Other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject which,
individually or in the aggregate, have had, or, if determined adversely
to the Company or any of its subsidiaries, would reasonably be expected
to have, a Material Adverse Effect; and, to
5
<PAGE>
the best knowledge of the Company, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others;
(xv) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an
entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(xvi) Neither the Company nor any of its subsidiaries, or, to the
Company's knowledge, any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(xvii) To the best knowledge of the Company, Coopers & Lybrand
L.L.P., who have certified certain financial statements of the Company
and its subsidiaries, are independent public accountants as required by
the Act and the rules and regulations of the Commission thereunder; and
(xviii) Except as disclosed in the Prospectus, the Company and its
subsidiaries own or possess or are licensed to use the patents, patent
licenses, trademarks, trade names, service marks, service names,
copyrights and other intellectual property rights (collectively, the
"Intellectual Property") necessary to carry on their business as
presently conducted and as proposed to be conducted, without any
conflict with or infringement of the rights of others except for any
such conflicts or infringements that, individually or in the aggregate,
do not or would not reasonably be expected to have a Material Adverse
Effect; to the best knowledge of the Company, none of the technology
employed by the Company or its subsidiaries has been obtained or is
being used by the Company or its subsidiaries in violation of any
contractual or fiduciary obligation binding on the Company, its
subsidiaries or any of their respective directors, employees or
consultants or otherwise in violation of the rights of any person
except for any such violations that, individually or in the aggregate,
do not or would not reasonably be expected to have a Material Adverse
Effect; except as disclosed in the Prospectus, neither the Company nor
any of its subsidiaries has received any notice of infringement or
violation of or conflict with (and knows of no such infringement or
conflict with) asserted rights of others with respect to any
Intellectual Property or any trade secrets, proprietary information,
inventions, know-how, processes and procedures owned, used by or
licensed to the Company or any such subsidiary which, individually or
in the aggregate, if the subject of any unfavorable decision, ruling or
finding, would reasonably be expected to have a Material Adverse
Effect.
(b) Each of the Selling Stockholders severally represents and warrants
to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this
Agreement and the International Underwriting Agreement, and for the
sale and delivery of the Shares to be sold by such Selling Stockholder
hereunder and under the International Underwriting Agreement, have been
obtained; and such Selling Stockholder has full right, power and
authority to enter into this Agreement and the International
Underwriting Agreement and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement;
(ii) With respect to each Selling Stockholder that has executed a
Power of Attorney and Custody Agreement hereinafter referred to, all
consents, approvals, authorizations and orders necessary for the
execution and delivery by such Selling Stockholder of the Power of
Attorney and Custody Agreement have been obtained, and such Selling
Stockholder has full right,
6
<PAGE>
power and authority to enter into the Power of Attorney and Custody
Agreement and to authorize the attorneys-in-fact to sell, assign,
transfer and deliver the Shares to be sold by such Selling Stockholder
hereunder and under the International Underwriting Agreement;
(iii) The sale of the Shares to be sold by such Selling
Stockholder hereunder and under the International Underwriting
Agreement and the compliance by such Selling Stockholder with all of
the provisions of this Agreement, the International Underwriting
Agreement, the Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder is bound, or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of such Selling Stockholder if such Selling
Stockholder is a corporation, the Partnership Agreement of such Selling
Stockholder if such Selling Stockholder is a partnership or any statute
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over such Selling Stockholder or the property
of such Selling Stockholder;
(iv) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the Shares to be sold by
such Selling Stockholder hereunder and under the International
Underwriting Agreement, free and clear of all liens, encumbrances,
equities or claims[, provided that with respect to (a) the Additional
Keys Shares and the Optional Warrant Shares, Keys Foundation hereby
represents that, upon issuance, delivery and payment therefor in the
manner described in the Keys Warrant, it will have good and valid title
to such Additional Keys Shares and such Optional Warrant Shares, free
and clear of all liens, encumbrances, equities or claims] and, upon
delivery of such Shares and payment therefor pursuant hereto and
thereto, good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, will pass to the several
Underwriters or the International Underwriters, as the case may be
(assuming that the several Underwriters and the several International
Underwriters are without notice of any adverse claim, as defined in the
Uniform Commercial Code as adopted in the State of New York (the
"Code") and are otherwise bona fide purchasers for the purposes of the
Code and that such Underwriters' and the International Underwriters'
rights are not limited by subsection (4) of Section 8-302 of the Code);
(v) During the period beginning on the date hereof and continuing
to and including the date 90 days after the date of the Prospectus,
such Selling Stockholder will not (A) enter into any agreement
providing for, or effect, any public sale, distribution or other
disposition (including, without limitation any sale pursuant to Rule
144, Rule 144A or Regulation S under the Act, and any sale in a
broker's transaction or through a market maker) of any Class A Common
Stock, Class B Common Stock or other equity securities of the Company
or any security convertible into or exchangeable or exercisable for any
equity security of the Company or to grant any public option for any
such sale, in any case without the prior written consent of Goldman,
Sachs & Co., as representatives of the Underwriters; (B) sell, pledge,
transfer or otherwise dispose of any such securities in any private
transaction exempt from the registration requirements of the Act
unless, prior to the consummation thereof, the person to whom such
securities are sold, pledged, transferred or otherwise disposed of
(including without limitation any affiliate of the Selling Stockholder)
delivers to you a letter signed by such person substantially in the
form of this paragraph; and (C) request registration of any securities
of the Company pursuant to any registration rights that have been
granted to the
7
<PAGE>
Selling Stockholder, without the prior written consent of Goldman,
Sachs & Co., as representatives of the Underwriters;
(vi) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vii) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did not, and the Prospectus
and any further amendments or supplements to the Registration Statement
and the Prospectus, when they become effective or are filed with the
Commission, as the case may be, will not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided further that, for all purposes of this Agreement
and the International Underwriting Agreement (including Sections 8(a),
8(b) and 8(g) hereof and thereof), the only information furnished to
the Company by such Selling Stockholder expressly for use in any
Preliminary Prospectus, the Registration Statement, the Prospectus or
any amendment or supplement thereto, are the statements pertaining to
the number of shares owned, the manner in which such shares are held
(whether beneficially or otherwise) and the number of shares proposed
to be sold by such Selling Stockholder under the caption "Selling
Stockholders";
(viii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or
at the First Time of Delivery (as hereinafter defined) a properly
completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department
regulations in lieu thereof);
(ix) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement have been placed in custody under
a Custody Agreement, in the form heretofore furnished to you (the
"Custody Agreement"), duly executed and delivered by such Selling
Stockholder to ChaseMellon Shareholders Services, as custodian (the
"Custodian"), and such Selling Stockholder has duly executed and
delivered a Power of Attorney, in the form heretofore furnished to you
(the "Power of Attorney"), appointing the persons indicated in Schedule
II hereto, and each of them, as such Selling Stockholder's attorneys-
in-fact (the "Attorneys-in-Fact") with authority to execute and deliver
this Agreement and the International Underwriting Agreement on behalf
of such Selling Stockholder, to determine the purchase price to be paid
by the Underwriters and the International Underwriters to the Selling
Stockholders as provided in Section 2 hereof, to authorize the delivery
of the Shares to be sold by such Selling Stockholder hereunder and
otherwise to act on behalf of such Selling Stockholder in connection
with the transactions contemplated by this Agreement, the International
Underwriting Agreement and the Custody Agreement;
(x) The Shares to be sold by such Selling Stockholder hereunder and
under the International Underwriting Agreement and represented by the
certificates held in custody for such Selling Stockholder under the
Custody Agreement are subject to the interests of the Underwriters
hereunder and the International Underwriters under the International
Underwriting Agreement; the arrangements made by such Selling
Stockholder for such custody, and the
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appointment by such Selling Stockholder of the Attorneys-in-Fact by the
Power of Attorney, are to that extent irrevocable; the obligations of
the Selling Stockholders hereunder shall not be terminated by operation
of law, whether by the death or incapacity of any individual Selling
Stockholder or, in the case of an estate or trust, by the death or
incapacity of any executor or trustee or the termination of such estate
or trust, or in the case of a partnership or corporation, by the
dissolution of such partnership or corporation, or by the occurrence of
any other event; if any individual Selling Stockholder or any such
executor or trustee should die or become incapacitated, or if any such
estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should
occur, before the delivery of the Shares hereunder, certificates
representing the Shares shall be delivered by or on behalf of the
Selling Stockholders in accordance with the terms and conditions of
this Agreement, of the International Underwriting Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant
to the Powers of Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred,
regardless of whether or not the Custodian, the Attorneys-in-Fact, or
any of them, shall have received notice of such death, incapacity,
termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) each of
the Selling Stockholders agrees, severally and not jointly, to sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from each of the Selling Stockholders, at a purchase
price per share of $......., the number of Firm Shares (to be adjusted by
you so as to eliminate fractional shares) determined, in each case, by
multiplying the aggregate number of Firm Shares to be sold by such Selling
Stockholder as set forth opposite its name in Schedule II hereto by a
fraction, the numerator of which is the aggregate number of Firm Shares to
be purchased by such Underwriter as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all of the Underwriters
from all of the Selling Stockholders hereunder, and (b) in the event and to
the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, each of the Selling Stockholders agrees,
severally and not jointly, to sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not jointly, to purchase from each of
the Selling Stockholders, at the purchase price per share set forth in
clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you
so as to eliminate fractional shares) determined, in each case, by
multiplying such number of Optional Shares by a fraction, the numerator of
which is the maximum number of Optional Shares which such Underwriter is
entitled to purchase as set forth opposite the name of such Underwriter in
Schedule I hereto and the denominator of which is the maximum number of
Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule II
hereto, hereby grant, severally and not jointly, to the Underwriters the
right to purchase at their election up to ........... Optional Shares, at
the purchase price per share set forth in the paragraph above, for the sole
purpose of covering overallotments in the sale of the Firm Shares. Any such
election to purchase Optional Shares shall be made in proportion to the
number of Optional Shares to be sold by each Selling Stockholder. Any such
election to purchase Optional Shares may be exercised only by written notice
from you to the Attorneys-in-Fact, given within a period of 30 calendar days
after the date of this Agreement and setting forth the aggregate number of
Optional Shares to be purchased and the date on which such Optional Shares
are to be delivered, as determined by you but in no event earlier than the
First Time of Delivery (as defined in Section 4 hereof) or, unless you and
the Attorneys-in-Fact otherwise agree in writing, earlier than two or later
than ten business days after the date of such notice.
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3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) Certificates in definitive form for the Shares to be purchased
by each Underwriter hereunder and in such authorized denominations and
registered in such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Selling Stockholders, shall be
delivered by or on behalf of the Selling Stockholders to Goldman, Sachs &
Co., through the facilities of The Depository Trust Company ("DTC"), for the
account of such Underwriter, against payment by such Underwriter or on its
behalf of the purchase price therefor by wire transfer of same day funds
payable to the order of the Custodian, as their interests may appear. The
Company will cause the certificates representing the Shares to be made
available for checking and packaging at least twenty-four hours prior to the
Time of Delivery (as defined below) with respect thereto at the office of
DTC or its designated custodian (the "Designated Office"). The time and
date of such delivery and payment shall be, with respect to the Firm Shares,
9:30 a.m., New York City time, on ............, 1997, or on such other time
and date as Goldman, Sachs & Co. and the Selling Stockholders may agree upon
in writing, and, with respect to the Optional Shares, 9:30 a.m., New York
City time, on the date specified by Goldman, Sachs & Co. in the written
notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman, Sachs
& Co. and the Selling Stockholders may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not
the First Time of Delivery, is herein called the "Second Time of Delivery",
and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the
offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004
(the "Closing Location"), and the Shares will be delivered at the Designated
Office, or at the Closing Location or elsewhere in The City of New York, as
directed by Goldman, Sachs & Co. not later than the New York Business Day
before the Time of Delivery, all at each Time of Delivery. A meeting will
be held at the Closing Location at 11:00 a.m., New York City time, on the
New York Business Day next preceding each Time of Delivery, at which meeting
the final drafts of the documents to be delivered pursuant to the preceding
sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters and, to the extent
provided in Sections 5(a), 5(d), 5(e) and 5(h), each of the Selling
Stockholders (it being understood that you, and not the Selling
Stockholders, shall have the right to consent to the actions referred to
therein):
(a) To prepare the Prospectus in a form approved by you; to file the
Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus
which shall be disapproved by you promptly after reasonable notice thereof;
to advise you, promptly after it receives notice thereof, of the time when
any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has
been filed and to furnish you copies thereof; to file promptly all reports
and any definitive proxy or information statements required to be filed by
the Company with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of the Prospectus and for
so long as the delivery of a prospectus is required
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in connection with the offering or sale of the Shares; to advise you,
promptly after it receives notice thereof, of the issuance by the Commission
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the qualification
of the Shares for offering or sale in any jurisdiction, of the initiation or
(to the Company's knowledge) threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus or suspending any such qualification, promptly to use its best
efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws
so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution
of the Shares, provided that in connection therewith the Company shall not
be required to qualify as a foreign corporation or to file a general consent
to service of process, or subject itself to taxation, in any jurisdiction;
(c) Prior to 12:00 noon, New York City time, on the New York Business Day
next succeeding the date of this Agreement, and thereafter, to furnish the
Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering or
sale of the Shares and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it shall be necessary during
such period to amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the Prospectus in
order to comply with the Act or the Exchange Act, to notify you and upon
your request to file such document and to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as you
may from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or omission
or effect such compliance, and in case any Underwriter is required to
deliver a prospectus in connection with sales of any of the Shares at any
time nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and deliver
to such Underwriter as many copies as you may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including, at the option
of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, not to file
a registration statement with respect to, enter into any agreement providing
for, or effect, any public sale, distribution or other disposition
(including, without limitation, any sale pursuant to Rule 144 or Rule 144A
under the Act and any sale in a broker's transaction or through a market
maker) of, except as provided hereunder and under the International
Underwriting Agreement, any Stock, Class B Stock or securities of the
Company that are substantially similar to the Stock or Class B Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock, Class B
Stock or any such substantially similar securities (other than pursuant to
employee benefit or incentive plans
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existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement),
without the prior written consent of Goldman, Sachs & Co.;
(f) To furnish to its stockholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants)
and, as soon as practicable after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal quarter ending after
the effective date of the Registration Statement), consolidated summary
financial information of the Company and its subsidiaries for such quarter
in reasonable detail;
(g) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the Company
is listed; and (ii) such additional information concerning the business and
financial condition of the Company as you may from time to time reasonably
request (such financial statements to be on a consolidated basis to the
extent the accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission);
(h) To use its best efforts to enforce the obligations of the
stockholders under their respective agreements described in Section 7(i)
hereof; and
(i) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that (a) the Company will
pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in
connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or producing any
Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreements, the
Blue Sky Memorandum, closing documents and any other documents in connection
with the offering, purchase, sale and delivery of the Shares; (iii) all
expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 5(b) hereof,
including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky
surveys; (iv) all fees and expenses in connection with listing the Shares on
the New York Stock Exchange; (v) the filing fees incident to, and the fees
and disbursements of counsel for the Underwriters in connection with,
securing any required review by the National Association of Securities
Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost of
preparing stock certificates; (vii) the cost and charges of any transfer
agent or registrar; (viii) the fees, disbursement expenses of one counsel
selected and retained by the Selling Stockholders as a group in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements
thereto and the mailing and delivering of copies thereof to the Underwriters
and dealers; (ix) the fees and expenses of the Attorneys-in-Fact and the
Custodian, if any; and (x) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise
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specifically provided for in this Section; and (b) each Selling Stockholder
will pay or cause to be paid all costs and expenses incurred by such Selling
Stockholder incident to the performance of such Selling Stockholder's
obligations hereunder which are not otherwise specifically provided for in
this Section, including (i) any fees and expenses of any counsel for such
Selling Stockholder in addition to the counsel referred to in clause
(a)(viii), and (ii) all expenses and taxes incident to the sale and delivery
of the Shares to be sold by such Selling Stockholder to the Underwriters
hereunder. In connection with clause (b) (ii) of the preceding sentence,
Goldman, Sachs & Co. agrees to pay New York State stock transfer tax, and
the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for
associated carrying costs if such tax payment is not rebated on the day of
payment and for any portion of such tax payment not rebated. It is
understood, however, that except as provided in this Section, and Sections 8
and 11 hereof, the Underwriters will pay all of their own costs and
expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected
with any offers they may make.
7. The obligations of the Selling Stockholders hereunder to sell and
deliver Shares at a Time of Delivery shall be subject, in their discretion,
to the conditions set forth in Sections 7(a), 7(c), 7(d), 7(f) and 7(k)
hereof (it being understood that you, and not the Selling Stockholders,
shall have the right to determine whether the form and substance of the
documents referred to in Sections 7(c), 7(d), 7(f) and 7(k) are
satisfactory), to the condition that all representations and warranties and
other statements of the Company herein are, at and as of such Time of
Delivery, true and correct, and to the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed. The
obligations of the Underwriters hereunder, as to the Shares to be delivered
at each Time of Delivery, shall be subject, in their discretion, to the
condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such
Time of Delivery, true and correct, and to the condition that the Company
and the Selling Stockholders shall have performed all of its and their
obligations hereunder theretofore to be performed, and the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (iv) and (vi) of
subsection (c) below as well as the Registration Statement and Prospectus
and such other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Debevoise & Plimpton, counsel for the Company, shall have furnished
to you their written opinions, dated such Time of Delivery, in the forms
attached hereto as Annexes 1(a) and 1(b), to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at
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such Time of Delivery) have been duly and validly authorized and issued
and are fully paid and non-assessable[, provided that with respect to
the Optional Warrant Shares, such Shares shall, upon issuance, delivery
and payment therefor in the manner described in the Keys Warrant, be
duly and validly authorized and issued, fully paid and non-assessable]
and the Shares conform as to legal matters in all material respects to
the description of the Stock contained in the Prospectus;
(iii) Each Material Subsidiary of the Company has been duly
incorporated and is validly existing as a corporation, or a societe en
nom collectif, as the case may be, in good standing under the laws of
its jurisdiction of incorporation; and all of the issued shares of
capital stock of Lexmark International, Inc. have been duly and validly
authorized and issued, are fully paid and non-assessable, and are owned
directly or indirectly by the Company, free and clear (except as set
forth in the Prospectus) of all liens, encumbrances, equities or
claims; and all of the equity interests of Lexmark International,
S.N.C. have been duly and validly authorized and issued and are fully
paid and are owned directly or indirectly by the Company, free and
clear (except as set forth in the Prospectus) of all liens,
encumbrances, equities or claims (such counsel being entitled to rely
in respect of the opinion in this clause upon opinions of local counsel
and in respect of matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall provide
copies of such opinions and certificates to you and shall state that
they believe that both you and they are justified in relying upon such
opinions and certificates);
(iv) This Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
(v) No consent, approval, authorization, order, registration or
qualification of or with any State of New York or Delaware or U.S.
Federal court or governmental agency or body is required for the
consummation by the Company of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state or foreign securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters and the
International Underwriters (as to which such counsel need not express
an opinion);
(vi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, constitute in all material respects
a fair summary of such terms;
(vii) The statements set forth in the international version of the
Prospectus under the caption "Certain United States Tax Consequences to
Non-U.S. Holders", insofar as such statements purport to summarize
certain United States federal income and estate tax consequences of the
ownership and disposition of the Stock by certain non-U.S. holders (as
such term is defined in such Prospectus) of the Shares, provide a fair
summary of such consequences under current law;
(viii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act; and
(ix) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such
Time of Delivery (other than the financial statements, related
schedules and other financial and statistical information contained
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Act and the
rules and regulations thereunder.
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In addition to the matters set forth above, such opinion shall also
include a statement to the effect that such counsel has not checked the
accuracy or completeness of, or otherwise verified, and is not passing upon
and assumes no responsibility for the accuracy or completeness of, the
information contained in the Registration Statement or the Prospectus, or
any amendment or supplement thereto, except to the limited extent set forth
in the concluding clause of Section 7(c)(ii) above, that in the course of
the preparation of the Registration Statement and the Prospectus by the
Company, such counsel participated in conferences with representatives of
the Company, the independent public accountants of the Company, the
Representatives and their counsel with respect thereto and that such
counsel's examination of the Registration Statement and the Prospectus and
such counsel's participation in the above-mentioned conferences did not
cause such counsel to believe that the Registration Statement or any
amendment thereto (except as to the financial statements and related
schedules and other financial and statistical information contained therein,
as to which such counsel need not express a belief), at the time the
Registration Statement or amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading
or that the Prospectus or any amendment or supplement thereto (except as to
the financial statements and related schedules and other financial and
statistical information contained therein, as to which such counsel need not
express a belief), at the time it was filed pursuant to Rule 424(b) or on
the Closing Date, contained or contains an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than as to the laws of
State of New York, the General Corporation Law of the State of Delaware and
the Federal laws of the United States;
(d) Vincent J. Cole, General Counsel for the Company, shall have
furnished to you his written opinion, dated such Time of Delivery, in the
form attached hereto as Annex I(c), to the effect that:
(i) Lexmark International, Inc. has been duly incorporated and
is validly existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power and authority
to own its properties and conduct its business as described in the
Prospectus;
(ii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, except where the failure to so qualify would not,
individually or in the aggregate, have a Material Adverse Effect;
(iii) To the best of such counsel's knowledge and other than as
set forth or contemplated in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or
any of its subsidiaries is the subject which, individually or in
the aggregate, have had, or, if determined adversely to the Company
or any of its subsidiaries, would reasonably be expected to have, a
Material Adverse Effect; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(iv) The compliance by the Company with all of the provisions of
this Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to
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such counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound
or to which any of the property or assets of the Company or any of
its subsidiaries is subject, nor will such action result in any
violation of the provisions of the Third Restated Certificate of
Incorporation or By-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties, except, in each
case (other than with respect to the Third Restated Certificate of
Incorporation or By-Laws of the Company), for such conflicts,
violations, breaches or defaults which would not, individually or
in the aggregate, have a Material Adverse Effect or impair the
Company's ability to perform its obligations hereunder or under the
International Underwriting Agreement;
(v) Neither the Company nor Lexmark International, Inc. is in
violation of its Certificate of Incorporation or By-laws or in
default in the performance or observance of any obligation,
agreement, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement
or instrument known to such counsel to which it is a party or by
which it or any of its properties may be bound, except, in each
case (other than with respect to such Certificate of Incorporation
and By-Laws), for such conflicts, violations, breaches or defaults
which would not have a Material Adverse Effect or impair the
Company's ability to perform its obligations hereunder or under the
International Underwriting Agreement;
(vi) To the best of such counsel's knowledge, other than as set
forth in the Prospectus: (a) the Company has not received notice of
any claim of infringement or violation of or conflict with rights
or claims of others with respect to any patents, patent rights or
other Intellectual Property owned, licensed or used by the Company
except for any such conflicts or infringements that, individually
or in the aggregate, do not or would not reasonably be expected to
have a Material Adverse Effect; (b) and such counsel is not aware
of any research or licensing agreements, royalty arrangements,
patents, patent rights or other Intellectual Property of others
which are infringed by the Company's products or processes in such
a manner which would, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect;
(vii) The documents incorporated by reference in the Prospectus
or any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion), when they became effective or were filed with
the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder; and such counsel has no reason to believe that any of
such documents, when such documents became effective or were so
filed, as the case may be, contained, in the case of a registration
statement which became effective under the Act, an untrue statement
of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or, in the case of other documents which were filed
under the Exchange Act with the Commission, an untrue statement of
a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made when such documents were
so filed, not misleading; and
(viii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other
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than the financial statements and related schedules and other
financial and statistical information contained therein, as to
which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Act and the
rules and regulations thereunder.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that such counsel has not checked the
accuracy or completeness of, or otherwise verified, and is not passing upon
and assumes no responsibility for the accuracy or completeness of, the
information contained in the Registration Statement or the Prospectus, or
any amendment or supplement thereto, that in the course of the preparation
of the Registration Statement and the Prospectus by the Company, such
counsel participated in conferences with representatives of the Company, the
independent public accountants of the Company, the Representatives and their
counsel with respect thereto and that such counsel's examination of the
Registration Statement and the Prospectus and such counsel's participation
in the above-mentioned conferences did not cause such counsel to believe
that the Registration Statement or any amendment thereto (except as to the
financial statements and related schedules and other financial and
statistical information contained therein, as to which such counsel need not
express a belief), at the time the Registration Statement or amendment
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto (other than the financial statements and
related schedules and other financial and statistical information contained
therein, as to which such counsel need not express a belief), at the time it
was filed pursuant to Rule 424(b) or on the Closing Date, contained or
contains an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
In rendering such opinion, such counsel may state that he expresses no
opinion as to the laws of any jurisdiction other than as to the laws of the
State of New York, the General Corporation Law of the State of Delaware and
the Federal laws of the United States;
(e) Ropes & Gray, counsel for the Selling Stockholders, as indicated in
Schedule II hereto, shall have furnished to you their written opinion with
respect to each of the Selling Stockholders, dated such Time of Delivery, in
the form attached hereto as Annex I(d), to the effect that:
(i) A Power of Attorney has been duly executed and delivered by
or on behalf of each Selling Stockholder and a Custody Agreement
has been duly executed and delivered by each Selling Stockholder,
and such Agreements constitute valid and binding agreements of such
Selling Stockholder in accordance with their terms;
(ii) This Agreement and the International Underwriting Agreement
have been duly executed and delivered by or on behalf of each
Selling Stockholder; and the sale of the Shares to be sold by such
Selling Stockholder hereunder and thereunder and the compliance by
such Selling Stockholder with all of the provisions of this
Agreement and the International Underwriting Agreement, the Power
of Attorney and the Custody Agreement will not conflict with or
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of such Selling Stockholder if such
Selling Stockholder is a corporation, the Partnership Agreement of
such Selling Stockholder if such Selling Stockholder is a
partnership or any order, rule or regulation known to such counsel
of any court or governmental agency or body having jurisdiction
over such Selling Stockholder;
(iii) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of
the transactions contemplated by
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this Agreement and the International Underwriting Agreement in
connection with the Shares to be sold by such Selling Stockholder
hereunder or thereunder, except such as have been obtained under
the Act and such as may be required under state or foreign
securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters or the
International Underwriters;
(iv) Immediately prior to the Time of Delivery, each Selling
Stockholder was the sole registered owner of the Shares to be sold
by such Selling Stockholder. Upon registration of the Shares in
the names of the Underwriters in the stock records of the Company
(or in the name of a nominee for DTC in such stock records, with
appropriate entries to the account of the Underwriters having been
made in the records of DTC) the Underwriters will have acquired the
Shares, free and clear of all liens, encumbrances, equities and
claims (assuming that the Underwriters are without notice of any
adverse claim, as defined in the Code, and are otherwise bona fide
purchasers for the purposes of the Code and that such Underwriters'
rights are not limited by subsection (4) of Section 8-302 of the
Code); and
(v) This Agreement and the International Underwriting Agreement
have been duly executed and delivered by or on behalf of The
Clayton & Dubilier Private Equity Fund IV Limited Partnership (the
"Fund"); and the sale of the Shares to be sold by the Fund
hereunder and thereunder and the compliance by the Fund with all of
the provisions of this Agreement and the International Underwriting
Agreement, the Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any
terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Fund is
a party or by which the Fund is bound, or to which any of the
property or assets of the Fund is subject, nor will such action
result in any violation of the provisions of the Partnership
Agreement or similar instrument of the Fund or any statute known to
such counsel or any order, rule or regulation known to such counsel
of any court or governmental agency or body having jurisdiction
over the Fund, except for such conflicts, breaches, violations or
defaults as would not, individually or in the aggregate, impair the
Fund's ability to perform its obligations hereunder and under the
International Underwriting Agreement.
In rendering such opinion, Ropes & Gray may state that they express no
opinion as to the laws of any jurisdiction other than as to the laws of the
[Commonwealth of Massachusetts], the General Corporation Law of the State of
Delaware and the Federal laws of the United States, and in rendering certain
of the opinions in subparagraphs (i), (ii), (iii) and (v), Ropes & Gray may
rely exclusively on opinions of other counsels for each of the Selling
Stockholders, provided that Ropes & Gray shall provide copies of such
opinions to you and shall state that they are not aware of anything to
suggest that such other counsels are not competent to render such opinions,
and in rendering the opinion in subparagraph (iv), Ropes & Gray may rely
upon a certificate of such Selling Stockholder in respect of matters of fact
as to ownership of, and liens, encumbrances, equities or claims on the
Shares sold by such Selling Stockholder, provided that Ropes & Gray shall
provide a copy of such certificate to you and shall state that they believe
that both you and they are justified in relying upon such certificate;
(f) On the effective date of the Registration Statement, on the date of
the Prospectus at a time prior to the execution of this Agreement, at 9:30
a.m., New York City time, on the effective date of any post-effective
amendment to the Registration Statement filed subsequent to the date of this
Agreement and also at each Time of Delivery, Coopers & Lybrand L.L.P. shall
have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance
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<PAGE>
satisfactory to you (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex II(a) hereto and a draft of
the form of the letter to be delivered on the effective date of any post
effective amendment to the Registration Statement and as of each Time of
Delivery is attached as Annex II(b) hereto);
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included
or incorporated by reference in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information is
given in the Prospectus there shall not have been any change in the capital
stock (other than pursuant to any employee benefit or incentive plan in
existence on the date of this Agreement) or increase in the long-term debt
of the Company or any of its subsidiaries in excess of $75,000,000, or any
change, or any development that would reasonably be expected to involve a
change, in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or contemplated
in the Prospectus, the effect of which, in any such case described in clause
(i) or (ii), is in the reasonable judgment of the Representatives so
material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(h) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange; (ii) a suspension or material
limitation in trading in the Company's securities on the New York Stock
Exchange; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the
effect of any such event specified in this clause (iv) in the judgment of
the Representatives makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(i) The Company has obtained and delivered to the Underwriters executed
copies of holdback agreements from each of the stockholders of the Company
listed on Exhibit I hereto in the form previously provided to you;
(j) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and warranties
of the Company and the Selling Stockholders, respectively, herein at and as
of such Time of Delivery, as to the performance by the Company and the
Selling Stockholders of all of their respective obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other matters
as you may reasonably request, and the Company shall have furnished or
caused to be furnished certificates as to the matters set forth in
subsections (a) and (g) of this Section, and as to such other matters as you
may reasonably request; and
(k) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material
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<PAGE>
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman,
Sachs & Co. expressly for use therein; and provided, further, that the
Company shall not be liable to any Underwriter under the indemnity agreement
in this subsection (a) with respect to any Preliminary Prospectus to the
extent that any such loss, claim, damage or liability of such Underwriter
results from the fact that such Underwriter sold Shares to a person to whom
there was not sent by commercially reasonable means, at or prior to the
written confirmation of such sale, a copy of the Prospectus, where such
delivery is required by the Act, if the Company has previously furnished
sufficient copies thereof to such Underwriter and the loss, claim, damage or
liability of such Underwriter results from an untrue statement or omission
of a material fact contained in the Preliminary Prospectus and corrected in
the Prospectus.
(b) The Company will indemnify and hold harmless each Selling
Stockholder against any losses, claims, damages or liabilities, joint or
several, to which such Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse
each Selling Stockholder for any legal or other expenses reasonably incurred
by such Selling Stockholder in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Selling
Stockholder expressly for use therein, or that arises out of or is based on
such Selling Stockholder's failure to deliver a copy of the Registration
Statement, Preliminary Prospectus or Prospectus, or any amendment or
supplement thereto.
(c) Each of the Selling Stockholders will indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint
or several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company or the
Underwriters by such Selling Stockholder expressly for use therein; and will
reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection
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with investigating or defending any such action or claim as such expenses
are incurred; provided, however, that no Selling Stockholder shall be liable
to any Underwriter under the indemnity agreement in this subsection (c) with
respect to any Preliminary Prospectus to the extent that any such loss,
claim, damage or liability of such Underwriter results from the fact that
such Underwriter sold Shares to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus, where such delivery is required by the Act, if the Company has
previously furnished sufficient copies thereof to such Underwriter and the
loss, claim, damage or liability of such Underwriter results from an untrue
statement or omission of a material fact contained in the Preliminary
Prospectus which was identified in writing at such time to such Underwriter
and corrected in the Prospectus; and provided, further, that the liability
of a Selling Stockholder pursuant to this subsection (c) shall not exceed
the net amount received by such Selling Stockholder (after deducting any
underwriting discount) from the sale of the Shares pursuant to the
Prospectus.
(d) Each of the Selling Stockholders will indemnify and hold harmless
the Company against any losses, claims, damages or liabilities to which the
Company may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue statement of
a fact contained in any Preliminary Prospectus, the Registration Statement
or the Prospectus, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a fact
required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and
in conformity with written information furnished to the Company or the
Underwriters by such Selling Stockholder expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that no Selling
Stockholder shall be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based on the
Underwriters' failure to deliver a copy of the Registration Statement,
Preliminary Prospectus or Prospectus, or any amendment or supplement
thereto; and provided, further, that the liability of a Selling Stockholder
pursuant to this subsection (d) shall not exceed the net amount received by
such Selling Stockholder (after deducting any underwriting discount) from
the sale of the Shares pursuant to the Prospectus.
(e) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities
to which the Company or such Selling Stockholder may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company and each Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or such Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(f) Promptly after receipt by an indemnified party under subsection
(a), (b), (c), (d) or (e) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect
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thereof is to be made against an indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but
the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (which shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of
any judgment with respect to, any pending or threatened action or claim in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to
such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all
liability on all claims that were or could have been made by all parties to
such action or claim, arising out of such action or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure
to act, by or on behalf of any indemnified party.
(g) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b), (c), (d) or (e) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein,
then, in every case (except as specifically provided below), each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other from the
offering of the Shares (except, solely in any case where the Company is
required hereunder to indemnify a Selling Stockholder or vice versa, in such
proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and such Selling Stockholder on the other from
the offering of the Shares). If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (f)
above, then, in every case (except as specifically provided below), each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as
any other relevant equitable considerations (except, solely in any case
where the Company is required hereunder to indemnify a Selling Stockholder
or vice versa, in such proportion as is appropriate to reflect not only such
relative benefits as would apply in such case as provided above but also the
relative fault of the Company on the one hand and such Selling Stockholder
on the other in connection with such statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations). The
relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters with respect to the
Shares
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<PAGE>
purchased under this Agreement, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Selling Stockholders on the one hand or the Underwriters on
the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company, each of the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (g) were determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this subsection (g). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages
or liabilities (or actions in respect thereof) referred to above in this
subsection (g) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (g), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
subsection (g) to contribute are several in proportion to their respective
underwriting obligations and not joint. Notwithstanding the foregoing, a
Selling Stockholder shall not be required to contribute under this
subsection (g) except to the extent and under such circumstances as such
Selling Stockholder would have been liable pursuant to Section 8(c) or (d)
hereof had indemnification been enforceable under applicable law.
(h) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and
the respective Selling Stockholders may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon
the same terms and conditions, to each officer and director of the Company
(including any person who, with his or her consent is named in the
Registration Statement as about to become a director of the Company) and to
each person, if any, who controls the Company or any Selling Stockholder
within the meaning of the Act. The obligations of the Company under Section
8(b) hereof shall extend upon the same terms and conditions, to each of the
Selling Stockholders' directors, officers, employees, fund managers (if it
is an investment fund) or fiduciaries (if it is a pension or trust fund),
and to each person, if any, who controls any Selling Stockholder within the
meaning of the Act. The obligations of the Selling Stockholders under
Section 8(d) hereof shall extend, upon the same terms and conditions, to
each director and officer of the Company and to each person, if any, who
controls the Company within the meaning of the Act.
(i) The Company and the Selling Stockholders hereby agree that, with
respect to the transactions contemplated by this agreement, the provisions
of Sections 8(b), 8(d), 8(f) and 8(g) hereof supersede the provisions of
Sections 3.7(a), 3.7(b), 3.7(c) and 3.7(e) of the Registration and
Participation Agreement, dated as March 27, 1991, as amended, among the
Company and the Selling Stockholders.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery,
you may in your discretion arrange for you or
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another party or other parties to purchase such Shares on the terms
contained herein. If within thirty-six hours after such default by any
Underwriter you do not arrange for the purchase of such Shares, then the
Selling Stockholders shall be entitled to a further period of thirty-six
hours within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Selling Stockholders that you
have so arranged for the purchase of such Shares, or the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Selling Stockholders shall have the right to postpone
such Time of Delivery for a period of not more than five New York Business
Days, in order to effect whatever changes may thereby be made necessary in
the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby
be made necessary. The term "Underwriter" as used in this Agreement shall
include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to
such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of
such Shares which remains unpurchased does not exceed one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of
Delivery, then the Selling Stockholders shall have the right to require each
non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro
rata share (based on the number of Shares which such Underwriter agreed to
purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of
such Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of all of the Shares to be purchased at such Time of Delivery, or if
the Selling Stockholders shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase
Shares of a defaulting Underwriter or Underwriters, then this Agreement (or,
with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Selling Stockholders to sell the
Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling
Stockholders and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its
default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the
several Underwriters, as set forth in this Agreement or made by or on behalf
of them, respectively, pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation (or any statement as to
the results thereof) made by or on behalf of any Underwriter or any
controlling person of any Underwriter, or the Company, or any of the Selling
Stockholders, or any officer or director or controlling person of the
Company, or any controlling person of any Selling Stockholder, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof;
but, if for any other reason any Shares are not delivered by or on behalf of
the Selling Stockholders as provided herein, the Company and each of the
defaulting Selling
24
<PAGE>
Stockholders, if any, pro rata (with the Company's portion based on the
number of Shares to be sold by all non-defaulting Selling Stockholders
hereunder and the defaulting Selling Stockholders' portion based on the
number of shares to be sold by such defaulting Selling Stockholders, if any,
hereunder) will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for
the purchase, sale and delivery of the Shares not so delivered, but the
Company and the Selling Stockholders shall then be under no further
liability to any Underwriter in respect of the Shares not so delivered
except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter
made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as
the representatives; and in all dealings with any Selling Stockholder
hereunder, you and the Company shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of such Selling
Stockholder made or given by any or all of the Attorneys-in-Fact for such
Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail,
telex or facsimile transmission to you as the representatives in care of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention:
Registration Department; if to any Selling Stockholder shall be delivered or
sent by mail, telex or facsimile transmission to counsel for such Selling
Stockholder at its address set forth in Schedule II hereto; and if to the
Company shall be delivered or sent by mail, telex or facsimile transmission
to the address of the Company set forth in the Registration Statement,
Attention: Secretary; provided, however, that any notice to an Underwriter
pursuant to Section 8(f) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire or telex constituting such Questionnaire, which
address will be supplied to the Company or the Selling Stockholders by you
upon request. Any such statements, requests, notices or agreements shall
take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and,
to the extent provided in Sections 8 and 10 hereof, the officers and
directors of the Company and each person who controls the Company, any
Selling Stockholder or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Shares from any Underwriter shall be deemed a
successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us ten counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters,
the Company and each of the Selling Stockholders. It is understood that
your acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth
25
<PAGE>
in a form of Agreement among Underwriters (U.S. Version), the form of which
shall be submitted to the Company and the Selling Stockholders for
examination upon request, but without warranty on your part as to the
authority of the signers thereof.
26
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that, to the best of his
knowledge, he has been duly appointed as Attorney-in-Fact by such Selling
Stockholder pursuant to a validly existing and binding Power of Attorney
which authorizes such Attorney-in-Fact to take such action.
Very truly yours,
Lexmark International Group, Inc.
By: __________________________
Name: Gary E. Morin
Title: Vice President and Chief Financial
Officer
[ Selling Stockholders ]
By: _____________________________________
Name:
Title: Attorney-In-Fact
As Attorney-in-Fact acting on behalf of
the Selling Stockholders named above.
Accepted as of the date hereof:
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
Smith Barney Inc.
By: ______________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
27
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
TOTAL NUMBER NUMBER OF OPTIONAL
OF SHARES TO BE
FIRM SHARES PURCHASED IF
TO BE MAXIMUM OPTION
Underwriter PURCHASED EXERCISED
- ----------- ------------ ----------------
<S> <C> <C>
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Morgan Stanley & Co. Incorporated
Smith Barney Inc.
Total
</TABLE>
28
<PAGE>
SCHEDULE II
TOTAL NUMBER OF OPTIONAL
NUMBER SHARES TO BE
OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
----------- --------------------
The Selling Stockholders:
___________ __________
Total
============ ==========
(a) This Selling Stockholder is represented by Ropes & Gray, One
International Place, Boston, Massachusetts, and has appointed Donald J.
Gogel and, as the Attorney-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by Ropes & Gray, One
International Place, Boston, Massachusetts, and has appointed Donald J.
Gogel, Michael G. Babiarz, Marvin L. Mann and Vincent J. Cole, and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by Prager Dreifuss,
Zollikerstrasse 183, CH-8008 Zurich, Switzerland, and has appointed Donald
J. Gogel, Michael G. Babiarz, Marvin L. Mann and Vincent J. Cole, and each
of them, as the Attorneys-in-Fact for such Selling Stockholder.
29
<PAGE>
EXHIBIT I
Selling Stockholders
--------------------
Non-Selling Stockholders
------------------------
30
<PAGE>
ANNEX I
[Form of opinions of regular and corporate counsel for the Company and
counsel for the Selling Stockholders]
1
<PAGE>
ANNEX II
[Executed accountants' comfort letter, dated the effective date, and form of
bring-down comfort letter]
2
<PAGE>
EXHIBIT 1.2
Lexmark International Group, Inc.
Class A Common Stock
(par value $.01 per share)
Underwriting Agreement
(International Version)
.............., 1997
Goldman Sachs International,
Merrill Lynch International,
Morgan Stanley & Co. International Limited,
Smith Barney Inc.
Morgan Grenfell & Co. Limited,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.
Ladies and Gentlemen:
Certain stockholders named in Schedule II hereto (the "Selling
Stockholders") of Lexmark International Group, Inc., a Delaware corporation (the
"Company"), propose, subject to the terms and conditions stated herein, to sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of ................ shares (the "Firm Shares") and, at the election of the
Underwriters, up to ........... additional shares (the "Optional Shares") of
Class A Common Stock (par value $.01 per share) ("Stock") of the Company (the
Firm Shares and the Optional Shares which the Underwriters elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Shares").
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement, a copy of
which is attached hereto (the "U.S. Underwriting Agreement"), providing for the
sale by the Selling Stockholders of up to a total of ............. shares of
Stock (the "U.S. Shares"), including the overallotment option thereunder,
through arrangements with certain underwriters in the United States (the "U.S.
Underwriters"), for whom Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated and Smith Barney Inc. are
acting as representatives. Anything herein or therein to the contrary
notwithstanding, the respective closings under this Agreement and the U.S.
Underwriting Agreement are hereby expressly made conditional on one another.
The Underwriters hereunder and the U.S. Underwriters are simultaneously entering
into an Agreement between U.S. and International Underwriting Syndicates (the
"Agreement between Syndicates") which provides, among other things, for the
transfer of shares of Stock between the two syndicates and for consultation by
the Lead Managers hereunder with Goldman, Sachs & Co. prior to exercising the
rights of the Underwriters under Section 7 hereof. Two forms of prospectus are
to be used in connection with the offering and sale of shares of Stock
contemplated by the foregoing, one relating to the Shares hereunder and the
other relating to the
<PAGE>
U.S. Shares. The latter form of prospectus will be identical to the former
except for certain substitute pages as included in the registration statement
and amendments thereto as mentioned below. Except as used in Sections 2, 3, 4,
9 and 11 herein, and except as the context may otherwise require, references
hereinafter to the Shares shall include all of the shares of Stock which may be
sold pursuant to either this Agreement or the U.S. Underwriting Agreement and
references herein to any prospectus, whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the "Underwriters" shall be to the Underwriters
hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to
"this Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to
this Agreement (except where this Agreement is already referred to or as the
context may otherwise require) and to the representatives of the Underwriters or
to Goldman, Sachs & Co. shall be to the addressees of this Agreement and to
Goldman Sachs International ("GSI"), and, in general, all such provisions and
defined terms shall be applied mutatis mutandis as if the incorporated
provisions were set forth in full herein having regard to their context in this
Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company and each of the several Selling Stockholders hereby make to
the Underwriters the same respective representations, warranties and agreements
as are set forth in Section 1 of the U.S. Underwriting Agreement, which Section
is incorporated herein by this reference.
2. Subject to the terms and conditions herein set forth, (a) each of the
Selling Stockholders agrees, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from each of the Selling Stockholders, at a purchase price per share of
$.........., the number of Firm Shares (to be adjusted by you so as to eliminate
fractional shares) determined, in each case, by multiplying the aggregate number
of Firm Shares to be sold by such Selling Stockholder as set forth opposite its
name in Schedule II hereto by a fraction, the numerator of which is the
aggregate number of Firm Shares to be purchased by such Underwriter as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the aggregate number of Firm Shares to be purchased by all the
Underwriters from all the Selling Stockholders hereunder, and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, each of the Selling Stockholders agrees,
severally and not jointly, to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from each of the
Selling Stockholders, at the purchase price per share set forth in clause (a) of
this Section 2, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined, in each case, by multiplying such number of
Optional Shares by a fraction the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule II
hereto, hereby grant, severally and not jointly, to the Underwriters the right
to purchase at their election up to ........... Optional Shares, at the purchase
price per share set forth in the paragraph above, for the sole purpose of
covering overallotments in the sale of the Firm Shares. Any such election to
purchase Optional Shares shall be made in proportion to the number of Optional
Shares to be sold by each Selling
2
<PAGE>
Stockholder. Any such election to purchase Optional Shares may be exercised
only by written notice from you to the Attorneys-in-Fact, given within a period
of 30 calendar days after the date of this Agreement and setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Attorneys-in-Fact otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus and in the forms of Agreement among
Underwriters (International Version) and Selling Agreements, which have been
previously submitted to the Company by you. Each Underwriter hereby makes to
and with the Company and the Selling Stockholders the representations and
agreements of such Underwriter as a member of the selling group contained in
Sections 3(d) and 3(e) of the form of Selling Agreements.
4. (a) Certificates in definitive form for the Shares to be purchased by
each Underwriter hereunder and in such authorized denominations and registered
in such names as Goldman, Sachs & Co. may request upon at least forty-eight
hours' prior notice to the Selling Stockholders, shall be delivered by or on
behalf of the Selling Stockholders to Goldman, Sachs & Co., through the
facilities of The Depository Trust Company ("DTC"), for the account of such
Underwriter, against payment by such Underwriter or on its behalf of the
purchase price therefor by wire transfer of same day funds payable to the order
of the Custodian, as their interests may appear. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of DTC or its designated custodian
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on
............, 1997, or on such other time and date as Goldman, Sachs & Co. and
the Selling Stockholders may agree upon in writing, and, with respect to the
Optional Shares, 9:30 a.m., New York City time, on the date specified by
Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as Goldman, Sachs & Co. and the Selling Stockholders may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called
the "First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at Time of Delivery by or on behalf of the
parties hereto pursuant to Section 7 of the U.S. Underwriting Agreement,
including the cross-receipt for the Shares and any additional documents
requested by the Underwriters pursuant to Section 7(k) of the U.S. Underwriting
Agreement, will be delivered at the offices of Sullivan & Cromwell, 125 Broad
Street, New York, New York 10004 (the "Closing Location"), and the Shares will
be delivered at the Designated Office, or at the Closing Location or elsewhere
in The City of New York as directed by GSI not later than the New York Business
Day before the Time of Delivery, all at each Time of Delivery. A meeting will be
held at the Closing Location at 11:00 a.m., New York City time, on the New York
Business Day next preceding Time of Delivery, at which meeting the final drafts
of the documents to be delivered pursuant to the preceding sentence will be
available for review by the parties hereto. For the purposes of this Section 4,
"New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
3
<PAGE>
5. The Company hereby makes with the Underwriters and to the extent
provided in Sections 5(a), 5(d), 5(e) and 5(h) of the U.S. Underwriting
Agreement, each of the Selling Stockholders (it being understood that you and
not the Selling Stockholders, shall have the right to consent to the actions
referred to therein) the same agreements as are set forth in Section 5 of the
U.S. Underwriting Agreement, which Section is incorporated herein by this
reference.
6. The Company, each of the Selling Stockholders, and the Underwriters
hereby agree with respect to certain expenses on the same terms as are set forth
in Section 6 of the U.S. Underwriting Agreement, which Section is incorporated
herein by this reference.
7. The obligations of the Selling Stockholders hereunder to sell and
deliver Shares at a Time of Delivery shall be subject, in their discretion, to
the conditions set forth in Sections 7(a), 7(c), 7(d), 7(f) and 7(k) of the U.S.
Underwriting Agreement (it being understood that you, and not the Selling
Stockholders, shall have the right to determine whether the form and substance
of the documents referred to in Sections 7(c), 7(d), 7(f) and 7(k) of the U.S.
Underwriting Agreement are satisfactory), to the condition that all
representations and warranties and other statements of the Company herein are,
at and as of such Time of Delivery, true and correct, and to the condition that
the Company shall have performed all of its obligations hereunder theretofore to
be performed. Subject to the provisions of the Agreement between Syndicates,
the obligations of the Underwriters hereunder shall be subject, in their
discretion, at each Time of Delivery to the condition that all representations
and warranties and other statements of the Company, and the Selling Stockholders
herein are, at and as of such Time of Delivery, true and correct, the condition
that the Company and the Selling Stockholders shall have performed all of their
respective obligations hereunder theretofore to be performed, and additional
conditions identical to those set forth in Section 7 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through GSI expressly for use therein; and provided, further, that the Company
shall not be liable to any Underwriter under the indemnity agreement in this
subsection (a) with respect to any Preliminary Prospectus to the extent that any
such loss, claim, damage or liability of such Underwriter results from the fact
that such Underwriter sold Shares to a person to whom there was not sent by
commercially reasonable means, at or prior to the written confirmation of such
sale, a copy of the Prospectus, where such delivery is required by the Act, if
the Company has previously furnished sufficient copies thereof to such
Underwriter and the loss, claim, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus and corrected in the Prospectus.
4
<PAGE>
(b) The Company will indemnify and hold harmless each Selling Stockholder
against any losses, claims, damages or liabilities, joint or several, to which
such Selling Stockholder may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a fact required to
be stated therein or necessary to make the statements therein not misleading;
and will reimburse each Selling Stockholder for any legal or other expenses
reasonably incurred by such Selling Stockholder in connection with investigating
or defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Selling Stockholder
expressly for use therein, or that arises out of or is based on such Selling
Stockholder's failure to deliver a copy of the Registration Statement,
Preliminary Prospectus or Prospectus, or any amendment or supplement thereto.
(c) Each of the Selling Stockholders will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company or the
Underwriters by such Selling Stockholder expressly for use therein; and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that no
Selling Stockholder shall be liable to any Underwriter under the indemnity
agreement in this subsection (c) with respect to any Preliminary Prospectus to
the extent that any such loss, claim, damage or liability of such Underwriter
results from the fact that such Underwriter sold Shares to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the Prospectus, where such delivery is required by the Act, if
the Company has previously furnished sufficient copies thereof to such
Underwriter and the loss, claim, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus which was identified in writing at such time to such
Underwriter and corrected in the Prospectus; and provided, further, that the
liability of a Selling Stockholder pursuant to this subsection (c) shall not
exceed the net amount received by such Selling Stockholder (after deducting any
underwriting discount) from the sale of the Shares pursuant to the Prospectus.
(d) Each of the Selling Stockholders will indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a fact
5
<PAGE>
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in any Preliminary Prospectus, the Registration Statement or the Prospectus or
any such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company or the Underwriters by such Selling
Stockholder expressly for use therein; and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that no Selling Stockholder shall be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based on the Underwriters' failure to deliver a copy of the
Registration Statement, Preliminary Prospectus or Prospectus, or any amendment
or supplement thereto; and provided, further, that the liability of a Selling
Stockholder pursuant to this subsection (d) shall not exceed net amount received
by such Selling Stockholder (after deducting any underwriting discount) from the
sale of the Shares pursuant to the Prospectus.
(e) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through GSI expressly for use therein; and will reimburse the
Company and each Selling Stockholder for any legal or other expenses reasonably
incurred by the Company or such Selling Stockholder in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(f) Promptly after receipt by an indemnified party under subsection (a),
(b), (c), (d) or (e) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (which shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on all claims that were or could have
6
<PAGE>
been made by all parties to such action or claim, arising out of such action or
claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(g) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a), (b),
(c), (d) or (e) above in respect of any losses, claims, damages or liabilities
(or actions in respect thereof) referred to therein, then, in every case (except
as specifically provided below), each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other from the offering of the Shares (except, solely in any case where the
Company is required hereunder to indemnify a Selling Stockholder or vice versa,
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and such Selling Stockholder on the other from
the offering of the Shares). If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (f) above,
then, in every case (except as specifically provided below), each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations (except, solely in any case where the Company is required
hereunder to indemnify a Selling Stockholder or vice versa, in such proportion
as is appropriate to reflect not only such relative benefits as would apply in
such case as provided above but also the relative fault of the Company on the
one hand and such Selling Stockholder on the other in connection with such
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations). The relative benefits received by the Company and
the Selling Stockholders on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares purchased under this Agreement (before deducting
expenses) received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters with respect
to the Shares purchased under this Agreement, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company
and the Selling Stockholders on the one hand and the Underwriters on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholders on the one hand or the Underwriters on the other, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, each of the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (g) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (g). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (g) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection
(g), no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent
7
<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (g) to
contribute are several in proportion to their respective underwriting
obligations and not joint. Notwithstanding the foregoing, a Selling Stockholder
shall not be required to contribute under this subsection (g) except to the
extent and under such circumstances as such Selling Stockholder would have been
liable pursuant to Section 8(c) or (d) hereof, had indemnification been
enforceable under applicable law.
(h) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his or her consent is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act. The
obligations of the Company under Section 8(b) hereof shall extend upon the same
terms and conditions, to each of the Selling Stockholders' directors, officers,
employees, fund managers (if it is an investment fund) or fiduciaries (if it is
a pension or trust fund), and to each person, if any, who controls any Selling
Stockholder within the meaning of the Act. The obligations of the Selling
Stockholders under Section 8(d) hereof shall extend, upon the same terms and
conditions, to each director and officer of the Company and to each person, if
any, who controls the Company within the meaning of the Act.
(i) The Company and the Selling Stockholders hereby agree that, with
respect to the transactions contemplated by this agreement, the provisions of
Sections 8(b), 8(d), 8(f) and 8(g) hereof supersede the provisions of Sections
3.7(a), 3.7(b), 3.7(c) and 3.7(e) of the Registration and Participation
Agreement, dated as of March 27, 1991, as amended, among the Company and the
Selling Stockholders.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after
such default by any Underwriter you do not arrange for the purchase of such
Shares, then the Selling Stockholders shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Selling Stockholders
that you have so arranged for the purchase of such Shares, or the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Selling Stockholders shall have the right to postpone Time of
Delivery for a period of not more than five New York Business Days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Selling Stockholders shall have the right to require each non-defaulting
Underwriter to purchase the number of shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in
8
<PAGE>
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, or if the Selling
Stockholders shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of the
Selling Stockholders to sell the Optional Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
or the Selling Stockholders, except for the expenses to be borne by the Company
and the Selling Stockholders and the Underwriters as provided in Section 6
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company or any of the Selling Stockholders, or any officer
or director or controlling person of the Company or any controlling person of
any Selling Stockholders, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Section 6 and Section 8
hereof; but, if for any other reason, Shares are not delivered by or on behalf
of the Selling Stockholders as provided herein, the Company and each of the
defaulting Selling Stockholders, if any, pro rata (with the Company's portion
based on the number of Shares to be sold by all non-defaulting Selling
Stockholders hereunder and the defaulting Selling Stockholders' portion based on
the number of shares to be sold by such defaulting shareholders, if any,
hereunder) will reimburse the Underwriters through GSI for all out-of-pocket
expenses approved in writing by GSI, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company and
the Selling Stockholders shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by GSI on behalf of you as the representatives of the
Underwriters; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters in care of GSI, Peterborough Court,
133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital Markets,
Telex No. 94012165, facsimile transmission No. (0171) 774-1550; if to any
Selling Stockholder shall be delivered or sent by mail, telex or facsimile
transmission to counsel for such Selling Stockholder at its address set forth in
Schedule II hereto; and if to the Company shall be delivered or
9
<PAGE>
sent by mail, telex or facsimile transmission to the address of the Company set
forth in the Registration Statement, Attention: Secretary; provided, however,
that any notice to an Underwriter pursuant to Section 8(f) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriters' Questionnaire, or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by GSI upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
16. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us ten counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
each of the Selling Stockholders. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters (International Version), the
form of which shall be furnished to the Company and the Selling Stockholders for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
10
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for a
Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
Lexmark International Group, Inc.
By: ___________________________
Name: Gary E. Morin
Title: Vice President and Chief
Financial Officer
[Selling Stockholders]
By: __________________________
Name:
Title: Attorney-in-Fact
As Attorney-in-Fact acting on behalf of the Selling
Stockholders named above.
Accepted as of the date hereof:
Goldman Sachs International
Merrill Lynch International
Morgan Stanley & Co. International Limited
Smith Barney Inc.
Morgan Grenfell & Co. Limited
By: Goldman Sachs International
By: ________________________________
(Attorney-in-Fact)
On behalf of each of the Underwriters
11
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
Underwriter TO BE PURCHASED EXERCISED
- ----------- --------------- ------------------
<S> <C> <C>
Goldman Sachs International
Merrill Lynch International
Morgan Stanley & Co. International Limited
Smith Barney Inc.
Morgan Grenfell & Co. Limited ____________ ___________
Total ____________ ___________
============ ===========
</TABLE>
12
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Optional
Total Number Shares to be
of Sold if
Firm Shares Maximum Option
to be Sold Exercised
------------ ------------------
<S> <C> <C>
The Selling Stockholders:
__________ __________
Total
============ ==================
</TABLE>
[(a) This Selling Stockholder is represented by Ropes & Gray, One
International Place, Boston, Massachusetts, and has appointed Donald J. Gogel
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by Ropes & Gray, One
International Plaza, Boston, Massachusetts, and has appointed Donald J. Gogel,
Michael G. Babiarz, Marvin L. Mann and Vincent J. Cole, and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by Prager Dreifuss,
Zollikerstrasse 183, CH-8008 Zurich, Switzerland, and has appointed Donald J.
Gogel, Michael G. Babiarz, Marvin L. Mann and Vincent J. Cole, and each of them,
as the Attorneys-in-Fact for such Selling Stockholder.]
13
<PAGE>
EXHIBIT 1.3
LEXMARK INTERNATIONAL GROUP, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
AGREEMENT BETWEEN U.S. AND
INTERNATIONAL UNDERWRITING SYNDICATES
-------------------------------------
October __, 1997
This Agreement is made between (a) Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Smith
Barney Inc., as representatives (the "U.S. Representatives") for the United
States underwriters (the "U.S. Underwriters") listed in Schedule I to the
Underwriting Agreement (U.S. Version) (the "U.S. Underwriting Agreement") dated
the date hereof with Lexmark International Group, Inc. (the "Company"), and the
Selling Stockholders named therein, and (b) Goldman Sachs International ("GSI"),
Merrill Lynch International, Morgan Stanley & Co. International Limited, Smith
Barney Inc. and Morgan Grenfell & Co. Limited, as Lead Managers (the "Lead
Managers") for the international underwriters (the "International Underwriters")
listed in Schedule I to the Underwriting Agreement (International Version) (the
"International Underwriting Agreement") dated the date hereof with the Company
and the Selling Stockholders named therein. The U.S. Underwriters and the
International Underwriters are herein collectively called the "Underwriters",
each such group of Underwriters is sometimes separately called a "syndicate",
and each of Goldman, Sachs & Co. and GSI is sometimes called a "syndicate
representative" of the U.S. Underwriters and International Underwriters,
respectively.
The U.S. Underwriters, pursuant to the U.S. Underwriting Agreement, have
agreed to purchase _____________ Firm Shares and, at the option of the U.S.
Underwriters, up to an additional _____________ Optional Shares (collectively,
the "U.S. Shares") and the International Underwriters, pursuant to the
International Underwriting Agreement, have agreed to purchase __________ Firm
Shares and, at the option of the International Underwriters, up to an additional
___________ Optional Shares (collectively, the "International Shares"). In
respect of these offerings, the U.S. Underwriters have entered into an Agreement
among Underwriters (U.S. Version) (the "U.S. AAU") and the International
Underwriters have entered into an Agreement among Underwriters (International
Version) (the "International AAU") (each separately referred to as an "AAU").
The U.S. Underwriters and the International Underwriters deem it necessary and
advisable in connection therewith that certain of their respective activities be
coordinated pursuant to this Agreement. The U.S. Shares and the International
Shares are hereinafter referred to collectively as the "Shares", and the
"overall underwriting proportion" and the "syndicate underwriting proportion" of
any Underwriter or group of Underwriters shall be that proportion which is to be
underwritten by such Underwriter or Underwriters of either all the Shares or of
all the Shares of the relevant syndicate (in each case exclusive of Optional
Shares, except as the U.S. Representatives and the Lead Managers may mutually
agree). Terms not defined herein are used as defined in the underwriting
agreements referred to above.
1. The U.S. Underwriters, acting through Goldman, Sachs & Co., and the
International Underwriters, acting through GSI, agree that from time to time
until the termination of certain provisions of the U.S. AAU they will consult
with and advise each other as to the availability for sale
<PAGE>
of Shares purchased pursuant to the U.S. Underwriting Agreement or the
International Underwriting Agreement and remaining unsold. From time to time, at
the direction of or with the consent of Goldman, Sachs & Co., in consultation
with GSI, the Underwriters may purchase and sell from one syndicate to the other
some or all of such unsold Shares.
Unless otherwise determined by mutual agreement of the U.S. Representatives
and the Lead Managers, the price and currency settlement of any Shares so
purchased or sold shall be the original public offering price, in United States
dollars, less an amount not greater than the selling concession. Settlement with
respect to any Shares transferred hereunder prior to a Time of Delivery shall be
made on such Time of Delivery if feasible but in no event later than five
business days after the transfer date. Certificates representing the Shares so
purchased shall be delivered on the respective settlement dates or other
mutually satisfactory settlement shall be made. The liability for payment to
the Selling Stockholders of the purchase price of the Shares being purchased
under the respective underwriting agreements shall not be affected by the
provisions of this Agreement.
In connection with the purchase or sale of Shares from one syndicate to the
other pursuant to this Section 1, the obligations of each Underwriter, subject
to the availability of unsold Shares in the case of a sale by an Underwriter's
syndicate, shall be in accordance with the syndicate underwriting proportion of
each Underwriter; provided, however, that an Underwriter, with the consent of
its syndicate representative, may agree to purchase or sell more or fewer Shares
than would constitute its syndicate underwriting proportion and the number of
Shares to be purchased or sold by the other Underwriters in the same syndicate
shall be computed after giving effect to such variance. Except as provided in
this paragraph, the allocation of rights and obligations of Underwriters in
respect of any purchase of Shares from or sale to the other syndicate shall be
governed by the applicable provisions of the respective syndicate's AAU.
2. All stabilization transactions, whether in the United States or
otherwise, shall be conducted at the direction of and subject to the control of
Goldman, Sachs & Co., so that stabilization activities worldwide shall be
coordinated and conducted in compliance with any applicable laws and
regulations.
Subject to the limitations set forth in the AAU of each syndicate as to the
net commitment for long or short account of any Underwriter as the result of
certain transactions, all such stabilization transactions shall be for the
respective accounts of the U.S. Underwriters and the International Underwriters
in accordance with their respective overall underwriting proportions.
3. Goldman, Sachs & Co., on behalf of the U.S. Representatives, and GSI,
on behalf of the Lead Managers, shall have responsibility for the actions of the
U.S. Underwriters and the International Underwriters, respectively, regarding
overallotments in arranging for sales of Shares; provided, however, that GSI
shall not make any such overallotments without the prior approval of Goldman,
Sachs & Co. Overallotments shall be subject to the limitations set forth in the
AAU of each syndicate as to the net commitment for long or short account of any
Underwriter as the result of certain transactions. GSI shall not exercise on
behalf of the International Underwriters the overallotment option granted to
them by the Selling Stockholders without the prior approval of Goldman, Sachs &
Co. and shall exercise such option if, when and to the extent directed by
Goldman, Sachs & Co. Each syndicate shall be solely responsible for profits and
losses arising from its overallotments; provided, however, that to the extent
that one syndicate may be accorded an overallotment option that is
disproportionate to its aggregate underwriting commitment at the expense of the
size of the overallotment option of the other syndicate, Goldman, Sachs & Co.
may reallocate between the syndicates profits and losses arising from
overallotments.
4. The U.S. Underwriters agree for the benefit of the International
Underwriters to comply with the U.S. AAU and the International Underwriters
agree for the benefit of the U.S. Underwriters
<PAGE>
to comply with the International AAU, including the related Selling Agreements,
and to reconfirm the geographic selling restrictions applicable to the
offerings, as summarized in Annex A hereto.
5. The U.S. Representatives and the Lead Managers agree that:
(a) If a Time of Delivery is not on the day provided in the U.S.
Underwriting Agreement and in the International Underwriting Agreement,
they will mutually agree on a postponed date within the time permitted by
such underwriting agreements and the settlement dates herein provided shall
be adjusted accordingly;
(b) Changes in the public offering price or in the selling concession and
reallowance to dealers will be made only after consultation among them, but
in accordance with the direction of Goldman, Sachs & Co., during the
consultation period specified in the first sentence of Section 1 hereof;
(c) Each syndicate, through the respective syndicate representative, will
keep the other fully informed of the progress of the offering and
distribution of the Shares; and
(d) The Lead Managers shall not terminate the International Underwriting
Agreement pursuant to the conditions set forth in Section 7 thereof except
after consultation with Goldman, Sachs & Co. on behalf of the U.S.
Representatives.
6. The obligations of the Underwriters set forth in Sections 1, 2, 3 and 4
hereof shall terminate upon the termination of certain provisions (including the
geographic selling restrictions) of the U.S. AAU pursuant to Section 10 thereof,
which termination shall be on the thirtieth full business day after the Firm
Shares are released by Goldman, Sachs & Co. for sale to the public, unless
earlier terminated by Goldman, Sachs & Co. as provided therein. GSI shall cause
the termination of the corresponding provisions of the International AAU
simultaneously with such termination of provisions of the U.S. AAU.
7. Any global advertising with respect to the offering shall be under the
control of Goldman, Sachs & Co. Any regional advertising with respect to the
offering shall be as agreed between Goldman, Sachs & Co. and the Lead Managers.
8. The U.S. Representatives and the Lead Managers shall agree as to the
expenses which will constitute expenses of the underwriting and distribution of
the Shares common to the U.S. Underwriters and the International Underwriters,
which expenses shall be allocated between the U.S. Underwriters, on the one
hand, and the International Underwriters, on the other, in accordance with their
respective overall underwriting commitments. It is hereby agreed that the fees
and expenses of counsels to the Underwriters and the costs of global
advertising, if any, shall be common expenses. Except with respect to such
common expenses, the International Underwriters will pay the aggregate expenses
incurred in connection with the purchase, carrying or sale of the International
Shares, and the U.S. Underwriters will pay the aggregate expenses incurred in
connection with the purchase, carrying or sale of the U.S. Shares.
Reimbursements for expenses, if any, received by either syndicate from the
Company or the Selling Stockholders shall be for the account of such syndicate.
9. Neither the U.S. Representatives nor the Lead Managers shall, by virtue of
executing this Agreement, have any liability to any other Underwriter for the
failure of another Underwriter to perform its obligations under either
underwriting agreement or either AAU. The duties of Goldman, Sachs & Co.
hereunder shall be administrative and not fiduciary in nature.
10. This Agreement may be amended before or after any Time of Delivery by
mutual written agreement of the undersigned U.S. Representatives and Lead
Managers.
11. This Agreement may be signed in any number of counterparts, which
together shall constitute one and the same instrument, and shall be binding upon
and inure to the benefit of all of the Underwriters.
<PAGE>
12. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
IN WITNESS WHEREOF, this Agreement has been executed as of the date and year
first above written by the undersigned for themselves and for the Underwriters
as set forth above.
Acting on behalf of themselves and the other
U.S. Underwriters:
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
Smith Barney Inc.
By:
________________________________________
(Goldman, Sachs & Co.)
Acting on behalf of themselves and the other
International Underwriters:
Goldman Sachs International
Merrill Lynch International
Morgan Stanley & Co. International Limited
Smith Barney Inc.
Morgan Grenfell & Co. Limited
By: Goldman Sachs International
By: ________________________________
(Attorney-in-Fact)
<PAGE>
ANNEX A
SUMMARY OF GEOGRAPHIC SELLING RESTRICTIONS
U.S. UNDERWRITERS (AS SET FORTH IN SECTION 4 OF THE U.S. AAU):
U.S. Underwriters may sell only:
(a) in the United States of America (including the District of Columbia),
its territories, its possessions and other areas subject to its
jurisdiction (the "United States"); and
(b) to "U.S. Persons", meaning
(i) individuals resident in the United States, and
(ii) corporations, partnerships or other entities organized in or
under the laws of the United States or any political
subdivision thereof and whose office most directly involved in
the purchase is located in the United States (including any
such entity constituting an investment adviser acting with
discretionary authority for a non-U.S. Person);
subject to the following exceptions:
(a) sales by offices of Goldman, Sachs & Co. acting as agent for GSI, and
(b) with the prior written approval of GSI, sales by a foreign branch of
a U.S. Underwriter acting on behalf of an affiliated International
Underwriter.
INTERNATIONAL UNDERWRITERS (AS SET FORTH IN SECTION 3(A) OF THE SELLING
AGREEMENTS AND REFERRED TO IN SECTION 4 OF THE INTERNATIONAL AAU):
International Underwriters may sell only outside the United States to non-U.S.
Persons (including any such entity constituting an investment adviser located
outside the United States acting with discretionary authority for a U.S.
Person).
<PAGE>
[EXHIBIT 5]
[LETTER OF DEBEVOISE & PLIMPTON]
October 10, 1997
Lexmark International Group, Inc.
One Lexmark Centre Drive
Lexington, Kentucky 40550
LEXMARK INTERNATIONAL GROUP, INC.
REGISTRATION STATEMENT ON FORM S-3
Dear Sirs:
We have acted as counsel to Lexmark International Group, Inc., a Delaware
corporation (the "Registrant"), in connection with a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Registrant with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Act"), relating to (a) 12,000,000
shares (the "Firm Shares") of the Registrant's Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), being offered by the Selling
Stockholders referred to in the Registration Statement and (b) up to an
additional 1,800,000 shares of Class A Common Stock that may be sold by the
Selling Stockholders (the "Option Shares") pursuant to the exercise of the
underwriters' over-allotment options (such Option Shares, together with the
Firm Shares, the "Selling Stockholder Shares").
In so acting, we have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgement are
necessary or appropriate to enable us to render the opinion expressed below.
The Selling Stockholder Shares include shares of Class A Common Stock (the
"Warrant Shares") to be issued to Keys Foundation, a Netherland Antilles
foundation ("Keys Foundation"), upon exercise of Warrant No. 6, dated February
21, 1997 (the "Keys Warrant"), issued by the Registrant to Keys Foundation.
We are of the opinion that (i) the Selling Stockholder Shares are duly
authorized and that the Selling Stockholder Shares (other than the Warrant
Shares) are validly issued, fully paid and non-assessable under the laws of
the State of Delaware and (ii) upon issuance, delivery and payment therefor in
the manner described in the Keys Warrant, the Warrant Shares will be validly
issued, fully paid and non-assessable under the laws of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Validity of the Shares" in the Prospectuses forming a part thereof. In giving
such consent, we do not thereby concede that we are within the category of
person whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
<PAGE>
[EXHIBIT 23.1]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in the
Registration Statement on Form S-3 of our reports dated February 13, 1997, on
our audits of the consolidated financial statements and financial statement
schedule of Lexmark International Group, Inc. and subsidiaries as of December
31, 1995 and 1996, and for the years ended December 31, 1994, 1995 and 1996.
We also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Lexington, Kentucky
October 8, 1997
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of October, 1997.
/s/ B. Charles Ames
-------------------------------------
B. Charles Ames
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
30th day of September, 1997.
/s/ Roderick H. Carnegie
-------------------------------------
Roderick H. Carnegie
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of October, 1997.
/s/ Frank T. Cary
-------------------------------------
Frank T. Cary
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of October, 1997.
/s/ Paul J. Curlander
-------------------------------------
Paul J. Curlander
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of October, 1997.
/s/ William R. Fields
-------------------------------------
William R. Fields
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of October, 1997.
/s/ Donald J. Gogel
-------------------------------------
Donald J. Gogel
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of October, 1997.
/s/ Ralph E. Gomory
-------------------------------------
Ralph E. Gomory
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of October, 1997.
/s/ Stephen R. Hardis
-------------------------------------
Stephen R. Hardis
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Gary E. Morin
and Vincent J. Cole, and each of them, with full power of substitution, as his
true and lawful attorneys and agents, to execute in his name and on his
behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of October, 1997.
/s/ Marvin L. Mann
-------------------------------------
Marvin L. Mann
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of September, 1997.
/s/ Michael J. Maples
-------------------------------------
Michael J. Maples
<PAGE>
[EXHIBIT 24]
POWER OF ATTORNEY
The undersigned, a director of Lexmark International Group, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Marvin L.
Mann, Gary E. Morin and Vincent J. Cole, and each of them, with full power of
substitution, as his true and lawful attorneys and agents, to execute in his
name and on his behalf:
(a) one or more Registration Statements of the Company on an appropriate
form proposed to be filed with the Securities and Exchange Commission
("SEC") for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), such number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), as
shall be determined pursuant to a resolution of the Board of Directors of
the Company or any duly authorized committee thereof;
(b) any and all supplements and amendments (including, without
limitation, post-effective amendments and any subsequent registration
statements pursuant to Rule 462(b) under the Securities Act) to such
Registration Statements; and
(c) any and all other documents and instruments which such attorneys and
agents deem necessary or advisable to enable the Company to comply with (i)
the Securities Act and the other federal securities laws of the United
States of America (including, without limitation, the Exchange Act) and the
rules, regulations and requirements of the SEC in respect of any thereof,
(ii) the securities or Blue Sky laws of any state or other governmental
subdivision of the United States of America, (iii) the rules and
regulations of the New York Stock Exchange, Inc. or any other national or
foreign securities exchange or authorized interdealer quotation system,
(iv) the requirements of the National Association of Securities Dealers,
Inc. and (v) the securities laws of any foreign jurisdiction; and the
undersigned does hereby ratify and confirm as his own acts and deeds that
all such attorneys-in-fact and agents, and each of them, shall do or cause
to be done by virtue hereof. Each one of such attorneys-in-fact and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto this power of attorney this
9th day of October, 1997.
/s/ Martin D. Walker
-------------------------------------
Martin D. Walker
