- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
X For the Quarterly Period Ended September 30, 1998
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.1-14050
LEXMARK INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3074422
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Lexmark Centre Drive
740 West New Circle Road
Lexington, Kentucky 40550
(Address of principal executive offices) (Zip Code)
(606) 232-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The registrant had 65,356,685 shares outstanding (excluding shares held in
treasury) of Class A common stock, par value $0.01 per share, as of the close of
business on October 30, 1998.
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<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
INDEX
Page of
Form 10-Q
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997.......2
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (Unaudited)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997.......................3
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997.......................4
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited).......5-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Unaudited)....................10-15
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................16
1
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Millions, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $743.8 $618.3 $2,113.2 $1,758.0
Cost of revenues 475.9 402.7 1,342.3 1,149.2
------ ------ -------- --------
Gross profit 267.9 215.6 770.9 608.8
Research and development 44.0 32.0 118.7 94.4
Selling, general and administrative 132.5 116.6 397.6 334.2
------ ------ -------- --------
Operating expenses 176.5 148.6 516.3 428.6
------ ------ -------- --------
Operating income 91.4 67.0 254.6 180.2
Interest expense 3.3 1.7 8.4 8.0
Amortization of deferred financing costs and other 1.2 2.2 4.0 6.6
------ ------ -------- --------
Earnings before income taxes and extraordinary item 86.9 63.1 242.2 165.6
Provision for income taxes 29.1 22.1 81.1 59.6
------ ------ -------- --------
Earnings before extraordinary item 57.8 41.0 161.1 106.0
Extraordinary loss on extinguishment of debt
(net of related tax benefit of $8.4) - - - (14.0)
------ ------ -------- --------
Net earnings $ 57.8 $ 41.0 $ 161.1 $ 92.0
====== ====== ======== ========
Basic earnings per share:
Before extraordinary item $ 0.87 $ 0.57 $ 2.41 $ 1.47
Extraordinary loss - - - (0.19)
------ ------ -------- --------
Net earnings per share $ 0.87 $ 0.57 $ 2.41 $ 1.28
====== ====== ======== ========
Diluted earnings per share:
Before extraordinary item $ 0.81 $ 0.54 $ 2.25 $ 1.39
Extraordinary loss - - - (0.18)
------ ------ -------- --------
Net earnings per share $ 0.81 $ 0.54 $ 2.25 $ 1.21
====== ====== ======== ========
Shares used in per share calculation:
Basic 66.3 71.5 66.9 72.1
====== ====== ======== ========
Diluted 71.1 75.7 71.6 75.9
====== ====== ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In Millions, Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 28.2 $ 43.0
Trade receivables, net of allowance of $21 in 1998 and $19 in 1997 421.7 318.9
Inventories 411.6 353.8
Prepaid expenses and other current assets 74.5 60.4
-------- --------
Total current assets 936.0 776.1
Property, plant and equipment, net 415.8 409.6
Other assets 25.9 22.5
-------- --------
Total assets $1,377.7 $1,208.2
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 36.0 $ 18.0
Accounts payable 235.5 302.0
Accrued liabilities 331.5 227.5
-------- --------
Total current liabilities 603.0 547.5
Long-term debt 148.6 57.0
Other liabilities 110.5 103.0
-------- --------
Total liabilities 862.1 707.5
-------- --------
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; 65,712,168 and
67,539,935 outstanding in 1998 and 1997, respectively 0.8 0.7
Class B, 10,000,000 shares authorized; 0 and
410,537 outstanding in 1998 and 1997, respectively - -
Capital in excess of par 548.1 537.2
Retained earnings 329.9 168.8
Accumulated other comprehensive earnings (loss) (26.2) (23.8)
Treasury stock, at cost; 9,570,087 and 6,438,114 shares in 1998 and
1997, respectively (337.0) (182.2)
-------- --------
Total stockholders' equity 515.6 500.7
-------- --------
Total liabilities and stockholders' equity $1,377.7 $1,208.2
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net earnings $161.1 $ 92.0
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 52.5 56.3
Extraordinary loss on extinguishment of debt - 22.4
Deferred taxes (0.3) 8.9
Other non-cash charges to operations 15.2 17.4
------ ------
228.5 197.0
Change in assets and liabilities:
Trade receivables (90.5) (24.4)
Trade receivables programs (12.3) 21.5
Inventories (57.8) (84.1)
Accounts payable (66.5) 22.9
Accrued liabilities 104.0 8.4
Other assets and liabilities (19.4) (32.6)
------ ------
Net cash provided by operating activities 86.0 108.7
------ ------
Cash flows from investing activities:
Purchases of property, plant and equipment (61.4) (47.8)
Proceeds from sale of property, plant and equipment 0.9 0.2
------ ------
Net cash used for investing activities (60.5) (47.6)
------ ------
Cash flows from financing activities:
Increase in short-term debt 18.0 102.5
Principal payments on long-term debt (207.0) (125.5)
Proceeds from issuance of long-term debt, net of
issuance costs of $1.3 in 1998 297.2 0.2
Charges related to extinguishment of debt - (22.4)
Purchase of treasury stock (154.9) (85.6)
Exercise of stock options and warrants 6.4 8.2
------ ------
Net cash used for financing activities (40.3) (122.6)
------ ------
Effect of exchange rate changes on cash - (2.3)
------ ------
Net decrease in cash and cash equivalents (14.8) (63.8)
Cash and cash equivalents - beginning of period 43.0 119.3
------ ------
Cash and cash equivalents - end of period $ 28.2 $ 55.5
====== ======
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited; however, in
the opinion of Lexmark International Group, Inc. ("Group" and together
with its subsidiaries, the "company") 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, 1997.
2. INVENTORIES
(Dollars in millions)
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
----- ----
<S> <C> <C>
Work in process $188.6 $211.2
Finished goods 223.0 142.6
------ ------
$411.6 $353.8
====== ======
</TABLE>
3. STOCKHOLDERS' EQUITY
During the three months ended September 30, 1998, Group repurchased
724,400 shares of its Class A common stock in the open market at prices
ranging from $56.38 to $66.94 for an aggregate cost of approximately
$45.6 million. As of September 30, 1998, Group held, net of issuances, a
total of 9,570,087 shares at an aggregate cost of approximately $337.0
million.
4. LONG-TERM DEBT
In May 1998, Lexmark International, Inc., a wholly-owned subsidiary of
Group ("International"), completed a public offering of $150 million
principal amount of its 6.75% senior notes due May 15, 2008. The senior
notes were priced at 98.998%, to yield 6.89% to maturity. The senior
notes are guaranteed by Group. A substantial portion of the net proceeds
from the sale of the senior notes was used to reduce existing debt
outstanding under the company's credit facility. There are no sinking
fund requirements on the senior notes and they may be redeemed at any
time, at a redemption price as described in the related indenture
agreement, in whole or in part, at the option of International.
5
<PAGE>
5. OTHER COMPREHENSIVE EARNINGS (LOSS)
(Dollars in millions)
Effective January 1, 1998 the company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income.
This statement requires that all items recognized under accounting
standards as components of comprehensive earnings be reported in a
financial statement. This statement also requires that an entity classify
items of other comprehensive earnings by their nature in a financial
statement. For example, other comprehensive earnings may include foreign
currency translation adjustments, minimum pension liability adjustments,
and unrealized gains and losses on certain marketable securities.
Financial statements for prior periods have been reclassified, as
required.
Comprehensive earnings consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $57.8 $41.0 $161.1 $92.0
Other comprehensive earnings (loss):
Foreign currency translation adjustment
(net of related tax benefit of $0 in 1998
and 1997) 2.3 (4.6) (0.9) (20.5)
Minimum pension liability adjustment
(net of related tax benefit of $0.8 in 1998) - - (1.5) -
----- ----- ------ -----
Comprehensive earnings $60.1 $36.4 $158.7 $71.5
===== ===== ====== =====
</TABLE>
Accumulated other comprehensive earnings (loss) consists of the
following:
<TABLE>
<CAPTION>
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustment Adjustment Earnings (Loss)
----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $(23.8) $ - $(23.8)
First quarter other comprehensive earnings (loss) (0.1) (1.5) (1.6)
------ ------ ------
Balance, March 31, 1998 (23.9) (1.5) (25.4)
Second quarter other comprehensive earnings (loss) (3.1) - (3.1)
------ ------ ------
Balance, June 30, 1998 $(27.0) $(28.5)
Third quarter other comprehensive earnings (loss) 2.3 - 2.3
------ ------ ------
Balance, September 30, 1998 $(24.7) $ (1.5) $(26.2)
====== ====== ======
</TABLE>
6
<PAGE>
6. EARNINGS PER SHARE (EPS) (Dollars in millions, except share amounts)
The following is a reconciliation of the weighted average shares used in
the basic and diluted EPS calculations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Earnings before extraordinary item used for
<S> <C> <C> <C> <C>
both basic and dilutive EPS $57.8 $41.0 $161.1 $106.0
===== ===== ====== ======
Weighted average shares used for basic EPS 66,260,721 71,505,531 66,943,347 72,052,035
Effect of dilutive securities
Warrants - 362,012 - 349,790
Long-term incentive plan 42,232 33,744 51,333 19,880
Stock options 4,825,914 3,791,370 4,571,980 3,513,784
---------- ---------- --------- ---------
Weighted average shares used for diluted EPS 71,128,867 75,692,657 71,566,660 75,935,489
========== ========== ========== ==========
Basic EPS before extraordinary item $0.87 $0.57 $2.41 $1.47
Diluted EPS before extraordinary item $0.81 $0.54 $2.25 $1.39
</TABLE>
Options to purchase an additional 32,883 and 30,373 shares of Class A
common stock were outstanding at September 30, 1998 and 1997,
respectively, but were not included in the computation of diluted
earnings per share because their effect would be antidilutive.
7. SUMMARIZED FINANCIAL INFORMATION
(Dollars in millions)
The following is consolidated summarized financial information of
International:
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ -----------
Statement of financial position data:
<S> <C> <C>
Current assets $936.0 $776.1
Noncurrent assets 441.7 432.1
Current liabilities 606.9 551.4
Noncurrent liabilities 259.1 160.0
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Statement of earnings data:
<S> <C> <C> <C> <C>
Revenues $743.8 $618.3 $2,113.2 $1,758.0
Gross profit 267.9 215.6 770.9 608.8
Earnings before extraordinary item 57.8 41.0 161.1 106.0
Net earnings 57.8 41.0 161.1 92.0
</TABLE>
Current liabilities include $3.9 million at both September 30, 1998
and December 31, 1997 that is owed to Lexmark International Group, Inc.
8. NEW ACCOUNTING STANDARDS
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits, effective for fiscal
years beginning after December 15, 1997. This statement revises
employer's disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
It standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer as useful. Restatement of disclosures for
earlier periods provided for comparative purposes is required unless the
information is not readily available. This statement is disclosure
oriented and, therefore, will not have a material impact on the company's
financial position, results of operations or liquidity. This statement is
effective for the company's financial statements for the year ended
December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This SOP
provides guidance on accounting for the costs of computer software
developed or obtained for internal use, and requires that entities
capitalize certain internal-use software costs once certain criteria are
met. Currently the company generally expenses the costs of developing or
obtaining internal-use software as incurred. The company is currently
evaluating SOP 98-1, and does not expect it to have a material impact on
its consolidated financial statements. This SOP is effective for
financial statements for fiscal years beginning after December 15, 1998.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to
record derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. The
company is currently evaluating this statement and its impact on the
consolidated financial statements. This statement is effective for fiscal
years beginning after June 15, 1999, with earlier adoption encouraged.
The company will adopt this accounting standard as required by January 1,
2000.
8
<PAGE>
9. SUBSEQUENT EVENT
On October 29, 1998, the board of directors of Group authorized the
repurchase at management's discretion of up to $200 million of its Class
A common stock in the open market or in privately negotiated transactions
depending upon market price and other factors. This authorization is in
addition to the $400 million in aggregate repurchase authorization
previously granted by the board and is currently permitted under the
Company's credit facilities. As of November 6, 1998, Group has used $363
million of the total authorization granted to it to repurchase
approximately 10 million shares, leaving approximately $237 million of
share repurchase authorization (including the October 1998
authorization).
9
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
(Unaudited)
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Results of Operations
- ---------------------
Consolidated revenues for the three months ended September 30, 1998 were $744
million, an increase of 20% over the same period of 1997 and reflected the
company's highest quarterly revenues and earnings per share since becoming a
public company in 1995. The impact of foreign currency translation on revenues
during the quarter was insignificant. Printers and associated supplies revenues
were $632 million, an increase of 25%. Revenues from other office imaging
products remained constant at $112 million compared to the same period of 1997.
Total U.S. revenues were up $73 million or 22%, and total international revenues
were up $53 million or 19%, despite lower revenues in Asia, which accounted for
less than 10% of consolidated revenues.
For the nine months ended September 30, 1998, consolidated revenues were $2,113
million, an increase of 20% over the same period of 1997. Revenues were
adversely affected by foreign currency exchange rates due to the strengthening
of the U.S. dollar. Without the currency effect, year-to-year revenue growth
would have been 23%. Printers and associated supplies revenues were $1,767
million, an increase of 26%. Revenues from other office imaging products were
$346 million, a decrease of 2% from 1997. Total U.S. revenues were up $214
million or 23%, and total international revenues were up $141 million or 17%.
The revenue growth for the quarter and nine months ended September 30, 1998 over
the same periods in 1997 was driven by unit volume increases in printers and
strong growth of associated supplies. Revenues from sales to all original
equipment manufacturers (OEM) accounted for less than 10% of consolidated
revenues for the quarter and nine months ended September 30, 1998.
Consolidated gross profit was $268 million for the three months ended September
30, 1998, an increase of 24% from the same period of 1997. This was driven by
improved printer margins reflecting lower costs and a richer mix of supplies
versus printer hardware. Gross profit as a percentage of revenues for the third
quarter of 1998 increased to 36% from 35% in 1997. Gross profit attributable to
printers and associated supplies increased by 29%, principally due to improved
printer margins reflecting lower costs and growth in higher margin associated
consumable supplies.
For the nine months ended September 30, 1998, consolidated gross profit was $771
million, an increase of 27% over the corresponding period of 1997. Gross profit
as a percentage of revenues increased to 37% from 35% in 1997. Gross profit
attributable to printers and associated supplies increased by 36%, principally
due to improved printer margins reflecting lower costs and growth in higher
margin associated consumable supplies.
Total operating expenses increased 19% and 20% in the third quarter and first
nine months of 1998, respectively, compared to the same periods of 1997
principally reflecting higher marketing expenses in support of new product
introductions and revenue growth. Expenses as a percentage of revenues for the
quarter were 23.7% compared to 24.0% for the corresponding period of 1997.
Expenses as a percentage of revenues for the first nine months of 1998 and 1997
were 24.4%.
Consolidated operating income was $91 million for the third quarter of 1998 and
$255 million for the nine months ended September 30, 1998, an increase of 36%
and 41%, respectively, over the corresponding periods of 1997. This increase was
due principally to improved printer margins reflecting lower costs and growth in
higher margin associated consumable supplies.
10
<PAGE>
Net earnings for the third quarter of 1998 were $58 million, up 41% compared to
the third quarter of 1997. This increase was primarily due to the 36% increase
in operating income. The income tax provision was approximately 33% of earnings
before tax for the third quarter of 1998 as compared to approximately 35% in the
same period of 1997. The decrease in the income tax rate is primarily due to the
effect of lower tax rates on manufacturing activities in certain countries.
Basic net earnings per share were $0.87 for the third quarter of 1998 compared
to $0.57 in the corresponding period of 1997, an increase of 52%. Diluted net
earnings per share were $0.81 for the third quarter of 1998 compared to $0.54 in
the comparable period of 1997, an increase of 50%. The increase in basic and
diluted net earnings per share resulted from increased operating income, lower
income tax rates and fewer shares outstanding due to share repurchases.
Earnings before extraordinary item for the first nine months of 1998 were $161
million, an increase of 52% compared to the same period of 1997. This increase
is principally due to the 41% increase in operating income. The income tax
provision was approximately 33% of earnings before tax for the first nine months
of 1998 as compared to approximately 36% in the same period of 1997. The
decrease in the income tax rate is primarily due to the effect of lower tax
rates on manufacturing activities in certain countries.
Net earnings for the first nine months of 1998 were $161 million, an increase of
75% compared to the same period of 1997. Net earnings for the first nine months
of 1997 were affected by an extraordinary charge of $22 million ($14 million net
of tax benefit) caused by a prepayment premium and other fees associated with
the prepayment of the company's senior subordinated notes.
Basic net earnings per share were $2.41 for the first nine months of 1998
compared to $1.28 in the corresponding period of 1997, or $1.47 before
extraordinary item, an increase of 88% and 64%, respectively. Diluted net
earnings per share were $2.25 for the first nine months of 1998 compared to
$1.21 in the comparable period of 1997, or $1.39 before extraordinary item, an
increase of 86% and 61%, respectively. The increase in basic and diluted net
earnings per share resulted from increased operating income, lower income tax
rates and fewer shares outstanding due to share repurchases.
Financial Condition
- -------------------
The company's financial position remains strong at September 30, 1998, with
working capital of $333 million compared to $229 million at December 31, 1997.
At September 30, 1998, the company had outstanding $36 million of short-term
debt and $149 million of long-term debt. The debt to total capital ratio was 26%
at September 30, 1998 compared to 13% at December 31, 1997. The increase in debt
reflects the public debt offering of $150 million principal amount of senior
notes described below and higher revolver usage for stock repurchases.
In February 1998, Group's board of directors declared a dividend distribution of
one right (a "Right") for each outstanding share of Group's Class A common stock
and Class B common stock. The distribution was payable to holders of record on
April 3, 1998. Each Right entitles the registered holder to purchase from Group
one one-hundredth of a share of Series A Junior Participating Preferred Stock at
a price of $200 per one hundredth of a share, subject to adjustment.
In March 1998, the public offering of 7,704,577 shares of Group's Class A common
stock by certain of its stockholders was completed at a public offering price of
$45.00 per share. Group 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.
11
<PAGE>
In March 1998, Group repurchased an additional 2 million shares from certain of
the stockholders participating in the March 1998 offering at a price of $43.38
per share (which was equal to the net proceeds per share received by the selling
stockholders participating in the offering) for an aggregate purchase price of
approximately $87 million.
In May 1998, International completed a public offering of $150 million principal
amount of its 6.75% senior notes due May 15, 2008. The senior notes were priced
at 98.998%, to yield 6.89% to maturity. The senior notes are guaranteed by
Group. A substantial portion of the net proceeds from the sale of the senior
notes was used to reduce existing debt outstanding under the company's credit
facility. There are no sinking fund requirements on the senior notes and they
may be redeemed at any time, at a redemption price as described in the related
indenture agreement, in whole or in part, at the option of International.
Cash provided by operating activities for the nine months ended September 30,
1998 was $86 million compared to $109 million for the same period of 1997. The
decrease in cash flows from operating activities in the first nine months of
1998 was attributable primarily to an increase in trade receivables due to
higher revenues and lower accounts payable which were partially offset by
earnings growth and changes in other working capital accounts.
Capital expenditures for the first nine months of 1998 were $61 million compared
to $48 million for the same period of 1997. It is anticipated that capital
expenditures for 1998 will be approximately $100 million and will be funded
primarily through cash from operations.
During the three months ended September 30, 1998, Group repurchased 724,400
shares of its Class A common stock in the open market at prices ranging from
$56.38 to $66.94 for an aggregate cost of approximately $46 million. As of
September 30, 1998, Group held, net of issuances, a total of 9,570,087 treasury
shares at an aggregate cost of approximately $337 million. On October 29, 1998,
the board of directors of Group authorized the repurchase at management's
discretion of up to $200 million of its Class A common stock in the open market
or in privately negotiated transactions depending upon market price and other
factors. This authorization is in addition to the $400 million in aggregate
repurchase authorization previously granted by the board and is currently
permitted under the Company's credit facilities. As of November 6, 1998 Group
has used $363 million of the total authorization granted to it to repurchase
approximately 10 million shares, leaving approximately $237 million of share
repurchase authorization (including the October 1998 authorization).
Year 2000 Issue
- ---------------
General
- -------
The Year 2000 Issue is the result of computers, software and other equipment
that fail to utilize the full four-digit representation of a year which would
cause date-sensitive software to recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculation causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities. In addition, equipment containing embedded
chips could malfunction as a result of this issue. If systems are not modified
to be Year 2000 compliant, such failures could occur and could materially affect
the company's results of operations, liquidity, and financial condition. In
recent years, in order to reduce costs associated with information processing
and to improve access to business information through common, integrated
computing systems, the company converted its major information technology
systems to an enterprise resource planning system. This system is Year 2000
compliant.
12
<PAGE>
The company has conducted a comprehensive review of its computer and
manufacturing equipment systems to identify the systems that could be affected
by the Year 2000 Issue and has developed a comprehensive plan to address the
issues. This plan includes analyzing and identifying systems and equipment that
need to be replaced or upgraded as a result of the Year 2000 Issue. This review
was completed by September 30, 1998. Required replacements and upgrades of
critical systems and equipment are expected to be substantially complete and
tested by December 31, 1998. The Year 2000 Issue has not delayed implementation
of any other planned system projects; however, some planned system projects were
accelerated to replace non-compliant systems.
Almost all of the company's products are Year 2000 compliant. There are some
products that are not Year 2000 compliant but can be upgraded to become
compliant. A few products are not Year 2000 compliant and may not ever be Year
2000 compliant. The company does not expect costs associated with making its own
products compliant to be material.
The company has established communications with its significant suppliers,
customers and others with which it conducts business to help them identify their
own Year 2000 issues. If necessary modifications and conversions by the company
and those with which it conducts business are not completed timely, the Year
2000 Issue may have a material adverse effect on the company's results of
operations, liquidity, and financial position. The company is currently
evaluating and prioritizing the responses from suppliers to establish
contingency plans. For significant production suppliers, possible contingencies
include securing alternate sources or purchasing additional inventory prior to
January 2000. Services provided by various utility companies are vital to the
company, and the company is communicating with them about their plans and
progress in addressing the Year2000 issue. The company currently does not have a
contingency plan to address an interruption in utility service, although the
company is actively working with its utility suppliers to gain assurance of
uninterrupted service.
Costs
- -----
The total costs associated with the company's required modifications and
conversions to become Year 2000 compliant and to address Year 2000 non-compliant
products are not currently expected to be material to the company's results of
operations, liquidity and financial position and are being expensed as incurred.
The costs of the company's Year 2000 plan and the date on which the company
expects to complete the Year 2000 Issue modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
the company's current expectations.
Risks
- -----
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially adversely affect the company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, including
utility companies and customers, the company is unable to conclude that the
consequences of Year 2000 failures will not have a material impact on the
company's results of operations, liquidity or financial position.
THE DISCUSSION AND ANALYSIS OF THE YEAR 2000 ISSUE INCLUDED HEREIN CONTAINS
FORWARD-LOOKING STATEMENTS AND ARE BASED ON MANAGEMENT'S BEST ESTIMATES OF
FUTURE EVENTS. RISKS RELATED TO COMPLETING THE COMPANY'S YEAR 2000 PLAN INCLUDE
THE AVAILABILITY OF RESOURCES, THE COMPANY'S ABILITY TO TIMELY DISCOVER AND
CORRECT THE POTENTIAL YEAR 2000 SENSITIVE PROBLEMS WHICH COULD HAVE A SERIOUS
13
<PAGE>
IMPACT ON THE COMPANY'S OPERATIONS, THE ABILITY OF SUPPLIERS TO BRING THEIR
SYSTEMS INTO YEAR 2000 COMPLIANCE, AND THE COMPANY'S ABILITY TO IDENTIFY AND
IMPLEMENT EFFECTIVE CONTINGENCY PLANS TO ADDRESS YEAR 2000 FAILURES.
New Accounting Standards
- ------------------------
In February 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132, Employers' Disclosure about Pensions and Other Postretirement Benefits,
effective for fiscal years beginning after December 15, 1997. This statement
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful. Restatement of disclosures for earlier periods provided for comparative
purposes is required unless the information is not readily available. This
statement is disclosure oriented and, therefore, will not have a material impact
on the company's financial position, results of operations or liquidity. This
statement is effective for the company's financial statements for the year ended
December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Opinion ("SOP") 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This SOP provides guidance on accounting
for the costs of computer software developed or obtained for internal use, and
requires that entities capitalize certain internal-use software costs once
certain criteria are met. Currently the company generally expenses the costs of
developing or obtaining internal-use software as incurred. The company is
currently evaluating SOP 98-1, and does not expect it to have a material impact
on its consolidated financial statements. This SOP is effective for financial
statements for fiscal years beginning after December 15, 1998.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The company is currently evaluating this
statement and its impact on the consolidated financial statements. This
statement is effective for fiscal years beginning after June 15, 1999, with
earlier adoption encouraged. The company will adopt this accounting standard as
required by January 1, 2000.
Factors That May Affect Future Results and Information Concerning Forward -
- ---------------------------------------------------------------------------
Looking Statements
- ------------------
Certain of the statements contained in this Report may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
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, and there are a number of
factors that could adversely affect the company's future operating results or
cause the company's actual results to differ materially from the estimates or
expectations reflected in such forward-looking statements, including without
limitation, the factors set forth below:
~ The markets for printers and associated supplies are highly competitive,
especially with respect to new competitors, pricing and the introduction of new
technologies and products offering improved features and functionality. If it is
unable to continue to develop, manufacture and market products that meet
customers'
14
<PAGE>
needs, the company's future operating results may be adversely affected. 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.
The company has also regularly lowered prices on its printers and expects 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 for the company and jeopardize the company's ability to grow or
maintain its market share. In addition, the company's ability to increase or
maintain its presence in the retail marketplace with its branded products may be
adversely affected as the company becomes more successful in its sales and
marketing efforts for original equipment manufacturers. Revenue from all laser
and injet OEM customers for the third quarter and the nine months ended
September 30, 1998, however, accounted for less than 10% of total revenue with
no OEM customer accounting for, or currently expected to account for, more than
5% of total revenue.
~ The life cycles of the company's products, as well as delays in product
development and manufacturing, variations in the cost of component parts,
management of inventory levels by the company and its competitors, 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,
as well as increased investment to support new product introductions, also could
cause significant changes in the level of the company's operating expenses.
~ Revenues derived from international sales make up approximately half of the
company's revenues. Accordingly, the company's future results could be adversely
affected by a variety of factors, including foreign currency exchange rate
fluctuations, trade protection measures, changes in a specific country's or
region's political or economic conditions and unexpected changes in regulatory
requirements. Also, margins on international sales tend to be lower than those
on domestic sales. Moreover, the company believes that international operations
in new geographic 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
product development, marketing, selling and distribution required to enter these
markets.
~ Factors unrelated to the company's operating performance, including the
company's ability to obtain patents, copyrights and trademarks, maintain trade
secret protection and operate without infringing the proprietary rights of
others, as well as expenses incurred by the company in defending and pursuing
its intellectual property and other legal claims; economic and business
conditions, both national and international; the loss of significant customers
or suppliers; the potential impact on the company's customers and suppliers as
they prepare for the Year 2000 and the Euro currency conversion; changes in and
execution of the company's business strategy, including the impact of
acquisitions, and the ability to retain and attract key personnel, also may
affect the company's results. In addition, other factors, such as expectations
about the company's financial performance created in the investment community by
stock analysts who report on the company and the company's ability to meet those
expectations, may also affect Group's Class A common stock price.
15
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
A list of exhibits is set forth in the Exhibit Index found on
page 18 of this report.
(b) Reports on Form 8-K:
There were no Reports on Form 8-K filed during the quarter ended
September 30, 1998.
16
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, both on behalf of the registrant and in
his capacity as principal accounting officer of the registrant.
Lexmark International Group, Inc.
(Registrant)
Date: November 12, 1998 By: /s/ David L. Goodnight
- ------------------------ ----------------------
David L. Goodnight
Vice President and Corporate Controller
(Principal Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
Exhibits:
10.1 Form of Non-Qualified Stock Option Agreement, pursuant of the Lexmark
International Group, Inc. Nonemployee Director Stock Plan, Amended and
Restated effective April 30, 1998. +
10.2 Form of Indemnification Agreement entered into as of April 30, 1998,
among Lexmark International Group, Inc., Lexmark International, Inc.
and certain officers thereof. +
10.3 Form of Change in Control Agreement entered into as of April 30, 1998,
among Lexmark International Group, Inc., Lexmark International, Inc.
and certain officers thereof. +
10.4 Employment Agreement, dated as of April 30, 1998, among Lexmark
International, Inc., Lexmark International Group, Inc. and Gary E.
Morin. +
10.5 Separation Agreement, dated as of April 30, 1998, among Lexmark
International, Inc., Lexmark International Group, Inc. and John A.
Stanley. +
27 Financial Data Schedule
- ----------------
+ Indicates management contract or compensatory plan, contract or arrangement.
18
NON-QUALIFIED STOCK OPTION AGREEMENT
pursuant to
LEXMARK INTERNATIONAL GROUP, INC.
NONEMPLOYEE DIRECTOR STOCK PLAN
(Amended and Restated Effective April 30, 1998)
This NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement")
between Lexmark International Group, Inc., a Delaware corporation (the
"Company"), and the person specified on the signature page hereof (the
"Optionee") is entered into as of the 30th day of April, 1998 pursuant to the
Lexmark International Group, Inc. Nonemployee Director Stock Plan, amended and
restated effective April 30, 1998, as the same may be amended from time to time
(the "Plan").
WHEREAS, the Optionee is a member of the Board of Directors of
the Company, who is not also an employee of the Company or one of its
Subsidiaries or affiliated with any stockholder of the Company holding 5% or
more of the Company's equity securities, and the Company has determined that it
would be to the advantage and in the interest of the Company to grant the option
provided for herein to the Optionee as an inducement to the Optionee to remain
in the service of the Company and as an incentive to the Optionee to devote his
best efforts and dedication to the performance of such services and to maximize
shareholder value;
WHEREAS, the Optionee desires to accept from the Company the
grant of the options evidenced hereby on the terms and subject to the conditions
herein;
NOW, THEREFORE, in consideration of the premises and subject
to the terms and conditions set forth herein and in the Plan, the parties hereto
hereby covenant and agree as follows:
1. Grant of Option; Exercise Price.
-------------------------------
(a) Grant of Option; Exercise Price.
------------------------------- The Company hereby grants
to the Optionee, effective as of the date hereof and on the terms and conditions
herein, an option (the "Option") to purchase shares (the "Option Shares")
-----
of the Company's Class A Common Stock, par value $.01 per share (the "Common
Stock"), at an exercise price per Option Share equal to $ , which was the
-------
closing price per share of Common Stock on . The Option is not
---------------
intended to be an incentive stock option under the Internal Revenue Code of
1986, as amended.
(b) Nonemployee Director Stock Plan.
------------------------------- This Agreement is subject
in all respects to the terms of the Plan, all of which terms are made a part of
and incorporated in this Agreement by reference. In the event of any conflict or
inconsistency between the terms of this Agreement and the terms of the Plan, the
terms of the Plan shall control. The Optionee hereby acknowledges that a copy of
the Plan may be obtained from the Vice President of Human Resources and agrees
<PAGE>
to comply with and be bound by all of the terms and conditions thereof. Terms
used in this Agreement with initial capital letters, but not defined herein,
shall have the meanings assigned to them under the Plan.
2. Vesting; Period of Exercise of Option.
-------------------------------------
(a) Vesting.
------- Subject to the provisions of Section 4, the
Option shall become vested and exercisable in five equal installments on each of
the first five anniversaries of the date hereof, subject in the case of each
such installment to the provisions of Section 2(b) below.
(b) Termination of Director Status.
------------------------------ In the event the Optionee
ceases to serve as a member of the Board for any reason,
(i) if such Optionee has completed three Years of Board
Service or less as of the date of such termination, any portion of the
Option (x) which is then vested and exercisable on the date of
-
termination may be exercised by the Optionee or, if applicable, his
beneficiary for a period of 90 days following the date of the
Optionee's termination of service, but in no event later than the
expiration date of the Option Period (as defined in Section 2(c)), and
(y) which is not vested and exercisable on the date of termination
-
shall be canceled, in full, on the date of such termination;
(ii) if such Optionee has completed more than three Years of Board
Service as of the date of such termination, any portion of the Option
(x) which is then vested and exercisable on the date of termination may
be exercised by the Optionee or, if applicable, his beneficiary until
the third anniversary of the date of the Optionee's termination of
service, but in no event later than the expiration date of the term of
the Option, and (y) which is not vested and exercisable on the date of
termination shall thereafter become exercisable by the Optionee or, if
applicable, his beneficiary at the time or times indicated in Section
2(a) and, once exercisable, will remain exercisable for a period of
three years following the date of the Optionee's termination of
service, but in no event later than the expiration date of the Option
Period.
(c) Term of Option Exercise Period.
------------------------------ Except to the extent that
the Option or any portion thereof shall sooner terminate in accordance with
Section 2(b), once any portion of the Option has become vested and exercisable,
such portion shall remain exercisable until the end of the day preceding the
tenth anniversary of the date hereof (the "Option Period").
3. Method of Exercise and Payment; Reload Option; Certain
-----------------------------------------------------------
Restrictions on Resale.
- ----------------------
(a) Exercise and Payment.
-------------------- Once vested and exercisable, the
Option, or any such portion thereof, may be exercised by the Optionee (or his
beneficiary or estate) by delivering to the Company on any business day (the
"Option Exercise Date") written notice (the "Option Exercise Notice"), in such
manner and form as may be required by the Board, specifying the number of Option
Shares the Optionee then desires to purchase and the aggregate exercise price
2
<PAGE>
for such Option Shares (the "Option Exercise Price"). The Option Exercise Notice
shall be accompanied by payment of the Option Exercise Price and any other
amounts required to be paid pursuant to Section 4.
The Optionee may pay the Option Exercise Price by delivering
to the Company cash, shares of Qualifying Common Stock (as defined below)
already owned by the Optionee or a combination of cash and such shares of
Qualifying Common Stock, provided that the aggregate Fair Market Value on the
Option Exercise Date of the shares of Qualifying Common Stock delivered in
payment of any portion of the Option Exercise Price shall be equal to the excess
of (x) the Option Exercise Price, over (y) the amount of any cash delivered by
the Optionee in payment of the Option Exercise Price. For purposes of this
Agreement, shares of Common Stock shall constitute Qualifying Common Stock that
may be delivered in payment of the Option Exercise Price if such shares (i) are
not subject to any outstanding loan or other obligation and are not pledged as
collateral with respect to any loan or other obligation other than any such loan
or other obligation extended to the Optionee by the Company or any Subsidiary,
and (ii) have been owned by the Optionee without restriction for a continuous
period of at least six months.
Within a reasonable period of time after the Option Exercise
Date, subject to payment of the Option Exercise Price and any amounts required
to be paid by the Optionee pursuant to Section 4, the Company shall direct its
stock transfer agent to make (or to cause to be made) an appropriate book entry
reflecting the Optionee's ownership of the Option Shares then being purchased by
the Optionee. Upon request, the Company shall deliver to the Optionee a
certificate or certificates for the number of Option Shares purchased by the
Optionee, registered in the name of the Optionee. In the event that the Company
or the Board, in its sole discretion, shall determine that, under applicable
U.S. federal or state or non-U.S. securities laws, the transfer of any Option
Shares must be subject to restriction, any certificates issued under this
Section 3(a) shall bear an appropriate legend restricting the transfer of such
Option Shares, and appropriate stop transfer instructions shall be delivered to
the Company's stock transfer agent.
(b) Reload Option.
-------------- Effective on the date of the exercise by
the Optionee of any portion of the Option (the "Reload Grant Date"), if any
portion of the Option Exercise Price in respect thereof is satisfied by the
Optionee by delivery to the Company of Qualifying Common Stock, the Optionee
shall automatically be granted a new option (the "Reload Option") to purchase a
number of shares of Common Stock equal to the number of shares of Qualifying
Common Stock so delivered, at an exercise price per share equal to the Fair
Market Value of a share of Common Stock on the Reload Grant Date. The Reload
Option shall be fully vested and exercisable on the Reload Grant Date. In all
other respects, such Reload Option shall be subject to the same terms and
conditions (including the same Option Period) as the related Option, and all
references herein to the "Option" shall be deemed to include the Reload Option.
(c) Restrictions on Sale upon Public Offering.
------------------------------------------ The Optionee
hereby agrees that, during the 20 day period prior to and the 180 days following
the effective date of any registration statement filed by the Company under the
Securities Act of 1933, as amended, with respect to any underwritten public
offering of any shares of the Company's capital stock, the Optionee will not
effect any public sale or distribution of shares of Common Stock (other than as
part of such underwritten public offering).
3
<PAGE>
4. Tax Withholding.
---------------- The delivery of any directions to the
Company's stock transfer agent or any certificates for shares of Common Stock
pursuant to Section 3 shall not be made until the Optionee, or, if applicable,
the Optionee's beneficiary or estate, has made appropriate arrangements for the
payment to the Company of an amount sufficient to satisfy any applicable U.S.
federal, state and local and non-U.S. tax withholding or other tax requirements,
as determined by the Company.
5. Assignability.
------------- Except as set forth in Section 10 of the
Plan, the Option may not be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated by the Optionee otherwise than by will or the laws of
descent and distribution and is exercisable during Optionee's lifetime only by
the Optionee.
6. Adjustment in Capitalization.
----------------------------
(a) The aggregate number of shares of Common Stock subject to
the Option and the option exercise price and/or vesting and exercisability
criteria applicable to the Option shall be proportionately adjusted to reflect,
as deemed equitable and appropriate by the Board, an Adjustment Event. To the
extent deemed equitable and appropriate by the Board, subject to any required
action by stockholders, in any merger, consolidation, reorganization,
liquidation, dissolution or other similar transaction, other than any such
transaction that constitutes a Change in Control, the Option shall pertain to
the securities and other property to which a holder of the number of shares of
Common Stock then covered by the Option would have been entitled to receive in
connection with such event.
(b) Any shares of stock (whether Common Stock, shares of stock
into which shares of Common Stock are converted or for which shares of Common
Stock are exchanged or shares of stock distributed with respect to Common Stock)
or cash or other property received with respect to the Option as a result of any
Adjustment Event, any distribution of property or any merger, consolidation,
reorganization, liquidation, dissolution or other similar transaction shall be
subject to the same terms and conditions, including vesting and restrictions on
exercisability or transfer, as are applicable to the Option with respect to
which such shares, cash or other property is received, and stock certificate(s)
representing or evidencing any shares of stock or other property so received
shall be legended as appropriate.
7. Preemption by Applicable Laws and Regulations.
--------------------------------------------------------
Notwithstanding anything in the Plan or this Agreement to the contrary, the
issuance of shares of Common Stock hereunder shall be subject to compliance with
all applicable U.S. federal, state and non-U.S. securities laws. Without
limiting the foregoing, if any law, regulation or requirement of any
governmental authority having jurisdiction shall require either the Company or
the Optionee (or the Optionee's beneficiary or estate) to take any action in
connection with the issuance of any shares of Common Stock hereunder, the
issuance of such shares shall be deferred until such action shall have been
taken to the satisfaction of the Company.
4
<PAGE>
8. Interpretation; Construction.
------------------------------ All of the powers and
authority conferred upon the Board pursuant to any term of the Plan or the
Agreement shall be exercised by the Board, in its discretion. All
determinations, interpretations or other actions made or taken by the Board
pursuant to the provisions of the Plan or the Agreement shall be final, binding
and conclusive for all purposes and upon all persons and, in the event of any
judicial review thereof, shall be overturned only if arbitrary and capricious.
The Board may consult with legal counsel, who may be counsel to the Company, and
shall not incur any liability for any action taken in good faith in reliance
upon the advice of counsel.
9. Amendment.
--------- The Board shall have the right to alter or amend
this Agreement from time to time, subject to the restrictions set forth in the
Plan, for the purpose of promoting the objectives of the Plan, provided that no
such amendment shall impair the Optionee's rights under this Agreement without
the Optionee's consent. Subject to the preceding sentence, any alteration or
amendment of this Agreement by the Board shall, upon adoption thereof by the
Board, become and be binding and conclusive on all persons affected thereby
without requirement for consent or other action with respect thereto by any such
person. The Company shall give written notice to the Optionee of any such
alteration or amendment of this Agreement as promptly as practicable after the
adoption thereof. This Agreement may also be amended by a writing signed by both
the Company and the Optionee.
10. Change in Control.
------------------ In the event of a Change in Control,
any outstanding portion of the Option shall become fully vested and exercisable.
11. No Rights as a Stockholder.
--------------------------- The Optionee shall have no
voting or other rights as a stockholder of the Company with respect to any
Option Shares until the exercise of the Option and the recording of the
Optionee's ownership of the Option Shares on the stock transfer records for the
Common Stock. No adjustment shall be made for dividends or other rights issued
with respect to the Common Stock for which the record date is prior to the
recording of such ownership of the Option Shares.
12. Miscellaneous.
-------------
(a) Notices.
------- All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified or
express mail, return receipt requested, postage prepaid, or by any recognized
international equivalent of such delivery, to the Company or the Optionee, as
the case may be, at the following addresses or to such other address as the
Company or the Optionee, as the case may be, shall specify by notice to the
others delivered in accordance with this Section 12(a):
(i) if to the Company, to it at:
One Lexmark Centre Drive
740 West New Circle Road
Lexington, Kentucky 40550
Attention: Secretary
---------
5
<PAGE>
(ii) if to the Optionee, to the Optionee at the address set
forth on the signature page hereof.
All such notices and communications shall be deemed to have been received on the
date of delivery or on the third business day after the mailing thereof.
(b) Binding Effect; Benefits.
------------------------- This Agreement shall be binding
upon and inure to the benefit of the parties to this Agreement and their
respective successors and assigns. Nothing in this Agreement, express or
implied, is intended or shall be construed to give any person other than the
parties to this Agreement or their respective successors or assigns any legal or
equitable right, remedy or claim under or in respect of any agreement or any
provision contained herein.
(c) Waiver.
------ Any party hereto may by written notice to the
other party (i) extend the time for the performance of any of the obligations or
other actions of the other party under this Agreement, (ii) waive compliance
with any of the conditions or covenants of the other party contained in this
Agreement and (iii) waive or modify performance of any of the obligations of the
other party under this Agreement. Except as provided in the preceding sentence,
no action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained herein. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by a
party to exercise any right or privilege hereunder shall be deemed a waiver of
such party's rights or privileges hereunder or shall be deemed a waiver of such
party's rights to exercise the same at any subsequent time or times hereunder.
(d) Applicable Law.
--------------- This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the law that might be applied under principles of conflict of laws.
(e) Section and Other Headings, Etc.
---------------------------------- The section and other
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement. In this Agreement
all references to "dollars" or "$" are to United States dollars.
(f) Counterparts.
------------ This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have executed
this Agreement as of the date first above written.
LEXMARK INTERNATIONAL GROUP, INC.
By:
--------------------------------
Name: Kathleen J. Affeldt
Title: Vice President of Human Resources
OPTIONEE:
By:
--------------------------------
Name:
Title: Director
7
FORM OF
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, made and entered into as of the day of
, 1998 ("Agreement"), by and among Lexmark International Group,
- ----------------
Inc., a Delaware corporation ("Company"), Lexmark International, Inc., a
Delaware corporation ("LII"), and ("Indemnitee"):
------------------------
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, officers or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation;
WHEREAS, the Boards of Directors of the Company and LII (collectively,
the "Board") has determined that, in order to attract and retain qualified
individuals, the Company will attempt to maintain on an ongoing basis, at its
sole expense, liability insurance to protect persons serving the Company and its
subsidiaries from certain liabilities. Although the furnishing of such insurance
has been a customary and widespread practice among United States-based
corporations and other business enterprises, the Company and LII believe that,
given current market conditions and trends, such insurance may be available to
it in the future only at higher premiums and with more exclusions. At the same
time, directors, officers, and other persons in service to corporations or
business enterprises are being increasingly subjected to expensive and
time-consuming litigation relating to, among other things, matters that
traditionally would have been brought only against the Company, LII or business
enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's and LII's stockholders and that the Company and LII should act to
assure such persons that there will be increased certainty of such protection in
the future;
WHEREAS, it is reasonable, prudent and necessary for each of the
Company and LII contractually to obligate itself to indemnify such persons to
the fullest extent permitted by applicable law so that they will serve or
continue to serve the Company and LII free from undue concern that they will not
be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the
By-Laws of the Company and LII and any resolutions adopted pursuant thereto, and
shall not be deemed a substitute therefore, nor to diminish or abrogate any
rights of Indemnitee thereunder;
WHEREAS, the Company's and LII's By-Laws and the Delaware corporate
indemnification statute (ss.145 of the Delaware General Corporation Law) each is
nonexclusive and, therefore, contemplates that contracts may be entered into
with respect to indemnification of directors, officers, employees and agents;
<PAGE>
WHEREAS, it is reasonable, prudent and necessary for each of the
Company and LII contractually to obligate itself to indemnify, and to advance
expenses on behalf of, such persons to the fullest extent permitted by
applicable law so that they will serve or continue to serve the Company and/or
LII free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company and/or LII on the
condition that Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company, LII and Indemnitee do hereby covenant and agree
as follows:
Section 1. Services by Indemnitee.
------------------------ Indemnitee agrees to serve as a
director, officer, employee and/or agent of the Company and/or any of its
subsidiaries and may serve, at the request of the Company or LII, as a director,
officer, employee and/or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise (a "Relevant
Enterprise"). Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation imposed
by operation of law), in which event the Company and/or LII shall have no
obligation under this Agreement to continue Indemnitee in such position. This
Agreement shall not be deemed an employment contract between the Company, LII
(or any of their subsidiaries) and Indemnitee. Indemnitee specifically
acknowledges that Indemnitee's employment with the Company and/or LII (or any of
their subsidiaries), if any, is "at will", and the Indemnitee may be discharged
at any time for any reason, with or without cause, except as may be otherwise
provided in any written employment contract between Indemnitee and the Company
and/or LII (or any of their subsidiaries), other applicable formal severance
policies duly adopted by the Board, or, with respect to service as a director of
the Company and/or any of its subsidiaries, by the relevant company's
Certificate of Incorporation, By-laws, and the General Corporation Law of the
State of Delaware. The foregoing notwithstanding, this Agreement shall continue
in force after Indemnitee has ceased to serve as a director, officer, employee
and/or agent, as the case may be, of the Company, LII and their subsidiaries or
of a Relevant Enterprise.
Section 2. Indemnification - General.
-------------------------- The Company and LII, without
duplication, shall indemnify, and advance Expenses (as hereinafter defined) to,
Indemnitee (a) as provided in this Agreement and (b) (subject to the provisions
of this Agreement) to the fullest extent permitted by applicable law in effect
on the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company and/or any of its Subsidiaries.
- ---------------------------------------- Indemnitee shall be entitled to the
rights of indemnification provided in this Section 3 if, by reason of his
Corporate Status (as hereinafter defined), he is, or is threatened to be made, a
party to or a participant in any threatened, pending, or completed Proceeding
(as hereinafter defined), other than a Proceeding by or in the right of the
Company and/or any of its subsidiaries. Pursuant to this Section 3, Indemnitee
shall be indemnified against all Expenses, judgments, penalties, fines and
2
<PAGE>
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and/or any of its subsidiaries and,
with respect to any criminal Proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company and/or any of
-----------------------------------------------------------
its Subsidiaries.
- ---------------- Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4 if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to or a participant in any threatened, pending or
completed Proceeding brought by or in the right of the Company and/or any of its
subsidiaries to procure a judgment in its favor. Pursuant to this Section,
Indemnitee shall be indemnified against all Expenses (including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Company
and/or any of its subsidiaries; provided, however, that, if applicable law so
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company and/or any of its subsidiaries unless
and to the extent that the Court of Chancery of the State of Delaware, or the
court in which such Proceeding shall have been brought or is pending, shall
determine that such indemnification may be made.
Section 5. Partial Indemnification.
----------------------- Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee is, by reason of his Corporate
Status, a party to (or a participant in) and is successful, on the merits or
otherwise, in defense of any Proceeding, he shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in defense of such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company and LII shall
indemnify, without duplication, Indemnitee against all Expenses actually and
reasonably incurred by him or on his behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter. If Indemnitee is entitled under any
provision of this agreement to indemnification by the Company and LII for some
or a portion of the Expenses, judgments, penalties, fines and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses, judgments, penalties,
fines and amounts paid in settlement) actually and reasonably incurred by him or
on his behalf in connection with such Proceeding or any claim, issue or matter
therein, but not, however, for the total amount thereof, the Company and LII
shall nevertheless indemnify, without duplication, Indemnitee for the portion to
which Indemnitee is entitled.
3
<PAGE>
Section 6. Indemnification for Additional Expenses.
---------------------------------------
(a) The Company and LII shall indemnify, without duplication,
Indemnitee against any and all Expenses and, if requested by Indemnitee, shall
(within seven (7) business days of such request) advance such Expenses to
Indemnitee, which are incurred by Indemnitee in connection with any action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company and LII under this Agreement or any other agreement or By-Law of the
Company or LII now or hereafter in effect; or (ii) recovery under any directors'
and officers' liability insurance policies maintained by the Company or LII,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(b) Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his Corporate Status, a witness in
any Proceeding to which Indemnitee is not a party, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 7. Advancement of Expenses.
----------------------- The Company and LII shall advance,
without duplication, all reasonable Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding within seven (7) days after the
receipt by the Company and LII of a statement or statements from Indemnitee
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses. Notwithstanding the
foregoing, the obligation of the Company and LII to advance Expenses pursuant to
this Section 7 shall be subject to the condition that, if, when and to the
extent that the Company and LII determines that Indemnitee would not be
permitted to be indemnified under applicable law, the Company and LII shall be
entitled to be reimbursed, within thirty (30) days of such determination, by
Indemnitee (who hereby agrees to reimburse the Company and/or LII) for all such
amounts theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Company and LII that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company and/or LII for any
advance of Expenses until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed).
Section 8. Procedure for Determination of Entitlement to
---------------------------------------------
Indemnification.
- ---------------
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company and LII a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company and LII
4
<PAGE>
shall, promptly upon receipt of such a request for indemnification, advise the
Board in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 8(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined) in
a written opinion to the Board of Directors, a copy of which shall be delivered
to Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by a
majority vote of the Disinterested Directors (as hereinafter defined), even
though less than a quorum of the Board, or (B) if there are no such
Disinterested Directors or, if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee or (C) if so directed by the Board, by the stockholders
of the Company and LII; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within seven (7) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company and LII (irrespective of the
determination as to Indemnitee's entitlement to indemnification), and the
Company and LII hereby indemnifies and agrees to hold Indemnitee harmless
therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change of Control shall not have occurred, the Independent Counsel
shall be selected by the Board of Directors, and the Company and LII shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred, the Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the Company
and LII advising it of the identity of the Independent Counsel so selected. In
either event, Indemnitee or the Company and LII, as the case may be, may, within
10 days after such written notice of selection shall have been given, deliver to
the Company and LII or to Indemnitee, as the case may be, a written objection to
such selection; provided, however, that such objection may be asserted only on
the ground that the Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is so made and substantiated,
the Independent Counsel so selected may not serve as Independent Counsel unless
and until such objection is withdrawn or a court has determined that such
objection is without merit. If, within 20 days after submission by Indemnitee of
a written request for indemnification pursuant to Section 8(a) hereof, no
Independent Counsel shall have been selected and not objected to, either the
5
<PAGE>
Company and LII or Indemnitee, as the case may be, may petition the Court of
Chancery of the State of Delaware for resolution of any objection which shall
have been made by the Company and/or LII or Indemnitee to the other's selection
of Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b)
hereof. The Company and LII shall pay, without duplication, any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to Section 8(b) hereof, and the
Company and LII shall pay all reasonable fees and expenses incident to the
procedures of this Section 8(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement of any
judicial proceeding or arbitration pursuant to Section 10(a)(iii) of this
Agreement, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
(d) The Company and LII shall not be required to obtain the
consent of the Indemnitee to the settlement of any Proceeding which the Company
and LII has undertaken to defend if the Company and LII assumes full and sole
responsibility for such settlement and the settlement grants the Indemnitee a
complete and unqualified release in respect of the potential liability. The
Company and LII shall not be liable for any amount paid by the Indemnitee in
settlement of any Proceeding that is not defended by the Company and LII, unless
the Company and LII have consented to such settlement, which consent shall not
be unreasonably withheld.
Section 9. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
(a) In making a determination with respect to entitlement to
indemnification or the advancement of expenses hereunder, the person or persons
or entity making such determination shall presume that Indemnitee is entitled to
indemnification or advancement of expenses under this Agreement if Indemnitee
has submitted a request for indemnification or the advancement of expenses in
accordance with Section 8(a) of this Agreement, and the Company and LII shall
have the burden of proof to overcome that presumption in connection with the
making by any person, persons or entity of any determination contrary to that
presumption. Neither the failure of the Company and LII (including their board
of directors or independent legal counsel) to have made a determination prior to
the commencement of any action pursuant to this Agreement that indemnification
is proper in the circumstances because Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Company and LII
(including their board of directors or independent legal counsel) that
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that Indemnitee has not met the applicable
standard of conduct.
(b) If the person, persons or entity empowered or selected
under Section 8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within sixty (60) days after
receipt by the Company and LII of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
6
<PAGE>
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 60-day period
may be extended for a reasonable time, not to exceed an additional thirty (30)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
9(b) shall not apply (i) if the determination of entitlement to indemnification
is to be made by the stockholders pursuant to Section 8(b) of this Agreement and
if (A) within fifteen (15) days after receipt by the Company and LII of the
request for such determination, the Board of Directors has resolved to submit
such determination to the stockholders for their consideration at an annual
meeting thereof to be held within seventy-five (75) days after such receipt and
such determination is made thereat, or (B) a special meeting of stockholders is
called within fifteen (15) days after such receipt for the purpose of making
such determination, such meeting is held for such purpose within sixty (60) days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue
or matter therein, by judgment, order, settlement or conviction, or upon a plea
of nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company and/or LII or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
(d) For purposes of any determination of Good Faith,
Indemnitee shall be deemed to have acted in Good Faith if Indemnitee's action is
based on the records or books of account of the Company and/or LII or relevant
subsidiary or Relevant Enterprise, including financial statements, or on
information supplied to Indemnitee by the officers of the Company and/or LII or
relevant subsidiary or Relevant Enterprise in the course of their duties, or on
the advice of legal counsel for the Company and/or LII or relevant subsidiary or
Relevant Enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Company and/or
LII or relevant subsidiary or Relevant Enterprise. The provisions of this
Section 9(d) shall not be deemed to be exclusive or to limit in any way the
other circumstances in which the Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
(e) The knowledge and/or actions, or failure to act, of any
other director, officer, agent or employee of the Company and/or LII or any of
its subsidiaries or Relevant Enterprise shall not be imputed to Indemnitee for
purposes of determining the right to indemnification under this Agreement.
7
<PAGE>
Section 10. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 7 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 8(b) of this Agreement
within 90 days after receipt by the Company and LII of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 or 6 of this Agreement within ten (10) days after receipt by the Company and
LII of a written request therefor or (v) payment of indemnification is not made
within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication by
the Court of Chancery of the State of Delaware of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
-------- -------
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5 of this Agreement.
(b) In the event that a determination shall have been made
pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
-- ----
arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10, the
Company and LII shall have the burden of proving that Indemnitee is not entitled
to indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to
Section 8(b) of this Agreement that Indemnitee is entitled to indemnification,
the Company and LII shall be bound by such determination in any judicial
proceeding or arbitration commenced pursuant to this Section 10, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to record damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company and LII, and shall be indemnified
by the Company and LII against, any and all expenses (of the types described in
the definition of Expenses in Section 17 of this Agreement) actually and
reasonably incurred by him in such judicial adjudication or arbitration, but
only if he prevails therein. If it shall be determined in said judicial
adjudication or arbitration that Indemnitee is entitled to receive part but not
8
<PAGE>
all of the indemnification or advancement of expenses sought, the expenses
incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated. The Company and LII shall indemnify
Indemnitee against any and all Expenses and, if requested by Indemnitee, shall
(within ten (10) days after receipt by the Company and LII of a written request
therefor) advance such expenses to Indemnitee, which are incurred by Indemnitee
in connection with any action brought by Indemnitee for indemnification or
advance of Expenses from the Company and LII under this Agreement or under any
directors' and officers' liability insurance policies maintained by the Company
and/or LII, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advancement of Expenses or insurance recovery,
as the case may be.
(e) The Company and LII shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this Section 10
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company and LII are bound by all the provisions of this
Agreement.
Section 11. Non-Exclusivity; Survival of Rights; Insurance;
-----------------------------------------------
Subrogation.
- -----------
(a) The rights of indemnification and to receive advancement
of Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the relevant company's Certificate of Incorporation, By-Laws, any
agreement, a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or of any provision hereof
shall limit or restrict any right of Indemnitee under this Agreement in respect
of any action taken or omitted by such Indemnitee in his Corporate Status prior
to such amendment, alteration or repeal. To the extent that a change in the
General Corporation Law of the State of Delaware, whether by statute or judicial
decision, permits greater indemnification or advancement of Expenses than would
be afforded currently under the relevant company's By-Laws and this Agreement,
it is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits so afforded by such change. No right or remedy
herein conferred is intended to be exclusive of any other right or remedy, and
every other right and remedy shall be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other right or remedy.
(b) To the extent that the Company and/or LII maintains an
insurance policy or policies providing liability insurance for directors,
officers, employees, or agents of the Company and its subsidiaries or of a
Relevant Enterprise, Indemnitee shall be covered by such policy or policies in
accordance with its or their terms to the maximum event of the coverage
available for any such director, officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the
Company and LII shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
9
<PAGE>
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company and LII to bring suit to
enforce such rights.
(d) The Company and LII shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
(e) The Company's and LII's obligations to indemnify or
advance expenses hereunder to Indemnitee who is or was serving a Relevant
Enterprise shall be reduced by any amount Indemnitee has actually received as
indemnification or advancement of expenses from such Relevant Enterprise.
Section 12. Duration of Agreement.
--------------------- This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as a director, officer, employee and/or agent of the
Company and its subsidiaries or of any Relevant Enterprise; or (b) the final
termination of any Proceeding then pending in respect of which Indemnitee is
granted rights of indemnification or advancement of expenses hereunder and of
any proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement
relating thereto. This Agreement shall be binding upon the Company, LII and
their successors and assigns and shall inure to the benefit of Indemnitee and
his heirs, executors and administrators.
Section 13. Severability.
------------ If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
Section 14. Exception to Right of Indemnification or Advancement of
----------------------------------------------------------
Expenses. Except as provided in Section 6(a) of this Agreement, Indemnitee shall
- --------
not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding (a) brought by Indemnitee (other than a
Proceeding by Indemnitee to enforce his rights under this Agreement), or (b)
brought by the Company, LII or any of their subsidiaries against the Indemnitee
prior to a Change in Control alleging (x) a willful violation by the Indemnitee
of the terms and conditions of the Employment Agreement (as defined below), any
other employment contract, or the Agreement Regarding Confidential Information
and Intellectual Property, (y) a willful misappropriation of corporate assets by
the Indemnitee or (z) any other willful and deliberate breach in bad faith of
the Indemnitee's duty to the Company, LII (or their subsidiaries) or their
10
<PAGE>
stockholders, if the bringing of such Proceeding against Indemnitee shall have
been approved or subsequently ratified by the Board.
Section 15. Identical Counterparts.
----------------------- This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings.
-------- The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 17. Definitions.
----------- For purposes of this Agreement:
(a) "Change in Control" shall mean the occurrence of any
of the following events:
(i) a majority of the members of the Board at any
time cease for any reason other than due to death or
disability to be persons who were members of the Board
twenty-four months prior to such time (the "Incumbent
Directors"); provided that any director whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the members of
the Board then still in office who are Incumbent Directors
shall be treated as an Incumbent Director;
(ii) any "person," including a "group" (as such terms
are used in Sections 13(d) and 14(d)(2) of the Act, but
excluding the Company, its subsidiaries, any employee benefit
plan of the Company or any of its subsidiaries, employees of
the Company or any of its subsidiaries or any group of which
any of the foregoing is a member) is or becomes the
"beneficial owner" (as defined in Rule 13(d)(3) under the
Act), directly or indirectly, including without limitation, by
means of a tender or exchange offer, of securities of the
Company representing 30% or more of the combined voting power
of the Company's then outstanding securities; or
(iii) the stockholders of the Company shall approve a
definitive agreement (x) for the merger or other business
combination of the Company with or into another corporation
immediately following which merger or combination (A) the
stock of the surviving entity is not readily tradable on an
established securities market, (B) a majority of the directors
11
<PAGE>
of the surviving entity are persons who (1) were not directors
of the Company immediately prior to the merger and (2) are not
nominees or representatives of the Company or (C) any
"person,", including a "group" (as such terms are used in
Sections 13(d) and 14(d)(2) of the Act, but excluding the
Company, its subsidiaries, any employee benefit plan of the
Company or any of its subsidiaries, employees of the Company
or any of its subsidiaries or any group of which any of the
foregoing is a member) is or becomes the "beneficial owner"
(as defined in Rule 13(d)(3) under the Act), directly or
indirectly, of 30% or more of the securities of the surviving
entity or (y) for the direct or indirect sale or other
disposition of all or substantially all of the assets of the
Company.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
occur in the event the Company files for bankruptcy, liquidation or
reorganization under the United States Bankruptcy Code.
(b) "Corporate Status" describes the status of a person who is
or was a director, officer, employee, fiduciary or agent of the Company and its
subsidiaries or of a Relevant Enterprise.
(c) "Disinterested Director" means a director of the Company
and/or LII who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Effective Date" means April 30, 1998.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to be a witness in, or
otherwise participating in, a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Company, LII or Indemnitee in any matter material to either such party, or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company, LII or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company and LII agree to pay the
reasonable fees of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all Expenses, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
12
<PAGE>
(g) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company, LII
or otherwise and whether civil, criminal, administrative or investigative, in
which Indemnitee was, is, may be or will be involved as a party or otherwise, by
reason of the fact that Indemnitee is or was a director, officer, employee
and/or agent of the Company and/or any of its subsidiaries or of a Relevant
Enterprise or by reason of any action taken by him or of any inaction on his
part while acting in such capacity, in each case whether or not he is acting or
serving in any such capacity at the time any liability or expense is incurred
for which indemnification or advancement of expenses can be provided under this
Agreement; except for (i) one initiated by an Indemnitee pursuant to Section 10
of this Agreement to enforce his rights under this Agreement or (ii) one pending
on or before the Effective Date.
Section 18. Enforcement.
-----------
(a) Each of the Company and LII expressly confirms and agrees
that it has entered into this Agreement and assumed the obligations imposed on
it hereby in order to induce Indemnitee to serve as a director, officer,
employee and/or agent of the Company and/or any of its subsidiaries and/or a
Relevant Enterprise, and each of the Company and LII acknowledges that
Indemnitee is relying upon this Agreement in serving in such capacity.
(b) This Agreement, the Change of Control Agreement by and
among the Company, LII and the Indemnitee dated as of --------------,
199
-- (the "CIC Agreement"), and the Employment Agreement dated as
of
-------------- , 199
--
among the Company, LII and the Indemnitee (the "Employment Agreement")
constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral, written and implied, between the parties hereto with
respect to the subject matter hereof. To the extent that the amount and timing
of payments required to be made under this Agreement are inconsistent with or
different from the amount and timing payments required to be made pursuant to
the CIC Agreement and/or the Employment Agreement, the Indemnitee shall be
entitled to the most favorable benefits provided to the Indemnitee under the
provisions of any such agreements.
Section 19. Modification and Waiver.
------------------------ No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 20. Notice by Indemnitee.
-------------------- Indemnitee agrees promptly to notify
the Company and LII in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder. The failure of Indemnitee to so notify the Company
and LII shall not relieve the Company and LII of any obligation which it may
have to the Indemnitee under this Agreement or otherwise.
13
<PAGE>
Section 21. Notices.
------- All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, at the address specified on the
signature page of this Agreement; and
(b) If to the Company to:
Lexmark International Group, Inc.
One Lexmark Centre Drive
740 West New Circle Road
Lexington, KY 40550
Attention: General Counsel;
(c) If to LII to:
Lexmark International, Inc.
One Lexmark Centre Drive
740 West New Circle Road
Lexington, KY 40550
Attention: General Counsel;
or to such other address as may have been furnished to Indemnitee by the Company
and/or LII or to the Company and/or LII by Indemnitee, as the case may be.
Section 22. Contribution.
------------ To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company and LII, in
lieu of indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid
or to be paid in settlement and/or for Expenses, in connection with any claim
relating to an indemnifiable event under this Agreement, in such proportion as
is deemed fair and reasonable in light of all of the circumstances of such
Proceeding in order to reflect (i) the relative benefits received by the Company
and LII, on the one hand, and Indemnitee, on the other, as a result of the
event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the
relative fault of the Company and LII, on the one hand, (and its directors,
officers, employees and agents) and Indemnitee, on the other, in connection with
such event(s) and/or transaction(s).
14
<PAGE>
Section 23. Governing Law; Submission to Jurisdiction; Appointment of
-----------------------------------------------------------
Agent for Service of Process.
- ---------------------------- This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware, without regard to its conflict of laws rules.
Except with respect to any arbitration commenced by Indemnitee pursuant to
Section 10(a) of this Agreement, the Company, LII and Indemnitee hereby
irrevocably and unconditionally (i) agree that any action or proceeding arising
out of or in connection with this Agreement shall be brought only in the
Chancery Court of the State of Delaware (the "Delaware Court"), and not in any
other state or federal court in the United States of America or any court in any
other country, (ii) consent to submit to the exclusive jurisdiction of the
Delaware Court for purposes of any action or proceeding arising out of or in
connection with this Agreement, (iii) appoint, to the extent such party is not a
resident of the State of Delaware, irrevocably The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801 as its agent in the State of
Delaware as such party's agent for acceptance of legal process in connection
with any such action or proceeding against such party with the same legal force
and validity as if served upon such party personally within the State of
Delaware, (iv) waive any objection to the laying of venue of any such action or
proceeding in the Delaware Court and (v) waive, and agree not to plead or to
make, any claim that any such action or proceeding brought in the Delaware Court
has been brought in an improper or otherwise inconvenient forum.
Section 24. Miscellaneous.
------------- Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
LEXMARK INTERNATIONAL GROUP, INC.
By:
------------------------------
Paul J. Curlander
President and Chief Executive
Officer
LEXMARK INTERNATIONAL, INC.
By:
------------------------------
Paul J. Curlander
President and Chief Executive
Officer
INDEMNITEE:
------------------------------
Address:
------------------------------
------------------------------
------------------------------
16
FORM OF
CHANGE IN CONTROL
AGREEMENT
AGREEMENT by and among Lexmark International Group, Inc., a
Delaware corporation (the "Company") Lexmark International, Inc., a Delaware
corporation ("LII"), and (the "Executive"), dated as of the day
--------------
of , 1998.
---------------
The Boards of Directors of the Company and LII (collectively,
the "Board"), has determined that it is in the best interests of the Company,
-----
LII and their shareholders to assure that the Company and LII will have the
continued dedication of the Executive, notwithstanding the possibility, threat
or occurrence of a Change in Control (as defined below) of the Company. The
Board believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change in Control and to encourage the Executive's full attention
and dedication to the Company and LII currently and in the event of any
threatened or pending Change in Control, and to provide the Executive with
compensation and benefits arrangements upon a Change in Control which ensures
that the compensation and benefits expectations of the Executive will be
satisfied and which are competitive with those of other corporations. Therefore,
in order to accomplish these objectives, the Board has caused the Company and
LII to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) "Act"
--- shall mean the Securities Exchange Act of 1934,
as amended.
(b) "Change in Control Period"
---------------------------- shall mean the period
commencing on the date hereof and ending on February 28, 2001; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), unless previously terminated,
------------
the Change in Control Period shall be automatically extended so as to terminate
two years from such Renewal Date, unless at least 60 days prior to the Renewal
Date the Company and LII shall give notice to the Executive that the Change in
Control Period shall not be so extended.
(c) "Effective Date"
--------------- shall mean the first date during the
Change in Control Period on which a Change in Control (as defined in Section 2)
occurs. Anything in this Agreement to the contrary notwithstanding, if a Change
in Control occurs and if the Executive's employment with the Company or LII is
terminated prior to the date on which the Change in Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who has taken steps reasonably calculated to
effect a Change in Control or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then for all purposes of this Agreement the
"Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
<PAGE>
(d) "Proposed Change in Control" means:
--------------------------
(i) the commencement of a tender or exchange
offer by any third person (other than a tender or exchange offer which, if
consummated, would not result in a Change in Control) for 30% or more of the
combined voting power of the Company's then outstanding securities;
(ii) the execution of an agreement by the
Company, the consummation of which would result in the occurrence of a Change
in Control;
(iii) the public announcement by any person
(including the Company) of an intention to take or to consider taking actions
which if consummated would constitute a Change in Control; or
(iv) the adoption by the Board, as a result of
other circumstances, including circumstances similar or related to the
foregoing, of a resolution to the effect that, for purposes of this Agreement,
a Proposed Change in Control has occurred.
(e) "Subsidiary"
---------- shall mean any entity that is directly or
indirectly controlled by the Company or any other entity in which the Company
has a significant equity interest, as determined by the Committee.
2. Change in Control.
----------------- For the purpose of this Agreement, a
"Change in Control" shall mean the occurrence of any of the following events:
-----------------
(a) a majority of the members of the Board at any time cease
for any reason other than due to death or disability to be persons who were
members of the Board twenty-four months prior to such time (the "Incumbent
---------
Directors"); provided that any director whose election, or nomination for
- ---------
election by the Company's stockholders, was approved by a vote of at least a
majority of the members of the Board then still in office who are Incumbent
Directors shall be treated as an Incumbent Director.
(b) any "person," including a "group" (as such terms are used
in Sections 13(d) and 14(d)(2) of the Act, but excluding the Company, its
Subsidiaries, any employee benefit plan of the Company or any Subsidiary,
employees of the Company or any Subsidiary or any group of which any of the
foregoing is a member) is or becomes the "beneficial owner" (as defined in Rule
13(d)(3) under the Act), directly or indirectly, including without limitation,
by means of a tender or exchange offer, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities; or
(c) the stockholders of the Company shall approve a definitive
agreement (i) for the merger or other business combination of the Company with
or into another corporation immediately following which merger or combination
(A) the stock of the surviving entity is not readily tradable on an established
securities market, (B) a majority of the directors of the surviving entity are
persons who (x) were not directors of the Company immediately prior to the
2
<PAGE>
merger and (y) are not nominees or representatives of the Company or (C) any
"person," including a "group" (as such terms are used in Sections 13(d) and
14(d)(2) of the Act, but excluding the Company, its Subsidiaries, any employee
benefit plan of the Company or any Subsidiary, employees of the Company or any
Subsidiary or any group of which any of the foregoing is a member) is or becomes
the "beneficial owner" (as defined in Rule 13(d)(3) under the Act), directly or
indirectly, of 30% or more of the securities of the surviving entity or (ii) for
the direct or indirect sale or other disposition of all or substantially all of
the assets of the Company.
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
occur in the event the Company files for bankruptcy, liquidation or
reorganization under the United States Bankruptcy Code.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred as a result of any transaction or series of transactions which the
Executive, or any entity in which the Executive is a partner, officer or more
than 50% owner initiates, if immediately following the transaction or series of
transactions that would otherwise constitute a Change in Control, the Executive,
either alone or together with other individuals who are executive officers of
the Company immediately prior thereto, beneficially owns, directly or
indirectly, more than 10% of the then outstanding shares of common stock of the
Company or the corporation resulting from the transaction or series of
transactions, as applicable, or of the combined voting power of the then
outstanding voting securities of the Company or such resulting corporation.
3. Employee Benefits after the Effective Date
------------------------------------------
(a) Incentive, Savings, and Retirement Plans.
------------------------------------------ For a two year
period following a Change in Control, the Executive shall be entitled to
participate in all incentive, savings and retirement plans, practices, policies
and programs applicable generally to other peer executives of the Company and
its subsidiaries (including without limitation the Company's Stock Incentive
Plan, Retirement Plan, Savings Plan, Long Term Incentive Plan and Supplemental
and/or Excess Benefits Plans, as and to the extent those plans are in effect
from time to time), but in no event shall such plans, practices, policies and
programs provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the extent, if
any, that such distinction is applicable), savings opportunities and retirement
benefit opportunities, less favorable, in the aggregate, than the most favorable
of those provided by the Company and its subsidiaries for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120 day period immediately preceding a Proposed Change in Control or, if more
favorable to the Executive, those provided generally at any time after a
Proposed Change in Control to other peer executives of the Company and its
Subsidiaries.
(b) Welfare Benefit Plans.
--------------------- For a two year period following a
Change in Control, the Executive and/or the Executive's family, as the case may
3
<PAGE>
be, shall be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the Company
and its Subsidiaries (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its Subsidiaries, but in
no event shall such plans, practices, policies and programs provide the
Executive and/or the Executive's family with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120 day period
immediately preceding a Proposed Change in Control or, if more favorable to the
Executive, those provided generally at any time after a Proposed Change in
Control to other peer executives of the Company and its Subsidiaries.
(c) Expenses.
-------- For a two year period following a Change in
Control, the Executive shall be entitled to receive prompt reimbursement for all
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its Subsidiaries in effect
for the Executive at any time during the 120-day period immediately preceding a
Proposed Change in Control or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its Subsidiaries.
(d) Fringe Benefits.
--------------- For a two year period following a Change
in Control, the Executive shall be entitled to fringe benefits, including,
without limitation, tax and financial planning services, use of an automobile
and payment of related expenses, in accordance with the most favorable plans,
practices, programs and policies of the Company and its Subsidiaries in effect
for the Executive at any time during the 120-day period immediately preceding a
Proposed Change in Control or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its Subsidiaries.
(e) Office and Support Staff.
------------------------ For a two year period following
a Change in Control, the Executive shall be entitled to an office or offices of
a size and with furnishings and other appointments, and to personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its Subsidiaries at any time during
the 120-day period immediately preceding a Proposed Change in Control or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its Subsidiaries.
(f) Vacation.
-------- For a two year period following a Change in
Control, the Executive shall be entitled to paid vacation, management directed
time off with pay and sick leave in accordance with the most favorable plans,
policies, programs and practices of the Company and its Subsidiaries as in
effect for the Executive at any time during the 120-day period immediately
preceding a Proposed Change in Control or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its Subsidiaries.
4
<PAGE>
4. Termination of Employment after the Effective Date.
--------------------------------------------------
(a) Death or Disability.
-------------------- The Executive's employment shall
terminate automatically upon the Executive's death after the Effective Date. If
the Company and LII determine in good faith that the Disability of the Executive
has occurred after the Effective Date (pursuant to the definition of Disability
set forth below), they may give to the Executive written notice in accordance
with Section 13(b) of this Agreement of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company and LII shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean a physical or mental disability that prevents the
performance by the Executive of the Executive's duties with the Company and LII
lasting (or likely to last, based on competent medical evidence presented to the
Board) for a continuous period of six months or longer. The reasoned and good
faith judgment of the Board as to the Executive's Disability shall be final and
shall be based on such competent medical evidence as shall be presented to it by
the Executive or by any physician or group of physicians or other competent
medical experts employed by the Executive, the Company or LII to advise the
Board.
(b) Cause.
----- The Company or LII may terminate the Executive's
employment after the Effective Date for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful failure by the Executive to
perform substantially the Executive's duties with the Company or any Subsidiary
(other than any such failure due to physical or mental illness) after a
demand for substantial performance is delivered to the Executive by the
executive to which the Executive reports or by the Company's or LII's Board,
which notice identifies the manner in which such executive or the Company's or
LII's Board, as the case may be, believes that the Executive has not
substantially performed his duties, (ii) the Executive's engaging in willful
and serious misconduct that is injurious to the Company or LII or any of their
subsidiaries, (iii) the Executive's regularly making a substantial, abusive
use of alcohol, drug, or similar substances, and such abuse in the Company's
or LII's judgment has affected his ability to conduct the business of the
Company or LII in a proper and prudent manner, (iv) the Executive's
conviction of, or entering a plea of nolo contendere to, a crime that
constitutes a felony, or (v) the willful and material breach by the
Executive of any of his obligations hereunder, or the willful and material
breach by the Executive of any written covenant or agreement with the Company or
LII or any of their affiliates not to disclose any information pertaining to the
Company or LII or any of their affiliates or not to compete or interfere with
the Company or LII or any of their affiliates.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company or LII.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or LII or based upon the advice of
counsel for the Company or LII shall be conclusively presumed to be done, or
5
<PAGE>
omitted to be done, by the Executive in good faith and in the best interests of
the Company or LII. The cessation of employment of the Executive shall not be
deemed to be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting of
the Board called and held for such purposes (after reasonable notice is provided
to the Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, the Executive is guilty of the conduct described in any of
subparagraphs (i) through (v) above, and specifying the particulars thereof in
detail.
(c) Good Reason.
----------- The Executive's employment may be terminated
by the Executive after the Effective Date for Good Reason. "Good Reason" shall
mean a termination of employment by the Executive within 90 days following (i)
any assignment to the Executive of any duties, functions or responsibilities
that are significantly different from, and result in a substantial diminution
of, the duties, functions or responsibilities that the Executive has on the date
hereof, (ii) any requirement by the Company or LII that the Executive be based
at any location outside the United States of America, (iii) any reduction in
base salary, (iv) the failure to pay to the Executive prior to the end of March
for the prior fiscal year an annual incentive compensation payment at least
equal to the average of the two prior incentive compensation payments received
by the Executive (such larger payment is defined as the "Annual Bonus Amount"),
[or (v) the failure of the Company or LII to obtain the assumption of the
Employment Agreement among the Company, LII and the Executive dated as of April
30, 1998 (the "Employment Agreement") by any successor as contemplated by
Section 12 of the Employment Agreement.]
(d) Notice of Termination.
---------------------- Any termination by the Company or
LII for Cause, or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in accordance with Section
13(b) of this Agreement. For purposes of this Agreement, a "Notice of
----------
Termination" means a written notice which (i) indicates the specific termination
- -----------
provision in this Agreement relied upon, (ii) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date (which date
shall be not more than 90 days after the giving of such notice). The failure by
the Executive or the Company or LII to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company or LII, respectively,
hereunder or preclude the Executive or the Company or LII, respectively, from
asserting such fact or circumstance in enforcing the Executive's or the
Company's or LII's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
------------------- --------------------
the Executive's employment is terminated by the Company or LII for Cause, or by
the Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company or LII other than for Cause or
6
<PAGE>
Disability, the date on which the Company or LII notifies the Executive of such
termination and (iii) if the Executive's employment is terminated by reason of
death or Disability, the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
----------------------------------------------- (a) Good
----
Reason; Other Than for Cause, Death or Disability. If, after the Effective Date,
- -------------------------------------------------
the Company or LII shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company or LII shall pay to the
Executive in a lump sum in cash within 30 days after the Date of Termination
the aggregate of the following amounts:
(A) (1) the Executive's annual base salary
on the Effective Date (the "Annual Base Salary") through the
------------------
Date of Termination, to the extent not theretofore paid to the
Executive, (2) the Annual Bonus Amount with respect to a
completed fiscal year to the extent not theretofore paid to
the Executive, and (3) the Pro Rata Share of the Annual Bonus
(as defined below) for the fiscal year in which the Date of
Termination occurs. "Pro Rata Share of the Annual Bonus" will
----------------------------------
be equal to the product of (1) the Annual Bonus, calculated
assuming the greater of (x) 100% of the Company's or LII's
incentive compensation financial targets (as defined in such
incentive compensation plan) are achieved in such year and (y)
the actual attainment of the Company's or LII's incentive
compensation financial targets as of the Date of Termination
are achieved in such year, in each case without regard to
personal attainment, and (2) a fraction equal to the number of
full and partial months in such year prior to the Date of
Termination over 12 (the sum of the amounts described in this
clause (A) shall be hereinafter referred to as the "Accrued
-------
Obligations"); and
-----------
(B) [three/two] times the sum of (1) the
Annual Base Salary and (2) an amount equal to 100% of the
Executive's incentive compensation target (as defined in such
incentive compensation plan), calculated as though the Company
and LII attain their financial targets (without regard to
personal attainment) (the sum of clauses (B) (1) and (B) (2)
shall be hereinafter referred to as the "Annual Compensation")
-------------------
(ii) for a period of [three/two] years following
the Executive's Date of Termination or such longer period as may be
provided by the terms of the appropriate plan, program, practice or policy,
the Company or LII shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies
described in Section 3(b) of this Agreement if the Executive's employment
had not been terminated or, if more favorable to the Executive, as in effect
7
<PAGE>
generally at any time thereafter with respect to other peer executives of the
Company, LII and their Subsidiaries, and their families, provided, however,
that if the Executive becomes re-employed with another employer and is
eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. [For purposes of determining eligibility (but
not the amount of, or time of commencement of, benefits) of the Executive for
retiree benefits pursuant to the Retirement Plan and such other retiree benefits
plans, practices, programs and policies described in Section 3(a) of this
Agreement, the Executive shall be provided a leave of absence for five years
after the Date of Termination;]
(iii) to the extent not theretofore paid or provided,
the Company or LII shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the Executive is
eligible to receive under, and in accordance with the terms of, any plan,
program, policy or practice or contract or agreement of the Company and its
Subsidiaries (the amounts and types of benefits described in Sections 5(ii)
and (iii) of this Agreement, without regard to duration, shall be hereinafter
referred to as the "Other Benefits"); and
--------------
(iv) to the extent the Executive has unvested
benefits under the Lexmark Retirement Plan, any Supplemental and/or Excess
Benefits Plans and/or the Lexmark Savings Plan, or other unvested benefits
under the plans, practices, policies and programs described in Section 3(b)
of this Agreement, the Company or LII shall accelerate the vesting of
benefits under any such plan, practice, policy or program or, if such
accelerated vesting is prohibited under applicable laws, the Company or LII
shall provide and/or pay the Executive outside any such plan, practice,
policy or program the benefits that would have become vested if such
acceleration of vesting were not prohibited (the "Accelerated Benefits").
--------------------
(b) Death. If the Executive's employment is terminated by
-----
reason of the Executive's death after the Effective Date, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and its Subsidiaries to the estates and
beneficiaries of peer executives of the Company and its Subsidiaries under such
plans, programs, practices and policies relating to death benefits, if any, as
in effect with respect to other peer executives and their beneficiaries at any
time during the 120-day period immediately preceding a Proposed Change in
Control or, if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with respect to
other peer executives of the Company and its Subsidiaries and their
beneficiaries.
8
<PAGE>
(c) Disability.
---------- If the Executive's employment is terminated by
reason of the Executive's Disability after the Effective Date, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 5(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its Subsidiaries to disabled
executives and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any time during the
120-day period immediately preceding a proposed Change in Control or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its Subsidiaries and their families.
(d) Cause; Other than for Good Reason.
------------------------------------ If the Executive's
employment shall be terminated for Cause after the Effective Date, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) the Annual Base Salary through
the Date of Termination and (y) Other Benefits accrued through the Date of
Termination, in each case to the extent theretofore unpaid. If the Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits accrued through the Date of Termination.
In such case, all Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
6. Effect of Change in Control on Incentive Awards.
----------------------------------------------- The effect
of a Change in Control on Incentive Awards granted to the Executive under the
Company's Stock Incentive Plan (the "SIP") and any Award Agreement (as defined
in the SIP) shall be as provided in Section 9.1 of the SIP. Pursuant to
authority granted to the Board under Section 10 of the SIP to amend or modify
the SIP and the Board's approval of this Agreement, the Company shall not be
permitted to substitute Alternative Awards (as defined in the SIP) pursuant to
Section 9.2 of the SIP without the written agreement of the Executive. In
addition, the number of Performance Awards (as defined in the SIP) that shall be
paid to the Executive upon a Change in Control shall be calculated assuming the
greater of (x) 100% of the Company's or LII's target performance objectives (as
defined in such Performance Awards) are achieved over the measurement period or
periods and (y) the actual attainment of the Company's or LII's performance
objectives from the beginning of the measurement period or periods through the
Change in Control are achieved over the measurement period or periods.
7. Non-exclusivity of Rights; Vested and Severance Benefits.
---------------------------------------------------------
Nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its Subsidiaries and for which the Executive may qualify, nor,
subject to the last sentence of this Section 7 and to Section 13(f), shall
9
<PAGE>
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its Subsidiaries.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its Subsidiaries at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly modified by
this Agreement. Notwithstanding the foregoing, if the Executive becomes entitled
to receive severance benefits under Section 5(a) hereof, such severance benefits
shall be in lieu of any benefits under any severance or separation plan, program
or policy of the Company or any of its Subsidiaries to which the Executive would
otherwise have been entitled.
8. Settlement; Mitigation; Legal Fees and Expenses.
-----------------------------------------------
(a) Full Settlement.
--------------- The Company's or LII's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company or LII may
have against the Executive or others.
(b) No Mitigation Required.
---------------------- In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and, except as specifically provided in Section 5(a)(ii), such amounts
shall not be reduced whether or not the Executive obtains other employment.
(c) Advancement of Legal Fees and Expenses.
--------------------------------------- The Company and
LII agree to pay (without duplication) as incurred, to the fullest extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, LII, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement[, the Employment Agreement] or
any guarantee of performance thereof (whether such contest is between the
Company, LII and the Executive or between either of them and any third party,
and including as a result of any contest by the Executive about the amount of
any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Tax Equalization for Compensation.
---------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or LII to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but excluding any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code, or any corresponding provision of any subsequent
Internal Revenue Code, as the same may be amended from time to time, or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
----------
10
<PAGE>
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
-----------------
amount such that after payment by the Executive of all Federal, state and local
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by PricewaterhouseCoopers L.L.P. or such other certified public accounting firm
as may be designated by the Executive (the "Accounting Firm"), which shall
----------------
provide detailed supporting calculations to the Company, LII and the Executive
within 15 business days of the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is reasonably requested by the
Company or LII. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change in Control,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations required thereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company and LII. Any Gross-Up
Payment, as determined pursuant to this Section 9, shall be paid by the Company
or LII to the Executive within ten days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company, LII and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company or LII should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company and LII exhaust their remedies pursuant
to Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company or LII to or for the benefit of the Executive.
(c) The Executive shall notify the Company and LII in writing
of any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company or LII of the Gross-Up Payment or an Underpayment.
Such notification shall be given as soon as practicable but not later than ten
business days after the Executive is informed in writing of such claim and shall
apprise the Company and LII of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim prior
to the expiration of the 30-day period following the date on which he gives such
notice to the Company and LII (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company and LII
notify the Executive in writing prior to the expiration of such period that they
desire to contest such claim, the Executive shall:
(i) give the Company and LII any information
reasonably requested by the Company and LII relating to such claim,
11
<PAGE>
(ii) take such action in connection with contesting
such claim as the Company and
LII shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company and LII,
(iii) cooperate with the Company and LII in good
faith in order effectively to
contest such claim, and
(iv) permit the Company and LII to participate
in any proceedings relating to such claim;
provided, however, that the Company and LII shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 9(c), the Company and LII shall control
all proceedings taken in connection such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company and LII shall determine; provided, however,
that if the Company and LII direct the Executive to pay such claim and sue for a
refund, the Company or LII shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's and LII's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder, and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company or LII pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's and LII's complying with the requirements of Section
9(c)) promptly pay to the Company or LII the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company or LII
pursuant to Section 9(c), a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and the Company and LII do
not notify the Executive in writing of their intent to contest such denial of
12
<PAGE>
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
(e) The Company and LII reserve the right to amend or
terminate the provisions of this Section 9 at any time, provided, that no such
amendment or termination shall adversely affect the right of any Executive to
receive any amount under this Section who becomes subject to the tax imposed by
Section 4999 of the Code, in whole or in part, by reason of any change in the
ownership or effective control of the Company occurring prior to the date of
such amendment or termination.
10. Unauthorized Disclosure; Non-Competition;
-----------------------------------------
Non-Interference and Return of Documents.
- ----------------------------------------
(a) Unauthorized Disclosure.
----------------------- During and after the term of the
Executive's employment with the Company or its Subsidiaries, the Executive shall
not, without the written consent of the Board or the General Counsel or the
Chief Executive Officer of the Company or LII, disclose to any person (other
than an employee or director of the Company or its affiliates, or a person to
whom disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties as an executive of the Company or
LII) any confidential or proprietary information, knowledge or data that is not
theretofore publicly known and in the public domain obtained by the Executive
while in the employ of the Company or its Subsidiaries with respect to the
Company or any of its Subsidiaries or affiliates or with respect to any
products, improvements, formulas, recipes, designs, processes, customers,
methods of distribution, operation or manufacture, sales, prices, profits,
costs, contracts, suppliers, business prospects, business methods, techniques,
research, trade secrets or know-how of the Company or any of its Subsidiaries or
affiliates (collectively, "Proprietary Information"), except as may be required
by law or in connection with any judicial or administrative proceedings or
inquiry.
(b) Non-Competition.
--------------- During the period of the Executive's
employment with the Company or its Subsidiaries and thereafter for a period
equal to a number of years equal to the number by which the Annual Compensation
was multiplied under Section 5(a)(1)(B), if any such payments are required, but
in any event for at least 12 months, the Executive shall not engage directly or
indirectly in, become employed by, serve as an agent or consultant to, or become
a partner, principal or stockholder of, any partnership, corporation or other
entity which competes with a business that represents 5% or more of the
aggregate gross revenues of the Company and its Subsidiaries and which is then
engaged in such competition in any geographical area in which the Company or any
of its Subsidiaries is then engaged in such business, provided that the
Executive's ownership of less than 1% of the issued and outstanding stock of any
corporation whose stock is traded on an established securities market shall not
constitute competition with the Company or any of its Subsidiaries.
(c) Non-Interference.
---------------- During the period of the Executive's
employment with the Company or its Subsidiaries and thereafter for a period
equal to a number of years equal to the number by which the Annual Compensation
was multiplied under Section 5(a)(1)(B), if any such payments are required, but
in any event for at least 36 months, the Executive shall not, directly or
13
<PAGE>
indirectly, for his own account or the account of any other person or entity,
(i) employ in a business of the kind in which the Company or its Subsidiaries is
engaged on the date of such termination, or solicit or endeavor to entice away
from the Company or its Subsidiaries, or otherwise intentionally interfere with
the Company's or its Subsidiaries' relationship with, any person or entity who
or which is at the time employed by or otherwise engaged to perform services for
the Company's or its Subsidiaries or (ii) intentionally interfere with the
Company or its Subsidiaries' relationship with any person or entity who or which
is, or has been within the previous year, a customer, client or supplier of the
Company or its Subsidiaries.
(d) Return of Documents.
------------------- In the event of the termination of
the Executive's employment with the Company or its Subsidiaries for any reason,
the Executive will deliver to the Company all non-personal documents and data of
any nature pertaining to his work with the Company and its Subsidiaries, and the
Executive will not take with him/her any documents or data of any description or
any reproduction thereof, or any documents containing or pertaining to any
Proprietary Information.
11. Successors.
----------
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company and LII shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and LII and their successors and assigns.
(c) The Company and LII will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company and LII to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company and LII would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
-------
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Trust Deposit.
-------------
(a) Upon the occurrence of a Proposed Change in Control during
the Change in Control Period, the Company or LII shall deposit in trust or
escrow with a third party cash in an amount sufficient to provide all of the
benefits and other payments to which the Executive would be entitled hereunder
if a Change in Control occurred on the date of the Proposed Change in Control
and the Executive's employment were terminated by the Executive for Good Reason
immediately thereafter. Upon such deposit, references hereunder to any payment
by the Company or LII shall be deemed to refer to a payment from such trust or
escrow; provided, however, that nothing contained herein shall relieve the
Company or LII of their obligations to make the payments required of them
14
<PAGE>
hereunder in the event any such payment is not made from the trust or escrow.
(b) The Company and LII reserve the right to amend or
terminate the provisions of Section 12(a) at any time prior to a Change of
Control without obtaining the agreement of the Executive or any other party.
13. Miscellaneous.
-------------
(a) Governing Law.
-------------- This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws.
(b) Notices.
------- All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
-------------------
to the Executive at the address listed on the
signature page hereof
If to the Company:
-----------------
Lexmark International Group, Inc.
One Lexmark Centre Drive
740 West New Circle Road
Lexington, KY 40550
Attn: General Counsel
If to LII:
---------
Lexmark International, Inc.
One Lexmark Centre Drive
740 West New Circle Road
Lexington, KY 40550
Attn: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) Amendment.
--------- This Agreement may not be amended or modified,
except as provided in Section 9(e) or 12(b), otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
15
<PAGE>
(d) Headings.
-------- The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
(e) Taxes.
----- The Company or LII may withhold from any amounts
payable under this Agreement such Federal, state, local and foreign taxes as
shall be required to be withheld pursuant to any applicable law, regulation or
ruling.
(f) Waiver.
------ The Executive's, the Company's or LII's failure to
insist upon strict compliance with any provision hereof or any other provision
of this Agreement or the failure to assert any right the Executive, the Company
or LII may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section 4(c) of
this Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(g) Employment "At Will"; Entire Agreement.
-------------------------------------- The Executive, the
Company and LII acknowledge that, except as may otherwise be provided [in the
Employment Agreement or] under any other written agreement between the
Executive, the Company or LII, the employment of the Executive by the Company or
LII is "at will" and the Executive's employment may be terminated by either the
Executive, the Company or LII at any time. Except as otherwise expressly
provided herein, this Agreement, [the Employment Agreement] and the
Indemnification Agreement made and entered into as of the 30th day of April,
1998 by and among the Company, LII and the Executive (the "Indemnification
Agreement") constitute the entire agreement among the parties hereto with
respect to the subject matter hereof, and all promises, representations,
understandings, arrangements and prior agreements relating to such subject
matter (including those made to or with the Executive by any other person or
entity) are merged herein, in the [Employment Agreement and in the]
Indemnification Agreement and superseded hereby and thereby. To the extent that
the amount and timing of payments required to be made under this Agreement are
inconsistent with or different from the amount and timing of payments required
to be made pursuant to the [Employment Agreement and/or the] Indemnification
Agreement, the Executive shall be entitled to the most favorable benefits
provided to the Executive under the provisions of any such agreements.
(h) Reformation; Severability.
-------------------------- If any provision of this
Agreement is held by a court or arbitrator to be unreasonable in scope or
duration or otherwise, the court or arbitrator shall, to the extent permitted by
law, reform such provision so that it is enforceable, and enforce the applicable
provision as so reformed. Reformation of any provision of this Agreement
pursuant to this subsection (h) shall not affect any other provision of this
Agreement or render this Agreement unenforceable or void.
(i) Payments Unconditional.
----------------------- In no event shall an asserted
violation of the provisions of this Agreement or any other obligation, covenant
or agreement constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement[, the Employment
Agreement] or the Indemnification Agreement.
16
<PAGE>
(j) Counterparts.
------------ This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand, and, pursuant to the authorization from its Board of
Directors, each of the Company and LII has caused this Agreement to be executed
in its name on its behalf, all as of the day and year first above written.
LEXMARK INTERNATIONAL GROUP, INC.
By:
--------------------------------
Paul J. Curlander
President and Chief Executive
Officer
LEXMARK INTERNATIONAL, INC.
By:
--------------------------------
Paul J. Curlander
President and Chief Executive
Officer
EXECUTIVE:
--------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
17
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of April 30, 1998, among Lexmark
International, Inc., a Delaware corporation (the "Employer"), Lexmark
International Group, Inc., a Delaware corporation ("Group"), and Gary E.
Morin (the "Employee").
W I T N E S S E T H:
--------------------
WHEREAS, Employer, Group and Employee desire to enter into an
employment agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the parties hereto hereby agree as follows:
1. Term; Position and Responsibilities.
-----------------------------------
(a) Term of Employment.
------------------ Unless the Employee's employment shall sooner
terminate pursuant to Section 6, the Employer shall employ the Employee for a
term commencing on April 30, 1998 and ending on February 28, 2001 (the "Initial
Term"), and the Employee's employment shall continue thereafter at will.
(b) Position and Responsibilities.
------------------------------- The Employee will serve as Vice
President and Chief Financial Officer and in such other executive capacity or
capacities as may be determined from time to time by or under the authority of
the Board of Directors of the Employer ("Employer's Board"), and the Employee
will devote all of his skill, knowledge and working time (except for reasonable
vacation time and absence for sickness or similar disability) to the
conscientious performance of his duties. The Employee represents that he is
entering into this Agreement voluntarily and that his employment hereunder and
compliance by him with the terms and conditions of this Agreement will not
conflict with or result in the breach of any agreement to which he is a party or
by which he may be bound.
2. Base Salary.
----------- As compensation for the services to be performed by the
Employee hereunder, the Employer will pay the Employee an annual base salary of
$290,000 during the term of his employment hereunder. The Employer will review
the Employee's base salary from time to time during the period of his employment
hereunder and, in the discretion of the Employer, may increase such base salary
from time to time based upon the performance of the Employee, the financial
condition of the Employer, prevailing industry salary scales and such other
factors as the Employer shall consider relevant. (The annual base salary payable
to the Employee under this Section 2, as the same may be increased from time to
time, shall hereinafter be referred to as the "Base Salary".) The Base Salary
payable under this Section 2 shall be reduced to the extent that the Employee
elects to defer such Base Salary under the terms of any deferred compensation or
savings plan maintained or established by the Employer or Group, provided that
--------
any such reduction of the Base Salary shall not be taken into account for
1
<PAGE>
purposes of calculating the Base Amount (as defined in Section 3). The Employer
shall pay the Employee the Base Salary in biweekly installments, or in such
other installments as may be mutually agreed upon by the Employer and the
Employee.
3. Short-term Incentive Compensation.
----------------------------------- The Employee shall receive an
annual incentive bonus award (the "Annual Bonus") for each calendar year ending
during the term of the Employee's employment hereunder equal to:
(a) if the Operating Result (as defined below) for such year
is equal to or greater than the Maximum Operating Target (as defined
below) for such year, 125% of the amount of the Employee's Base Salary
paid to the Employee during the calendar year for which such bonus is
payable (such amount is hereinafter referred to as the "Base Amount");
(b) if the Operating Result for such year is greater than the
Operating Target but less than the Maximum Operating Target for such
year, 65% of the Base Amount plus, for each increase of 1/25 of the
difference between the Operating Target and the Maximum Operating
Target, an additional 2.40% of the Base Amount;
(c) if the Operating Result for such year is equal to 100% of
the Operating Target for such year, 65% of the Base Amount;
(d) if the Operating Result for such year is greater than the
Minimum Operating Target (as defined below) but less than the Operating
Target for such year, 30% of the Base Amount plus, for each increase of
1/20 of the difference between the Minimum Operating Target and the
Operating Target (100%), an additional 1.75% of the Base Amount; and
(e) if the Operating Result for such year is equal to the
Minimum Operating Target for such year, 30% of the Base Amount.
Notwithstanding the foregoing, the Employer may increase or decrease the amount
of the Annual Bonus based upon the Employer's judgment of Employee's overall
contribution to the Employer's business results.
No Annual Bonus shall be paid if the Operating Result is less than the Minimum
Operating Target for such year. The "Operating Target", the "Maximum Operating
Target" and the "Minimum Operating Target" in any year shall be jointly
established by the Chief Executive Officer of the Employer and Employer's Board.
The "Operating Result" for any year shall be equal to the annual financial
results for the components that make up the Operating Target as of December 31
in such year, using United States generally accepted accounting principles
consistently applied and taking into account such other factors as may be
approved by Employer's Board. The Annual Bonus, if any, shall be paid as soon as
practicable after the close of the year for which the Annual Bonus is payable,
2
<PAGE>
unless the Employee elects to defer such amounts under the terms of any deferred
compensation or savings plan maintained or established by the Employer or Group.
4. Employee Benefits.
------------------ During the term of the Employee's employment
hereunder, employee benefits, including, but not limited to, life, medical,
dental and disability insurance, will be provided to the Employee in accordance
with programs at the Employer then available to executive employees. The
Employee shall also be entitled to participate in all of Employer's profit
sharing, pension, retirement, deferred compensation and savings plans, as the
same may be amended and in effect from time to time, at levels and having
interests commensurate with the Employee's then current period of service,
compensation and position.
5. Perquisites and Expenses.
------------------------
(a) General.
------- During the term of the Employee's employment
hereunder, the Employee shall be entitled to participate in any special benefit
or perquisite program available from time to time to executive employees of the
Employer on the terms and conditions then prevailing under such program.
(b) Business Travel, Lodging, etc.
---------------------------------- The Employer shall
reimburse the Employee for reasonable travel, lodging and meal expenses incurred
by him in connection with his performance of services hereunder upon submission
of evidence, satisfactory to the Employer, of the incurrence and purpose of each
such expense.
6. Termination of Employment.
-------------------------
(a) Termination Due to Death or Disability.
-------------------------------------- In the event that
the Employee's employment hereunder terminates due to death or is terminated by
the Employer due to the Employee's Disability (as defined below), no termination
benefits shall be payable to or in respect of the Employee except as provided in
Section 6(f)(ii). For purposes of this Agreement, "Disability" shall mean a
physical or mental disability that prevents the performance by the Employee of
his duties hereunder lasting (or likely to last, based on competent medical
evidence presented to Employer's Board) for a continuous period of six months or
longer. The reasoned and good faith judgment of Employer's Board as to the
Employee's Disability shall be final and shall be based on such competent
medical evidence as shall be presented to it by the Employee or by any physician
or group of physicians or other competent medical experts employed by the
Employee or the Employer to advise Employer's Board.
(b) Termination by the Employer for Cause.
------------------------------------- The Employee may be
terminated for Cause by the Employer. "Cause" shall mean (i) the willful failure
of the Employee substantially to perform his duties hereunder (other than any
such failure due to physical or mental illness) after a demand for substantial
performance is delivered to the Employee by the executive to which the Employee
reports or by Employer's Board, which notice identifies the manner in which such
3
<PAGE>
executive or Employer's Board, as the case may be, believes that the Employee
has not substantially performed his duties, (ii) the Employee's engaging in
willful and serious misconduct that is injurious to Group or Employer or any of
their subsidiaries, (iii) the Employee's regularly making a substantial, abusive
use of alcohol, drug, or similar substances, and such abuse in the Employer's
judgment has affected his ability to conduct the business of the Employer in a
proper and prudent manner, (iv) the Employee's conviction of, or entering a plea
of nolo contendere to, a crime that constitutes a felony, or (v) the willful and
material breach by the Employee of any of his obligations hereunder, or the
willful and material breach by the Employee of any written covenant or agreement
with the Employer or any of its affiliates not to disclose any information
pertaining to the Employer or any of its affiliates or not to compete or
interfere with the Employer or any of its affiliates.
(c) Termination by the Employer Without Cause.
------------------------------------------ The Employee
may be terminated Without Cause by the Employer. A termination "Without Cause"
shall mean a termination of employment by the Employer other than due to death
or Disability as defined in Section 6(a) or Cause as defined in Section 6(b).
(d) Termination by the Employee.
---------------------------- The Employee may terminate
his employment for "Good Reason". "Good Reason" shall mean a termination of
employment by the Employee within 30 days following (i) any assignment to the
Employee of any duties, functions or responsibilities that are significantly
different from, and result in a substantial diminution of, the duties, functions
or responsibilities that the Employee has on the date hereof or (ii) the failure
of the Employer to obtain the assumption of this Agreement by any successor as
contemplated by Section 12.
(e) Notice of Termination.
---------------------- Any termination by the Employer
pursuant to Section 6(a), 6(b) or 6(c), or by the Employee pursuant to Section
6(d), shall be communicated by a written "Notice of Termination" addressed to
the other parties to this Agreement. A "Notice of Termination" shall mean a
notice stating that the Employee's employment hereunder has been or will be
terminated, indicating the specific termination provisions in this Agreement
relied upon and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination of employment.
(f) Payments Upon Certain Terminations.
----------------------------------
(i) In the event of a termination of the Employee's
employment Without Cause or a termination by the Employee of his
employment for Good Reason, the Employer shall pay to the Employee (A)
(1) the greater of (x) his Base Salary, if any, for the period from the
Date of Termination (as defined below) through the last day of the
Initial Term, provided that Employer may, at any time, pay to the
Employee in a single lump sum an amount equal to the Base Salary
remaining to be paid to the Employee as of the date of such lump sum
payment and (y) an amount equal to one year's Base Salary, less (2) any
amounts paid or to be paid to the Employee under the terms of any
severance plan or program of Employer, if any, as in effect on the Date
of Termination, (B) the Annual Bonus with respect to a completed fiscal
4
<PAGE>
year to the extent not theretofore paid to the Employee and (C) a Pro
Rata Share of the Annual Bonus (as defined below) for the fiscal year
in which the Date of Termination occurred.
(ii) If the Employee's employment shall terminate upon his
death or Disability or if Employer shall terminate the Employee's
employment for Cause, Employer shall pay the Employee his full Base
Salary through the Date of Termination, plus, in the case of
termination upon the Employee's death or Disability, a Pro Rata Share
of the Annual Bonus. Any benefits payable to or in respect of the
Employee under any otherwise applicable plans, policies and practices
of the Employer shall not be limited by this provision.
(iii) For purposes of this Section 6, the "Pro Rata Share of
the Annual Bonus" shall be calculated and paid as follows. If the
Employee is terminated prior to July 1 of any year, the Pro Rata Share
of the Annual Bonus (A) will be equal to the product of (1) the Annual
Bonus, calculated assuming that 100% of the Operating Target is
achieved in such year, and (2) a fraction equal to the number of full
months in such year prior to the Date of Termination over 12, and (B)
will be paid to the Employee within 30 days after the Date of
Termination. If the Employee is terminated on or after July 1 of any
year, the Pro Rata Share of the Annual Bonus (A) will be equal to the
product of (1) the Annual Bonus, calculated based on the actual
Operating Result for such year, and (2) a fraction equal to the number
of full months in such year prior to the Date of Termination over 12,
and (B) will be paid to the Employee within 90 days after the close of
the year in respect of which the Pro Rata Share of the Annual Bonus is
payable.
(g) Date of Termination.
------------------- As used in this Agreement, the term
"Date of Termination" shall mean (i) if the Employee's employment is terminated
by his death, the date of his death, (ii) if the Employee's employment is
terminated for Cause, the date on which Notice of Termination is given as
contemplated by Section 6(e), and (iii) if the Employee's employment is
terminated Without Cause, due to the Employee's Disability or by the Employee
for Good Reason, 30 days after the date on which Notice of Termination is given
as contemplated by Section 6(d) or, if no such Notice is given, 30 days after
the date of termination of employment.
(h) Condition to Payments.
--------------------- The Employer's obligation to make
any payments hereunder shall be conditioned upon the Employer's receipt of an
appropriately signed "General Release and Covenant Not to Sue" in form and
substance satisfactory to the Employer.
7. Unauthorized Disclosure.
----------------------- During and after the term of his employment
hereunder, the Employee shall not, without the written consent of Employer's
Board, the General Counsel of the Employer, or the Chief Executive Officer of
the Employer, disclose to any person (other than an employee or director of the
Employer or its affiliates, or a person to whom disclosure is reasonably
necessary or appropriate in connection with the performance by the Employee of
5
<PAGE>
his duties as an executive of the Employer) any confidential or proprietary
information, knowledge or data that is not theretofore publicly known and in the
public domain obtained by him while in the employ of the Employer with respect
to the Employer or any of its subsidiaries or affiliates or with respect to any
products, improvements, formulas, recipes, designs, processes, customers,
methods of sales, distribution, operation or manufacture, sales, prices,
profits, costs, contracts, suppliers, business prospects, business methods,
techniques, research, plans, strategies, personnel, organization, trade secrets
or know-how of the Employer or any of its subsidiaries or affiliates
(collectively, "Proprietary Information"), except as may be required by law or
in connection with any judicial or administrative proceedings or inquiry.
8. Non-Competition.
--------------- During the period of the Employee's employment and
thereafter for a period equal to the number of months providing the basis for
calculating any termination payments to the Employee under Section 6, if any
such payments are required, but in any event for at least 12 months, the
Employee shall not engage directly or indirectly in, become employed by, serve
as an agent or consultant to, or become a partner, principal or stockholder of,
any partnership, corporation or other entity which competes with a business that
represents 5% or more of the aggregate gross revenues of the Employer and its
subsidiaries and which is then engaged in such competition in any geographical
area in which the Employer or any of its subsidiaries is then engaged in such
business without first obtaining written approval from the Employer, provided
that the Employee's ownership of less than 1% of the issued and outstanding
stock of any corporation whose stock is traded on an established securities
market shall not constitute competition with the Employer. The Employer may
grant or deny such approval in its sole discretion.
9. Non-Interference.
---------------- During the period of the Employee's employment and
thereafter for a period equal to the number of months providing the basis for
calculating any termination payments to the Employee under Section 6, if any
such payments are required, but in any event for at least 36 months, the
Employee will not, directly or indirectly, for his own account or the account of
any other person or entity, (a) employ in a business of the kind in which the
Employer is engaged on the date of such termination, or solicit or endeavor to
entice away from the Employer, or otherwise intentionally interfere with the
Employer's relationship with, any person or entity who or which is at the time
employed by or otherwise engaged to perform services for the Employer or (b)
intentionally interfere with the Employer's relationship with any person or
entity who or which is, or has been within the previous 36 months, a customer,
client or supplier of the Employer.
10. Return of Documents.
--------------------- In the event of the termination of the
Employee's employment for any reason, the Employee will deliver to the Employer
all non-personal documents and data of any nature pertaining to his work with
the Employer, and he will not take with him any documents or data of any
description or any reproduction thereof, or any documents containing or
pertaining to any Proprietary Information.
6
<PAGE>
11. Forfeiture of Realized and Unrealized Gains on Incentive Awards for
-------------------------------------------------------------------
Breach of this Agreement. If the Employee violates any provision of Sections 7,
- ------------------------
8, 9 or 10 of this Agreement, and the Employee is no longer employed by the
Employer, whether or not the termination of employment occurs prior to or
subsequent to such violation, then (1) all Incentive Awards held by the Employee
shall terminate effective the date on which Employee violates this Agreement,
unless terminated sooner by operation of another term or condition of the SIP or
the Award Agreement (as defined in the SIP), and (2) any gain realized upon
receipt of an Incentive Award, or exercise of an Incentive Award that does not
require the payment of an exercise price, which gain shall be represented by the
closing market price on the date of receipt of such Incentive Award, or in the
case of an Incentive Award that requires the payment of an exercise price, the
gain represented by the closing market price on the date of exercise over the
exercise price, multiplied by the number of Incentive Awards, or options
exercised, without regard to any subsequent market price decrease or increase;
in each case within 18 months prior to termination of employment with Employer
and violation of Sections 7, 8, 9 or 10 of this Agreement, shall be paid by the
Employee to the Employer. The Employee agrees that the Employer has the right to
deduct from any amounts the Employer may owe the Employee from time to time
(including amounts owed to the Employee as wages or other compensation, fringe
benefits, or vacation pay, as well as any other amounts owed to the Employee by
the Employer), the amounts the Employee owes the Employer or Group.
12. Assumption of Agreement.
------------------------ The Employer will require any successor
(by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Employer, by agreement in form and substance
reasonably satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Employer would be required to perform it if no such succession had taken place.
Failure of the Employer to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Employee to the greater of (x) compensation from the Employer in the same amount
and on the same terms as the Employee would be entitled hereunder if the
Employer terminated his employment Without Cause as contemplated by Section 6
and (y) amounts required to be paid to the Employee pursuant to the Change of
Control Agreement by and among Group, Employer and Employee dated as of April
30, 1998 (the "CIC Agreement"). For purposes of implementing the foregoing
clause (x), the date on which any such succession becomes effective shall be
deemed to be the Date of Termination, and for purposes of implementing clause
(y), the timing and amount of any payments required pursuant to the CIC
Agreement shall be determined in accordance with the CIC Agreement.
13. Entire Agreement.
---------------- Except as otherwise expressly provided herein,
this Agreement, the CIC Agreement and the Indemnification Agreement made and
entered into as of the 30th day of April, 1998 by and among Employer, Group and
Employee (the "Indemnification Agreement") constitute the entire agreement among
the parties hereto with respect to the subject matter hereof, and all promises,
7
<PAGE>
representations, understandings, arrangements and prior agreements relating to
such subject matter (including those made to or with the Employee by any other
person or entity) are merged herein, in the CIC Agreement and in the
Indemnification Agreement and superseded hereby and thereby. To the extent that
the amount and timing of payments required to be made under this Agreement are
inconsistent with or different from the amount and timing of payments required
to be made pursuant to the CIC Agreement and/or the Indemnification Agreement,
the Employee shall be entitled to the most favorable benefits provided to the
Employee under the provisions of any such agreements.
14. Indemnification.
--------------- The Employer agrees that it shall indemnify and
hold harmless the Employee to the fullest extent (a) permitted by Delaware law
from and against any and all liabilities, costs, claims and expenses arising out
of the employment of the Employee hereunder, except to the extent arising out of
or based upon the gross negligence or willful misconduct of the Employee and (b)
provided by the Indemnification Agreement.
15. No Mitigation.
-------------- The Employee shall not be required to mitigate the
amount of any payment that the Employer becomes obligated to make in connection
with this Agreement, the CIC Agreement or the Indemnification Agreement, by
seeking other employment or otherwise.
16. Miscellaneous.
-------------
(a) Binding Effect.
--------------- This Agreement shall be binding on and
inure to the benefit of the Employer and its successors and permitted assigns.
This Agreement shall also be binding on and inure to the benefit of the Employee
and his heirs, executors, administrators and legal representatives.
(b) Governing Law.
-------------- This Agreement shall be governed by and
constructed in accordance with the laws of the State of Delaware without
reference to principles of conflict of laws.
(c) Taxes.
----- The Employer may withhold from any payments made
under the Agreement all federal, state, city or other applicable taxes or social
security governmental regulation or ruling.
(d) Amendments.
---------- No provisions of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
approved by Employer's Board or General Counsel of the Employer and is agreed to
in writing by the Employee and General Counsel of the Employer. No waiver by any
party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No waiver of any
provision of this Agreement shall be implied from any course of dealing between
or among the parties hereto or from any failure by any party hereto to assert
8
<PAGE>
its rights hereunder on any occasion or series of occasions.
(e) Reformation; Severability.
-------------------------- If any provision of this
Agreement is held by a court or arbitrator to be unreasonable in scope or
duration or otherwise, the court or arbitrator shall, to the extent permitted by
law, reform such provision so that it is enforceable, and enforce the applicable
provision as so reformed. Reformation of any provision of this Agreement
pursuant to this subsection (e) shall not affect any other provision of this
Agreement or render this Agreement unenforceable or void.
(f) Notices.
------- Any notice or other communication required or
permitted to be delivered under this Agreement shall be (i) in writing, (ii)
delivered personally, by courier service or by certified or registered mail,
first-class postage prepaid and return receipt requested, (iii) deemed to have
been received on the date of delivery or on the third business day after the
mailing thereof, and (iv) addressed as follows (or to such other address as the
party entitled to notice shall hereafter designate in accordance with the terms
hereof):
(A) if to the Employer or Group, to it at:
One Lexmark Centre Drive
740 West New Circle Road
Lexington, Kentucky 40550
Attention: General Counsel
---------
(B) if to the Employee, to him at the address
listed on the signature page hereof.
(g) Survival.
-------- Sections 7, 8, 9,10 and 11 and, if the
Employee's employment terminates in a manner giving rise to a payment under
Section 6(f), Section 6(f) shall survive the termination of the employment of
the Employee hereunder.
(h) Counterparts.
------------ This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9
<PAGE>
(i) Headings.
-------- The section and other headings contained in this
Agreement are for the convenience of the parties only and are not intended to be
a part hereof or to affect the meaning or interpretation hereof.
IN WITNESS WHEREOF, the Employer and Group have duly executed this
Agreement by their authorized representatives and the Employee has hereunto set
his hand, in each case effective as of the date first above written.
LEXMARK INTERNATIONAL, INC.
By: /s/ Paul J. Curlander
-------------------------------
Paul J. Curlander
President and
Chief Executive Officer
LEXMARK INTERNATIONAL GROUP, INC.
By: /s/ Paul J. Curlander
-------------------------------
Paul J. Curlander
President and
Chief Executive Officer
THE EMPLOYEE:
/s/ Gary E. Morin
-----------------------------------
10
SEPARATION AGREEMENT
--------------------
This SEPARATION AGREEMENT, dated as of April 30, 1998, is made and
entered into among Lexmark International, Inc., a Delaware corporation ("LII"),
Lexmark International Group, Inc., a Delaware corporation ("Group"), and John A.
Stanley (the "Employee").
W I N E S S E T H:
------------------
WHEREAS, LII, Group and Employee desire to enter into a separation
agreement and general release and covenant not to sue agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the parties hereto hereby agree as follows:
1. Term.
---- This Agreement shall take effect on the Retirement Date (as
defined below) and, except as otherwise provided herein, shall remain in effect
until and including February 12, 2003 (such period being referred to herein as
the "Restricted Period").
2. Retirement.
---------- Employee hereby retires and resigns as Chairman of
Lexmark International, Ltd. and President and Chief Executive of Lexmark Europe,
effective as of April 30, 1998 (the "Retirement Date"), positions Employee has
held pursuant to the Letter of Employment dated October 1, 1995 and subsequently
amended on April 1, 1997 (such Letter of Employment as so amended, the
"Employment Agreement"). Employee also hereby retires and resigns from any other
officer, director or management position held in any of Group's subsidiaries or
affiliates.
3. Termination Payments.
--------------------- In order to satisfy the Company's (as defined
in the Employment Agreement) requirements in, and as a consequence of, the
Employment Agreement, LII hereby agrees to pay to Employee (pound)314,046 in a
single lump sum (less applicable withholding) (the "Payment Date"), pursuant to
the written wire transfer instructions attached hereto as Annex A. Employee
acknowledges and agrees that such amount includes: (i) the greater of (a) the
termination indemnity provided under the laws of the United Kingdom and (b) an
amount equal to one year of Employee's salary as provided in the Employment
Agreement, and, to the extent such payment is not the greater of (a) and (b),
Employee waives such provision in the Employment Agreement and accepts such
amount in full satisfaction of the termination payment; (ii) vacation days
earned by Employee and not taken; (iii) 10% national insurance contribution and
(iv) Employee's Pro-Rata Share of his annual bonus as determined by the
Employment Agreement for a termination prior to the end of the first six months
of the year. Employee hereby waives the provision in the Employment Agreement
requiring such Pro-Rata Share to be paid on the date of termination and
<PAGE>
acknowledges and agrees that LII shall be entitled to pay the Pro-Rata Share to
Employee on the Payment Date. Such payment will be subject to regular payroll
deductions and tax withholdings.
4. Options and Other Awards.
------------------------
(a) Stock Options.
------------- On November 15, 1995, Employee was granted
45,000 stock options pursuant to Group's Stock Incentive Plan (the "Plan"), of
which 27,000 remain unvested. On February 12, 1997, Employee was granted 20,000
stock options pursuant to the Plan, of which 16,000 remain unvested. On February
10, 1998, Employee was granted 4,723 stock options pursuant to the Plan ("reload
options"), all of which are vested but will not become exercisable until August
12, 1998. On February 12, 1998, Employee was granted 10,000 stock options
pursuant to the Plan, all of which remain unvested. As part of this Agreement,
all such unvested and unexercisable stock options shall continue to be issued
and outstanding under the Plan and shall continue to vest and become exercisable
by Employee, as per the vesting schedules in the stock option agreements entered
into between Group and Employee representing such stock options, and such reload
options shall continue to be exercisable; provided that, any and all such stock
options not exercised on or before April 30, 2003, shall expire and be canceled
and forfeited by Employee. Notwithstanding the above and the terms of any such
stock option agreement, Employee shall no longer be entitled to receive any
Reload Options (as such term is defined in such stock option agreements).
(b) Restricted Stock Units.
---------------------- On February 12, 1998, Employee was
granted 2,250 restricted stock units pursuant to the Plan, all of which remain
unvested. As part of this Agreement, all such restricted stock units shall
continue to be issued and outstanding under the Plan and shall continue to vest
as per the vesting schedule in, and be subject to, the restricted stock award
agreement to be entered into between Group and Employee representing such
restricted stock units.
(c) Performance Award.
----------------- On July 31, 1997, Employee was granted
performance units under Group's Stock Incentive Plan. Pursuant to this
Agreement, Employee shall continue to be entitled to hold a pro rata portion of
his original grant of performance units equal to 1/3 of the amount previously
granted and in connection therewith to receive a certain number of shares of
Group's Class A Common Stock and a cash payment upon expiration of the
performance period (January 1, 1997 through December 31, 2000) and achievement
of certain performance goals and subject to and in accordance with the terms of
the long term incentive award agreement to be entered into between Group and
Employee representing the grant of such performance units.
Notwithstanding any provision of this Agreement, Employee shall
continue to be subject to the prohibition against "short swing profits"
applicable to insiders of Group for a period of six (6) months following
February 11, 1998. In order to facilitate compliance with this laws, Employee
agrees not to engage in any transaction involving Group's Class A Common Stock
until August 12, 1998, without first obtaining the approval of the General
2
<PAGE>
Counsel of Group. After receiving such approval and during such period, Employee
agrees to report the details of all transactions, as soon as consummated, to the
General Counsel of Group.
5. Other Payments and Benefits.
--------------------------- Employee acknowledges and agrees that
no other payments or benefits are owing or are to be paid or given to Employee
by the Company, LII or Group pursuant to the Employment Agreement or otherwise,
other than (i) as specifically set forth herein and (ii) such benefits, and
payments under pension plans, as Employee in the ordinary course as a retiree of
the Company would be entitled to receive.
6. Consulting Appointment.
----------------------
(a) Appointment.
----------- Employee hereby agrees, upon the
effectiveness of his retirement as specified above, to provide up to 60 days per
year of consulting services to LII and Group and their subsidiaries, and LII and
Group hereby retains Employee (in such capacity, "Consultant") to provide such
services, as may be specified by LII or Group from time to time, during the term
of this Agreement, as an independent contractor.
(b) Services.
-------- Consultant hereby accepts said appointment and
agrees to make available to LII, Group and their subsidiaries, on request of
LII, Consultant's advice, expertise and experience for purposes of aiding the
conduct of the business of Employer, Group and their subsidiaries.
(c) Independent Contractor.
----------------------- It is expressly understood and
agreed that in performing his obligations under this Agreement, Consultant shall
act solely as an independent contractor and not as an employee of the Company
and is not entitled to any employee benefits from the Company. Consultant is not
and shall not hold himself out to be an agent of the Company for any purpose
whatsoever, and Consultant shall not create any obligations for the Company or
bind or attempt to bind the Company in any manner whatsoever.
(d) Remuneration.
------------ As compensation for the consulting services
and other covenants and agreements hereunder, LII shall pay to Consultant
consulting fees in the amount of $1,500 per day for each day Consultant provides
consulting services upon the request of LII.
(e) Expenses.
-------- LII shall reimburse the Consultant for
reasonable travel, lodging and meal expenses incurred by him in connection with
his performance of consulting services hereunder at the request of LII, upon
submission of evidence satisfactory to LII of the incurrence and purpose of each
such expenses.
3
<PAGE>
7. Unauthorized Disclosure.
------------------------ During the Restricted Period, Employee
shall not, without the written consent of LII's Board, the General Counsel of
LII, or the Chief Executive Officer of LII, disclosure to any person (other than
an employee or director of LII or Group or any of their subsidiaries) any
confidential or proprietary information, knowledge or data that is not
theretofore publicly known and in the public domain, or obtained by him while in
the employ of the Company, LII or Group or any of their subsidiaries or
affiliates, or as a consultant for LII, Group and any of their subsidiaries,
with respect to LII or Group or any of its subsidiaries or affiliates or with
respect to any products, improvements, formulas, recipes, designs, processes,
customers, methods of sales, distribution, operation or manufacture, sales,
prices, profits, costs, contracts, suppliers, business prospects, business
methods, techniques, research, plans, strategies, personnel, organization, trade
secrets or know-how of LII or Group or any of their subsidiaries or affiliates
(collectively, "Proprietary Information"), except as may be required by law or
in connection with any judicial or administrative proceedings or inquiry.
8. Non-Competition.
---------------
(a) During the Restricted Period, Employee shall not, engage
directly or indirectly in, become employed by, serve as an agent or consultant
to, or become a partner, principal or stockholder of, any partnership,
corporation or other entity which competes with a business that represents 5% or
more of the aggregate gross revenues of LII and its subsidiaries and which is
then engaged in such competition in any geographical area in which LII or any of
its subsidiaries is then engaged in such business, without first obtaining
written approval from LII, provided that the Employee's ownership is less than
--------
1% of the issued and outstanding stock of any corporation whose stock is traded
on an established securities market shall not constitute competition with LII.
LII may grant or deny such approval in its sole discretion.
(b) During the Restricted Period, Employee will not serve as a
director of any corporation without first obtaining written approval from LII,
except that Employee shall be entitled to continue to serve as a director of
Complete Business Solutions Inc. and Kew Place. LII may grant or deny such
approval in its sole discretion.
9. Non-Interference.
---------------- During the Restricted Period, Employee will not,
directly or indirectly, for his own account or the account of any other person
or entity, (a) employ in a business of the kind in which LII is engaged, or
solicit or endeavor to entice away from LII, or otherwise intentionally
interfere with LII's relationship with, any person or entity who or which is at
the time employed by or otherwise engaged to perform services for LII or (b)
intentionally interfere with LII's relationship with any person or entity who or
which is, or has been within the previous 36 months, a customer, client or
supplier of LII.
4
<PAGE>
10. Return of Documents.
-------------------- Employee has or promptly will deliver to the
Company or LII all non-personal documents and data of any nature pertaining to
his work with the Company, LII or Group (or any of their subsidiaries), and
Employee will not take with him any documents or data of any description or any
reproduction thereof, or any documents containing or pertaining to any
Proprietary Information. Consultant will promptly, after the expiration of the
Restricted Period or upon violation of this Agreement, whichever is earlier,
again comply with this Section 10.
11. Forfeiture of Options and Other Awards and Option and Share Gain
------------------------------------------------------------------
for Breach of this Agreement.
- ------------------------------ If Employee violates any provision of this
Agreement, then: (1) all unexercised options and all restricted stock units and
performance units (and the right to receive cash compensation in connection with
such performance units) held by Employee shall terminate and be forfeited by
Employee, effective the date on which Employee violates this Agreement, unless
terminated sooner by operation of this Agreement; (2) any option gain (such gain
represented by the closing market price on the date of exercise over the
exercise price, multiplied by the number of options exercised ("option gain"),
without regard to any subsequent market price decrease or increase) realized by
Employee from exercising all or a portion of Employee's options within 18 months
prior to Employee's violation of this Agreement; (3) any shares of Class A
Common Stock received by Employee upon the vesting of restricted stock units or
payout of performance units (the "Employee Shares") and cash compensation in
connection with such performance units received by Employee within 18 months
prior to Employee's violation of this Agreement shall be forfeited and paid by
Employee to LII; and (4) if Employee sells any of the Employee Shares, any gain
(such gain represented by the difference between the closing market price on the
date Employee became entitled (i.e., vesting or end of the performance period)
to receive the Employee Shares and the date on which Employee sold such Shares)
realized by Employee within 18 months prior to Employee's violation of this
Agreement shall be paid by Employee to LII.
12. Condition to Payments and Continued Vesting.
--------------------------------------------- LII's obligations
hereunder to make any payments and to permit the continued vesting of Employee's
stock options and restricted stock units shall be conditioned upon LII's receipt
of an appropriately signed and not revoked "General Release and Covenant Not to
Sue" in form and substance satisfactory to LII, an executed, final copy of which
is to be attached hereto as Exhibit A.
13. Assumption of Agreement.
------------------------- LII will request any successor (by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of LII, by agreement in form and substance reasonably
satisfactory to Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that LII would be required
to perform it if no such succession had taken place; provided, however, that the
-------- -------
Employee shall only be bound to any successor to LII by the terms of this
Agreement or any subsequent agreement contemplated by this
5
<PAGE>
Section 13 for as long as Dr. Paul J. Curlander, Kathleen J. Affeldt or
Vincent J. Cole are responsible for the interpretation and enforcement of this
Agreement for such successor entity.
14. Entire Agreement.
---------------- Except as otherwise expressly provided herein,
this Agreement and the General Release and Covenant Not to Sue constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof, and all promises, representations, understandings, arrangements and
prior agreements relating to such subject matter (including those made to or
with Employee by any other person or entity) are superseded hereby.
15. Miscellaneous.
-------------
(a) Binding Effect.
--------------- This Agreement shall be binding on and
inure to the benefit of LII and its successors and assigns, subject to Section
13 above. This Agreement shall also be binding on and inure to the benefit of
Employee and his heirs, executors, administrators and legal representatives.
(b) Governing Law.
-------------- This Agreement shall be governed by and
constructed in accordance with the laws of the State of Delaware without
reference to principles of conflict of laws.
(c) Taxes.
----- LII may, in its discretion, withhold monies from
any payments made under the Agreement for purposes of U.S. federal, state, city,
United Kingdom or other applicable taxes or social security, insurance or
governmental regulation or ruling.
(d) Amendments.
---------- No provisions of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
approved by LII's Board or Chief Executive Officer and is agreed to in writing
by the Employee and Chief Executive Officer of LII. No waiver by any party
hereto at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No waiver of any provision of
this Agreement shall be implied from any course of dealing between or among the
parties hereto or from any failure by any party hereto to assert its rights
hereunder on any occasion or series of occasions.
(e) Severability.
------------ In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
(f) Notices.
------- Any notice or other communication required or
permitted to be delivered under this Agreement shall be (i) in writing, (ii)
6
<PAGE>
delivered personally, by courier service or by certified or registered mail,
first-class postage prepaid and return receipt requested, (iii) deemed to have
been received on the date of delivery or on the third business day after the
mailing thereof, and (iv) addressed as follows (or to such other address as the
party entitled to notice shall hereafter designate in accordance with the terms
hereof):
(A) if to LII or Group, to it at:
One Lexmark Centre Drive
740 New Circle Road N.W.
Lexington, Kentucky 40550
Attention: General Counsel
---------
(B) if to the Employee, to him at the address listed
on the signature page hereof.
(g) Survival. Sections 7 and 11 of this Agreement
--------
shall survive the expiration of the Restricted Period.
(h) Counterparts.
------------ This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
(i) Headings.
-------- The section and other headings contained in
this Agreement are for the convenience of the parties only and are not intended
to be a part hereof or to affect the meaning or interpretation hereof.
IN WITNESS WHEREOF, LII and Group have duly executed this Agreement by
their authorized representatives and the Employee has hereunto set his hand, in
each case effective as of the date first above written.
LEXMARK INTERNATIONAL, INC.
By: /s/ Paul J. Curlander
--------------------------------
Paul J. Curlander
President and Chief Executive Officer
LEXMARK INTERNATIONAL GROUP, INC.
By: /s/ Paul J. Curlander
--------------------------------
Paul J. Curlander
President and Chief Executive Officer
EMPLOYEE
/s/ John A. Stanley
---------------------------------
John A. Stanley
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LEXMARK INTERNATIONAL GROUP, INC. FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 28
<SECURITIES> 0
<RECEIVABLES> 443
<ALLOWANCES> 21
<INVENTORY> 412
<CURRENT-ASSETS> 936
<PP&E> 416
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,378
<CURRENT-LIABILITIES> 603
<BONDS> 149
0
0
<COMMON> 1
<OTHER-SE> 515
<TOTAL-LIABILITY-AND-EQUITY> 1,378
<SALES> 2,113
<TOTAL-REVENUES> 2,113
<CGS> 1,342
<TOTAL-COSTS> 1,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 242
<INCOME-TAX> 81
<INCOME-CONTINUING> 161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161
<EPS-PRIMARY> 2.41
<EPS-DILUTED> 2.25
</TABLE>
