<PAGE>
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use of the
|_| Definitive Proxy Statement Commission Only (as permitted
|_| Definitive Additional Materials by Rule 14a-6(e)(2))
|_| Soliciting Material Pursuant to Rule
14a-11(c) or Rule14a-12
LEXMARK INTERNATIONAL GROUP, INC.
---------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC.
ONE LEXMARK CENTRE DRIVE
LEXINGTON, KENTUCKY 40550
March [22], 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Lexmark International Group, Inc., which will be held on Thursday, April 29,
1999, at 10:00 a.m., at the Opera House, 401 West Short Street, Lexington,
Kentucky 40507.
The attached notice of meeting and proxy statement describe the matters
to be acted upon at the meeting. It is important that your shares be represented
and voted at the meeting whether or not you plan to attend. Therefore, we urge
you to complete the enclosed proxy and return it in the envelope provided.
I look forward to seeing you on April 29.
Sincerely,
Marvin L. Mann
CHAIRMAN OF THE BOARD
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
ON THURSDAY, APRIL 29, 1999
March [22], 1999
To the Stockholders:
The Annual Meeting of Stockholders of Lexmark International Group, Inc.
(the "Company") will be held on Thursday, April 29, 1999, at 10:00 a.m. at the
Opera House, 401 West Short Street, Lexington, Kentucky 40507, for the following
purposes:
1. To elect three Directors for terms expiring in 2002;
2. To approve the 1999 Employee Stock Purchase Plan;
3. To approve certain terms and conditions of Annual Incentive
Compensation Awards for select executive officers;
4. To approve an amendment to the Third Restated Certificate
of Incorporation that would increase the number of authorized shares of
Class A Common Stock from 160 million to 450 million;
5. To approve an amendment to the Third Restated Certificate
of Incorporation that would fix the size of the Board of Directors at
no more than fourteen; and
6. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on Friday, March
12, 1999 will be entitled to notice of, and to vote at, the meeting or any
adjournment or postponement thereof. A list of stockholders entitled to vote
will be kept at the Company's offices at One Lexmark Centre Drive, Lexington,
Kentucky 40550 for a period of ten days prior to the meeting.
By Order of the Board of Directors
Vincent J. Cole
SECRETARY
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
IN PERSON. YOUR VOTE IS IMPORTANT.
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC.
ONE LEXMARK CENTRE DRIVE
LEXINGTON, KENTUCKY 40550
-------------------------
PROXY STATEMENT
-------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Lexmark International Group, Inc. (the
"Company") to be used at the Annual Meeting of Stockholders of the Company on
Thursday, April 29, 1999, to be held at 10:00 a.m. at the Opera House, 401 West
Short Street, Lexington, Kentucky 40507. This Proxy Statement and accompanying
form of proxy are being mailed to stockholders beginning on or about March [22],
1999. The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1998 is enclosed.
Only stockholders of record at the close of business on Friday, March
12, 1999 will be entitled to vote at the meeting. As of such date, there were
_____ shares (excluding shares held in treasury) of the Company's Class A common
stock, par value $.01 per share (the "Class A Common Stock"), issued and
outstanding. Each share of Class A Common Stock entitles the holder to one vote.
The enclosed proxy, if properly signed and returned, will be voted in
accordance with its terms. Any proxy returned without specification as to any
matter will be voted as to each proposal in accordance with the recommendation
of the Board of Directors. You may revoke your proxy at any time before the vote
is taken by delivering to the Secretary of the Company written revocation or a
proxy bearing a later date, or by attending and voting in person at the Annual
Meeting.
Votes cast by proxy or in person at the meeting will be tabulated by
the election inspectors appointed for the meeting and the inspectors will
determine whether a quorum is present. The Directors to be elected at the
meeting will be elected by a plurality of the votes cast by the stockholders
present in person or by proxy and entitled to vote. Votes may be cast for or
withheld from a nominee. Votes that are withheld will have no effect on the
outcome of the election because Directors will be elected by a plurality of
votes cast.
Abstentions may be specified on all proposals submitted to a
stockholder vote other than the election of the Directors. Abstentions will be
counted as present for purposes of determining the existence of a quorum
regarding other proposals. The affirmative vote of a majority of the shares of
Class A Common Stock present in person or by proxy is required to approve the
Company's proposals other than the election of the Directors. Abstentions on
proposals that require the approval of a majority of the shares of Class A
Common Stock present in person or by proxy and entitled to vote will have the
effect of a vote against such proposals.
If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares will
not be considered as present and entitled to vote with respect to that matter
and, thus, will not be counted in determining whether that matter receives a
majority of the shares of Class A Common Stock present and entitled to vote at
the meeting.
<PAGE>
ELECTION OF DIRECTORS
Action will be taken at the 1999 Annual Meeting to elect three Class II
Directors to serve until the 2002 Annual Meeting of Stockholders. The nominees,
as well as the Class I and Class III Directors who are continuing to serve, are
listed below together with certain information about each of them. The nominees
for election at the 1999 Annual Meeting of Stockholders are B. Charles Ames,
Ralph E. Gomory and Marvin L. Mann. Each of Messrs. Ames, Gomory and Mann have
been Directors since March 1991 and were elected by the stockholders in October,
1995 to serve as Class II Directors with a term expiring at the 1999 Annual
Meeting of Stockholders.
Directors are elected by a plurality of the votes cast by the shares
entitled to vote if a quorum is present at the Annual Meeting. Abstentions and
broker non-votes are counted for the purposes of determining whether a quorum
exists at the Annual Meeting, but are not counted and have no effect on the
determination of whether a plurality exists with respect to a given nominee.
CLASS II (TERM ENDING 2002)
Mr. B. Charles Ames, age 73, has been a Director of the Company since
March 1991. Since prior to 1991, Mr. Ames has been a principal of Clayton,
Dubilier & Rice, Inc. ("CD&R") and a general partner of Clayton & Dubilier
Associates IV Limited Partnership ("Associates IV"), the general partner of The
Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D Fund IV").
Mr. Ames was previously Chairman and Chief Executive Officer of Reliance
Electric Company, Uniroyal Goodrich Tire Company and Acme Cleveland Corporation.
Mr. Ames is the Chairman of Riverwood International Corp. and its parent,
Riverwood Holding, Inc., a corporation in which The Clayton, Dubilier & Rice
Private Equity Fund V Limited Partnership ("CD&R Fund V") has an investment. Mr.
Ames also serves as a director of The Progressive Corporation.
Mr. Ralph E. Gomory, age 69, has been a Director of the Company since
March 1991. Since 1989, Mr. Gomory has served as President of the Alfred P.
Sloan Foundation. Prior to such time, Mr. Gomory was Senior Vice President for
Science and Technology at International Business Machines Corporation ("IBM").
Mr. Gomory also serves as a director of Ashland Inc., The Bank of New York, The
Washington Post Company and Polaroid Corporation.
Mr. Marvin L. Mann, age 65, has been Chairman of the Board of the
Company since March 1991. From March 1991 through May 1998, he also served as
Chief Executive Officer, and from March 1991 through February 1997, he also
served as President of the Company. Prior to such time, Mr. Mann held numerous
positions with IBM. During his IBM career, Mr. Mann held a number of executive
positions including President of the Information Products Division, President of
the Service Sector Division and President and Chief Executive Officer of the
Satellite Business Systems. He was elected an IBM Vice President in 1985. Mr.
Mann also serves as a director of the M.A. Hanna Company, Imation Corporation,
and Dynatech Corporation and is a member of the board of trustees of Fidelity
Investments.
2
<PAGE>
The following information on Class I and Class III Directors is
submitted concerning the other Directors of the Company whose election is not
being sought at this meeting and whose terms of office will continue after the
1999 Annual Meeting of Stockholders.
CLASS I (TERM ENDING 2001)
Mr. Frank T. Cary, age 78, has been a Director of the Company since
March 1991. Mr. Cary retired as Chief Executive Officer of IBM in January 1981.
Mr. Cary currently serves as a director of Celgene Corporation, Cygnus, Inc.,
ICOS Corporation, Lincare, Inc., Teltrend Inc. and Vion Pharmaceuticals, Inc.
Dr. Paul J. Curlander, age 46, has been a Director of the Company since
February 1997. Since May 1998, Dr. Curlander has been President and Chief
Executive Officer of the Company. From February 1997 to May 1998, Dr. Curlander
served as President and Chief Operating Officer of the Company, and from January
1995 to February 1997 he served as Executive Vice President, Operations of
Lexmark International, Inc. ("Lexmark International"). In 1993, Dr. Curlander
became a Vice President of Lexmark International, and from 1991 to 1993 he was
General Manager of Lexmark International's printer business.
Mr. Martin D. Walker, age 66, has been a Director of the Company since
February 1997. Mr. Walker is currently serving as Chairman and Chief Executive
Officer of the M.A. Hanna Company, a position he was elected to in October 1998.
He held this position previously from September 1986 until December 1996, and
then continued as Chairman of the M.A. Hanna Company until June 1997 when he
retired. Mr. Walker is also a director of Comerica, Incorporated, The Goodyear
Tire & Rubber Co., Textron, Inc., and The Timken Company.
Mr. James F. Hardymon, age 64, has been a Director of the Company since
July 1998. In February 1999, Mr. Hardymon retired as Chairman of Textron, Inc.
From January 1992 to January 1993 he served as President and Chief Executive
Officer of Textron, Inc., which he joined in November 1989 as President, Chief
Operating Officer and Director. In 1993, he assumed the additional title of
Chairman and relinquished the title of President in 1994. Prior to joining
Textron, Mr. Hardymon had a 28 year career at Emerson Electric Co., where he
held a number of positions including Vice Chairman, Chief Operating Officer,
Director and President. Mr. Hardymon also serves as a director of Fleet
Financial Group, Inc., Air Products and Chemicals, Inc., Groupe Schneider,
Circuit City Stores, Inc. and Championship Auto Racing Teams, Inc.
CLASS III (TERM ENDING 2000)
Mr. Michael J. Maples, age 56, has been a Director of the Company since
February 1996. Until July 1995, Mr. Maples was Executive Vice President of the
Worldwide Products Group and a member of the Office of the President of
Microsoft Corporation. Mr. Maples, who joined Microsoft in 1988, has over 30
years of experience in the computer industry. Before joining Microsoft he was
Director of Software Strategy for IBM. Mr. Maples also serves as a director of
J. D. Edwards & Co. and PSW Technologies, Inc.
3
<PAGE>
Mr. Stephen R. Hardis, age 63, has been a Director of the Company since
November 1996. Mr. Hardis is Chairman and Chief Executive Officer of Eaton
Corporation, which he joined in 1979 as Executive Vice President - Finance and
Administration. He was elected Vice Chairman and designated Chief Financial and
Administrative Officer in 1986. He became Chief Executive Officer of Eaton
Corporation in September 1995 and Chairman in January 1996. Mr. Hardis also
serves as a director of KeyCorp, Marsh & McLennan Companies, Inc., Nordson
Corporation and The Progressive Corporation.
Mr. William R. Fields, age 49, has been a Director of the Company since
December 1996. Mr. Fields most recently served as President and Chief Executive
Officer of Hudson's Bay Company. Previously, he was Chairman and Chief Executive
Officer of Blockbuster Entertainment Group, a division of Viacom, Inc. Mr.
Fields has also held numerous positions with Wal-Mart Stores, Inc., which he
joined in 1971. He left Wal-Mart in March 1996 as President and Chief Executive
Officer of Wal-Mart Stores Division, and Executive Vice President of Wal-Mart
Stores, Inc.
Mr. Robert Holland, Jr., age 58, has been a Director of the Company
since December 1998. Mr. Holland is Chief Executive Officer of WorkPlace
Integrators, a company he acquired in June 1997. He also maintains a consulting
practice for strategic development assistance to senior management of Fortune
500 companies. Previously, Mr. Holland was President and Chief Executive Officer
of Ben & Jerry's Homemade, Inc. from February 1995 to December 1996, Chairman
and Chief Executive Officer of Rokher-J Inc. from 1991 to 1995 and from 1981 to
1984, Chairman of Gilreath Manufacturing, Inc. from 1987 to 1991 and Chairman
and Chief Executive Officer of City Marketing from 1984 to 1987. Mr. Holland is
a former partner with McKinsey & Company, Inc. and held various positions at
Mobil Oil Corporation from 1962 to 1968. He also serves as a director of
ACNielsen Corporation, Frontier Corporation, The MONY Group Inc., Olin
Corporation, Tricon Global Restaurants, Inc. and Trumark, Inc.
COMPOSITION OF BOARD AND COMMITTEES
The Company's Third Restated Certificate of Incorporation divides the
Board of Directors into three classes. Of the eleven members of the Board of
Directors, three have been elected as Class II Directors with terms expiring at
the time of the Annual Meeting of Stockholders to be held in 1999; four have
been elected as Class III Directors with terms expiring at the time of the
Annual Meeting of Stockholders to be held in 2000 and four have been elected as
Class I Directors with terms expiring at the time of the Annual Meeting of
Stockholders to be held in 2001. At each succeeding Annual Meeting of
Stockholders, the respective successors of the Directors whose terms are
expiring shall be elected for terms expiring at the Annual Meeting of
Stockholders held in the third succeeding year. Directors may only be removed
from the Board for cause.
The Board of Directors held six meetings during 1998. All members of
the Board attended at least 75% of the meetings of the Board and committees of
the Board on which they served.
The Board has four standing committees: an Executive Committee, a
Finance and Audit Committee, a Compensation and Pension Committee and a
Corporate Governance and Public Policy Committee.
4
<PAGE>
The Executive Committee consists of Messrs. Ames, Cary, Curlander, Mann
and Walker, with Mr. Mann serving as Chairman. The Executive Committee is
responsible for overseeing the management of the property, affairs and business
of the Company and has been delegated authority to exercise the powers of the
Board during intervals between Board meetings. The Committee did not meet during
1998.
The Finance and Audit Committee consists of Messrs. Cary, Hardis,
Hardymon, Holland and Maples, with Mr. Cary serving as Chairman. Sir Roderick
Carnegie served on this Committee until his departure from the Board in April
1998 and Mr. Fields served on this Committee until December 1998. The Finance
and Audit Committee is responsible for recommending the actions and policies
relating to the capital structure of the Company and the borrowing and repayment
of funds by the Company; recommending the firm to be appointed as independent
accountants to audit the Company's financial statements and to perform services
related to the audit; reviewing the scope and results of the audit with the
independent accountants; reviewing with management and the independent
accountants the Company's year-end operating results; considering the adequacy
of the internal auditing, accounting and control procedures of the Company; and
reviewing the non-audit services, if any, to be performed by the independent
accountants and considering the effect of such service on the accountants'
independence. The Committee held five meetings during 1998.
The Compensation and Pension Committee consists of Messrs. Ames,
Fields, Gomory and Walker, with Mr. Ames serving as Chairman. Mr. Hardis served
on this Committee until December 1998. The Compensation and Pension Committee is
responsible for the review, recommendation and approval of compensation
arrangements for Directors and executive officers, for the approval of such
arrangements for other senior level employees, and for the administration of
certain benefit and compensation plans and arrangements of the Company and its
subsidiaries, including the Lexmark Retirement Plan and Lexmark Savings Plan.
The Committee held six meetings during 1998.
The Corporate Governance and Public Policy Committee consists of
Messrs. Ames, Cary, Gomory, Mann and Walker, with Mr. Walker serving as
Chairman. Mr. Donald J. Gogel served on this Committee until his departure from
the Board in April 1998. The Corporate Governance and Public Policy Committee is
responsible for the nomination of persons for election to the Board and other
matters concerning Directors' practices and issues of corporate public
responsibility. The Corporate Governance and Public Policy Committee will
consider nominees recommended by stockholders. The Committee held four meetings
during 1998.
COMPENSATION OF DIRECTORS
The Company's policy is not to pay compensation to those Directors who
are also employees of the Company or any of its subsidiaries or affiliated with
any principal stockholder of the Company. All Directors are, however, reimbursed
for expenses incurred in attending Board and committee meetings.
The nonemployee Directors of the Company who were not affiliated with
any principal stockholder of the Company in 1998 received an annual retainer of
$25,000, a daily attendance fee of $2,500 for attendance at Board and/or
committee meetings and $750 per meeting for participation in telephonic
meetings. Any such nonemployee
5
<PAGE>
Director who served as a chairperson of a committee also received an annual
retainer of $2,500.
In 1999, the nonemployee Directors of the Company who are not
affiliated with any principal stockholder of the Company will receive an annual
retainer of $30,000, a daily attendance fee of $2,500 for attendance at Board
and/or committee meetings held on the same day, a daily attendance fee of $1,250
for attendance at committee meetings which are held on days adjacent to a Board
meeting and $750 per meeting for participation in telephonic meetings. Any such
nonemployee Director who serves as a chairperson of a committee will also
receive an annual retainer of $3,500. This change in compensation arrangements
for nonemployee directors is the first change since the Company became a public
company in 1995.
In addition, such nonemployee Directors will be eligible to participate
in the Nonemployee Director Stock Plan described below. In April 1998, all
Eligible Directors received an Annual Award (as defined below) of options to
purchase 2,000 shares. It is currently anticipated that Annual Awards will
continue to be made in order to attract, retain and motivate the best qualified
Directors and to enhance a long-term mutuality of interest between the Company's
Directors and stockholders. The number of options granted in an Annual Award
will be reviewed annually by the Board of Directors at the time of the Annual
Meeting of Stockholders in order to have the total exercise price of the grant
on the date of the grant approximate four times the annual retainer fee based on
the closing price of the Class A Common Stock on the last day of the prior
fiscal year.
The Company has entered into indemnification agreements with each of
its Directors, which requires the Company to indemnify them against certain
liabilities that may arise as a result of their status or service as Directors
of the Company.
NONEMPLOYEE DIRECTOR STOCK PLAN
Under the Company's Nonemployee Director Stock Plan (the "Director
Plan"), upon election to the Board in 1998, each director of the Company who was
not also an employee of the Company or its subsidiaries or affiliated with any
principal stockholder (each, an "Eligible Director") received a one-time grant
of options to purchase 4,000 shares of Class A Common Stock at a purchase price
per share equal to the fair market value of a share of Class A Common Stock on
the date of grant (the "Initial Award"). The number of options granted in the
Initial Award for an Eligible Director elected in any calendar year will be
reviewed annually by the Board of Directors in order to have the total exercise
price of the grant on the date of the grant approximate $200,000 based on the
closing price of the Class A Common Stock on the last day of the prior fiscal
year. Each Eligible Director may, at the discretion of the Board, also be
granted one or more option awards after the Initial Award (each an "Annual
Award").
In addition, each Eligible Director may elect to defer payment of all
or a portion of the annual retainer, attendance and meeting fees (the "Annual
Fees") and to receive in lieu thereof a grant of deferred stock units equal to
the amount of Annual Fees so deferred, divided by the fair market value of a
share of Class A Common Stock on the date of grant of the deferred stock units.
6
<PAGE>
SECURITY OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table furnishes certain information, to the best
knowledge of the Company, as of March 12, 1999, as to the shares of Class A
Common Stock beneficially owned by (i) each Director of the Company, (ii) each
person serving as the Chief Executive Officer during 1998 and the four other
most highly compensated officers of the Company, (iii) all Directors and
executive officers of the Company as a group and (iv) each person owning
beneficially more than 5% of the outstanding shares of Class A Common Stock.
Except as otherwise indicated, the address of each person listed below is the
address of the Company.
AMOUNT AND NATURE PERCENTAGE
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
- ---------------- ----------------------- --------
FMR Corp. 5,087,090(1) 7.78%
82 Devonshire Street
Boston, MA 02109
Mellon Bank Corporation 3,874,858 (2) 5.92
One Mellon Bank Center
Pittsburgh, PA 15258
B. Charles Ames
Frank T. Cary
William R. Fields
Ralph E. Gomory
Stephen R. Hardis
James F. Hardymon
Robert Holland, Jr.
Marvin L. Mann
Michael J. Maples
Martin D. Walker
Paul J. Curlander
Thomas B. Lamb
John C. Mitchell
Gary E. Morin
Alfred A. Traversi
All Directors and executive officers as a group (23
persons)
* Less than 1% of class.
(1) Based on a Schedule 13G filed with the Securities and Exchange
Commission on February 12, 1999. Fidelity Management and Research
Company, a wholly-owned subsidiary of FMR Corp. and a registered
investment adviser, is the beneficial owner of 4,785,790 shares.
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR
Corp. and a bank, is the beneficial owner of 289,300 shares. Members of
the Edward C. Johnson 3d family and trusts for their benefit, which may
be deemed to form a controlling group with FMR Corp. based on their
ownership of voting common stock of FMR Corp. and the existence of a
shareholders' voting agreement, are the beneficial owners of 12,000
shares. FMR Corp. has sole voting power with respect to 118,600 shares,
and sole dispositive power with respect to 5,087,090 shares.
(2) Based on an amended Schedule 13G filed with the Securities and Exchange
Commission on February 23, 1999. Boston Group Holdings, Inc., MBC
Investment Corporation, and The Boston Company, Inc., direct or
indirect subsidiaries of Mellon Bank Corporation and holding companies,
Boston Safe Deposit and Trust Company, Mellon Bank (Delaware) National
Association, Mellon Bank, N.A., Mellon Trust of California, Mellon
Trust Florida, and Mellon Trust of New York, direct or
7
<PAGE>
indirect subsidiaries of Mellon Bank Corporation and banks, and
Franklin Portfolio Associates Trust, Mellon Capital Management
Corporation, Mellon Equity Associates, and The Dreyfus Corporation,
direct or indirect subsidiaries of Mellon Bank Corporation and
registered investment advisers, are collectively the beneficial owners
of all of the shares. Mellon Bank Corporation has sole voting power
with respect to 3,252,883 shares, shared voting power with respect to
30,680 shares, sole dispositive power with respect to 3,792,438 shares,
and shared dispositive power with respect to 38,020 shares.
(3) Mr. Mann's shares do not include 96,786 shares and an option to
purchase 32,214 shares that are held by an irrevocable trust
established by Mr. Mann for the benefit of certain relatives. Mr.
Mann's shares include 75,000 shares owned by a family limited
partnership of which Mr. Mann is a general partner and 501 shares owned
by Mr. Mann's wife. Mr. Mann disclaims beneficial ownership of all such
shares.
(4) Shares beneficially owned include shares that may be acquired pursuant
to the exercise of options that are exercisable within 60 days
following March 12, 1999 by the following persons and groups in the
following amounts: B. Charles Ames, 400 shares; Frank T. Cary, 8,400
shares; William R. Fields, 5,232 shares; Ralph E. Gomory, 8,400 shares;
Stephen R. Hardis, 5,400 shares; Marvin L. Mann, 659,446 shares;
Michael J. Maples, 8,400 shares; Martin D. Walker, 4,900 shares; Paul
J. Curlander, 236,466 shares; Thomas B. Lamb, 31,261 shares; John C.
Mitchell, 22,628 shares; Gary E. Morin, 43,872 shares; Alfred A.
Traversi, 18,500 shares; and all Directors and executive officers as a
group (23 persons),_________ shares. These shares also include Elective
Deferred Stock Units that were acquired by executive officers in lieu
of annual incentive compensation, but do not include Supplemental Units
that become vested in full on the fifth anniversary of their date of
grant subject to continued employment. Also included in these shares
are Deferred Stock Units that Directors were granted as a result of
their election to defer all or a portion of their annual retainer and
attendance fees under the Nonemployee Director Stock Plan. These shares
also include shares allocated to the employee through participation in
the Lexmark Savings Plan. Such shares held in the Lexmark Savings Plan
can be voted by each employee, and each employee has investment
authority over the shares held in such employee's account in such plan.
In the case of a tender offer, the trustee shall tender or not tender
shares as directed by each participant.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by the Securities and Exchange Commission rules under Section 16 of
the Securities and Exchange Act of 1934, the Company notes that Mr. Ames failed
to timely file a Form 4 reporting the disposition by C&D Fund IV of beneficial
ownership of shares of the Company's Class A Common Stock.
EXECUTIVE COMPENSATION
The information set forth below describes the components of the total
compensation of Messrs. Mann and Curlander, both of whom served as Chief
Executive Officer during 1998, and the four other most highly compensated
executive officers of the Company based on 1998 salary and annual incentive
compensation (the "Named Executive Officers"). The principal components of such
individuals' current cash compensation are the annual base salary and the annual
incentive compensation included in the Summary Compensation Table. Also
described below is the future compensation such individuals are eligible to
receive under the Company's retirement plans and existing long term incentive
and equity programs.
The following table sets forth the compensation earned by the Named
Executive Officers for all services rendered to the Company and its subsidiaries
during the years ended December 31, 1998, 1997 and 1996.
8
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION (6)
----------------------------- ------------------------------
INCENTIVE RESTRICTED OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) STOCK AWARDS (3) (#) COMPENSATION
- --------------------------- ---- ------ --------------- ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
M. L. Mann 1998 $725,000 $1,675,928(2) $274,641 125,000 $ 4,990(7)
Chairman of the Board and Former CEO 1997 707,055 725,000 0 90,000 3,487(7)
1996 625,000 1,060,004(2) 0 0 4,275(7)
P. J. Curlander 1998 523,288 1,072,428(2) 183,094 90,000 4,990(7)
President and Chief Executive 1997 465,342 401,235(2) 0 65,000 3,487(7)
Officer 1996 400,000 533,057(2) 0 0 4,275(7)
Alfred A. Traversi 1998 278,082 397,910(2) 0 30,000 4,990(7)
Executive Vice President 1997 225,000 158,233(2) 0 0 57,280(7)(8)
1996 47,336 35,857 205,000 50,000(4) 55,000(8)
T. B. Lamb 1998 293,973 354,974 61,031 35,000(5) 3,730(7)
Executive Vice President 1997 275,000 196,438 0 20,000 1,668(7)
1996 259,221 328,415(2) 0 52,500(4) 174,667(8)
J. C. Mitchell 1998 291,206 337,589 30,516 20,800(5) 0
Vice President and Division 1997 281,096 187,775(2) 0 50,000 140,423(8)
President
G. E. Morin 1998 287,534 332,114 61,031 25,000 4,990(7)
Vice President and Chief Financial 1997 266,027 248,110(2) 0 35,372(5) 3,487(7)
Officer 1996 245,218 277,834(2) 0 52,500(4) 112,137(8)
</TABLE>
- ----------
(1) Annual Incentive Compensation includes amounts deferred into Elective
Deferred Stock Units and the value of Supplemental Units received as a
result of such deferral, which Supplemental Units become vested in full
on the fifth anniversary of their grant subject to continued
employment.
(2) Mr. Mann, Dr. Curlander and Mr. Traversi elected to defer $1,379,641,
$862,139, and $253,461, respectively, of their 1998 Annual Incentive
Compensation into 12,650, 7,905, and 2,324 Elective Deferred Stock
Units, respectively, and as a result received an additional $275,928,
$172,428, and $50,714, respectively, in Supplemental Units (or 2,530,
1,581, and 465 Supplemental Units). Dr. Curlander, Mr. Traversi, Mr.
Mitchell and Mr. Morin elected to defer $330,137, $56,166, $49,992 and
$163,054, respectively, of their 1997 Annual Incentive Compensation
into 7,700, 1,310, 1,166, and 3,803 Elective Deferred Stock Units,
respectively, and as a result received an additional $66,027, $11,233,
$10,033, and $32,628, respectively, in Supplemental Units (or 1,540,
262, 234, and 761 Supplemental Units). Mr. Mann, Dr. Curlander, Mr.
Lamb and Mr. Morin elected to defer $299,992, $438,620, $245,644 and
$187,544, respectively, of their 1996 Annual Incentive Compensation
into 10,714, 15,665, 8,773 and 6,698 Elective Deferred Stock Units,
respectively, and as a result received an additional $60,004, $87,724,
$49,140 and $37,520, respectively, in Supplemental Units (or 2,143,
3,133, 1,755 and 1,340 Supplemental Units). Elective Deferred Stock
Units are 100% vested at all times. Supplemental Units vest 100% on
the fifth anniversary of the grant dates.
9
<PAGE>
(3) The aggregate number and value at year end (calculated by multiplying
the closing price of Lexmark Class A Common Stock on December 31, 1998,
$100.50, by the number of restricted stock units outstanding at year
end) of restricted stock units for each of the Named Executives are as
follows: Mr. Mann- 6,750/$678,375; Dr. Curlander - 4,500/$452,250; Mr.
Traversi - 7,500/$753,750; Mr. Lamb - 1,500/$150,750; Mr. Mitchell -
750/$75,375; and Mr. Morin - 1,500/$150,750. The restricted stock units
for each of the Named Executives, except Mr. Traversi, vest 50% on the
second anniversary of the grant date, or February 11, 2000, and 25% on
each of the following two anniversaries. Mr. Traversi's restricted
stock units vested 25% on the second anniversary of the grant date, or
October 16, 1998, and 25% on each of the next three anniversaries.
(4) Option grants on hire: Mr. Traversi - October 1996; Mr. Lamb - January
1996; Mr. Mitchell - January 1997; and Mr. Morin - January 1996.
(5) Includes replacement (reload) options awarded automatically upon
exercise of options paid for with previously owned shares of Lexmark
Class A Common Stock, as follows: 1998 Reloads -- Mr. Lamb - 5,000 and
Mr. Mitchell - 800; 1997 reloads -- Mr. Morin - 5,372.
(6) In 1997, the Company granted performance awards under the Lexmark Stock
Incentive Plan to certain executive officers. The aggregate number and
value at year end (based on the December 31, 1998 closing stock price
of $100.50 per share and including the additional 40% of the
performance award value payable in cash) of target performance awards
to each of the Named Executive Officers is as follows: Mr. Mann -
13,500/$1,356,750; Dr. Curlander - 10,500/$1,055,250; Mr. Traversi -
4,000/$402,000; Mr. Lamb - 5,250/$527,625; Mr. Mitchell -
5,250/$527,625; and Mr. Morin - 7,500/$753,750.
(7) Matching contribution by the Company under the Lexmark Savings Plan.
The matching contribution for Mr. Traversi in 1997 was $635.
(8) Payments to certain Named Executive Officers as follows:
Mr. Traversi in respect of relocation expenses in connection with
his move from California to Massachusetts and a one-time payment of
$45,000 upon hire in 1996, Mr. Lamb in respect of relocation
expenses in connection with his move from New Jersey to Kentucky and
a one-time payment of $65,000 upon hire, Mr. Mitchell in respect of
relocation expenses in connection with his move from North Carolina
to Kentucky and Mr. Morin in respect of relocation expenses in
connection with his move from Ohio to Kentucky.
10
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN 1998
INDIVIDUAL GRANTS
---------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ---- ----------- ----------- ------------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
M. L. Mann 125,000 (1) 9.0% $40.6875 02/12/08 $3,198,519 $8,105,675
P. J. Curlander 65,000 (1) 4.7 40.6875 02/12/08 1,663,230 4,214,951
25,000 (1) 1.8 58.0625 04/30/08 912,880 2,313,417
A. A. Traversi 20,000 (1) 1.4 40.6875 02/12/08 511,763 1,296,908
10,000 (1) 0.7 58.0625 04/30/08 365,152 925,367
T. B. Lamb 20,000 (1) 1.4 40.6875 02/12/08 511,763 1,296,908
10,000 (1) 0.7 58.0625 04/30/08 365,152 925,367
5,000 (2) 0.4 66.3750 01/22/06 146,799 346,865
J. C. Mitchell 20,000 (1) 1.4 40.6875 02/12/08 511,763 1,296,908
800 (2) 0.1 69.2500 01/06/07 28,265 68,551
G. E. Morin 25,000 (1) 1.8 40.6875 02/12/08 639,704 1,621,135
</TABLE>
- ----------
(1) Each option granted has a ten year term and becomes vested as to 20% of
the award on the first anniversary of the grant date, and as to an
additional 20% on each of the next four anniversary dates. Each option
permits the optionee (i) to pay for the exercise price with previously
owned shares of Class A Common Stock and (ii) to satisfy
tax-withholding obligations with shares acquired upon exercise. Unless
the Compensation and Pension Committee determines otherwise,
replacement (reload) options are automatically granted upon exercise of
options paid for with previously owned shares of Class A Common Stock.
(2) These are reload options which have the same terms and conditions
(including the same expiration date) as the related option that was
exercised using previously owned shares of Class A Common Stock, except
that the exercise price of the reload option is equal to the Fair
Market Value of a share of Class A Common Stock on the date such reload
option is granted and such reload option is not exercisable until the
six month anniversary of the reload grant date.
(3) The amounts shown under these columns are calculated at the 5% and 10%
annual rates set by the Securities and Exchange Commission and are not
intended to forecast future appreciation of the Company's stock price.
11
<PAGE>
AGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each Named Executive
Officer with regard to stock option exercises during 1998 and the aggregate
stock options held at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
AT FY-END (#)(1) FY-END ($)(2)
SHARES ACQUIRED VALUE
NAME BY EXERCISES(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
M. L. Mann 0 $ 0 616,446 158,000 $54,123,267 $ 8,710,343
P. J. Curlander 0 0 187,466 208,000 15,513,219 14,348,250
A. A. Traversi 5,000 106,973 15,000 60,000 1,200,000 4,020,625
T. B. Lamb 19,239 945,116 5,761 82,500 447,103 5,657,188
J. C. Mitchell 2,172 95,025 7,828 60,800 587,100 4,221,250
G. E. Morin 0 0 22,372 80,500 1,725,992 5,908,875
</TABLE>
- ----------
(1) Represents the number of shares subject to outstanding options.
(2) Based on a price of $100.50 per share, the closing price of the
Company's Class A Common Stock on December 31, 1998, minus the exercise
price.
LONG TERM INCENTIVE PLAN -- AWARDS IN 1998
In 1997, the Compensation and Pension Committee granted Performance
Awards under the Company's Stock Incentive Plan to certain executive
officers. The Performance Awards would be earned if specific objectives were
attained by the Company over the four year period ending December 31, 2000.
The performance objectives established by the Committee relate to increasing
shareholder value as measured by shareholder value add and earnings per
share, in each case measured cumulatively over the four year performance
period ending December 31, 2000.
The Compensation and Pension Committee established three objectives
for each performance measure: a minimum objective, a target objective and a
maximum objective. Target Performance Awards would be payable if the Company
achieved the target performance objectives. Maximum Performance Awards would
be payable if the Company attained the maximum performance objectives.
Minimum Performance Awards would be payable if minimum objectives were
achieved. The Performance Awards payable for attainment between performance
levels would be based on interpolation.
In 1999, management determined that due to the Company's outstanding
1998 financial performance it was highly likely that the maximum performance
objectives for the four-year performance period ending December 31, 2000 would
be achieved even if the Company's performance did not improve over the remainder
of the performance period. As a result, that Performance Award program ceased to
perform its intended purpose of incentivizing management. A committee qualifying
under Section 162(m) of the Internal Revenue Code (the "Committee") at the
February 11, 1999 meeting of the Board of Directors, approved a reduction in the
maximum number of Performance
12
<PAGE>
Awards which could be earned. The maximum payout, now reduced to the Target
Performance Award level, will be earned if performance meets or exceeds the
target performance objectives.
In lieu of the number of Performance Awards between the former
Maximum Performance Awards and Target Performance Awards, which likely would
have been earned, the Compensation and Pension Committee approved the grant
of stock options in an amount equal to six times the number of Performance
Awards foregone by the participant at an exercise price equal to the closing
price of a share of the Company's Class A Common Stock on February 11, 1999.
The options will vest on February 11, 2004, become exercisable on
August 11, 2008 and expire February 11, 2009. Vesting and exercisability will be
accelerated if the Company's performance exceeds the target performance
objectives. If the maximum performance objectives are achieved, all the options
will vest on December 31, 2000 and become exercisable on December 31, 2002. For
performance between the target and maximum performance objectives, the
percentage attainment between the target and maximum performance objectives will
determine the percentage of options that will vest on December 31, 2000 and
become exercisable December 31, 2002.
The participants in this Performance Award program have foregone
the opportunity to receive the Maximum Performance Award, which very likely
would have been earned, and have accepted the risk that they will receive the
same level of compensation only if the Company's stock price increases
significantly.
LEXMARK RETIREMENT PLAN
The Lexmark Retirement Plan provides a monthly retirement income based
on service and compensation (including salary, commission payments and recurring
payments under any form of variable compensation plan, incentive pay and certain
other payments such as overtime and premium pay). A maximum of 30 years of
service or actual service as of December 31, 1993, if greater, is used to
calculate benefits under the core retirement plan formulas. Retirement income is
derived from two sources: (1) for employees hired before January 1, 1993, a Core
Retirement Benefit, which is the greater of the Service and Earnings formula and
the Minimum Benefit formula, and (2) a Personal Retirement Provision, which
provides annual allocations and guaranteed interest credits. Earnings taken into
account under the Core Retirement Benefit component include a participant's
compensation earned for periods from and after January 1, 1981, including
compensation earned while employed by IBM for those employees for whom pension
assets were transferred from IBM to the Company.
Effective January 1, 1998, a new defined benefit plan called the
Lexmark Retirement Growth Account Plan was introduced. An initial Retirement
Growth Account balance was established for each Lexmark Retirement Plan
participant as of January 1, 1998. Individual Retirement Growth Account balances
will grow with the addition of annual allocations equaling 6% of eligible
earnings (salary, commission payments and recurring payments under any form of
variable compensation plan, incentive pay and certain other payments such as
overtime and premium pay) as well as an interest component. Upon leaving the
Company after the employee has vested benefits (requiring 5 years of service),
the participant can elect an annuity funded by the
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<PAGE>
Retirement Growth Account balance or may request a lump sum payment of the
Retirement Growth Account balance.
As part of the implementation of the Retirement Growth Account on
January 1, 1998, certain transition rules were applied. The Lexmark Retirement
Plan described above will run concurrently with the new plan through year-end
1999, with additional accruals under the Lexmark Retirement Plan continuing
through year-end 1999. At that point, plan accruals of the Lexmark Retirement
Plan will be frozen, and will grow only with the addition of annual interest on
the Personal Retirement Provision element of the Plan. Participants will also
receive service credit beyond year-end 1999 that will count toward retirement
eligibility under the provisions of the Lexmark Retirement Plan. Upon departing
from the Company, individuals who have accruals under both plan designs will
receive the greater of the two accrued values.
The Company has adopted a Supplemental Retirement Plan to pay
retirement benefits which, but for limitations under the Employee Retirement
Income Security Act of 1974 and the Internal Revenue Code, would have been paid
under the Lexmark Retirement Plan. These benefits will be paid out of the
general funds of the Company.
Under the foregoing plans, each of the Named Executive Officers is
entitled to an estimated annual retirement pension, calculated as of February
28, 1999, upon retirement at the later of age 62 or their current age, in the
following amounts: Mr. Mann-$232,302, Dr. Curlander-$491,664, Mr.
Traversi-$107,060, Mr. Lamb-$191,379, Mr. Mitchell-$60,121, and Mr.
Morin-$79,655.
EMPLOYMENT CONTRACTS
The Company is party to an employment agreement with Mr. Mann with
an employment term which expired March 31, 1998. Pursuant to the agreement,
Mr. Mann received an annual base salary of $725,000 during 1998. In addition,
Mr. Mann was entitled to receive an annual bonus equal to a percentage of his
base salary ranging from 0% to 200% for 1998, depending upon the performance
of the Company measured against performance goals established by the
Compensation and Pension Committee. In the event of a termination of Mr.
Mann's employment by the Company without "cause" or by the executive for
"good reason" (each as defined in Mr. Mann's employment agreement), he will
continue to receive payments of his base salary for a period equal to one
year. In addition, Mr. Mann will be entitled to a pro rata annual bonus for
the year of termination. Mr. Mann's agreement further provides that,
following his retirement, Mr. Mann will be entitled to an annual pension of
$150,000, increased with respect to services rendered and compensation earned
by Mr. Mann from and after April 1, 1996 in accordance with the retirement
benefit formula under the Lexmark Retirement Plan described herein. See
"Lexmark Retirement Plan". Mr. Mann's employment agreement contains covenants
regarding nondisclosure of confidential information, non-competition and
non-solicitation.
The Company is party to an employment agreement with Dr. Curlander,
with an employment term expiring March 31, 2001, and employment agreements
with Messrs. Traversi, Lamb, Mitchell and Morin, with employment terms
expiring February 28, 2001. Pursuant to the agreements, Dr. Curlander
receives an annual base salary of $550,000, each of Messrs. Traversi, Lamb
and Mitchell receives an annual base salary of $300,000 and Mr. Morin
receives an annual base salary of $290,000. Such salaries may be increased by
the Compensation and Pension Committee, in its discretion, from time to time.
In addition, each executive is entitled to receive an annual bonus equal to a
percentage of such base
14
<PAGE>
salary ranging from 0% to 180% in the case of Dr. Curlander, 0% to 140% in
the case of Messrs. Traversi and Lamb, and 0% to 125% in the case of Messrs.
Mitchell and Morin, depending upon the performance of the Company measured
against performance goals established by the Committee. In the event of a
termination of an executive's employment by the Company "without cause" or
for "good reason" (each as defined in the employment agreements), the
executive will continue to receive payments of his base salary as an employee
for a period equal to the greater of one year or the remaining term of the
employment agreement. In addition, the executive will be entitled to a pro
rata annual bonus for the year of termination. Each of the employment
agreements contains covenants regarding nondisclosure of confidential
information, non-competition and non-solicitation.
In April 1998, the Company entered into Change in Control Agreements
with several executive officers of the Company, including Mr. Mann, Dr.
Curlander, and Messrs. Traversi, Lamb, Mitchell, and Morin. Under the terms of
those agreements, each of the Named Executive Officers is entitled to
participate in the incentive, savings, retirement, and welfare benefit plans and
to receive their fringe benefits, for a period of two years following a change
in control of the Company. If following a change in control of the Company, the
Named Executive Officer is terminated other than for "Cause", death, or
disability, or the executive terminates his employment for "Good Reason" (terms
as defined in the agreements), he will be entitled to receive as a lump sum
within 30 days of the termination (a) his base salary and prorata portion of the
annual bonus through the date of termination, and (b) three times (two times in
the case of Mr. Mitchell) the sum of his annual base salary and incentive
compensation, calculated assuming the Company attained its financial targets and
disregarding any personal attainment goals for the years in question. In
addition, for a period of three years (two years in the case of Mr. Mitchell)
following the executive's date of termination, the Company will be obligated to
continue to provide at least the same level of benefits that were provided
during the executive's employment, or if more favorable to the executive, the
same level of benefits in effect thereafter. Any stock incentive awards held by
the executive under the Company's Stock Incentive Plan will be cancelled
promptly and a payment in cash for the difference in the exercise price and the
change in control price will be made to the executive. The number of Performance
Awards (as defined in the Stock Incentive Plan) payable to the executive out of
the Stock Incentive Plan will be calculated using the greater of the target
performance level or actual attainment of the Company from the beginning of the
performance period through the change in control. To the extent that any
benefits to the executive under the agreement triggers an excise tax to the
executive, he will receive a "Gross-Up" payment to negate the effects of such
tax.
The Company has also entered into indemnification agreements with the
Named Executive Officers which requires the Company to indemnify them against
certain liabilities that may arise as a result of their status or service as
officers of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Messrs. Ames, Fields, Gomory, Hardis and Walker served
on the Compensation and Pension Committee. Mr. Fields joined the Compensation
and Pension Committee and Mr. Hardis left the Compensation and Pension
Committee in December 1998. Mr. Ames has served as Chairman of this Committee
since February 1997.
15
<PAGE>
During 1998, Mr. Mann served as Chairman of the Compensation and
Organization Committee of the M. A. Hanna Company for which Mr. Walker served as
Chairman and Chief Executive Officer.
Mr. Ames is a principal of CD&R. The Company paid CD&R fees of $125,000
for advisory, management consulting and monitoring services rendered for a
portion of 1998. Mr. Ames did not receive Directors' fees or participate in the
Director Plan until July 1998 after the sale of the shares of Class A Common
Stock held by C&D Fund IV.
The Company has agreed to indemnify the members of the Board of
Directors and CD&R against certain liabilities incurred under securities laws or
with respect to their services for the Company.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
CD&R AND C&D FUND IV
C&D Fund IV, which was the Company's largest stockholder prior to the
sale of its interest in March 1998, is a private investment fund managed by
CD&R. The general partner of C&D Fund IV is Associates IV. B. Charles Ames, who
is a principal of CD&R and a general partner of Associates IV, served as a
Director of the Company during 1998.
The Company has entered into an indemnification agreement with CD&R and
C&D Fund IV pursuant to which the Company has agreed, subject to certain
exceptions, to indemnify certain members of its Board of Directors, as well as
CD&R, C&D Fund IV and certain of their associates and affiliates (the
"Indemnitees"), to the fullest extent allowable under applicable Delaware law
and to indemnify the Indemnitees against any suits, claims, damages or expenses
which may be made against or incurred by them under applicable securities laws
in connection with offerings of securities of the Company, liabilities to third
parties arising out of any action or failure to act by the Company and, except
in cases of gross negligence or intentional misconduct, the provision by CD&R of
advisory, management consulting and monitoring services.
The Company entered into an agreement dated as of March 9, 1998 (the
"1998 Stock Disposition Agreement") with C&D Fund IV to repurchase 2,000,000
shares of its Class A Common Stock (less any shares sold pursuant to the
exercise of any underwriter's over-allotment option granted in connection with a
proposed secondary offering (the "Offering")) at a price per share equal to the
lower of $44.25 and the net proceeds received by the selling stockholders in the
offering. Although C&D Fund IV had the right to assign its rights and
obligations under the 1998 Stock Disposition Agreement to other selling
stockholders participating in the Offering, the Company repurchased all such
shares from C&D Fund IV in March 1998 at $43.38, the public offering price net
of underwriting discount.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
This report provides an explanation of the philosophy underlying the
Company's executive compensation programs and details on how decisions were
implemented during 1998 regarding the compensation paid to Marvin L. Mann, who
served as the
16
<PAGE>
Chairman and Chief Executive Officer of the Company during 1998, Paul J.
Curlander, who served as President and Chief Executive Officer during 1998 and
other executive officers of the Company. In developing the practices and
policies described in this report, the Compensation and Pension Committee relied
on the advice of outside consultants experienced in the design and
implementation of executive compensation arrangements. The Compensation and
Pension Committee is composed entirely of non-employee Directors.
FRAMEWORK FOR COMPENSATION DECISIONS
The Compensation and Pension Committee is responsible for setting and
administering the policies governing base salary, incentive compensation and
stock-based compensation for the Company's executive officers, including the
CEO, and other key members of management. The key elements of executive
compensation are base salary, annual incentive compensation and long term
incentive compensation. The Compensation and Pension Committee regularly reviews
the compensation paid to executive officers and periodically conducts reviews of
the Company's compensation practices, including its employee benefit plans.
The Compensation and Pension Committee's compensation decisions are
based on an evaluation of the Company's performance, comparative compensation
data and each executive officer's performance. Company performance is measured
against internally established performance criteria. Comparative compensation
data is collected from surveys conducted by nationally recognized human
resources consulting firms.
The Company utilized information regarding each executive officer's
title, position, responsibilities, experience, length of time in position,
current compensation and compensation history (including base salary increases,
bonus awards and long term incentive awards) to functionally match each
executive officer to positions reported in the compensation surveys. Competitive
rates of base pay and total annual cash compensation were determined for each
executive officer position by performing statistical analyses of the survey
compensation data. The Company then established compensation ranges for each
senior management position by comparing its target and actual compensation to
market values at various levels to ensure competitiveness to firms with which
the Company competes for executive talent. The midpoints of the Company's base
salary and total compensation ranges are set at the 50th percentile (median) and
the 65th percentile, respectively, based on assumed, rather than actual,
financial performance of the Company.
Stock option grant levels were established based on competitive survey
data, including those reported in the Towers Perrin Technology Industry Data
Base, and an evaluation of each executive's contribution to business results.
The Company regularly reviews its compensation policies and practices, including
the rates of compensation paid to executive officers and its employee benefit
plans, with outside consultants including Frederic W. Cook & Co., Inc. and
William M. Mercer, Inc.
17
<PAGE>
THE COMPANY'S EXECUTIVE COMPENSATION PHILOSOPHY
The Compensation and Pension Committee has consistently applied the
following philosophy in making its recommendations or decisions on the
compensation paid or awarded to its executive officers:
Establish a pay-for-performance philosophy and policy that places a
meaningful portion of each executive's compensation at risk in alignment with
stockholders' risk, commensurate with the executive's ability to affect bottom
line results, and which can significantly differentiate compensation awards
based on corporate, business unit and individual performance and the ability of
the executive to affect those results;
Provide incentives to executives to achieve a level of performance
consistent with the Company's strategic business objectives and reward them for
their achievement;
Provide total compensation opportunities which are market competitive,
are subject to associated downside risk and offer significant upside
opportunities based on performance, thus allowing the Company to compete for and
retain outstanding, talented and highly motivated executives who are vital to
the Company's long-term success; and
Align the interests of executives with the long-term interests of the
stockholders through incentive award opportunities that are linked to the
long-term performance of the Company and that result in the ownership of the
Company's Class A Common Stock.
BASE SALARY
As discussed above, the Compensation and Pension Committee determines
base salaries for executive officers by evaluating the responsibilities of the
position held, the experience of the individual and time in position, and by
reference to the information compiled from compensation surveys regarding the
competitive marketplace for executive talent, including a comparison to base
salaries for comparable marketplace positions, and to historical levels of
salary paid by the Company. Salary adjustments are based on a periodic
evaluation of the performance of the Company and of each executive officer, and
also take into account new responsibilities as well as changes in the
competitive marketplace.
ANNUAL INCENTIVE COMPENSATION
Annual incentive compensation awards were structured to become payable
to the Company's executive officers upon the attainment of pre-established
annual financial and individual performance objectives. The annual incentive
compensation opportunity is determined for each executive officer based on the
survey data for annual incentive awards and total compensation published in the
survey sources referenced above. Consistent with the Company's pay for
performance philosophy, executives' total cash compensation is highly leveraged.
As discussed above, the Company benchmarks base salary range midpoints at the
50th percentile (median) and total compensation range midpoints at the 65th
percentile of the survey data based on assumed, rather than actual, financial
performance of the Company. The 1998 annual incentive compensation award payable
to each executive officer was determined based upon achievement of performance
factors that varied based upon the executive officer's position, level of
18
<PAGE>
responsibility and particular business unit. For 1998, corporate performance was
measured with reference to earnings per share, revenue and shareholder value
add. Business unit performance was measured with reference to operating income,
revenue and shareholder value add. Individual performance was measured against
specific goals established for each executive officer with emphasis on such
officer's corporate responsibilities and the particular needs of his or her
business unit. The weighting of the various performance criteria varied based on
responsibility.
Pursuant to certain transition rules applicable to a newly public
company contained in final Treasury regulations issued in December 1995,
compensation paid or earned prior to the 1999 Annual Meeting of Stockholders
pursuant to the Company's annual incentive compensation plan was not subject to
the Federal income tax deduction limitation under Section 162(m) of the Internal
Revenue Code. This exemption will end following the Company's 1999 Annual
Meeting of Shareholders. To ensure future deductibility of non-discretionary
annual incentive awards, shareholders are being asked to approve certain terms
and conditions governing non-discretionary annual incentive awards which would
be subject to Section 162(m).
The Compensation and Pension Committee and the Board, however, reserve
the right and ability to award incentives and adopt other compensation plans and
arrangements that may not result in the deductibility of compensation expense
for federal income tax under Section 162(m).
The Compensation and Pension Committee and the Board believe that it
is essential to retain the ability to award and motivate executives based on
its assessment of an individual's performance, even though some or all of any
such discretionary payments may not be deductible due to Section 162(m).
Accordingly, it is the Compensation and Pension Committee's intent to
consider the awarding of discretionary incentive awards to executive officers
that may become subject to Section 162(m). Any such incentive payments would
be based on the Compensation and Pension Committee's qualitative assessment
of the applicable executive's individual performance and contribution. It is
the Compensation and Pension Committee's intent that any portion of future
discretionary annual incentive awards which would not be deductible to the
Company be deferred until such times as payment of these amounts would be
deductible to the Company. Such deferrals would be in the form of Deferred
Stock Units pursuant to the Company's Stock Incentive Plan.
Currently, Dr. Curlander, President and Chief Executive Officer of the
Company, is the only employee of the Company whose compensation could be subject
to the limitations of Section 162(m). Dr. Curlander has agreed to defer payment
of any portion of his future discretionary annual incentive awards which would
not be deductible to the Company. Such amounts will be deferred until such times
as payment of these amounts would be deductible to the Company.
LONG TERM INCENTIVE COMPENSATION
PERFORMANCE AWARDS
In 1997, the Compensation and Pension Committee granted Performance
Awards under the Company's Stock Incentive Plan to certain executive
officers. The Performance Awards will be earned if specific objectives are
attained by the Company over the four-year period ending December 31, 2000.
The performance objectives established by the Compensation and Pension
Committee are equally weighted and relate to increasing shareholder value as
measured by
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shareholder value add and earnings per share, in each case measured
cumulatively over the four-year performance period. The Compensation and
Pension Committee established three objectives for each performance measure:
a minimum objective, a target objective and a maximum objective. Target
Performance Awards are payable if the Company achieves the target performance
objectives. Maximum Performance Awards, equal to 175% of the target awards,
are payable if the Company attains the maximum performance objectives.
Minimum Performance Awards, equal to 30% of the Target Performance Awards,
are payable if minimum performance objectives are achieved. The Performance
Awards payable for attainment between performance levels will be based on
interpolation.
As discussed in the "Long Term Incentive Plan -- Awards in 1998"
section of this Proxy Statement, at the February 11, 1999 meeting the
Compensation and Pension Committee approved a reduction in the Maximum
Performance Awards that would have been payable to the Named Executive
Officers and the other participants in this program, and granted
at-the-market stock options with performance-accelerated vesting in lieu of
the Performance Awards foregone. The Compensation and Pension Committee took
this action based on management's determination that due to the Company's
outstanding 1998 financial performance it was highly likely that the maximum
performance objectives for the four-year performance period ending December
31, 2000 would be achieved even if the Company's performance did not improve
over the remainder of the performance period, resulting in that Performance
Award program ceasing to perform its intended purpose of incentivizing
management. The participants in this Performance Award program have foregone
the opportunity to receive the Maximum Performance Award, which very likely
would have been earned, and have accepted the risk that they will receive the
same level of compensation only if the Company's stock price increases
significantly.
STOCK OPTIONS
The grant of stock option awards is intended to foster and promote the
long-term financial success of the Company and to materially increase
stockholder value by motivating superior performance by employees, by providing
employees with an ownership interest in the Company in order to align their
interests with those of the stockholders, and enabling the Company to attract
and retain the services of an outstanding management team upon whose judgment,
interest and special effort the successful conduct of its operations is largely
dependent. As discussed above, stock option grant levels are determined based on
competitive survey data, prior option grants and an evaluation of each
executive's contribution to business results.
DEFERRED STOCK UNITS
The Compensation and Pension Committee has implemented a Deferred Stock
Unit program for executives, senior officers and other key employees. The
Deferred Stock Unit program entitles a participant to elect to defer receipt of
all or a portion of his or her annual cash incentive compensation award or, in
the discretion of the Compensation and Pension Committee, other cash
compensation, and receive in lieu thereof an award of Deferred Stock Units (the
"Elective Units"). The Compensation and Pension Committee may also grant to such
recipient an additional award of Deferred Stock Units with a value equal to 20%
of the compensation deferred (the "Supplemental Units"). The Elective Units,
together with any dividend equivalents credited with respect thereto, are fully
vested at all times. The Supplemental Units, together with any dividend
equivalents credited with respect thereto, will become vested, in full, on the
fifth
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anniversary of the date the compensation deferred would otherwise have been
paid, subject to continued employment.
RESTRICTED STOCK UNITS
At the February 12, 1998 Board of Directors meeting, the Compensation
and Pension Committee recommended and the Board approved the grant of 22,200
Restricted Stock Units to certain executive officers, including each of the
Named Executive Officers. The Compensation and Pension Committee recommended the
grant of Restricted Stock Units to help ensure retention of its key executive
team. The Restricted Stock Units become fully vested four years after the grant
date, 50% after two years and 25% per annum on each of the two following
anniversaries of the grant date.
CEO COMPENSATION
Mr. Mann relinquished his position as Chief Executive Officer on May 1,
1998. Dr. Curlander succeeded him. Mr. Mann continues to serve as an employee
Chairman of the Board.
For 1998, Mr. Mann received an annual base salary of $725,000 pursuant
to the terms of his employment agreement, which expired in March 1998, and an
annual incentive compensation award of $1,400,000. For 1998, Dr. Curlander
received $523,288 base salary and $900,000 annual incentive award. Dr.
Curlander's annual base pay and incentive opportunity were increased on May 1,
1998, to $550,000 and a maximum of 180% of annual base earnings, respectively,
when he assumed the CEO position. At the time Mr. Mann stepped down as CEO, his
maximum incentive opportunity was reduced from 200% to 180% of annual base
earnings.
Mr. Mann's and Dr. Curlander's annual incentive compensation award
opportunities are based on the achievement of annual financial goals established
by the Board of Directors and personal objectives relating to the overall
achievement of the Company's strategic objectives. For 1998, the financial
performance objectives were equally weighted and involved earnings per share,
revenue and shareholder value add. In 1998, earnings per share increased 57%,
revenue increased 21%, and shareholder value add grew 111%.
In 1998, in addition to the cash compensation described above, Mr. Mann
was granted 125,000 non-qualified stock options. Dr. Curlander was granted
90,000 non-qualified stock options -- 65,000 in February 1998 and 25,000
additional options in May when he assumed the CEO position.
The Compensation and Pension Committee
of the Board of Directors
B. Charles Ames, Chairman
William R. Fields
Ralph E. Gomory
Martin D. Walker
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PERFORMANCE GRAPH
The following graph compares cumulative total stockholder return on the
Company's Class A Common Stock with a broad performance indicator, the S&P
Composite 500 Stock Index, and an industry index, the S&P Technology Sector
Index, for the period from November 15, 1995 to December 31, 1998. The Class A
Common Stock began trading on the New York Stock Exchange on November 15, 1995.
The graph assumes that the value of the investment in the Class A Common Stock
and each index was $100 at November 15, 1995 and that all dividends were
reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURNS
11/14/95 12/95 12/96 12/97 12/98
-------- ----- ----- ----- -----
Lexmark . . . . . . . . . . . $100 $ 91 $138 $190 $503
S & P 500 . . . . . . . . . . 100 105 129 172 221
S & P Technology Sector . . . 100 97 137 173 299
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APPROVAL OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN
Approval of the 1999 Employee Stock Purchase Plan will require the
affirmative vote of the holders of a majority of the shares of Class A Common
Stock represented and voting on this proposal at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN. PROXIES WILL BE VOTED
FOR THIS PROPOSAL, UNLESS STOCKHOLDERS SPECIFY A DIFFERENT CHOICE IN THEIR
PROXIES.
GENERAL INFORMATION
The Board of Directors has approved, and proposes that the stockholders
of the Company approve, the 1999 Employee Stock Purchase Plan (the "Stock
Purchase Plan" or the "Plan"). The Stock Purchase Plan is intended to provide a
means whereby eligible employees of the Company and its subsidiaries may
purchase the Company's Class A Common Stock through payroll deductions. The
Stock Purchase Plan is intended to provide a further incentive for employees to
promote the best interests of the Company and to encourage stock ownership by
employees in order that they may participate in the Company's economic growth.
Generally, the Stock Purchase Plan will be administered as follows.
There will be two offering periods during each calendar year-- January 1 through
June 30 and July 1 through December 31. Each eligible employee will have the
option to subscribe to the Plan and to determine the amount to be withheld as a
payroll deduction (up to 10% of regular compensation) to purchase shares of the
Company's Class A Common Stock. The employee will receive an option at the
beginning of each offering period according to the terms set forth in his or her
subscription agreement to purchase the number of whole shares, or whole and
fractional shares, of the Company's Class A Common Stock on the last day of each
pay period during the offering period. The employee's option will automatically
be exercised to purchase shares of the Company's Class A Common Stock at a price
equal to 85% of the closing price as reported in the WALL STREET JOURNAL for the
relevant exercise date, which will be the last day of the relevant pay period.
Immediately following the exercise of the option, shares purchased will be
credited to the employee's account at the Plan's broker where they will remain
until disposition, transfer to an outside brokerage account or issuance to the
employee in form of a certificate.
One Million Five Hundred Thousand (1,500,000) shares of the Company's
Class A Common Stock may be issued pursuant to the Plan. The shares issued may
be either shares of the Company's authorized but unissued Class A Common Stock
or shares of Class A Common Stock reacquired by the Company and held as treasury
shares. The number of shares issuable under the Plan is subject to appropriate
adjustment in the event of a stock split, a subdivision or consolidation of
shares of Class A Common Stock, capital adjustments or payments of stock
dividends or distributions or other increases or decreases in the outstanding
shares of Class A Common Stock effected without receipt of consideration by the
Company.
A more detailed summary of the significant features of the Stock
Purchase Plan is provided below. The summaries of the Stock Purchase Plan
contained herein are qualified in their entireties by the full text of the Plan
which is attached to this Proxy Statement as Exhibit A.
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ELIGIBILITY
Subject to rules prescribed by the Plan Administrator from time to
time, all persons employed for three full months by the Company or its
designated subsidiaries are eligible to participate in the Plan, except persons
who are deemed to own stock, or immediately after the option to purchase stock
is granted, will be deemed to own stock, representing 5% or more of the total
combined voting power or value of all classes of stock of the Company or any
subsidiaries. The rules prescribed by the Plan Administrator may further limit
the eligibility of employees to participate in the Plan, provided that such
rules are not contrary to the requirements of Section 423 of the Internal
Revenue Code.
ADMINISTRATION
The Stock Purchase Plan shall be administered by a committee comprised
of the Vice President and Chief Financial Officer, Vice President of Human
Resources and Vice President, General Counsel and Secretary of the Company (the
"Plan Administrator"). The Plan Administrator is vested with full authority to
make, administer and interpret any rules regarding the Plan as it may deem
advisable. Determinations by the Plan Administrator as to the interpretation and
operation of the Plan shall be final and conclusive.
The Stock Purchase Plan was adopted by the Board of Directors on
February 11, 1999. The Plan will continue in effect through December 31, 2009,
provided, however, that the Board of Directors shall have the right to terminate
the Stock Purchase Plan at any time and the Plan shall automatically terminate
if all of the Class A Common Stock offered under the Plan has been purchased. In
the event of the expiration of the Stock Purchase Plan or its termination, all
options then outstanding under the Stock Purchase Plan shall automatically be
cancelled and the entire amount credited to the account of each participant
hereunder shall be refunded to each such participant. In addition, the Board of
Directors may amend the Stock Purchase Plan at any time without notice to the
participants, but no such amendment shall adversely affect options previously
granted under the Stock Purchase Plan and no such amendment may cause an option
issued under it to fail to meet the requirements of Section 423 of the Internal
Revenue Code. The termination of the Stock Purchase Plan is not to be deemed an
action which adversely affects options previously granted under the Stock
Purchase Plan.
OPERATION OF THE STOCK PURCHASE PLAN
There are two offering periods within each full calendar year, one
commencing on January 1 and continuing through June 30, and the second
commencing on July 1 and continuing through December 31. Eligible employees may
elect to become participants in the Stock Purchase Plan for a purchase period by
completing a subscription agreement prior to the offering period for which the
election is made. The election to participate is effective for the offering
period for which it is made and all subsequent offering periods for which an
eligible employee may elect to become a participant under the Plan. In the
subscription agreement, the participating employee authorizes payroll deductions
amounting to a whole percentage of the participant's regular compensation (as
defined below) as the participant shall designate. Such payroll deductions
cannot amount to less than one percent (1%) nor more than ten percent
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(10%) of the participant's regular compensation and cannot exceed $25,000 in any
calendar year. The Stock Purchase Plan defines "regular compensation" as the
salary, bonuses, commissions, overtime, shift premiums, holiday pay, vacation
pay and regular sickness and accident income plan payments. The participant may
authorize an increase or decrease in the amount of payroll deduction up to two
times during an offering period, but not to exceed two times in any one year.
All sums deducted from the regular compensation of participants will be
credited to a participant account established for each participant on the books
of the Company, but prior to use of such funds for the purchase of shares of the
Company's Class A Common Stock in accordance with the Stock Purchase Plan, the
Company may use such funds for any valid corporate purpose. The Company is under
no obligation to pay interest on funds credited to a participant's stock
purchase account in any event.
The purchase price of shares of the Company's Class A Common Stock
under the Stock Purchase Plan is eighty-five percent (85%) of the fair market
value of a share of Class A Common Stock for the relevant exercise date. The
fair market value on a given day is the closing price of a share of the Class A
Common Stock on a national securities exchange on that day, as reported in the
WALL STREET JOURNAL. In the absence of any trading on the relevant date, the
fair market value is the closing price on the immediately preceding day on which
Class A Common Stock transactions were reported. Each participating employee
receives an option, effective on the first day of the offering period, or the
earliest date thereafter as is administratively feasible, to purchase shares of
Class A Common Stock on each exercise date, which is the last day of every pay
period during the offering period. The number of shares which a participant may
purchase under the option is the quotient of the amount in the participant's
account at the end of the relevant pay period divided by the purchase price for
the relevant pay period. No employee can be granted an option under the Plan to
purchase shares of the Company's Class A Common Stock having a fair market value
(as of the date the option to purchase is granted) in any one calendar year of
in excess of $25,000.
Each participating employee will be deemed to have exercised his option
on each exercise date of the offering period in which he is participating, to
the extent that the balance in the participant's account under the Plan is
sufficient to purchase shares of the Company's stock subject to his option.
Promptly following each exercise date, the shares purchased by a participant
will be deposited into an account established in the participant's name at the
Plan's broker. A participant does not have the right to a disposition of his or
her shares until 12 months after the applicable exercise date with respect to
such shares. However, this disposition restriction expires in the event of the
death, disability or a change in control of the Company. The disposition
restriction may also be waived by the Plan Administrator in its sole discretion.
In the absence of a disposition of a participant's shares of Class A Common
Stock, the shares must remain in the participant's account at the Plan's broker
until the holding period set forth in Section 423(a) of the Internal Revenue
Code has been satisfied. After the Section 423(a) holding period has been
satisfied, a participant may move shares to another brokerage account outside of
the Plan broker or request that a stock certificate be issued.
A participant may withdraw from the Plan at any time by giving written
notice to the Plan Administrator, and any remaining amounts in the participant's
account will be refunded. To re-enter the plan after a withdrawal, an eligible
employee must submit a new written subscription agreement. Separation from
employment for any reason,
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including death, disability, termination or retirement will be treated as a
withdrawal from the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the Federal income tax consequence of the
granting and exercise of options under the Stock Purchase Plan, and the sale of
shares of Class A Common Stock acquired as a result thereof, is based on an
analysis of the Internal Revenue Code as currently in effect, existing laws,
judicial decisions and administrative rulings and regulations, all of which are
subject to change. In addition to being subject to the Federal income tax
consequences described below, an optionee may also be subject to state and/or
local income tax consequences in the jurisdiction in which he works and/or
resides.
The Stock Purchase Plan, and the right of participants to make
purchases thereunder, is intended to qualify under the provisions of Sections
421 and 423 of the Internal Revenue Code. Under these provisions, no income will
be taxable to a participant at the time of purchase of shares. Upon disposition
of the shares, the participant will be subject to tax and the amount of the tax
will depend on the length of the holding period. If the shares are disposed of
by the participant at least two years after the beginning of an offering period
and at least one year from the date the shares are purchased, the lesser of (a)
the excess of the fair market value of the shares at the time of such
disposition over the purchase price and (b) the excess of the fair market value
of the shares over the purchase price on the exercise date, will be treated as
ordinary income. Any additional gain will be taxed at capital gain rates. If the
shares are sold after such time and the sale price is less than the purchase
price, the participant recognizes no ordinary income but instead a capital loss.
If the shares are sold or otherwise disposed of before the expiration
of such two-year and one-year periods, the excess of the fair market value of
the shares on the exercise date over the purchase price will be treated as
ordinary income. Any additional gain or loss on such sale or disposition will be
long-term or short-term capital gain or loss, depending on the length of the
holding period.
The Company is not entitled to a deduction for amounts taxed as
ordinary income or capital gain to a participant except to the extent of
ordinary income recognized by participants upon disposition of shares within two
years from the date of grant or within one year from the date of purchase.
The foregoing is only a summary of the effect of federal income
taxation upon the participant and the Company with respect to the shares
purchase under the Stock Purchase Plan. Reference should be made to the
applicable provisions of the Internal Revenue Code. In addition, this summary
does not discuss the tax consequences of a participant's death or the income tax
laws of any state or foreign country in which the participant may reside.
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APPROVAL OF CERTAIN TERMS AND CONDITIONS OF ANNUAL INCENTIVE COMPENSATION AWARDS
FOR SELECT EXECUTIVE OFFICERS
Approval of the terms and conditions of annual incentive compensation
awards described under items (1), (2) and (3) below will require the affirmative
vote of the holders of a majority of the shares of Class A Common Stock
represented and voting on this proposal at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE TERMS AND CONDITIONS OF ANNUAL INCENTIVE COMPENSATION
AWARDS FOR PURPOSES OF THE DEDUCTIBILITY OF THE COMPENSATION UNDER SECTION
162(M) OF THE INTERNAL REVENUE CODE. PROXIES WILL BE VOTED FOR THIS PROPOSAL,
UNLESS STOCKHOLDERS SPECIFY A DIFFERENT CHOICE IN THEIR PROXIES.
Annual incentive compensation awards are intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code. Qualification under Section 162(m) is required to ensure the continued
deductibility of cash compensation to certain executive officers in amounts
exceeding $1,000,000 per year. Pursuant to the Section 162(m) Regulations, the
following terms of annual incentive compensation arrangements: (1) award
eligibility, (2) the performance criteria upon which awards will be determined
and (3) the individual annual maximum awards payable, must be approved by
stockholders.
(1) AWARD ELIGIBILITY -- Executive officers affected by Section
162(m) may be designated by the Compensation and Pension
Committee of the Board or the Committee as eligible for an
annual incentive award based on the performance criteria
and subject to the maximum annual incentive award as
described in items (2) and (3) below.
(2) PERFORMANCE CRITERIA -- Annual incentive awards shall be based
on one or more of the following business criteria, all of
which may be determined at either the corporate (consolidated)
level, business unit level, or in comparison to the
performance of other companies, depending on the affected
executive officer:
o Earnings per share
o Revenue
o Shareholder Value Add ("SVA")
o Cash flow
o Operating income
o Working capital turnover
o Inventory turnover rates
o Return on capital
o Return on equity
o Customer service metrics
o Unit volume
o Cash conversion cycle
o Cost of capital
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The performance goals established by the Committee from among those
goals described above may be (but not need be) different each fiscal year and
different goals may be applicable to different executive officers.
The performance goals shall satisfy the requirements for "qualified
performance-based compensation" under Section 162(m), including the requirement
that the achievement of the goals be substantially uncertain at the time they
are established and set in such a way that a third party with knowledge of the
relevant facts could determine whether and to what extent the goals have been
met.
(3) MAXIMUM ANNUAL INCENTIVE AWARD -- For any person subject to
Section 162(m), the maximum non-discretionary annual incentive
payment that can be made for any taxable year is $2,500,000.
The administration and determination of annual incentive amounts
under the above terms and conditions shall be the sole responsibility of the
Compensation and Pension Committee of the Board of Directors of the Company
or the Committee. The Committee may amend the terms of annual incentive
awards at any time and may terminate or curtail the awards; provided,
however, that no amendment or termination of annual incentive awards shall
adversely affect any annual incentive awarded to a participant with respect
to prior fiscal years. In 1998, if stockholders had approved the material
terms and conditions of the annual incentive awards outlined above, the
amount of annual incentive compensation reported in the Summary Compensation
Table would have been the same.
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APPROVAL OF AN AMENDMENT TO THE THIRD RESTATED CERTIFICATE OF INCORPORATION THAT
WOULD INCREASE THE NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCK FROM 160
MILLION TO 450 MILLION
Approval of the amendment to the Third Restated Certificate of
Incorporation that would increase the number of authorized shares of Class A
Common Stock will require the affirmative vote of the holders of a majority of
the shares of Class A Common Stock represented and voting on this proposal at
the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" APPROVAL OF THIS AMENDMENT OF THE COMPANY'S THIRD RESTATED CERTIFICATE OF
INCORPORATION. PROXIES WILL BE VOTED FOR THIS PROPOSAL, UNLESS STOCKHOLDERS
SPECIFY A DIFFERENT CHOICE IN THEIR PROXIES.
The Board of Directors has adopted a resolution setting forth the
advisability of the proposed amendment and proposes that the stockholders of the
Company approve the amendment to the Company's Third Restated Certificate of
Incorporation that would increase the number of authorized shares of Class A
Common Stock from 160,000,000 to 450,000,000 shares. If the proposed amendment
is approved, the text of the first paragraph of Article Fourth of the Third
Restated Certificate of Incorporation would be amended to read as follows:
FOURTH: The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
Four Hundred Sixty-one Million Six Hundred (461,600,000)
shares, consisting of (i) 450,000,000 shares of Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"),
(ii) 10,000,000 shares of Class B Common Stock, par value $.01
per share (the "Class B Common Stock") and (iii) 1,600,000
shares of preferred stock, par value $.01 per share (the
"Preferred Stock"). As used in this Third Restated Certificate
of Incorporation, the term "Common Stock" shall include the
Class A Common Stock and the Class B Common Stock.
As of the record date of March 12, 1999, there were 160,000,000 shares
of Class A Common Stock authorized, ________________ shares outstanding,
________________ shares held in treasury and ________________, shares available
for issuance.
The proposed increase in the number of authorized shares of Class A
Common Stock has been recommended by the Board to assure that an adequate supply
of authorized and unissued shares of Class A Common Stock is available for
general corporate needs, such as declaring stock splits or stock dividends,
financing acquisitions with capital stock, raising additional equity capital or
allocating for employee benefit plans. Given the limited number of shares of
Class A Common Stock currently available for issuance and the Company's belief
that it needs to quickly effect these types of transactions without the delay
and expense involved in obtaining stockholder approval at a special meeting,
amending the Third Restated Certificate of Incorporation would allow the Company
to issue additional shares of Class A Common Stock in the future without such
undue delay and expense. If approved by the stockholders, the additional
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authorized shares of Class A Common Stock would be available for issuance at the
discretion of the Board of Directors without further stockholder approval
(subject to applicable legal requirements and rules of the New York Stock
Exchange).
The additional shares of Class A Common Stock for which authorization
is sought will have the same rights and privileges as the other shares of Class
A Common Stock presently outstanding. Current holders of Class A Common Stock
have no pre-emptive rights, which means that current stockholders do not have a
prior right to purchase any new issue of Class A Common Stock of the Company in
order to maintain their proportionate ownership thereof. Therefore, approval of
this proposal may dilute the voting and economic position of the currently
outstanding shares of Class A Common Stock, and may have anti-takeover
consequences.
APPROVAL OF AN AMENDMENT TO THE THIRD RESTATED CERTIFICATE OF INCORPORATION THAT
WOULD FIX THE SIZE OF THE BOARD OF DIRECTORS AT NO MORE THAN FOURTEEN
Approval of the amendment to the Third Restated Certificate of
Incorporation that would fix the size of the Board of Directors at no more than
fourteen will require the affirmative vote of the holders of a majority of the
shares of Class A Common Stock represented and voting on this proposal at the
Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" APPROVAL OF THIS AMENDMENT OF THE COMPANY'S THIRD RESTATED CERTIFICATE OF
INCORPORATION. PROXIES WILL BE VOTED FOR THIS PROPOSAL, UNLESS STOCKHOLDERS
SPECIFY A DIFFERENT CHOICE IN THEIR PROXIES.
The Board of Directors has adopted a resolution setting forth the
advisability of the proposed amendment, and proposes that the stockholders of
the Company approve the amendment to the Company's Third Restated Certificate of
Incorporation that would fix the size of the Board at no more than fourteen,
allowing the Board of Directors to determine from time to time the number of
Directors comprising the Board up to that maximum. Stockholder approval of the
amendment to the Third Restated Certificate of Incorporation will also
constitute approval of any necessary action by the Board of Directors to amend
the By-Laws to make them consistent with such proposed amendment.
The first sentence of Article Fifth, paragraph (b) of the Third
Restated Certificate of Incorporation presently provides that the number of
Directors shall be as set forth in, or determined by the Board of Directors in
accordance with, the By-Laws. Section 2.02 of the By-Laws provides, in pertinent
part, that the number of Directors constituting the entire Board of Directors
shall be eight, which number may be modified from time to time by resolution of
the Board of Directors, but may not be less than one in any event. Currently,
the Board of Directors consists of eleven members. If the proposed amendment is
authorized, the text of the first sentence of paragraph (b) of Article Fifth of
the Third Restated Certificate of Incorporation would be amended to read as
follows:
"The number of Directors of the Corporation shall not be less
than one nor more than fourteen and, subject to such limits, shall be
fixed by resolution duly adopted from time to time by the Board of
Directors."
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The Board of Directors believes the proposed amendment is in the best
interests of the Company and its stockholders. At present, the Directors alone
or the stockholders alone may change the size of the Board. The proposed
amendment would confirm the right of the Board to increase or decrease the size
of the Board in accordance with the changing needs of the Company, but the
stockholders would be fixing the maximum number of Directors at fourteen, which
number could not be increased without stockholder approval. Unlike the present
situation, if stockholders approve the proposal, any action to greatly increase
the size of the Board by seeking to fix a number above fourteen would require
the approval of both the Board and the stockholders.
This proposal will not modify or amend the remainder of Article Fifth,
paragraph (b) of the Third Restated Certificate of Incorporation and the
classification of the Board of Directors will continue and will be made more
effective. Therefore, approval of this proposal may have anti-takeover
consequences. If the Board of Directors should be increased to the maximum size
permitted by the proposed amendment, the Board would be comprised of fourteen
Directors in three classes, one class with four members and two classes with
five.
INFORMATION CONCERNING INDEPENDENT PUBLIC ACCOUNTANTS
The independent certified public accounting firm of
PricewaterhouseCoopers, L.L.P. has audited the Company's accounts for the fiscal
year ended December 31, 1998. A representative of PricewaterhouseCoopers, L.L.P.
is expected to be present at the meeting, and will have an opportunity to make a
statement and to respond to appropriate questions. The Board of Directors
expects to select an independent certified public accounting firm for the 1999
fiscal year at its April meeting.
SUBMISSION OF SHAREHOLDER PROPOSALS
If a holder of the Company's Class A Common Stock wishes to present a
proposal for consideration at next year's annual meeting, any such proposal must
be received at the Company's offices at One Lexmark Centre Drive, Lexington,
Kentucky 40550, Attention: Corporate Secretary, on or before November [23],
1999. In addition, the Company's By-Laws provide that in order for any
stockholder to nominate a director or propose to transact any corporate business
at an annual meeting of stockholders, the stockholder must have given written
notice, by certified mail, to the Secretary of the Company which must be
received by the Secretary of the Company not less than 60 days prior to the
meeting. (If less than 60 days advance notice of the meeting is given, then such
notice must be received by the close of business on the seventh day following
the date the notice of meeting was mailed.) If a proposal is received after
that date, the Company's proxy for next year's annual meeting may confer
dicretionary authority to vote on such matter without any discussion of the
matter in the Proxy Statement.
PROXY SOLICITATION
The Company is making this proxy solicitation and will bear the cost of
the solicitation. In addition to the solicitation of proxies by use of the mail,
proxies may be solicited by directors, officers and regularly engaged employees
or agents of the Company. The Company has also retained Georgeson & Company,
Inc., Wall Street Plaza, New York, NY 10005, to assist in the solicitation for
an estimated fee of $10,000 plus reasonable expenses. Brokers, nominees and
other similar record holders will be
31
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requested to forward solicitation material and will be reimbursed by the Company
upon request for their out-of-pocket expenses.
ATTENDANCE AT ANNUAL MEETING
The 1999 Annual Meeting of Stockholders will be held at 10:00 a.m. on
Thursday, April 29, 1999, at the Opera House, 401 West Short Street, Lexington,
Kentucky 40507.
Admission to the meeting is limited to stockholders of the Company or
their designated representatives. One admission ticket to the meeting is
attached to each proxy used. If you intend to attend the meeting, please detach
and retain the admission ticket and check the "I plan to attend the meeting" box
on the form of proxy itself to validate the admission ticket. Only
ticket-holders will be admitted to the Annual Meeting.
OTHER MATTERS
The management knows of no other matters which are likely to be brought
before the meeting, but if any such matters properly come before the meeting,
the persons named in the enclosed proxy, or their substitutes, will vote the
proxy in accordance with their best judgment.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON WRITTEN REQUEST, A COPY OF ITS ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (EXCLUDING EXHIBITS). COPIES OF ANY EXHIBITS THERETO ALSO
WILL BE FURNISHED UPON THE PAYMENT OF A REASONABLE DUPLICATING CHARGE. REQUESTS
IN WRITING FOR COPIES OF ANY SUCH MATERIALS SHOULD BE DIRECTED TO INVESTOR
RELATIONS, LEXMARK INTERNATIONAL GROUP, INC., ONE LEXMARK CENTRE DRIVE,
LEXINGTON, KENTUCKY 40550.
Vincent J. Cole
SECRETARY
March [22], 1999
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EXHIBIT A
LEXMARK INTERNATIONAL GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE
The Lexmark International Group, Inc. (the "Company") 1999 Employee Stock
Purchase Plan (the "Plan") is intended to provide Eligible Employees who wish to
become stockholders (or increase their stockholdings) in the Company with a
convenient method of doing so. It is believed that employee participation in
ownership of the equity of the Company will be to the mutual benefit of the
employees and the Company.
The Company intends to have the Plan qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code").
The Plan Administrator may, from time to time, approve participation in the
Plan by employees of any subsidiary corporation of the Company (as defined in
Section 424(f) of the Code).
2. DEFINITIONS
2.1 "Account" shall mean the funds accumulated with respect to a
Participant as a result of payroll deductions for the purpose of purchasing
stock under the Plan. The funds allocated to a Participant's account shall
remain the property of the Participant at all times but may be commingled with
the general funds of the Company.
2.2 "Act" means the Securities Exchange Act of 1934, as amended.
2.3 "Adjustment Event" shall mean any stock dividend, stock split or share
combination of, or extraordinary cash dividend on, the Company Stock or
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Company
Stock at a price substantially below Fair Market Value, or other similar event
affecting the Company Stock.
2.4 "Administrator" shall mean a committee comprised of the Chief Financial
Officer, Vice President of Human Resources, and Vice President, General Counsel
and Secretary of the Company or other such person(s) or entity delegated the
responsibility of administering the Plan by the Compensation and Pension
Committee of the Board.
2.5 "Board" shall mean the Board of Directors of the Company.
2.6 "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
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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 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
(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 tradeable on an
established securities market, (B) a majority of the
directors 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 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 (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.
2.7 "Company" means Lexmark International Group, Inc., a Delaware
corporation, and any successor thereto.
2.8 "Company Stock" means the Class A common stock of the Company, par
value $0.01 per share, or such other shares or kind of securities as determined
by the Board. For purposes of this Plan, Company Stock includes shares traded on
a national securities exchange, authorized but unissued shares, and shares
reacquired by the Company and held as an asset.
2.9 "Compensation" shall mean, subject to the discretion of the Plan
Administrator, salary, bonuses, commissions, overtime, shift premiums, holiday
pay, vacation pay, and regular Sickness and Accident Income plan payments prior
to any payroll deductions.
2.10 "Designated Subsidiaries" shall mean Lexmark International, Inc., and
all other Company subsidiaries, as defined in Section 424(f) of the Code, whose
employees have been approved by the Plan Administrator, in its sole discretion,
as eligible to participate in the Plan.
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2.11 "Disability" shall mean a physical or mental disability or infirmity
of a Participant, as defined in any long-term disability plan sponsored by the
Company or any Designated Subsidiary which employs such Participant, or, if no
such plan is sponsored by such Participant's employer, the Lexmark Medical
Disability Income Plan.
2.12 "Eligible Employee" shall mean any employee of the Employer who is
eligible to participate in the Plan under Section 3 hereof.
2.13 "Employer" means, individually and collectively, the Company and the
Designated Subsidiaries.
2.14 "Enrollment Period" shall mean the time preceding an Offering Period
during which Eligible Employees may elect to participate in the Plan, as
determined by the Plan Administrator.
2.15 "Exercise Date" shall mean the last day of every pay period during an
Offering Period, the earliest date thereafter as is administratively feasible,
or such other date or dates set forth by the Plan Administrator.
2.16 "Fair Market Value" means, as of any date of determination, the
closing price of a share of Company Stock on a national securities exchange on
that day, as reported for such day in the Wall Street Journal, or the last bid
price for a share of Company Stock on such day, as reported on a nationally
recognized system of price quotation, each with respect to whole shares, and the
prorata percentage thereof with respect to fractional shares. In the event that
there are no Company Stock transactions reported on such exchange or system on
such day, Fair Market Value shall mean the closing price or the last bid price,
whichever is applicable, on the immediately preceding day on which Company Stock
transactions were so reported.
2.17 "Grant Date" shall mean the first day of an Offering Period or the
earliest date thereafter as is administratively feasible.
2.18 "Offering Period" shall mean each of the consecutive six calendar
month periods during which Participants in the Plan authorize payroll deductions
to fund the purchase of shares on their behalf under the Plan. The initial
Offering Period shall commence January 1, 2000 and subsequent Offering Periods
shall commence each January 1 and July 1 thereafter during the term of the Plan.
2.19 "Participant" shall mean an Eligible Employee who is enrolled and
participating in the Plan.
2.20 "Plan Broker" shall mean the stock brokerage or other financial
services firm designated by the Plan Administrator to account for and/or hold
each Participant's shares, dividends, and distributions.
2.21 "Purchase Price" shall mean, for each whole or fractional share
purchased in accordance with Section 5 hereof, an amount equal to 85%, or such
greater percentage as determined by the Plan Administrator in its sole
discretion, of the Fair Market Value of Company Stock on the applicable Exercise
Date.
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2.22 "Retirement" shall mean a Participant's retirement at "Normal
Retirement Age" according to the terms of the Lexmark Retirement Growth Account
Plan, as amended from time to time.
2.23 "Subsidiary" means 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 Plan Administrator.
2.24 "Trading Day" shall mean a day on which the New York Stock Exchange is
open for trading.
3. PARTICIPATION
3.1 Employees of the Company or its Designated Subsidiaries shall be
eligible to participate in the Plan following three full months of employment
with the Company in accordance with such rules as may be prescribed by the Plan
Administrator from time to time. Such rules, however, shall neither permit nor
deny participation in the Plan contrary to the requirements of the Code
(including, but not limited to, Section 423 (b)(3), (4), (5), and (8) thereof)
and to regulations promulgated thereunder.
3.2 Subject to rules established by the Plan Administrator from time to
time, an Eligible Employee may elect to participate in the Plan by entering into
a written subscription agreement with an Employer during an Enrollment Period.
This agreement shall authorize payroll deductions, as a whole percentage of the
Eligible Employee's Compensation up to a maximum of 10% of Compensation per pay
period while the Eligible Employee participates in the Plan.
3.3 All payroll deductions made for a Participant shall be credited to the
Participant's Account and will not be credited with any interest at any time. A
Participant may not make any separate cash payment into such account. Payment
for shares must be made by payroll deduction.
3.4 Once an Eligible Employee has elected to participate in the Plan, a
completed, written subscription agreement shall remain in effect, including with
respect to subsequent Offering Periods, unless and until the Participant ceases
to be an Eligible Employee, withdraws from participation in the Plan or modifies
said written subscription agreement. A Participant may authorize an increase or
decrease in the amount of payroll deduction up to two times during an Offering
Period, but not to exceed two times in any calendar year, by submitting a new
subscription agreement. The amount of payroll deduction may also be modified for
future Offering Periods by submitting a new subscription agreement during the
Enrollment Period for the relevant Offering Period, in accordance with rules and
procedure established by the Plan Administrator.
4. GRANTING OF OPTION
4.1 On each Grant Date, a Participant shall be granted an option to
purchase during the relevant Offering Period, the number of whole shares, or
whole and fractional shares, subject to the discretion of the Plan
Administrator, that the Participant may elect to purchase at the applicable
Purchase Prices on each Exercise Date during an Offering Period with up to 10%
of the Compensation received by the Participant during the Offering Period (or
such portion of an Offering Period during which the Eligible Employee
participates in the Plan.)
A-4
<PAGE>
5. EXERCISE OF OPTION
5.1 On each Exercise Date, a Participant who continues to be an Eligible
Employee shall be deemed to have exercised an option on such date and to have
purchased from the Company the greatest number of whole shares as is equal to or
less than, or whole and fractional shares as is equal to, the quotient of the
cash amount in the Participant's Account at the end of the relevant pay period
divided by the Purchase Price for the relevant pay period. Additional shares
covered by the Participant's option shall be purchased in the same manner as of
each subsequent Exercise Date during the Offering Period. Any cash amount
remaining in a Participant's Account after the purchase of shares shall remain
in the Participant's Account for the subsequent purchases, unless the
Participant has withdrawn from the Plan pursuant to Section 8.
5.2 Promptly following each Exercise Date, the shares purchased by a
Participant shall be deposited into an account established in the Participant's
name at the Plan Broker ("Broker Account").
6. LIMITATIONS ON RIGHTS
6.1 No employee may be granted an option to purchase shares under this Plan
if such employee, immediately after the option is granted, owns 5% or more of
the total combined voting power or value of all of the classes of stock of the
Company or any subsidiary. For purposes of the preceding sentence, the
attribution rules of Section 424 (d) of the Code shall apply in determining the
stock ownership of an employee, and stock that the employee may purchase under
outstanding options shall be treated as stock owned by the employee.
6.2 A Participant shall not be entitled to receive an option or the portion
of an option which if received by the Participant would cause him or her to have
rights to purchase Company Stock having a value in excess of $25,000 under the
Plan (and under all employee stock purchase plans of the Company which qualify
for treatment under Section 423 of the Code) for any calendar year in which such
rights are outstanding (based on the Fair Market Value of such shares as of the
Grant Date of the option exercised to purchase the shares).
7. NUMBER OF SHARES TO BE OFFERED
7.1 The aggregate number of shares of Company Stock which may be issued
under the Plan is 1,500,000.
7.2 In the event the number of shares to be purchased by Participants
during any Offering Period exceeds the number of shares then available for sale
under the Plan, the Plan Administrator shall make a pro rata allocation of the
shares remaining available in such uniform manner as it shall determine to be
equitable. Any excess cash amounts remaining in Participants' Accounts then
shall be returned to the Participants as soon as is administratively feasible.
8. WITHDRAWAL
8.1 A Participant may withdraw from the Plan at any time by giving written
notice, or such other form of notice as then required, to the Plan
Administrator.
A-5
<PAGE>
8.2 Separation from employment for any reason, including death, disability,
termination or retirement, shall be treated as a withdrawal from the Plan.
8.3 A Participant who ceases to be an Eligible Employee shall be deemed to
have withdrawn from the Plan at such time as he ceases to be an Eligible
Employee.
8.4 At the time of withdrawal, any amount in the Participant's Account
which has not previously been used to purchase shares will be refunded to the
Participant as soon as practicable thereafter.
8.5 To re-enter the Plan, an Eligible Employee who has previously withdrawn
must submit a new written subscription agreement pursuant to Section 3 above.
8.6 Participants shall be deemed to have withdrawn from the Plan when the
Plan is terminated.
9. RIGHTS NOT TRANSFERABLE
9.1 Neither payroll deductions made by a Participant, nor any rights with
regard to the exercise of an option or to receive stock, nor any rights to a
return of payroll deductions under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way by the Participant other than
pursuant to a will or the laws of descent and distribution. Any such attempted
assignment, transfer, pledge or other disposition shall be without effect.
10. CHANGES AFFECTING LEXMARK STOCK
10.1 Upon the occurrence of an Adjustment Event, the Board may make such
adjustment, if any, as it may deem appropriate, and in accordance with Section
424 of the Code, in the number, kind, and the price of shares available for
purchase under the Plan, and in the number of shares which a Participant is
entitled to purchase.
11. TRANSFERRING SHARES
11.1 Subject to 11.2 below, a Participant shall be free to undertake a
disposition (as that term is defined in Section 424(c) of the Code) of the
shares in his Broker Account at any time subsequent to 12 months after the
applicable Exercise Date with respect to said shares. This restriction on
disposition of shares shall expire in the event of the death, Disability,
Retirement of a Participant, or a Change in Control of the Company, or may be
waived at such other times as determined by the Plan Administrator in its sole
discretion. In the absence of a disposition of the shares, the shares must
remain in the Participant's Broker Account until the holding period set forth in
Section 423(a) of the Code has been satisfied. With respect to shares for which
the Section 423(a) holding period has been satisfied, the participant may move
those shares to another brokerage account of the Participant's choosing, or
request that a stock certificate be issued.
11.2 The Plan is intended to provide Company Stock for investment and not
for resale. The Company does not, however, intend to restrict or influence any
employee in the conduct of his own affairs. An employee, therefore, may sell
stock purchased under the Plan subject to compliance with the terms of this
Plan, rules established by the Plan
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Administrator, and any applicable Federal or state securities laws. The employee
assumes the risk of any market fluctuations in the price of Company Stock.
12. ADMINISTRATION
12.1 The Plan Administrator is vested with full authority to make,
administer, and interpret such rules and regulations as it deems necessary to
administer the Plan, and any determination, decision, or action of the Plan
Administrator in connection with the construction, interpretation,
administration, or application of the Plan shall be final, conclusive, and
binding upon all Participants and any and all persons claiming under or through
any Participant.
13. TERM OF PLAN
13.1 The Plan will become effective as of January 1, 2000, or as soon as
administratively practicable thereafter, subject, however, to approval by the
holders of at least a majority of the Company Stock present or represented, and
entitled to vote, at the annual meeting of the stockholders to be held April 29,
1999. If the Plan is not so approved, the Plan shall not become effective.
13.2 The Board shall have the right to amend, modify, or terminate the Plan
at any time without notice, provided that no employee's existing rights with
respect to any then current Offering Period may be adversely affected thereby,
and provided further that (i) no such amendment of the Plan shall, except as
provided in Section 10, increase the total number of shares to be offered under
the Plan unless stockholder approval is obtained therefor, and (ii) no amendment
may cause an option issued under it to fail to meet the requirements of Section
423 of the Code.
13.3 This Plan shall terminate at the earliest of
(i) December 31, 2009;
(ii) the date the Board acts to terminate the Plan in
accordance with Section 13.2; and
(iii) the date when the total number of shares to be offered
under this Plan, as set forth in Section 7, have been purchased.
14. RIGHTS AS A STOCKHOLDER
14.1 A Participant shall have no interest or voting right in any shares
until such shares have been actually purchased in accordance with Section 5.
15. GOVERNMENT REGULATIONS
15.1 The Company's obligation to sell and deliver shares under this Plan is
subject to the approval of any governmental authority required in connection
with the authorization, issuance, or sale of such shares.
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16. MISCELLANEOUS
16.1 The provisions of the Plan shall, in accordance with its terms, be
binding upon, and inure to the benefit of, all successors of each Participant,
including, without limitation, such Participant's estate and the executors, Plan
Administrator or trustees thereof, heirs and legatees, and any receiver, trustee
in bankruptcy or representative of creditors of such employee.
16.2 Delaware law shall govern all matters relating to this Plan except to
the extent it is superseded by federal law.
16.3 The Plan Administrator is authorized to make such amendments to the
Plan as may be necessary or desirable to facilitate obtaining an effective
registration statement with any applicable government agency that regulates
securities.
A-8
<PAGE>
Appendix I
[Form of Proxy]
<TABLE>
<S> <C>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN Please make your
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE WITH RESPECT TO A votes as indicated |X|
PROPOSAL, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS, FOR in this example.
PROPOSALS 2, 3, 4 AND 5 AND OTHERWISE IN ACCORDANCE WITH THE BEST JUDGMENT OF THE
PROXY HOLDER.
1. ELECTION OF DIRECTORS -- TERMS TO EXPIRE 2002 (B. Charles Ames, Ralph E.
Gomory and Marvin L. Mann).
FOR all nominees WITHHOLD (INSTRUCTION: To withhold
listed above AUTHORITY authority to vote for any
(except as marked (to vote for all individual nominee, write the
to the contrary) nominees listed above) nominee's name on the line
provided below.)
|_| |_| ----------------------------- I plan to attend the meeting |_|
2. APPROVAL OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN Please sign exactly as name
appears hereon. When shares
FOR AGAINST ABSTAIN are held by joint tenants,
|_| |_| |_| both should sign. When signing
as attorney, executor,
3. APPROVAL OF CERTAIN TERMS AND CONDITIONS OF ANNUAL INCENTIVE COMPENSATION administrator, trustee or
AWARDS FOR SELECT EXECUTIVE OFFICERS guardian, please give full
title as such. If a
FOR AGAINST ABSTAIN corporation, please sign in
|_| |_| |_| full corporate name by
President or other authorized
4. APPROVAL OF AN AMENDMENT TO THE THIRD RESTATED CERTIFICATE OF INCORPORATION officer. If a partnership,
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCK FROM please sign in partnership
160 MILLION TO 450 MILLION name by authorized person.
FOR AGAINST ABSTAIN Dated: _______________, 1999
|_| |_| |_|
----------------------------
5. APPROVAL OF AN AMENDMENT TO THE THIRD RESTATED CERTIFICATE OF INCORPORATION (Signature)
THAT WOULD FIX THE SIZE OF THE BOARD OF DIRECTORS AT NO MORE THAN FOURTEEN
----------------------------
FOR AGAINST ABSTAIN (Signature if held jointly)
|_| |_| |_|
PLEASE SIGN, DATE, AND RETURN
6. In their discretion upon such other business as may properly come before THE PROXY CARD PROMPTLY USING
the meeting or any adjournment or postponement thereof. THE ENCLOSED ENVELOPE
- ------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
</TABLE>
Annual Meeting of
Stockholders
Lexmark International Group, Inc.
April 29, 1999
10:00 a.m.
Opera House
401 West Short Street
Lexington, Kentucky 40507
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF
LEXMARK INTERNATIONAL GROUP, INC.
The undersigned hereby appoints Marvin L. Mann, Paul J. Curlander and
Vincent J. Cole attorneys and proxies, each with power to act without the other
and with power of substitution, and hereby authorizes them to represent and vote
all the shares of stock of Lexmark International Group, Inc. standing in the
name of the undersigned with all powers which the undersigned would possess if
present at the Annual Meeting of Stockholders of the Company to be held April
29, 1999 or any adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH NOMINEE TO
SERVE AS A DIRECTOR AND "FOR" PROPOSALS 2, 3, 4 AND 5. IF NO DIRECTION IS GIVEN
IN THE SPACE PROVIDED ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED "FOR" THE
ELECTION OF DIRECTORS AND "FOR" PROPOSALS 2, 3, 4 AND 5. IF ANY OTHER BUSINESS
SHOULD COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
BEST JUDGMENT OF THE PROXY HOLDER.
(Continued on reverse side)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
If you intend to attend the Annual Meeting, please be sure to
check the "I plan to attend the meeting" box on the reverse side
of the Proxy.
