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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
X For the Quarterly Period Ended March 31, 2000
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.1-14050
LEXMARK INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3074422
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Lexmark Centre Drive
740 West New Circle Road
Lexington, Kentucky 40550
(Address of principal executive offices) (Zip Code)
(859) 232-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The registrant had 129,237,816 shares outstanding (excluding shares held in
treasury) of Class A common stock, par value $0.01 per share, as of the close of
business on May 5, 2000.
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<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
INDEX
Page of
Form 10-Q
---------
PART I
ITEM 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999........................2
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (Unaudited)
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999........................3
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999.......................4
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)....5-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Unaudited).....................8-10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........11
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................13
1
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Millions, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------
2000 1999
---- ----
<S> <C> <C>
Revenue $891.7 $787.0
Cost of revenue 576.6 501.8
------ ------
Gross profit 315.1 285.2
Research and development 53.8 45.4
Selling, general and administrative 140.9 136.1
------ ------
Operating expense 194.7 181.5
------ ------
Operating income 120.4 103.7
Interest expense 2.6 2.2
Other 2.4 1.0
------ ------
Earnings before income tax 115.4 100.5
Provision for income tax 35.2 32.7
------ ------
Net earnings $ 80.2 $ 67.8
====== ======
Basic net earnings per share $ 0.62 $ 0.52
====== ======
Diluted net earnings per share $ 0.59 $ 0.48
====== ======
Shares used in per share calculation:
Basic 129.0 130.5
====== ======
Diluted 136.3 140.9
====== ======
</TABLE>
All share and per share data have been restated to reflect a two-for-one stock
split effective June 10, 1999.
See notes to consolidated condensed financial statements.
2
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In Millions, Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 113.4 $ 93.9
Trade receivables, net of allowance of $24.8 in 2000 and $24.1 in 1999 474.5 507.3
Inventories 387.3 387.7
Prepaid expenses and other current assets 107.8 99.8
-------- --------
Total current assets 1,083.0 1,088.7
Property, plant and equipment, net 575.7 561.0
Other assets 69.4 52.9
-------- --------
Total assets $1,728.1 $1,702.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 11.9 $ 16.2
Accounts payable 268.0 300.9
Accrued liabilities 346.5 418.4
-------- --------
Total current liabilities 626.4 735.5
Long-term debt 148.8 148.7
Other liabilities 159.0 159.3
-------- --------
Total liabilities 934.2 1,043.5
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 1,600,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.01 par value:
Class A, 450,000,000 shares authorized; 129,263,096 and
128,120,358 outstanding in 2000 and 1999, respectively 1.5 1.5
Class B, 10,000,000 shares authorized; no shares issued and
outstanding - -
Capital in excess of par 682.7 630.4
Retained earnings 810.5 730.3
Treasury stock, at cost; 25,441,266 shares in 2000 and 1999 (672.3) (672.3)
Accumulated other comprehensive loss (28.5) (30.8)
-------- --------
Total stockholders' equity 793.9 659.1
-------- --------
Total liabilities and stockholders' equity $1,728.1 $1,702.6
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 80.2 $ 67.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 21.3 19.0
Deferred taxes 3.5 (1.2)
Other non-cash charges to operations 1.7 6.8
------ ------
106.7 92.4
Change in assets and liabilities:
Trade receivables 72.8 46.3
Trade receivables program (40.0) -
Inventories 0.4 (18.2)
Accounts payable (32.9) 8.0
Accrued liabilities (71.9) (6.0)
Other assets and liabilities (17.1) (7.0)
------ ------
Net cash provided by operating activities 18.0 115.5
------ ------
Cash flows from investing activities:
Purchases of property, plant and equipment (41.5) (30.4)
Proceeds from sales of property, plant and equipment 0.3 0.1
------ ------
Net cash used for investing activities (41.2) (30.3)
------ ------
Cash flows from financing activities:
Decrease in short-term debt (4.9) (0.5)
Purchase of treasury stock - (154.6)
Exercise of stock options 48.0 3.4
------ ------
Net cash provided by (used for) financing activities 43.1 (151.7)
------ ------
Effect of exchange rate changes on cash (0.4) (1.3)
------ ------
Net increase (decrease) in cash and cash equivalents 19.5 (67.8)
Cash and cash equivalents - beginning of period 93.9 149.0
------ ------
Cash and cash equivalents - end of period $113.4 $ 81.2
====== ======
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited; however, in
the opinion of Lexmark International Group, Inc. (together with its
subsidiaries, the "company") management, all adjustments (which comprise
only normal and recurring accruals) necessary for a fair presentation of
the interim financial results have been included. The results for the
interim periods are not necessarily indicative of results to be expected
for the entire year. These financial statements and notes should be read
in conjunction with the company's audited annual consolidated financial
statements for the year ended December 31, 1999.
2. INVENTORIES
(Dollars in millions)
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
<S> <C> <C>
Work in process $ 163.6 $ 169.5
Finished goods 223.7 218.2
------- -------
$ 387.3 $ 387.7
======= =======
</TABLE>
3. OTHER COMPREHENSIVE EARNINGS (LOSS)
(Dollars in millions)
Comprehensive earnings consists of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
---- ----
<S> <C> <C>
Net earnings $80.2 $67.8
Other comprehensive earnings (loss):
Foreign currency translation adjustment (6.5) (5.6)
Cash flow hedging (net of related tax
liability of $2.1 in 2000 and $0 in 1999) 7.1 6.5
Minimum pension liability adjustment (net
of related tax benefit of $0 in 2000 and 1999) 1.7 0.2
----- -----
Comprehensive earnings $82.5 $68.9
===== =====
</TABLE>
5
<PAGE>
Accumulated other comprehensive earnings (loss) consists of the following:
<TABLE>
<CAPTION>
Accumulated
Minimum Other
Translation Cash Flow Pension Comprehensive
Adjustment Hedges Liability Earnings (Loss)
---------- ------ --------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $(34.9) $ 8.5 $(4.4) $(30.8)
First quarter 2000 change (6.5) 7.1 1.7 2.3
------ ----- ----- ------
Balance, March 31, 2000 $(41.4) $15.6 $(2.7) $(28.5)
====== ===== ===== ======
</TABLE>
4. EARNINGS PER SHARE (EPS)
(Dollars in millions, except share amounts)
The following is a reconciliation of the weighted average shares used in
the basic and diluted EPS calculations:
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------
2000 1999
---- ----
<S> <C> <C>
Net earnings $80.2 $67.8
===== =====
Weighted average shares used
for basic EPS 129,017,390 130,548,178
Effect of dilutive securities
Long-term incentive plan 107,556 104,072
Stock options 7,183,513 10,275,778
----------- -----------
Weighted average shares used
for diluted EPS 136,308,459 140,928,028
=========== ===========
Basic net EPS $0.62 $0.52
Diluted net EPS $0.59 $0.48
</TABLE>
Options to purchase an additional 1,138,463 and 1,155,454 shares of Class
A common stock were outstanding at March 31, 2000 and 1999, respectively,
but were not included in the computation of diluted earnings per share
because their effect would be antidilutive.
6
<PAGE>
5. SUMMARIZED FINANCIAL INFORMATION
(Dollars in millions)
The following is consolidated summarized financial information of Lexmark
International, Inc., a wholly-owned subsidiary of Lexmark International
Group, Inc.
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
Statement of financial position data:
<S> <C> <C>
Current assets $1,083.0 $1,088.7
Noncurrent assets 645.1 613.9
Current liabilities 626.4 739.4
Noncurrent liabilities 307.8 308.0
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
2000 1999
---- ----
Statement of earnings data:
<S> <C> <C>
Revenue $891.7 $787.0
Gross profit 315.1 285.2
Net earnings 80.2 67.8
</TABLE>
Current liabilities at December 31, 1999 included $3.9 million that was
owed to Lexmark International Group, Inc.
6. SUBSEQUENT EVENTS
At the company's annual meeting of stockholders on April 27, 2000, the
stockholders approved an Agreement and Plan of Merger providing for the
merger of the company with and into Lexmark International, Inc., the
company's wholly-owned subsidiary.
The stockholders also approved an increase in the number of authorized
shares of the company's Class A common stock from 450 million shares to
900 million shares.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
(Unaudited)
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Results of Operations
- ---------------------
Consolidated revenue for the three months ended March 31, 2000 was $892 million,
an increase of 13% over the same period of 1999. Revenue was adversely affected
by foreign currency exchange rates due to weakening of European currencies
against the U.S. dollar. Without the negative impact of foreign currency
translation, revenue growth would have been 18%. Total U.S. revenue increased
$50 million or 15% and international revenue, including exports from the U.S.,
increased $55 million or 12%. Revenue from sales to all original equipment
manufacturers ("OEM") customers accounted for less than 15% of consolidated
revenue in the first quarter of 2000 with no single OEM customer accounting for
more than 10% of total revenue.
The revenue growth was primarily driven by unit volume increases in printers and
associated supplies. Total printer volume grew at double-digit rates and
associated printer supplies revenue increased in the first quarter of 2000 as
compared to the same period of 1999, primarily due to the continued growth of
the company's installed base. Consolidated gross profit was $315 million for the
first three months of 2000, an increase of 10% from the same period of 1999,
mainly driven by printer and associated supplies volume increases. Gross profit
as a percentage of revenue for the quarter ended March 31, 2000 decreased to
35.3% from 36.2% in the first quarter of 1999 principally due to reduced prices
on printers and a mix shift among products.
Total operating expense increased 7% for the quarter ended March 31, 2000
compared to the same period of 1999. Operating expense as a percentage of
revenue decreased to 21.8% compared to 23.1% in 1999 primarily due to increased
revenue and lower selling, general and administrative expenses as a percentage
of revenue.
Consolidated operating income was $120 million for the first quarter of 2000, an
increase of 16% over the same period of 1999. This increase was due principally
to higher printer and associated supplies sales volume and lower selling,
general and administrative expenses as a percentage of revenue.
Net earnings for the first quarter were $80 million, an increase of 18% over the
first quarter of 1999, primarily due to increased revenue and a higher operating
margin.
Basic net earnings per share were $0.62 for the first quarter of 2000 versus
$0.52 in 1999, an increase of 20%. Diluted net earnings per share were $0.59 in
the first quarter of 2000, compared to $0.48 in 1999, an increase of 22%. These
increases were due to the improved net earnings, fewer shares outstanding as a
result of share repurchases throughout 1999 and a lower effective
income tax rate. The income tax provision was 30.5% of earnings before tax in
the first quarter of 2000 as compared to 32.5% in the first quarter of 1999. The
decrease in the effective income tax rate was primarily due to lower income tax
rates on manufacturing activities in certain countries.
Financial Condition
- --------------------
The company's financial position remains strong at March 31, 2000, with working
capital of $457 million compared to $353 million at December 31, 1999. At March
31, 2000, the company had outstanding $12 million of short-term debt and $149
million of long-term debt. The debt to total capital ratio was 17% at March 31,
2000 compared to 20% at December 31, 1999.
8
<PAGE>
Cash provided by operating activities for the three months ended March 31, 2000
was $18 million compared to $116 million for the same period of 1999. This
decrease was primarily attributable to decreases in accounts payable and accrued
liabilities.
Capital expenditures for the first three months of 2000 were $42 million
compared to $30 million for the same period of 1999. This increase is primarily
due to expansion of printer and associated supplies manufacturing capacity and
new products. It is anticipated that capital expenditures for 2000 will be
approximately $350 million. The 2000 capital expenditures are expected to be
funded primarily through cash from operations.
As of March 31, 2000, the company's board of directors had authorized the
repurchase of up to $1.0 billion of its Class A common stock. This repurchase
authority allows the company at management's discretion to selectively
repurchase its stock from time to time in the open market or in privately
negotiated transactions depending upon market price and other factors. During
the first quarter of 2000, no shares were repurchased. As of March 31, 2000 the
company had repurchased 25,469,028 shares at prices ranging from $10.63 to
$75.75 for an aggregate cost of approximately $673 million.
Factors That May Affect Future Results and Information Concerning Forward -
- --------------------------------------------------------------------------------
Looking Statements
- ------------------
Statements contained in this report which are not statements of historical fact
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are made based upon management's current expectations
and beliefs concerning future developments and their potential effects upon the
company. There can be no assurance that future developments affecting the
company will be those anticipated by management, and there are a number of
factors that could adversely affect the company's future operating results or
cause the company's actual results to differ materially from the estimates or
expectations reflected in such forward-looking statements, including without
limitation, the factors set forth below:
o The company's future operating results may be adversely affected if it is
unable to continue to develop, manufacture and market products that meet
customers' needs. The markets for laser and inkjet printers and associated
supplies are increasingly competitive, especially with respect to pricing and
the introduction of new technologies and products offering improved features and
functionality. The company and its major competitors, all of which have
significantly greater financial, marketing and technological resources than the
company, have regularly lowered prices on their printers and are expected to
continue to do so. In particular, the inkjet printer market has experienced and
is expected to continue to experience significant printer price pressure from
the company's major competitors. Price reductions on inkjet or laser printer
products or the inability to reduce costs, contain expenses or increase sales as
currently expected, as well as price protection measures, could result in lower
profitability and jeopardize the company's ability to grow or maintain its
market share, particularly at a time when the company is increasing its
investment to support product introductions, expand capacity and enter new
geographies.
o Delays in customer purchases of existing products in anticipation of new
product introductions by the company or its competitors and market acceptance of
new products and pricing programs, the reaction of competitors to any such new
products or programs, the life cycles of the company's products, as well as
delays in product development and manufacturing, variations in the cost of
component parts, may cause a buildup in the company's inventories, make the
transition from current products to new products difficult and could adversely
affect the company's future operating results. The competitive pressure to
develop technology and products also could cause significant changes in the
level of the company's operating expenses.
o Revenues derived from international sales, including exports from the United
States, make up over half of the company's revenues. Accordingly, the company's
future results could be adversely affected by a variety of factors, including
foreign currency exchange rate fluctuations, trade protection measures, changes
in a specific country's or region's political or economic conditions and
unexpected changes in regulatory requirements. Moreover, margins
9
<PAGE>
on international sales tend to be lower than those on domestic sales, and the
company believes that international operations in new geographic markets will be
less profitable than operations in the U.S. and European markets, in part,
because of the higher investment levels for marketing, selling and distribution
required to enter these markets.
o The company's performance depends in part upon its ability to increase printer
and associated supplies manufacturing capacity in line with growing market
demands, to manage inventory levels to support the demands of new customers as
well as its established customer base and to address production and supply
difficulties. The company's future operating results and its ability to
effectively grow or maintain its market share may be adversely affected if it is
unable to address these issues on a timely basis.
o The company markets and sells its products through several sales channels. The
company's future results may be adversely affected by any conflicts that might
arise between its various sales channels.
o The company's success depends in part on its ability to obtain patents,
copyrights and trademarks, maintain trade secret protection and operate without
infringing the proprietary rights of others. Current or future claims of
intellectual property infringement could prevent the company from obtaining
technology of others and could otherwise adversely affect its operating results,
cash flows, financial position or business, as could expenses incurred by the
company in enforcing its intellectual property rights against others or
defending against claims that the company's products infringe the intellectual
property rights of others.
o Factors unrelated to the company's operating performance, including economic
and business conditions, both national and international; the loss of
significant customers or suppliers; the impact of any remaining year 2000
issues; the outcome of pending and future litigation or governmental
proceedings; and the ability to retain and attract key personnel, could also
adversely affect the company's operating results. In addition, trading activity
in the company's common stock, particularly the trading of large blocks and
interday trading in the company's common stock, may affect the company's common
stock price.
While the company reassesses material trends and uncertainties
affecting the company's financial condition and results of operations in
connection with the preparation of its quarterly and annual reports, the company
does not intend to review or revise, in light of future events, any particular
forward-looking statement contained in this report.
The information referred to above should be considered by investors
when reviewing any forward-looking statements contained in this report, in any
of the company's public filings or press releases or in any oral statements made
by the company or any of its officers or other persons acting on its behalf. The
important factors that could affect forward-looking statements are subject to
change, and the company does not intend to update the foregoing list of certain
important factors. By means of this cautionary note, the company intends to
avail itself of the safe harbor from liability with respect to forward-looking
statements that is provided by Section 27A and Section 21E referred to above.
10
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The market risk inherent in the company's financial instruments and positions
represents the potential loss arising from adverse changes in interest rates and
foreign currency exchange rates.
Interest Rates
- --------------
At March 31, 2000, the fair value of the company's senior notes is estimated at
$138 million using quoted market prices and yields obtained through independent
pricing sources for the same or similar types of borrowing arrangements, taking
into consideration the underlying terms of the debt. The carrying value of the
senior notes as recorded in the statement of financial position exceeded the
fair value at March 31, 2000 by approximately $11 million. Market risk is
estimated as the potential change in fair value resulting from a hypothetical
10% adverse change in interest rates and amounts to approximately $7 million at
March 31, 2000.
Foreign Currency Exchange Rates
- -------------------------------
The company employs a foreign currency hedging strategy to limit potential
losses in earnings or cash flows from adverse foreign currency exchange rate
movements. Foreign currency exposures arise from transactions denominated in a
currency other than the company's functional currency and from foreign
denominated revenue and profit translated into U.S. dollars. The primary
currencies to which the company is exposed include the euro and other European
currencies, the Japanese yen and other Asian and South American currencies.
Exposures are hedged with foreign currency forward contracts, put options, and
call options with maturity dates of less than one year. The potential loss in
fair value at March 31, 2000 for such contracts resulting from a hypothetical
10% adverse change in all foreign currency exchange rates is approximately $19
million. This loss would be mitigated by corresponding gains on the underlying
exposures.
11
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The company's Annual Meeting of Stockholders was held on April 27,
2000.
(b) At said Annual Meeting, the stockholders voted on the following
three proposals:
(i) The election of four Directors for terms expiring in 2003. The
stockholders elected the Directors by the following votes:
<TABLE>
<CAPTION>
Director Votes For Votes Withheld
-------- --------- --------------
<S> <C> <C>
Michael J. Maples 108,671,291 445,102
Stephen R. Hardis 108,633,879 482,514
William R. Fields 108,673,143 443,250
Robert Holland, Jr. 108,669,755 446,638
</TABLE>
The terms of office of B. Charles Ames, Frank T. Cary, Paul J.
Curlander, Ralph E. Gomory, James F. Hardymon, Marvin L. Mann and
Martin D. Walker continued after the meeting. In addition, the
board of directors elected Teresa Beck to a newly created
directorship at the April 27, 2000 board meeting.
(ii) The approval of an Agreement and Plan of Merger providing for
the merger of the company with and into Lexmark International,
Inc., the company's wholly-owned subsidiary. The stockholders
approved such plan by the following votes:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C> <C>
108,603,987 17,266 483,130
</TABLE>
(iii) The approval of an amendment to the Third Restated
Certificate of Incorporation, as amended, increasing the number of
authorized shares of Class A common stock from 450 million shares
to 900 million shares. The stockholders approved such amendment by
the following votes:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C> <C>
92,597,532 16,231,248 287,613
</TABLE>
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
A list of exhibits is set forth in the Exhibit Index found on
page 15 of this report.
(b) Reports on Form 8-K:
None.
13
<PAGE>
LEXMARK INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, both on behalf of the registrant and in
his capacity as principal accounting officer of the registrant.
Lexmark International Group, Inc.
(Registrant)
Date: May 10, 2000 By: /s/ David L. Goodnight
------------ ----------------------
David L. Goodnight
Vice President and Corporate Controller
(Chief Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibits:
2 Agreement and Plan of Merger dated as of February 29, 2000 by and
between Lexmark International Group, Inc. (the "company") and Lexmark
International, Inc. ("International").
3(i) Amendment to Third Restated Certificate of Incorporation of the
company.
10 Amended and Restated Employment Agreement, dated as of January 1, 2000,
by and among Thomas B. Lamb, the company and International.
27 Financial Data Schedule
- ---------------------------------
15
Exhibit 2
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER dated as of February 29, 2000 (the
"Merger Agreement"), between LEXMARK INTERNATIONAL GROUP, INC., a Delaware
corporation (the "Company") and LEXMARK INTERNATIONAL, INC., a Delaware
corporation and a wholly-owned subsidiary of the Company ("Surviving
Corporation").
WHEREAS, the Third Restated Certificate of Incorporation of the
Company, as amended, as of the date hereof, authorizes the Company to issue an
aggregate of 461,600,000 shares of stock, consisting of 450,000,000 shares of
Class A Common Stock, par value $.01 per share ("Company Class A Common Stock"),
10,000,000 shares of Class B Common Stock, par value $.01 per share ("Company
Class B Common Stock"), and 1,600,000 shares of Preferred Stock, par value $.01
per share ("Company Preferred Stock");
WHEREAS, as of the date hereof, there are outstanding approximately 129
million shares of Company Class A Common Stock;
WHEREAS, as of the date hereof, the Surviving Corporation is authorized
to issue 1,000 shares of common stock, $1 par value per share, of which 200
shares are issued and outstanding;
WHEREAS, the Certificate of Incorporation of the Surviving Corporation
will be amended immediately prior to the Effective Time of the Merger to provide
that the Surviving Corporation is authorized to issue an aggregate of
461,600,000 shares of stock, consisting of 450,000,000 shares of Class A Common
Stock, par value $.01 per share, ("Surviving Corporation Class A Common Stock"),
10,000,000 shares of Class B Common Stock, par value $.01 per share ("Surviving
Corporation Class B Common Stock"), and 1,600,000 shares of Preferred Stock, par
value $.01 per share ("Surviving Corporation Preferred Stock"), or such other
amount of stock and in such proportions by type and class as is set forth in the
Certificate of Incorporation of the Company immediately prior to the Effective
Time; and
WHEREAS, the Boards of Directors of the Company and the Surviving
Corporation deem it advisable and in the best interests of the respective
corporations that the Company be merged with and into Surviving Corporation (the
"Merger").
NOW, THEREFORE, the parties hereto hereby agree as follows
ARTICLE I
MERGER
1.1 Merger. Subject to the terms and conditions of this Merger
Agreement, at the Effective Time the Company shall be merged with and into
Surviving Corporation in accordance with the General Corporation Law of the
State of Delaware. The separate existence of the Company shall cease and
Surviving Corporation as the surviving corporation shall continue its corporate
existence under the laws of the State of Delaware. Surviving Corporation shall
succeed, insofar as provided by law, to all rights, assets, liabilities and
obligations of the Company in accordance with the General Corporation Law of the
State of Delaware.
1.2 Effective Time. Subject to the approval of the Merger by the
requisite vote of the stockholders of the Company, the Merger shall become
effective as of the filing of the Certificate of Ownership and Merger with the
Secretary of State of the State of Delaware, as required by the General
Corporation Law of the State of Delaware (the "Effective Time").
<PAGE>
ARTICLE II
NAME, CERTIFICATE OF INCORPORATION, BY-LAWS AND DIRECTORS AND
OFFICERS OF THE SURVIVING CORPORATION
2.1 Name. The name of the Surviving Corporation shall remain
"Lexmark International, Inc." following the Merger.
2.2 Certificate of Incorporation. The Certificate of Incorporation of
the Surviving Corporation as amended and in effect at the Effective Time, shall
be the Certificate of Incorporation of the Surviving Corporation until further
amended in accordance with the provisions thereof and applicable laws. Such
Certificate of Incorporation shall be identical to the Third Restated
Certificate of Incorporation, as amended, of the Company as in effect
immediately prior to the Effective Time.
2.3 By-Laws. The By-Laws of the Surviving Corporation shall be
identical to the By-Laws of the Company in existence and in effect immediately
prior to the Effective Time.
2.4 Directors and Officers. The directors and officers of the Company
immediately prior to the Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation until expiration of the current terms
as such, or prior resignation, death or removal. The directors of the Surviving
Corporation shall be in the same classes and shall have the same terms of office
as those of the Company.
ARTICLE III
CONVERSION AND EXCHANGE OF SECURITIES
3.1 Conversion. At the Effective Time, each of the following
transactions shall be deemed to occur simultaneously:
(a) Each share of the Company Class A Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder
thereof, be converted into and become one fully paid and nonassessable
share of Surviving Corporation Class A Common Stock;
(b) Each share of the Company Class B Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder
thereof, be converted into and become one fully paid and nonassessable
share of Surviving Corporation Class B Common Stock;
(c) Each share of the Company Preferred Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder
thereof, be converted into and become one fully paid and nonassessable
share of Surviving Corporation Preferred Stock;
(d) Each option to purchase shares of Company Class A Common
Stock outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become an option to purchase, upon the
same terms and conditions, the number of shares of Surviving
Corporation Class A Common Stock which is equal to the number of
shares of Company Class A Common Stock which the optionee would have
received had he or she exercised his or her option in full immediately
prior to the Effective Time (whether or not such option was then
exercisable). The exercise price per share of Surviving Corporation
Class A Common Stock under each of said options shall be equal to the
exercise price per share of Company Class A Common Stock immediately
prior to the Effective Time.
<PAGE>
(e) Each option to purchase shares of Company Class B Common
Stock outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become an option to purchase, upon the
same terms and conditions, the number of shares of Surviving
Corporation Class B Common Stock which is equal to the number of
shares of Company Class B Common Stock which the optionee would have
received had he or she exercised his or her option in full immediately
prior to the Effective Time (whether or not such option was then
exercisable). The exercise price per share of Surviving Corporation
Class B Common Stock under each of said options shall be equal to the
exercise price per share of Company Class B Common Stock immediately
prior to the Effective Time.
(f) Each option to purchase shares of Company Preferred Stock
outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder
thereof, be converted into and become an option to purchase, upon the
same terms and conditions, the number of shares of Surviving
Corporation Preferred Stock which is equal to the number of shares of
Company Preferred Stock which the optionee would have received had he
or she exercised his or her option in full immediately prior to the
Effective Time (whether or not such option was then exercisable). The
exercise price per share of Surviving Corporation Preferred Stock
under each of said options shall be equal to the exercise price per
share of Company Preferred Stock immediately prior to the Effective
Time.
(g) Each restricted stock unit, deferred stock unit, stock
appreciation right, put, call or any other right, with respect to
shares of Company Class A Common Stock, Company Class B Common Stock,
or Company Preferred Stock, outstanding immediately prior to the
Effective Time, shall be converted into a restricted stock unit,
deferred stock unit, stock appreciation right, put, call or other
right with respect to shares of Surviving Corporation Class A Common
Stock, Surviving Corporation Class B Common Stock, or Surviving
Corporation Preferred Stock, respectively, giving each holder the same
rights, with respect to the same number of shares of such stock of the
Surviving Corporation, as such holder had with respect to the stock of
the Company under such outstanding restricted stock unit, deferred
stock unit, stock appreciation right, put, call or other right. All
obligations in respect of such outstanding restricted stock units,
deferred stock units, stock appreciation rights, puts, calls or other
rights shall, as of the Effective Time, be assumed by the Surviving
Corporation including, but not limited to, the Company's Stockholder
Rights Plan adopted by the Company on February 18, 1998 and amended
and restated on February 11, 1999.
3.2 Exchange.
(a) Immediately after the Effective Time, each certificate
theretofore representing issued and outstanding shares of Company
Class A Common Stock, Company Class B Common Stock or Company
Preferred Stock shall represent the same number of shares of Surviving
Corporation Class A Common Stock, Surviving Corporation Class B Common
Stock or Surviving Corporation Preferred Stock, respectively.
<PAGE>
(b) At and after the Effective Time, all of the outstanding
certificates which immediately prior to the Effective Time represented
shares of Company Class A Common Stock shall be deemed for all
purposes to evidence ownership of, and to represent shares of,
Surviving Corporation Class A Common Stock into which the shares of
Company Class A Common Stock formerly represented by such certificates
have been converted as herein provided. At and after the Effective
Time, all of the outstanding certificates which immediately prior to
the Effective Time represented shares of Company Class B Common Stock
shall be deemed for all purposes to evidence ownership of, and to
represent shares of, Surviving Corporation Class B Common Stock into
which the shares of Company Class B Common Stock formerly represented
by such certificates have been converted as herein provided. At and
after the Effective Time, all of the outstanding certificates which
immediately prior to the Effective Time represented shares of Company
Preferred Stock shall be deemed for all purposes to evidence ownership
of, and to represent shares of, Surviving Corporation Preferred Stock
into which the shares of Company Preferred Stock formerly represented
by such certificates have been converted as herein provided. The
registered owner on the books and records of the Company or its
transfer agents of any such outstanding stock certificates shall,
until such certificate shall have been surrendered for transfer or
otherwise accounted for to the Surviving Corporation or its transfer
agents, have and be entitled to exercise any voting and other rights
with respect to and to receive any dividends and other distributions
upon the shares of Surviving Corporation Class A Common Stock,
Surviving Corporation Class B Common Stock and Surviving Corporation
Preferred Stock evidenced by such outstanding certificate as above
provided.
ARTICLE IV
SPECIFIC UNDERTAKINGS
4.1 Stock Incentive Plans. Effective as of the Effective Time,
Surviving Corporation shall assume all of the rights and obligations of the
Company under the Lexmark Holding, Inc. Employee Stock Option Plan, the Lexmark
Holding, Inc. Stock Option Plan for Senior Managers, the Lexmark Holding, Inc.
Stock Option Plan for Executives and Senior Officers, the Lexmark International
Group, Inc. Stock Incentive Plan, and the Lexmark International Group, Inc.
Nonemployee Director Stock Plan as each of said plans may then be in effect, and
the parties hereto shall each take such action as may be necessary to (i) enable
each holder of an option or other right to acquire shares of Company Class A
Common Stock, Class B Common Stock and Preferred Stock under any such plans to
become entitled, at and after the Effective Time, to exercise such option or
right, subject to the terms and provisions thereof, as to that number of shares
of Surviving Corporation Class A Common Stock, Surviving Corporation Class B
Common Stock and Surviving Corporation Preferred Stock which such holder would
have been entitled to receive had such holder exercised such option or other
right and thereby received shares of Company Class A Common Stock, Company Class
B Common Stock and Company Preferred Stock immediately prior to the Effective
Time and (ii) amend those provisions of the employee incentive compensation and
benefit plans and programs referred to above which vest administrative functions
in the Company and its officers and directors so as to vest such functions in
the Surviving Corporation and its officers and directors. As of the Effective
Time, Surviving Corporation shall reserve shares of its authorized but unissued
Surviving Corporation Class A Common Stock which may be required for future
issuance under the provisions of each such plan or agreement in number equal to
the number of shares of Company Class A Common Stock which were reserved by the
Company for purposes of such plan or agreement immediately prior to the
Effective Time.
4.2 Other Employee Benefit Plans. From and after the Effective Time,
each employee benefit plan to which the Company is then a party (other than the
plans covered by section 4.1) shall continue to be the plan of the Surviving
Corporation and to the extent that such employee benefit plans include the right
to acquire, own or dispose of the stock of the Company, the parties hereto shall
each take such action as may be necessary to enable each holder of such rights
to exercise such rights to acquire, own or dispose of the same type and class of
stock of the Surviving Corporation.
4.3 Employment Agreements. As of the Effective Time, the Surviving
Corporation shall assume all obligations of the Company pursuant to all
employment agreements with the Company in effect as of the Effective Time.
<PAGE>
ARTICLE V
GENERAL
5.1 Stockholder Approval. Subsequent to its execution, the Company
shall submit the Merger as provided for in this Merger Agreement to its
stockholders for their approval pursuant to the applicable provisions of the
General Corporation Law of the State of Delaware.
5.2 Conditions to Merger. The Merger is subject to the following
conditions:
(a) Approval of the Merger as provided for in this Merger
Agreement by the holders of a majority of the outstanding shares of
the Company's Class A Common Stock;
(b) Approval for listing on the New York Stock Exchange of the
Surviving Corporation's Class A Common Stock to be
issued in the Merger;
(c) The determination by the Chairman and Chief Executive
Officer of the Company that the Merger is in the best interests of
the Company;
(d) Absence of an injunction or pending litigation relating to
the Merger; and
(e) Receipt of all consents, approvals and authorizations
required to be obtained prior to the consummation of the Merger.
5.3 Amendment. This Merger Agreement may be amended at any time prior
to the Effective Time with the mutual consent of the parties hereto, both before
and after it has been adopted by the stockholders of the Company, in any manner
which, in the judgment of the parties hereto, would not have a material adverse
effect on the rights of such stockholders.
5.4 Termination and Abandonment. At any time prior to the consummation
of the Merger, this Merger Agreement may be terminated and the Merger abandoned
by the Chairman and Chief Executive Officer of the Company or the Chairman and
Chief Executive Officer of the Surviving Corporation.
5.5 Governing Law. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
5.6 Counterparts. This Merger Agreement may be executed in one or more
counterparts each of which shall be deemed to be an original and all of which
taken together shall constitute one instrument.
5.7 Waiver. At any time prior to the Effective Time, the parties hereto
may (i) extend the time for the performance of any of the obligations or other
acts of the parties hereto, (ii) waive any inaccuracy in the statements
contained in this Merger Agreement or in any document delivered pursuant to this
Merger Agreement, or (iii) waive compliance with any of the covenants,
conditions or agreements contained in this Merger Agreement, or any document
delivered pursuant to this Merger Agreement, provided that such action would not
have a material adverse effect on the rights of the stockholders of the Company.
<PAGE>
IN WITNESS WHEREOF each of the parties hereto has caused this Merger
Agreement to be executed on its behalf and attested by its officers hereunto
duly authorized, all as of the date and year first above written.
LEXMARK INTERNATIONAL GROUP, INC.
By: /s/ Gary E. Morin
-------------------------------
Gary E. Morin
Executive Vice President and
Chief Financial Officer
Attest:
By: /s/ Vincent J. Cole
-------------------------------
Vincent J. Cole
Secretary
LEXMARK INTERNATIONAL, INC.
By: /s/ Gary E. Morin
-------------------------------
Gary E. Morin
Executive Vice President and
Chief Financial Officer
Attest:
By: /s/ Vincent J. Cole
-------------------------------
Vincent J. Cole
Secretary
Exhibit 3(i)
CERTIFICATE OF AMENDMENT
------------------------
OF
--
THIRD RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------------
OF
---
LEXMARK INTERNATIONAL GROUP, INC.
---------------------------------
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
----------------------------
Lexmark International Group, Inc., a corporation organized under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:
1. The Third Restated Certificate of Incorporation of the Corporation
is hereby amended, as authorized by Section 242 of the General Corporation Law
of the State of Delaware, to increase the number of authorized shares of Class A
Common Stock from 450 million shares to 900 million shares.
2. The holders of a majority of the outstanding stock entitled to vote
voted in favor of said amendment at the Annual Meeting of Stockholders held
April 27, 2000 in accordance with provisions of Sections 211 and 242 of the
General Corporation Law of the State of Delaware and a notice of the taking of
such action at the meeting was provided in accordance with Section 222 thereof.
3. To effect the amendment increasing the number of authorized shares
of Class A Common Stock from 450 million shares to 900 million shares, the first
paragraph of Article FOURTH of the Third Restated Certificate of Incorporation
of the Corporation is hereby 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 Nine
Hundred Eleven Million Six Hundred Thousand (911,600,000) shares,
consisting of (i) 900,000,000 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.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by Paul J. Curlander, its Chairman and Chief Executive Officer and
attested by Vincent J. Cole, its Secretary, this 28th day of April, 2000.
LEXMARK INTERNATIONAL GROUP, INC.
BY: /s/ Paul J. Curlander
--------------------------------
Paul J. Curlander
Chairman and Chief Executive Officer
ATTEST:
BY: /s/ Vincent J. Cole
--------------------------------
Vincent J. Cole
Secretary
Exhibit 10
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of January 1, 2000,
among Lexmark International, Inc., a Delaware corporation (the "Employer"),
Lexmark International Group, Inc., a Delaware corporation ("Group"), and Thomas
B. Lamb (the "Employee").
W I T N E S S E T H:
--------------------
WHEREAS, Employer, Group and Employee desire to enter into an
employment agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the parties hereto hereby agree as follows:
1. Term; Position and Responsibilities.
-----------------------------------
(a) Term of Employment. Unless the Employee's employment shall sooner
------------------
terminate pursuant to Section 6, the Employer shall employ the Employee for a
term commencing on April 30, 1998 and ending on February 28, 2001 (the "Initial
Term"), and the Employee's employment shall continue thereafter at will.
(b) Position and Responsibilities. The Employee will serve as Vice
-------------------------------
President and President of the Customer Solutions Division and in such other
executive capacity or capacities as may be determined from time to time by or
under the authority of the Board of Directors of the Employer ("Employer's
Board"), and the Employee will devote all of his skill, knowledge and working
time (except for reasonable vacation time and absence for sickness or similar
disability) to the conscientious performance of his duties. The Employee
represents that he is entering into this Agreement voluntarily and that his
employment hereunder and compliance by him with the terms and conditions of this
Agreement will not conflict with or result in the breach of any agreement to
which he is a party or by which he may be bound.
2. Base Salary. As compensation for the services to be performed by the
-----------
Employee hereunder, the Employer will pay the Employee an annual base salary of
$320,000 during the term of his employment hereunder. The Employer will review
the Employee's base salary from time to time during the period of his employment
hereunder and, in the discretion of the Employer, may increase such base salary
from time to time based upon the performance of the Employee, the financial
condition of the Employer, prevailing industry salary scales and such other
factors as the Employer shall consider relevant. (The annual base salary payable
to the Employee under this Section 2, as the same may be increased from time to
1
<PAGE>
time, shall hereinafter be referred to as the "Base Salary".) The Base Salary
payable under this Section 2 shall be reduced to the extent that the Employee
elects to defer such Base Salary under the terms of any deferred compensation or
savings plan maintained or established by the Employer or Group, provided that
--------
any such reduction of the Base Salary shall not be taken into account for
purposes of calculating the Base Amount (as defined in Section 3). The Employer
shall pay the Employee the Base Salary in biweekly installments, or in such
other installments as may be mutually agreed upon by the Employer and the
Employee.
3. Short-term Incentive Compensation. The Employee shall receive an
-----------------------------------
annual incentive bonus award (the "Annual Bonus") for each calendar year ending
during the term of the Employee's employment hereunder equal to:
(a) if the Operating Result (as defined below) for such year
is equal to or greater than the Maximum Operating Target (as defined
below) for such year, 125% of the amount of the Employee's Base Salary
paid to the Employee during the calendar year for which such bonus is
payable (such amount is hereinafter referred to as the "Base Amount");
(b) if the Operating Result for such year is greater than the
Operating Target but less than the Maximum Operating Target for such
year, 65% of the Base Amount plus, for each increase of 1/25 of the
difference between the Operating Target and the Maximum Operating
Target, an additional 2.40% of the Base Amount;
(c) if the Operating Result for such year is equal to
100% of the Operating Target for such year, 65% of the Base Amount;
(d) if the Operating Result for such year is greater than the
Minimum Operating Target (as defined below) but less than the Operating
Target for such year, 30% of the Base Amount plus, for each increase of
1/20 of the difference between the Minimum Operating Target and the
Operating Target (100%), an additional 1.75% of the Base Amount; and
(e) if the Operating Result for such year is equal to the
Minimum Operating Target for such year, 30% of the Base Amount.
Notwithstanding the foregoing, the Employer may increase or decrease the amount
of the Annual Bonus based upon the Employer's judgment of Employee's overall
contribution to the Employer's business results.
No Annual Bonus shall be paid if the Operating Result is less than the Minimum
Operating Target for such year. The "Operating Target", the "Maximum Operating
Target" and the "Minimum Operating Target" in any year shall be jointly
established by the Chief Executive Officer of the Employer and Employer's Board.
The "Operating Result" for any year shall be equal to the annual financial
results for the components that make up the Operating Target as of December 31
in such year, using United States generally accepted accounting principles
consistently applied and taking into account such other factors as may be
2
<PAGE>
approved by Employer's Board. The Annual Bonus, if any, shall be paid as soon as
practicable after the close of the year for which the Annual Bonus is payable,
unless the Employee elects to defer such amounts under the terms of any deferred
compensation or savings plan maintained or established by the Employer or Group.
4. Employee Benefits. During the term of the Employee's employment
------------------
hereunder, employee benefits, including, but not limited to, life, medical,
dental and disability insurance, will be provided to the Employee in accordance
with programs at the Employer then available to executive employees. The
Employee shall also be entitled to participate in all of Employer's profit
sharing, pension, retirement, deferred compensation and savings plans, as the
same may be amended and in effect from time to time, at levels and having
interests commensurate with the Employee's then current period of service,
compensation and position.
5. Perquisites and Expenses.
------------------------
(a) General. During the term of the Employee's employment
-------
hereunder, the Employee shall be entitled to participate in any special benefit
or perquisite program available from time to time to executive employees of the
Employer on the terms and conditions then prevailing under such program.
(b) Business Travel, Lodging, etc. The Employer shall
----------------------------------
reimburse the Employee for reasonable travel, lodging and meal expenses incurred
by him in connection with his performance of services hereunder upon submission
of evidence, satisfactory to the Employer, of the incurrence and purpose of each
such expense.
6. Termination of Employment.
-------------------------
(a) Termination Due to Death or Disability. In the event that
--------------------------------------
the Employee's employment hereunder terminates due to death or is terminated by
the Employer due to the Employee's Disability (as defined below), no termination
benefits shall be payable to or in respect of the Employee except as provided in
Section 6(f)(ii). For purposes of this Agreement, "Disability" shall mean a
physical or mental disability that prevents the performance by the Employee of
his duties hereunder lasting (or likely to last, based on competent medical
evidence presented to Employer's Board) for a continuous period of six months or
longer. The reasoned and good faith judgment of Employer's Board as to the
Employee's Disability shall be final and shall be based on such competent
medical evidence as shall be presented to it by the Employee or by any physician
or group of physicians or other competent medical experts employed by the
Employee or the Employer to advise Employer's Board.
(b) Termination by the Employer for Cause. The Employee may be
-------------------------------------
terminated for Cause by the Employer. "Cause" shall mean (i) the willful failure
of the Employee substantially to perform his duties hereunder (other than any
such failure due to physical or mental illness) after a demand for substantial
performance is delivered to the Employee by the executive to which the Employee
3
<PAGE>
reports or by Employer's Board, which notice identifies the manner in which such
executive or Employer's Board, as the case may be, believes that the Employee
has not substantially performed his duties, (ii) the Employee's engaging in
willful and serious misconduct that is injurious to Group or Employer or any of
their subsidiaries, (iii) the Employee's regularly making a substantial, abusive
use of alcohol, drug, or similar substances, and such abuse in the Employer's
judgment has affected his ability to conduct the business of the Employer in a
proper and prudent manner, (iv) the Employee's conviction of, or entering a plea
of nolo contendere to, a crime that constitutes a felony, or (v) the willful and
material breach by the Employee of any of his obligations hereunder, or the
willful and material breach by the Employee of any written covenant or agreement
with the Employer or any of its affiliates not to disclose any information
pertaining to the Employer or any of its affiliates or not to compete or
interfere with the Employer or any of its affiliates.
(c) Termination by the Employer Without Cause. The Employee
------------------------------------------
may be terminated Without Cause by the Employer. A termination "Without Cause"
shall mean a termination of employment by the Employer other than due to death
or Disability as defined in Section 6(a) or Cause as defined in Section 6(b).
(d) Termination by the Employee. The Employee may terminate
----------------------------
his employment for "Good Reason". "Good Reason" shall mean a termination of
employment by the Employee within 30 days following (i) any assignment to the
Employee of any duties, functions or responsibilities that are significantly
different from, and result in a substantial diminution of, the duties, functions
or responsibilities that the Employee has on the date hereof or (ii) the failure
of the Employer to obtain the assumption of this Agreement by any successor as
contemplated by Section 12.
(e) Notice of Termination. Any termination by the Employer
----------------------
pursuant to Section 6(a), 6(b) or 6(c), or by the Employee pursuant to Section
6(d), shall be communicated by a written "Notice of Termination" addressed to
the other parties to this Agreement. A "Notice of Termination" shall mean a
notice stating that the Employee's employment hereunder has been or will be
terminated, indicating the specific termination provisions in this Agreement
relied upon and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination of employment.
(f) Payments Upon Certain Terminations.
----------------------------------
(i) In the event of a termination of the Employee's
employment Without Cause or a termination by the Employee of his
employment for Good Reason, the Employer shall pay to the Employee (A)
(1) the greater of (x) his Base Salary, if any, for the period from the
Date of Termination (as defined below) through the last day of the
Initial Term, provided that Employer may, at any time, pay to the
Employee in a single lump sum an amount equal to the Base Salary
remaining to be paid to the Employee as of the date of such lump sum
payment and (y) an amount equal to one year's Base Salary, less (2) any
4
<PAGE>
amounts paid or to be paid to the Employee under the terms of any
severance plan or program of Employer, if any, as in effect on the Date
of Termination, (B) the Annual Bonus with respect to a completed fiscal
year to the extent not theretofore paid to the Employee and (C) a Pro
Rata Share of the Annual Bonus (as defined below) for the fiscal year
in which the Date of Termination occurred.
Employer shall also provide, in addition to the
continuation of Base Salary, continued employee benefits and vesting of
Incentive Awards (as defined under Group's Stock Incentive Plan,
amended and restated April 30, 1998, as the same may be amended from
time to time, the "SIP") through the Initial Term. Any benefits payable
to the Employee under any otherwise applicable plans, policies and
practices of Employer shall not be limited by this provision.
(ii) If the Employee's employment shall terminate upon his
death or Disability or if Employer shall terminate the Employee's
employment for Cause, Employer shall pay the Employee his full Base
Salary through the Date of Termination, plus, in the case of
termination upon the Employee's death or Disability, a Pro Rata Share
of the Annual Bonus. Any benefits payable to or in respect of the
Employee under any otherwise applicable plans, policies and practices
of the Employer shall not be limited by this provision.
(iii) For purposes of this Section 6, the "Pro Rata Share of
the Annual Bonus" shall be calculated and paid as follows. If the
Employee is terminated prior to July 1 of any year, the Pro Rata Share
of the Annual Bonus (A) will be equal to the product of (1) the Annual
Bonus, calculated assuming that 100% of the Operating Target is
achieved in such year, and (2) a fraction equal to the number of full
months in such year prior to the Date of Termination over 12, and (B)
will be paid to the Employee within 30 days after the Date of
Termination. If the Employee is terminated on or after July 1 of any
year, the Pro Rata Share of the Annual Bonus (A) will be equal to the
product of (1) the Annual Bonus, calculated based on the actual
Operating Result for such year, and (2) a fraction equal to the number
of full months in such year prior to the Date of Termination over 12,
and (B) will be paid to the Employee within 90 days after the close of
the year in respect of which the Pro Rata Share of the Annual Bonus is
payable.
(g) Date of Termination. As used in this Agreement, the term
-------------------
"Date of Termination" shall mean (i) if the Employee's employment is terminated
by his death, the date of his death, (ii) if the Employee's employment is
terminated for Cause, the date on which Notice of Termination is given as
contemplated by Section 6(e), and (iii) if the Employee's employment is
terminated Without Cause, due to the Employee's Disability or by the Employee
for Good Reason, 30 days after the date on which Notice of Termination is given
as contemplated by Section 6(d) or, if no such Notice is given, 30 days after
the date of termination of employment.
5
<PAGE>
(h) Condition to Payments. The Employer's obligation to make
---------------------
any payments hereunder shall be conditioned upon the Employer's receipt of an
appropriately signed "General Release and Covenant Not to Sue" in form and
substance satisfactory to the Employer.
7. Unauthorized Disclosure. During and after the term of his employment
-----------------------
hereunder, the Employee shall not, without the written consent of Employer's
Board, the General Counsel of the Employer, or the Chief Executive Officer of
the Employer, disclose to any person (other than an employee or director of the
Employer or its affiliates, or a person to whom disclosure is reasonably
necessary or appropriate in connection with the performance by the Employee of
his duties as an executive of the Employer) any confidential or proprietary
information, knowledge or data that is not theretofore publicly known and in the
public domain obtained by him while in the employ of the Employer with respect
to the Employer or any of its subsidiaries or affiliates or with respect to any
products, improvements, formulas, recipes, designs, processes, customers,
methods of sales, distribution, operation or manufacture, sales, prices,
profits, costs, contracts, suppliers, business prospects, business methods,
techniques, research, plans, strategies, personnel, organization, trade secrets
or know-how of the Employer or any of its subsidiaries or affiliates
(collectively, "Proprietary Information"), except as may be required by law or
in connection with any judicial or administrative proceedings or inquiry.
8. Non-Competition. During the period of the Employee's employment and
---------------
thereafter for a period equal to the number of months providing the basis for
calculating any termination payments to the Employee under Section 6, if any
such payments are required, but in any event for at least 12 months, the
Employee shall not engage directly or indirectly in, become employed by, serve
as an agent or consultant to, or become a partner, principal or stockholder of,
any partnership, corporation or other entity which competes with a business that
represents 5% or more of the aggregate gross revenues of the Employer and its
subsidiaries and which is then engaged in such competition in any geographical
area in which the Employer or any of its subsidiaries is then engaged in such
business without first obtaining written approval from the Employer, provided
that the Employee's ownership of less than 1% of the issued and outstanding
stock of any corporation whose stock is traded on an established securities
market shall not constitute competition with the Employer. The Employer may
grant or deny such approval in its sole discretion.
9. Non-Interference. During the period of the Employee's employment and
----------------
thereafter for a period equal to the number of months providing the basis for
calculating any termination payments to the Employee under Section 6, if any
such payments are required, but in any event for at least 36 months, the
Employee will not, directly or indirectly, for his own account or the account of
any other person or entity, (a) employ in a business of the kind in which the
Employer is engaged on the date of such termination, or solicit or endeavor to
entice away from the Employer, or otherwise intentionally interfere with the
Employer's relationship with, any person or entity who or which is at the time
employed by or otherwise engaged to perform services for the Employer or (b)
6
<PAGE>
intentionally interfere with the Employer's relationship with any person or
entity who or which is, or has been within the previous 36 months, a customer,
client or supplier of the Employer.
10. Return of Documents. In the event of the termination of the
---------------------
Employee's employment for any reason, the Employee will deliver to the Employer
all non-personal documents and data of any nature pertaining to his work with
the Employer, and he will not take with him any documents or data of any
description or any reproduction thereof, or any documents containing or
pertaining to any Proprietary Information.
11. Forfeiture of Realized and Unrealized Gains on Incentive Awards for
-------------------------------------------------------------------
Breach of this Agreement. If the Employee violates any provision of Sections 7,
- ------------------------
8, 9 or 10 of this Agreement, and the Employee is no longer employed by the
Employer, whether or not the termination of employment occurs prior to or
subsequent to such violation, then (1) all Incentive Awards held by the Employee
shall terminate effective the date on which Employee violates this Agreement,
unless terminated sooner by operation of another term or condition of the SIP or
the Award Agreement (as defined in the SIP), and (2) any gain realized upon
receipt of an Incentive Award, or exercise of an Incentive Award that does not
require the payment of an exercise price, which gain shall be represented by the
closing market price on the date of receipt of such Incentive Award, or in the
case of an Incentive Award that requires the payment of an exercise price, the
gain represented by the closing market price on the date of exercise over the
exercise price, multiplied by the number of Incentive Awards, or options
exercised, without regard to any subsequent market price decrease or increase;
in each case within 18 months prior to termination of employment with Employer
and violation of Sections 7, 8, 9 or 10 of this Agreement, shall be paid by the
Employee to the Employer. The Employee agrees that the Employer has the right to
deduct from any amounts the Employer may owe the Employee from time to time
(including amounts owed to the Employee as wages or other compensation, fringe
benefits, or vacation pay, as well as any other amounts owed to the Employee by
the Employer), the amounts the Employee owes the Employer or Group.
12. Assumption of Agreement. The Employer will require any successor
------------------------
(by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Employer, by agreement in form and substance
reasonably satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Employer would be required to perform it if no such succession had taken place.
Failure of the Employer to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Employee to the greater of (x) compensation from the Employer in the same amount
and on the same terms as the Employee would be entitled hereunder if the
Employer terminated his employment Without Cause as contemplated by Section 6
and (y) amounts required to be paid to the Employee pursuant to the Change of
Control Agreement by and among Group, Employer and Employee dated as of April
30, 1998 (the "CIC Agreement"). For purposes of implementing the foregoing
clause (x), the date on which any such succession becomes effective shall be
7
<PAGE>
deemed to be the Date of Termination, and for purposes of implementing clause
(y), the timing and amount of any payments required pursuant to the CIC
Agreement shall be determined in accordance with the CIC Agreement.
13. Entire Agreement. Except as otherwise expressly provided herein,
----------------
this Agreement, the CIC Agreement and the Indemnification Agreement made and
entered into as of the 30th day of April, 1998 by and among Employer, Group and
Employee (the "Indemnification Agreement") constitute the entire agreement among
the parties hereto with respect to the subject matter hereof, and all promises,
representations, understandings, arrangements and prior agreements relating to
such subject matter (including those made to or with the Employee by any other
person or entity) are merged herein, in the CIC Agreement and in the
Indemnification Agreement and superseded hereby and thereby. To the extent that
the amount and timing of payments required to be made under this Agreement are
inconsistent with or different from the amount and timing of payments required
to be made pursuant to the CIC Agreement and/or the Indemnification Agreement,
the Employee shall be entitled to the most favorable benefits provided to the
Employee under the provisions of any such agreements.
14. Indemnification. The Employer agrees that it shall indemnify and
---------------
hold harmless the Employee to the fullest extent (a) permitted by Delaware law
from and against any and all liabilities, costs, claims and expenses arising out
of the employment of the Employee hereunder, except to the extent arising out of
or based upon the gross negligence or willful misconduct of the Employee and (b)
provided by the Indemnification Agreement.
15. No Mitigation. The Employee shall not be required to mitigate the
--------------
amount of any payment that the Employer becomes obligated to make in connection
with this Agreement, the CIC Agreement or the Indemnification Agreement, by
seeking other employment or otherwise.
16. Miscellaneous.
-------------
(a) Binding Effect. This Agreement shall be binding on and
---------------
inure to the benefit of the Employer and its successors and permitted assigns.
This Agreement shall also be binding on and inure to the benefit of the Employee
and his heirs, executors, administrators and legal representatives.
(b) Governing Law. This Agreement shall be governed by and
--------------
constructed in accordance with the laws of the State of Delaware without
reference to principles of conflict of laws.
(c) Taxes. The Employer may withhold from any payments made
-----
under the Agreement all federal, state, city or other applicable taxes or social
security governmental regulation or ruling.
8
<PAGE>
(d) Amendments. No provisions of this Agreement may be
----------
modified, waived or discharged unless such modification, waiver or discharge is
approved by Employer's Board or General Counsel of the Employer and is agreed to
in writing by the Employee and General Counsel of the Employer. No waiver by any
party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No waiver of any
provision of this Agreement shall be implied from any course of dealing between
or among the parties hereto or from any failure by any party hereto to assert
its rights hereunder on any occasion or series of occasions.
(e) Reformation; Severability. If any provision of this
--------------------------
Agreement is held by a court or arbitrator to be unreasonable in scope or
duration or otherwise, the court or arbitrator shall, to the extent permitted by
law, reform such provision so that it is enforceable, and enforce the applicable
provision as so reformed. Reformation of any provision of this Agreement
pursuant to this subsection (e) shall not affect any other provision of this
Agreement or render this Agreement unenforceable or void.
(f) Notices. Any notice or other communication required or
-------
permitted to be delivered under this Agreement shall be (i) in writing, (ii)
delivered personally, by courier service or by certified or registered mail,
first-class postage prepaid and return receipt requested, (iii) deemed to have
been received on the date of delivery or on the third business day after the
mailing thereof, and (iv) addressed as follows (or to such other address as the
party entitled to notice shall hereafter designate in accordance with the terms
hereof):
(A) if to the Employer or Group, to it at:
One Lexmark Centre Drive
740 West New Circle Road
Lexington, Kentucky 40550
Attention: General Counsel
---------
(B) if to the Employee, to him at the address
listed on the signature page hereof.
(g) Survival. Sections 7, 8, 9,10 and 11 and, if the
--------
Employee's employment terminates in a manner giving rise to a payment under
Section 6(f), Section 6(f) shall survive the termination of the employment of
the Employee hereunder.
(h) Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9
<PAGE>
(i) Headings. The section and other headings contained in this
--------
Agreement are for the convenience of the parties only and are not intended to be
a part hereof or to affect the meaning or interpretation hereof.
IN WITNESS WHEREOF, the Employer and Group have duly executed this
Agreement by their authorized representatives and the Employee has hereunto set
his hand, in each case effective as of the date first above written.
LEXMARK INTERNATIONAL, INC.
By: /s/ Paul J. Curlander
-----------------------------
Paul J. Curlander
President and
Chief Executive Officer
LEXMARK INTERNATIONAL GROUP, INC.
By: /s/ Paul J. Curlander
-----------------------------
Paul J. Curlander
President and
Chief Executive Officer
THE EMPLOYEE:
/s/ Thomas B. Lamb
---------------------------------
Address:
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LEXMARK INTERNATIONAL GROUP, INC. FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 113
<SECURITIES> 0
<RECEIVABLES> 500
<ALLOWANCES> 25
<INVENTORY> 387
<CURRENT-ASSETS> 1,083
<PP&E> 576
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,728
<CURRENT-LIABILITIES> 626
<BONDS> 149
0
0
<COMMON> 2
<OTHER-SE> 792
<TOTAL-LIABILITY-AND-EQUITY> 1,728
<SALES> 892
<TOTAL-REVENUES> 892
<CGS> 577
<TOTAL-COSTS> 577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 115
<INCOME-TAX> 35
<INCOME-CONTINUING> 80
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.59
</TABLE>
