<PAGE> 1
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- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
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: ...........................................................
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- --------------------------------------------------------------------------------
<PAGE> 2
LEXMARK INTERNATIONAL GROUP, INC.
ONE LEXMARK CENTRE DRIVE
LEXINGTON, KENTUCKY 40550
March 23, 2000
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 27,
2000, at 8:00 a.m., at the Embassy Suites Hotel, 1801 Newtown Pike, Lexington,
Kentucky 40511.
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 27.
Sincerely,
/s/ Paul J. Curlander
Paul J. Curlander
Chairman and Chief
Executive Officer
<PAGE> 3
LEXMARK INTERNATIONAL GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
ON THURSDAY, APRIL 27, 2000
March 23, 2000
To the Stockholders:
The Annual Meeting of Stockholders of Lexmark International Group, Inc.
(the "Company") will be held on Thursday, April 27, 2000, at 8:00 a.m., at the
Embassy Suites Hotel, 1801 Newtown Pike, Lexington, Kentucky 40511, for the
following purposes:
1. To elect four Directors for terms expiring in 2003;
2. To approve 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;
3. To approve an amendment to the Third Restated Certificate of
Incorporation, as amended, that would increase the number of authorized
shares of Class A Common Stock from 450 million to 900 million; and
4. 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 10,
2000 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
/s/ Vincent J. Cole
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> 4
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 27, 2000, to be held at 8:00 a.m., at the Embassy Suites Hotel,
1801 Newtown Pike, Lexington, Kentucky 40511. This Proxy Statement and
accompanying form of proxy are being mailed to stockholders beginning on or
about March 23, 2000. The Company's Annual Report for the fiscal year ended
December 31, 1999 is enclosed.
Only stockholders of record at the close of business on Friday, March 10,
2000 will be entitled to vote at the meeting. As of such date, there were
129,132,193 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 outstanding shares of Class
A Common Stock 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 outstanding shares of Class A Common Stock 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
be treated as a broker non-vote. Because Proposal 2 and Proposal 3 require the
affirmative vote of a majority of the shares of Class A Common Stock
outstanding, a broker non-vote will have the same effect as a vote against such
proposals.
<PAGE> 5
PROPOSAL 1
ELECTION OF DIRECTORS
Action will be taken at the 2000 Annual Meeting to elect four Class III
Directors to serve until the 2003 Annual Meeting of Stockholders. The nominees,
as well as the Class I and Class II Directors who are continuing to serve, are
listed below together with certain information about each of them. The nominees
for election at the 2000 Annual Meeting of Stockholders are Michael J. Maples,
Stephen R. Hardis, William R. Fields, and Robert Holland, Jr. Messrs. Maples,
Hardis, Fields and Holland have been Directors since February 1996, November
1996, December 1996 and December 1998, respectively. Messrs. Maples, Hardis and
Fields were elected by the stockholders in May 1997, and Mr. Holland was elected
by the Board of Directors in December 1998, to serve as Class III Directors with
terms expiring at the 2000 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 III (TERM ENDING 2003)
Mr. Michael J. Maples, age 57, 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 International Business Machines Corporation
("IBM"). Mr. Maples also serves as a director of J. D. Edwards & Co., Mission
Critical Software, Inc. and PSW Technologies, Inc.
Mr. Stephen R. Hardis, age 64, 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 American Greetings Corporation, KeyCorp, Marsh &
McLennan Companies, Inc., Nordson Corporation and The Progressive Corporation.
Mr. William R. Fields, age 50, has been a Director of the Company since
December 1996. Mr. Fields is Chairman and Chief Executive Officer of APEC
(China) Asset Management Ltd. Previously, Mr. Fields served as President and
Chief Executive Officer of Hudson's Bay Company from 1997 to 1999 and as
Chairman and Chief Executive Officer of Blockbuster Entertainment Group, a
division of Viacom, Inc. from 1996 to 1997. 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 59, 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, The MONY Group Inc., and Tricon Global Restaurants, Inc.
The following information on Class I and Class II 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 2000 Annual
Meeting of Stockholders.
2
<PAGE> 6
CLASS I (TERM ENDING 2001)
Mr. Frank T. Cary, age 79, 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 47, has been a Director of the Company since
February 1997. Since April 1999, Dr. Curlander has been Chairman and Chief
Executive Officer of the Company. From May 1998 to April 1999, Dr. Curlander
served as President and Chief Executive Officer, from February 1997 to May 1998,
he served as President and Chief Operating Officer, 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 67, has been a Director of the Company since
February 1997. Mr. Walker is a principal of MORWAL Investments and retired as
the Chairman of the M.A. Hanna Company in December 1999, a position he had
served in on an interim basis since October 1998. From October 1998 to June
1999, Mr. Walker also served as Chief Executive Officer of the M.A. Hanna
Company on an interim basis. He had previously served as Chairman and Chief
Executive Officer of the M.A. Hanna Company from September 1986 until December
1996, and continued as Chairman of the Board until June 1997 when he retired.
Mr. Walker is also a director of Comerica, Incorporated, The Goodyear Tire &
Rubber Co., the M.A. Hanna Company, Textron, Inc., and The Timken Company.
Mr. James F. Hardymon, age 65, has been a Director of the Company since
July 1998. From July 1998 until his retirement in January 1999, Mr. Hardymon
served as Chairman of Textron, Inc. From January 1993 to July 1998, Mr. Hardymon
served as Chairman and Chief Executive Officer, and 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 Air Products and Chemicals, Inc., American
Standard Inc., Championship Auto Racing Teams, Inc., Circuit City Stores, Inc.
and Fleet Boston Corporation.
CLASS II (TERM ENDING 2002)
Mr. B. Charles Ames, age 74, 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"). Mr. Ames was previously Chairman and Chief Executive
Officer of Reliance Electric Company, The Uniroyal Goodrich Tire Company and
Acme Cleveland Corporation. Mr. Ames is the Chairman of Riverwood International
Corp. and its parent, Riverwood Holding, Inc., and Schulte GmbH & Co. KG. Mr.
Ames also serves as a director of The Progressive Corporation.
Mr. Ralph E. Gomory, age 70, 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 IBM. Mr. Gomory also serves as a director of Polaroid
Corporation and The Washington Post Company.
Mr. Marvin L. Mann, age 66, has been a Director of the Company since March
1991. In April 1999, Mr. Mann was named Chairman Emeritus upon his retirement as
Chairman of the Board of the Company, a position he had held since March 1991.
From March 1991 through May 1998, Mr. Mann 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 was an IBM Vice President. Mr. Mann
also serves as a director of Dynatech Corporation, Imation Corporation and the
M.A. Hanna Company and is a member of the board of trustees of Fidelity
Investments.
3
<PAGE> 7
COMPOSITION OF BOARD AND COMMITTEES
The Company's Third Restated Certificate of Incorporation, as amended,
divides the Board of Directors into three classes. Of the eleven members of the
Board of Directors, 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;
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 and three have been
elected as Class II Directors with terms expiring at the time of the Annual
Meeting of Stockholders to be held in 2002. 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 five meetings during 1999. All members of the
Board attended at least 75% of the meetings of the Board and committees of the
Board on which they served, except for Messrs. Gomory and Walker who attended
60% and 67%, respectively.
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.
The Executive Committee consists of Messrs. Ames, Cary, Mann, Walker and
Dr. Curlander, with Dr. Curlander serving as Chairman. The Executive Committee
is responsible for exercising all of the powers and authority of the Board of
Directors during intervals between Board meetings, except for those powers
delegated to the other committees of the Board and the powers which pursuant to
Delaware law may not be delegated to a committee of the Board. The Committee did
not meet during 1999.
The Finance and Audit Committee consists of Messrs. Cary, Hardis, Hardymon,
Holland and Maples, with Mr. Cary serving as Chairman. The Finance and Audit
Committee is responsible for assisting the Board of Directors in fulfilling its
oversight and monitoring responsibilities in matters relating to corporate
accounting and reporting practices, financial controls, capital structure, the
borrowing and repayment of funds by the Company, and other matters related to
the preparation of the audited financial statements of the Company. The
Committee held five meetings during 1999.
The Compensation and Pension Committee consists of Messrs. Ames, Fields,
Gomory and Walker, with Mr. Ames serving as Chairman. The Compensation and
Pension Committee is responsible for assuring that the Company has a competitive
executive compensation program in order to attract and retain qualified
executives and to provide incentives to management of the Company for the
attainment of the Company's goals and objectives. The Compensation and Pension
Committee is also responsible for periodically reviewing and approving the
Company's pension plan, 401(k) savings plan and employee stock purchase plan.
The Committee held five meetings during 1999.
The Corporate Governance and Public Policy Committee consists of Messrs.
Ames, Cary, Gomory, Mann and Walker, with Mr. Walker serving as Chairman. The
Corporate Governance and Public Policy Committee is responsible for providing
counsel to the Board with respect to corporate governance issues, including
Board and Committee organization, membership, and function, and acting in an
advisory capacity to the Board and the Company's management on public policy
issues. The Corporate Governance and Public Policy Committee is also responsible
for the nomination of persons for election to the Board and will consider
nominees recommended by stockholders. The Committee held five meetings during
1999.
COMPENSATION OF DIRECTORS
The Company's policy is to not 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 are not affiliated with any
principal stockholder of the Company 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 the evening before a Board meeting and $750
per meeting for participation in telephonic
4
<PAGE> 8
meetings. Any such nonemployee Director who serves as a chairperson of a
committee also receives an annual retainer of $3,500.
In addition, such nonemployee Directors are eligible to participate in the
Nonemployee Director Stock Plan described below. In April 1999, all Eligible
Directors received an Annual Award (as defined below) of options to purchase
2,400 shares (or proportionately less for those Directors with less than one
year of service at the time of grant). 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 is reviewed annually by the Board of Directors, and in 1999
the total exercise price of the grant was approximately $120,000 based on the
closing price of the Class A Common Stock on the last day of the prior fiscal
year. The Board of Directors has determined based on an analysis of comparable
company market data that the 2000 annual award should be increased to
approximately $150,000 in total exercise price 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, each Director of the Company who is not also an
employee of the Company or its subsidiaries or affiliated with any principal
stockholder (each, an "Eligible Director") receives a one-time grant of options
to purchase 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 is reviewed annually by the Board
of Directors, and in 1999 the total exercise price of the initial grant was
approximately $200,000 based on the closing price of the Class A Common Stock on
the last day of the prior fiscal year. Beginning in 2000, the number of options
granted in the Initial Award will be increased such that the total exercise
price of the grant will be approximately $300,000 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.
SECURITY OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table furnishes certain information, to the best knowledge of
the Company, as of March 10, 2000, 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 1999 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
5
<PAGE> 9
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.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
---------------- ----------------------- ----------
<S> <C> <C>
AMVESCAP PLC...................................... 9,567,200(1) 7.49%(1)
11 Devonshire Square
London EC2M 4YR
England
B. Charles Ames................................... 53,733(2) *
Frank T. Cary..................................... 47,598(2) *
William R. Fields................................. 19,654(2) *
Ralph E. Gomory................................... 77,134(2) *
Stephen R. Hardis................................. 42,125(2) *
James F. Hardymon................................. 3,718(2) *
Robert Holland, Jr. .............................. 2,637(2) *
Marvin L. Mann.................................... 1,975,384(2)(3) 1.50
Michael J. Maples................................. 30,296(2) *
Martin D. Walker.................................. 26,426(2) *
Paul J. Curlander................................. 907,226(2) *
Alfred A. Traversi................................ 81,811(2) *
Bernard V. Masson................................. 39,367(2) *
Thomas B. Lamb.................................... 135,640(2)(4) *
Gary E. Morin..................................... 176,291(2) *
All directors and executive officers as a group
(23 persons).................................... 4,073,651(2) 3.09
</TABLE>
- ---------------
* Less than 1% of class.
(1) Based on a Schedule 13G filed with the Securities and Exchange Commission on
February 4, 2000 by AMVESCAP PLC. AMVESCAP PLC, a parent holding company
reporting on behalf of its direct and indirect subsidiaries, AVZ, Inc., AIM
Management Group, Inc., AMVESCAP Group Services, Inc., INVESCO, Inc. and
INVESCO North American Holdings, Inc., each a holding company, and INVESCO
Management & Research, Inc. and INVESCO Asset Management Limited, each an
investment adviser, are collectively the beneficial owners of all of the
shares. Each of the above-named entities has shared voting power and shared
dispositive power with respect to 9,567,200 shares.
(2) Shares beneficially owned include shares that may be acquired pursuant to
the exercise of options that are exercisable within 60 days following March
10, 2000 by the following persons and groups in the following amounts: B.
Charles Ames, 2,080 shares; Frank T. Cary, 5,939 shares; William R. Fields,
16,581 shares; Ralph E. Gomory, 24,080 shares; Stephen R. Hardis, 17,080
shares; James F. Hardymon, 1,174 shares; Robert Holland, Jr., 1,800 shares;
Marvin L. Mann, 1,281,892 shares; Michael J. Maples, 6,080 shares; Martin D.
Walker, 15,580 shares; Paul J. Curlander, 624,932 shares; Alfred A.
Traversi, 66,000 shares; Bernard V. Masson, 19,500 shares; Thomas B. Lamb,
89,872 shares; Gary E. Morin, 128,125 shares; and all Directors and
executive officers as a group (23 persons), 2,500,287 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. The shares held in the Lexmark Savings Plan can be
voted by each employee, and each employee has investment authority over the
shares held in his or her account in the plan. In the case of a tender
offer, the trustee shall tender or not tender shares as directed by each
participant in the plan. These shares also include shares allocated to the
employee through participation in the 1999 Employee Stock Purchase Plan. The
shares held in the 1999 Employee Stock Purchase Plan can be voted by each
employee, and each employee has investment authority over the shares held in
his or her account in the
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<PAGE> 10
plan. In the case of a tender offer, each participant would have the right
to tender or not tender his or her shares, subject to a one-year holding
period required by the terms of the plan.
(3) Mr. Mann's shares do not include 193,572 shares and an option to purchase
64,428 shares that are held by an irrevocable trust established by Mr. Mann
for the benefit of certain relatives. Mr. Mann's shares include 595,750
shares owned by two family limited partnerships. The general partner of each
family limited partnership is a corporation, of which Mr. Mann is the
controlling stockholder. Mr. Mann's shares also include 21,002 shares owned
by Mr. Mann's wife. Mr. Mann disclaims beneficial ownership of all such
shares.
(4) Mr. Lamb's shares include 717 shares that are held by three separate trusts
for the benefit of each of his children. Mr. Lamb disclaims beneficial
ownership of all such shares.
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 Dr.
Curlander failed to timely file a Form 4 reporting the acquisition of beneficial
ownership of 95 shares of the Company's Class A Common Stock donated in
connection with a charitable transaction.
EXECUTIVE COMPENSATION
The information set forth below describes the components of the total
compensation of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company based on 1999 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, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(3)
----------------------- -----------------------------
SECURITIES
INCENTIVE RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
POSITION YEAR SALARY (1) (4) (#) (7)
------------------ ---- -------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
P. J. Curlander................ 1999 $618,493 $1,024,814(2) $ 0 214,500(5) $ 3,416
Chairman and Chief 1998 523,288 1,072,428(2) 183,094 180,000 4,990
Executive Officer 1997 465,342 401,235(2) 0 130,000 3,487
A. A. Traversi................. 1999 312,932 360,785(2) 0 76,000(5) 3,416
Executive Vice President 1998 278,082 379,910(2) 0 60,000 4,990
1997 225,000 158,233(2) 0 0 57,280(8)
B. V. Masson................... 1999 300,000 338,400 0 83,338(5)(6) 3,416
Executive Vice President 1998 252,493 277,318 528,741 43,118(6) 3,164
and Division President 1997 215,626 85,819 0 40,000 2,193
T. B. Lamb..................... 1999 312,932 298,655 0 87,250(5) 2,464
Vice President and 1998 293,973 354,974 61,031 70,000(6) 3,551
Division President 1997 259,221 196,438 0 40,000 1,668
G. E. Morin.................... 1999 302,932 296,290(2) 0 96,081(5) 3,416
Executive Vice President 1998 287,534 332,114 61,031 50,000 4,990
and Chief Financial Officer 1997 266,027 248,110(2) 0 70,744(6) 3,487
</TABLE>
7
<PAGE> 11
- ---------------
(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 date of grant subject to continued
employment.
(2) Dr. Curlander, Mr. Traversi and Mr. Morin elected to defer $823,843,
$222,803, and $99,964, respectively, of their 1999 Annual Incentive
Compensation into 7,203, 1,948, and 874 Elective Deferred Stock Units,
respectively, and as a result received an additional $164,814, $44,606, and
$20,016, respectively, in Supplemental Units (or 1,441, 390, and 175
Supplemental Units, respectively). Dr. Curlander and Mr. Traversi elected to
defer $862,139 and $253,461, respectively, of their 1998 Annual Incentive
Compensation into 15,810 and 4,648 Elective Deferred Stock Units,
respectively, and as a result received an additional $172,428 and $50,714,
respectively, in Supplemental Units (or 3,162 and 930 Supplemental Units,
respectively). Dr. Curlander, Mr. Traversi and Mr. Morin elected to defer
$330,137, $56,166 and $163,054, respectively, of their 1997 Annual Incentive
Compensation into 15,400, 2,620 and 7,606 Elective Deferred Stock Units,
respectively, and as a result received an additional $66,027, $11,233 and
$32,628, respectively, in Supplemental Units (or 3,080, 524 and 1,522
Supplemental Units, respectively). Elective Deferred Stock Units are 100%
vested immediately. Supplemental Units vest 100% on the fifth anniversary of
the grant dates.
(3) 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, 1999 closing stock price of $90.50
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: Dr. Curlander -- 21,000/$2,660,700; Mr.
Traversi -- 8,000/$1,013,600; Mr. Masson -- 10,500/$1,330,350; Mr. Lamb --
10,500/$1,330,350; and Mr. Morin -- 15,000/$1,900,500.
(4) The value reflected in the table is the value on the date of grant
(calculated by multiplying the closing price of Lexmark Class A Common Stock
on the date of grant, $20.34375, by the number of restricted stock units
granted). The aggregate number and value at year end (calculated by
multiplying the closing price of Lexmark Class A Common Stock on December
31, 1999, $90.50, by the number of restricted stock units outstanding at
year end) of restricted stock units for each of the Named Executives are as
follows: Dr. Curlander -- 9,000/$814,500; Mr. Traversi -- 10,000/$905,000;
Mr. Masson -- 16,700/$1,511,350; Mr. Lamb -- 3,000/$271,500; and Mr. Morin
-- 3,000/$271,500. The restricted stock units for each of Dr. Curlander, Mr.
Lamb and Mr. Morin and 2,700 of Mr. Masson's restricted stock units vested
50% on the second anniversary of the grant date, or February 12, 2000, and
will vest 25% on each of the following two anniversaries. The remaining
14,000 of Mr. Masson's restricted stock units will vest 25% on the second
anniversary of the grant date, or October 29, 2000, and 25% on each of the
following three anniversaries. Mr. Traversi's restricted stock units vested
25% on each of the second and third anniversaries of the grant date, or
October 16, 1998 and 1999, and will vest 25% on each of the following two
anniversaries.
(5) Includes stock options granted under Lexmark's Long Term Incentive Plan as
follows: Dr. Curlander -- 94,500, Mr. Traversi -- 36,000, Mr. Masson --
47,250, Mr. Lamb -- 47,250 and Mr. Morin -- 67,500. Refer to "Long-Term
Incentive Plan -- Awards in 1999" for a description of the material terms
and conditions of these options.
(6) Includes replacement (reload) options awarded automatically upon exercise of
options paid for with previously owned shares of Lexmark Class A Common
Stock, as follows: 1999 Reloads -- Mr. Masson -- 8,088 and Mr. Morin -- 581;
1998 Reloads -- Mr. Masson -- 3,118 and Mr. Lamb -- 10,000; 1997
Reloads -- Mr. Morin -- 10,744.
(7) Matching contribution by the Company under the Lexmark Savings Plan.
(8) Includes amounts paid in respect of Mr. Traversi's relocation expenses in
connection with his move from California to Massachusetts and a matching
contribution of $625 by the Company under the Lexmark Savings Plan.
8
<PAGE> 12
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
---- ----------- ------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
P. J. Curlander............. 120,000(3) 4.97% $52.3438 02/11/09 $3,950,248 $10,010,704
94,500(4) 3.91 52.3438 02/11/09 3,110,820 7,883,430
A. A. Traversi.............. 40,000(3) 1.66 52.3438 02/11/09 1,316,749 3,336,901
36,000(4) 1.49 52.3438 02/11/09 1,185,074 3,003,211
B. V. Masson................ 28,000(3) 1.16 52.3438 02/11/09 921,725 2,335,831
3,216(5) 0.13 54.2500 12/04/05 68,415 158,492
1,872(5) 0.08 54.2500 02/13/07 48,308 115,627
3,000(5) 0.12 54.2500 02/12/08 89,391 220,005
47,250(4) 1.96 52.3438 02/11/09 1,555,410 3,941,715
T. B. Lamb.................. 40,000(3) 1.66 52.3438 02/11/09 1,316,749 3,336,901
47,250(4) 1.96 52.3438 02/11/09 1,555,410 3,941,715
G. E. Morin................. 28,000(3) 1.16 52.3438 02/11/09 921,725 2,335,831
581(5) 0.02 75.9375 01/08/06 16,114 36,930
67,500(4) 2.79 52.3438 02/11/09 2,222,015 5,631,021
</TABLE>
- ---------------
(1) 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) 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.
(3) 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.
(4) These are options granted in connection with the Long-Term Incentive Plan.
Each option granted has a ten year term. 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. For additional information about the
Long-Term Incentive Plan awards, refer to the table Long-Term Incentive Plan
- Awards in 1999.
(5) 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.
9
<PAGE> 13
AGGREGATED OPTION EXERCISES IN 1999
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each Named Executive Officer
with regard to stock option exercises during 1999 and the aggregate stock
options held at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR-END (#) (1) FISCAL YEAR-END ($) (2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME BY EXERCISES(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
P. J. Curlander....... 0 $ 0 502,932 502,500 $40,469,105 $29,411,873
A. A. Traversi........ 13,000 712,781 49,000 164,000 3,776,374 9,338,369
B. V. Masson.......... 34,000 1,405,875 29,206 149,250 1,928,464 8,438,377
T. B. Lamb............ 0 0 62,522 201,250 4,632,988 11,863,876
G. E. Morin........... 5,000 335,625 82,744 214,081 6,469,250 12,690,751
</TABLE>
- ---------------
(1) Represents the number of shares subject to outstanding options.
(2) Based on a price of $90.50 per share, the closing price of the Company's
Class A Common Stock on December 31, 1999, minus the exercise price.
LONG-TERM INCENTIVE PLAN -- AWARDS IN 1999
During 1997, the Company established the 1997-2000 Long-Term Incentive
Program (the "Long-Term Incentive Program") within the Company's Stock Incentive
Plan. Performance Awards under the Long-Term Incentive Program represent
contingent share awards that would be earned if specific performance objectives
were attained by the Company over the four-year period specified by the
Compensation and Pension Committee. The performance objectives, established by
the Committee for the period January 1, 1997 through December 31, 2000, were
based on Earnings Per Share and Shareholder Value Add criteria, which were
equally weighted, over the four-year performance period.
In 1997, the Compensation and Pension Committee granted Performance Awards
under the Company's Stock Incentive Plan to certain executive officers. The
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, the Compensation and Pension Committee determined that it was
highly likely that the maximum targets for the four-year performance period
would be achieved significantly in advance of December 31, 2000, thereby
reducing the performance incentive to management. At the recommendation of the
Compensation and Pension Committee at the February 11, 1999 meeting of the Board
of Directors, the Board approved a revision to the Long-Term Incentive Program
which would set a maximum potential payout of restricted stock units at the
Target Performance Award level. In lieu of the additional restricted stock units
which would likely be paid out at the Maximum Performance Award level under the
terms of the existing program, stock options in an amount equal to six times the
number of restricted stock units foregone at a strike price equal to the fair
market on the date of grant were granted to the participants in the program.
10
<PAGE> 14
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS (#) PERFORMANCE PERIOD
---- --------------------- -------------------------------------
<S> <C> <C>
P. J. Curlander.................. 94,500 1/1/97 through 12/31/00
A. A. Traversi................... 36,000 1/1/97 through 12/31/00
B. V. Masson..................... 47,250 1/1/97 through 12/31/00
T. B. Lamb....................... 47,250 1/1/97 through 12/31/00
G. E. Morin...................... 67,500 1/1/97 through 12/31/00
</TABLE>
Each option granted has a ten year term expiring February 11, 2009. The
vesting and exercise schedule for the options is based on the performance of the
Company as compared to the target and maximum objectives of the Long-Term
Incentive Program for the four-year performance period. If the Target
Performance Award level is achieved, the options will vest in full in February
2004 and become exercisable in August 2008. If the Maximum Performance Award
level is achieved, the options will vest in full as of December 31, 2000 and
become exercisable December 31, 2002. If the performance of the Company falls
between the two award levels, the performance percentage in excess of the Target
Performance Award level will determine the percentage of the participant's
options that will vest at December 31, 2000 and become exercisable December 31,
2002. The remainder of the options will vest in February 2004 and become
exercisable in August 2008.
Since the stock options issued under the revised program had an exercise
price equal to the fair market value of the stock on the date of grant,
participants would receive value from the options only if the share price
increases. Thus, participants forfeited the opportunity to receive the maximum
award of shares under the LTIP, assumed the risk of improving Company
performance, and would be rewarded only if increased performance levels are
achieved.
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
comes 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, 1987, including
compensation earned while employed by IBM.
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 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 ran 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 were
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.
11
<PAGE> 15
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 29, 2000,
upon retirement at the later of age 62 or their current age, in the following
amounts: Dr. Curlander-$505,497, Mr. Traversi-$108,442, Mr. Masson-$68,922, Mr.
Lamb-$183,058 and Mr. Morin-$76,659.
EMPLOYMENT CONTRACTS
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, Masson, Lamb and Morin with employment terms expiring February 28,
2001. Pursuant to the agreements, Dr. Curlander receives an annual base salary
of $650,000, Mr. Traversi receives an annual base salary of $320,000, Mr. Masson
receives an annual base salary of $300,000, Mr. Lamb receives an annual base
salary of $320,000, and Mr. Morin receives an annual base salary of $310,000.
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 incentive compensation award equal to a percentage of such
base salary ranging from 0% to 200% in the case of Dr. Curlander, 0% to 140% in
the case of Mr. Traversi, and 0% to 125% in the case of Messrs. Masson, Lamb and
Morin, 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 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 Dr. Curlander, and Messrs.
Traversi, Masson, Lamb 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.
Masson) the sum of his annual base salary and incentive compensation, calculated
assuming the Company attained its financial targets and disregarding personal
attainment goals for the years in question. In addition, for a period of three
years (two years in the case of Mr. Masson) 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, as 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 "Grossed-Up" payment to negate the effects of
such tax.
The Company has entered into indemnification agreements with Dr. Curlander,
and each of Messrs. Traversi, Masson, Lamb and Morin, which require the Company
to indemnify them against certain liabilities that may arise as a result of
their status or service as officers of the Company.
12
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, Messrs. Ames, Fields, Gomory and Walker served on the
Compensation and Pension Committee. Mr. Ames has served as Chairman of this
Committee since February 1997.
During 1999, Mr. Mann, who served as Chairman of the Board of the Company
until his retirement in April 1999, 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.
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 1999 regarding the compensation paid to Dr. Paul J.
Curlander, who serves as Chairman and Chief Executive Officer of the Company,
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 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 achievement above target
performance, 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.
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
13
<PAGE> 17
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. 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 achievement above target
performance, rather than actual financial performance of the Company. The 1999
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 responsibility and particular
business unit. For 1999, 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.
Section 162(m) of the Internal Revenue Code makes compensation paid to the
Named Executive Officers in amounts in excess of $1 million not deductible
unless the compensation is paid pursuant to predetermined performance objectives
within the meaning of Section 162(m) or satisfies one of various other
exemptions. 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). The Company's
exemption terminated following its 1999 Annual Meeting of Stockholders. To
ensure future deductibility of non-discretionary annual incentive awards,
stockholders approved at the 1999 Annual Meeting of Stockholders certain terms
and conditions governing non-discretionary annual incentive awards which are
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).
14
<PAGE> 18
The Compensation and Pension Committee and the Board believe that it is
essential to retain the ability to reward 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, Chairman 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 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 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 1999" 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 motivating management. In February 1999, the participants in
this Performance Award program forfeited the opportunity to receive the Maximum
Performance Award, which very likely would have been earned, and accepted the
risk that they would receive the same level of compensation only if the
Company's stock price increased 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
shareholder 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
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<PAGE> 19
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 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 Restricted
Stock Units to certain executive officers, including Dr. Curlander, Mr. Masson,
Mr. Lamb and Mr. Morin. 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% vested on February 12, 2000 and 25% will vest on each of the following
two anniversaries.
CEO COMPENSATION
For 1999, Dr. Curlander received an annual base salary of $618,493 and
$1,024,814 annual incentive award, which includes the value of supplemental
deferred stock units equal to $164,814. His base pay was increased on April 26,
1999 to $650,000. Dr. Curlander's non-discretionary annual incentive
compensation award opportunity is based on the achievement of annual financial
goals established by the Executive Compensation Subcommittee of the Compensation
and Pension Committee. For 1999, Dr. Curlander's corporate financial performance
objectives were weighted equally and involved earnings per share, revenue and
shareholder value add. In 1999, earnings per share increased 36%, revenue
increased 14%, and shareholder value add grew 42%. In addition to the
non-discretionary annual incentive compensation award opportunity described
above, Dr. Curlander has the opportunity to earn a discretionary incentive award
based on the Board of Directors' determination of his attainment of personal
objectives relating to the overall achievement of the Company's strategic
objectives. Dr. Curlander has elected to defer payment of his entire 1999 annual
incentive award and receive Deferred Stock Units pursuant to the Company's Stock
Incentive Plan in lieu thereof. Deferred Stock Units attributable to any portion
of Dr. Curlander's 1999 annual incentive award which would not be deductible to
the Company will not be settled until such time(s) as payment would be
deductible to the Company.
In addition to the cash compensation described above, in February 1999, Dr.
Curlander was granted 214,500 non-qualified stock options: 120,000 stock options
vest in equal installments over five years and 94,500 stock options under
Lexmark's Long-Term Incentive Plan that have performance accelerated vesting.
Refer to "Long-Term Incentive Plan -- Awards in 1999" for a description of the
material terms and conditions of these options.
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, 1999. 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.
[GRAPH]
<TABLE>
<CAPTION>
11/15/95 12/29/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lexmark............................... $100 $ 91 $138 $190 $503 $905
S & P 500 Index....................... 100 105 129 172 221 267
S & P Technology Sector Index......... 100 97 137 173 299 524
</TABLE>
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<PAGE> 21
PROPOSAL 2
APPROVAL OF AN AGREEMENT AND PLAN OF MERGER PROVIDING FOR THE
MERGER OF THE COMPANY WITH AND INTO LEXMARK INTERNATIONAL
Approval of the merger of the Company with and into its wholly-owned
subsidiary, Lexmark International, will require the affirmative vote of a
majority of the outstanding shares of Class A Common Stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THIS MERGER. PROXIES WILL BE VOTED FOR THIS PROPOSAL, UNLESS
STOCKHOLDERS SPECIFY A DIFFERENT CHOICE IN THEIR PROXIES.
THE RIGHTS AND PRIVILEGES OF THE STOCKHOLDERS AND THE TERMS AND PROVISIONS
OF THE CAPITAL STOCK OF LEXMARK INTERNATIONAL AFTER THE MERGER WILL BE IDENTICAL
TO THOSE OF THE STOCKHOLDERS AND CAPITAL STOCK OF THE COMPANY PRIOR TO THE
MERGER.
BACKGROUND AND PURPOSE
On July 23, 1990, Lexington Holding Corporation ("Holding") was
incorporated as a Delaware holding company by CD&R, an investment firm, for
purposes of acquiring the stock of IBM Information Products Corporation ("IPC"),
from IBM. IPC was originally incorporated in Delaware on May 25, 1990 under the
name "New York Libra Corporation" and subsequently changed its name to "IBM
Information Products Corporation" on December 13, 1990. On March 27, 1991,
Holding acquired all of the issued and outstanding stock of IPC from IBM and IPC
became the wholly-owned subsidiary of Holding. Through subsequent name changes,
Holding has become known as "Lexmark International Group, Inc." and IPC has
become known as "Lexmark International, Inc." In October 1995, CD&R made an
initial public offering of the Company's Class A Common Stock, and through
subsequent secondary offerings has completely divested itself of all of the
Company's Class A Common Stock. The Company's Class A Common Stock is now
publicly held and, at present, the Company has no other class of common stock or
preferred stock outstanding. Lexmark International remains as the only
wholly-owned subsidiary of the Company and Lexmark International's stock is the
sole asset held by the Company. All of the business of the Company is conducted
through Lexmark International and all of the assets and liabilities currently
represented in the consolidated financial statements of the Company are held by
Lexmark International.
Management of the Company believes that the holding company format
originally put in place is no longer necessary and that its elimination will
simplify the corporate structure, thereby: (i) simplifying corporate
administration, (ii) reducing administrative expense, (iii) facilitating
efficient cash movement, (iv) clarifying the capital structure of Lexmark
International and its subsidiaries, and (v) resulting in less confusion among
investors, customers, suppliers and others regarding the relationship between
the Company and Lexmark International. Management now proposes to merge the
Company with and into Lexmark International (the "Merger"). The Board of
Directors also believes that the proposed Merger is in the best interests of the
Company and its stockholders.
As a result of the Merger, the Company will no longer exist and the shares
of Lexmark International will be owned directly by the Company's stockholders.
Following the Merger, Lexmark International will retain the name "Lexmark
International, Inc."
SUMMARY OF MERGER
Some important points about the Merger are:
1. There will be no change in the state of incorporation. The Company is a
Delaware corporation and Lexmark International is a Delaware corporation.
2. The Certificate of Incorporation and By-Laws of Lexmark International
will be identical to the Company's Certificate of Incorporation and By-Laws at
the time of the Merger. Therefore, Lexmark International will have the same
authorized capital stock as the Company with the same rights and privileges.
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<PAGE> 22
3. Immediately after the Merger, Lexmark International will have the same
consolidated assets, liabilities and stockholders' equity as the Company.
4. Lexmark International will have the same Directors, in the same classes
and with the same terms, and the same officers as the Company at the time of the
Merger.
5. At the time of the Merger, the outstanding shares of the Company's Class
A Common Stock, Class B Common Stock, par value $.01 per share ("Class B Common
Stock," and together with the Class A Common Stock, the "Common Stock") and
Preferred Stock, par value $.01 per share ("Preferred Stock") will be converted
automatically into an equivalent number of shares of Lexmark International's
Class A Common Stock, Class B Common Stock and Preferred Stock, respectively.
Certificates for the shares of the Company's Class A Common Stock, Class B
Common Stock and Preferred Stock will automatically represent shares of Lexmark
International's Class A Common Stock, Class B Common Stock and Preferred Stock,
respectively. No exchange of stock certificates will be required.
6. Following the Merger, Lexmark International will be a publicly-held,
reporting company under the Securities Exchange Act of 1934. Lexmark
International expects its Class A Common Stock to be listed on the New York
Stock Exchange under the same ticker symbol, "LXK."
7. In the opinion of Baker & McKenzie, special tax counsel to the Company
and Lexmark International, based upon certain factual representations of the
Company and Lexmark International, the Merger will be treated for U.S. federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), with the result that
stockholders generally will not recognize gain or loss as a result of the Merger
and will have the same tax basis and holding period for their shares.
8. The Merger is expected to be effective at the end of the second quarter
of 2000.
CONDITIONS TO THE MERGER
The Merger is subject to the following conditions:
(a) Approval of the Merger as provided for in the Agreement and Plan
of Merger between the Company and Lexmark International (the "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 Lexmark
International 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.
MERGER PROCEDURE
The proposed Merger will be accomplished according to the terms of the
Merger Agreement. The summary of significant features of the Merger contained
herein is qualified in its entirety by the full text of the Merger Agreement,
which is attached to this Proxy Statement as Exhibit A.
Pursuant to the Merger Agreement, and subject to the approval of the
holders of a majority of outstanding shares of Class A Common Stock and the
fulfillment or waiver of certain other conditions described herein, each share
of the Company's Class A Common Stock, Class B Common Stock and Preferred Stock
outstanding immediately prior to the Merger will automatically be converted into
an equivalent number of shares of Lexmark International's Class A Common Stock,
Class B Common Stock and Preferred Stock, respectively. As a result of the
Merger, the Company will be merged with and into Lexmark International and the
Company's stockholders will become stockholders of Lexmark International.
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<PAGE> 23
STOCKHOLDERS OF THE COMPANY HOLDING SHARE CERTIFICATES REPRESENTING THE
COMMON AND PREFERRED STOCK OF THE COMPANY WILL NOT BE REQUIRED TO SURRENDER
THEIR SHARE CERTIFICATES FOR PURPOSES OF THE MERGER.
AMENDMENT OR TERMINATION OF THE MERGER
The Merger Agreement provides that the parties thereto may (i) amend any of
the terms of the Merger Agreement, (ii) extend the time for performance of any
of the obligations or acts of the parties or (iii) waive compliance with any of
the covenants, conditions or agreements contained in the Merger Agreement or any
document delivered pursuant to the Merger Agreement before the consummation of
the Merger and before or after stockholder approval, provided that any such
action will not, in the opinion of the parties thereto, have a material adverse
effect on the Company's stockholders.
Pursuant to its terms, the Merger Agreement may be terminated by the
Company's Chairman and Chief Executive Officer or Lexmark International's
Chairman and Chief Executive Officer at any time prior to the consummation of
the Merger, including after the receipt of stockholder approval.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is a summary
of certain provisions of the Company's Certificate of Incorporation. The
Certificate of Incorporation of Lexmark International will be identical to the
Company's Certificate of Incorporation at the time of the Merger. The authorized
number of shares of each class of capital stock, and the par value thereof per
share, are as follows: (i) 450,000,000 shares of Class A Common Stock, par value
$.01 per share, (ii) 10,000,000 shares of Class B Common Stock, par value $.01
per share, and (iii) 1,600,000 shares of Preferred Stock, par value $.01 per
share. The terms and provisions of the capital stock of Lexmark International
after the Merger will be identical to those of the capital stock of the Company
at the time of the Merger. At this time, there are no shares of Class B Common
Stock or Preferred Stock issued and outstanding.
Proposal 3 included in this Proxy Statement recommends the approval of an
amendment to the Company's Third Restated Certificate of Incorporation, as
amended, that would increase the number of authorized shares of Class A Common
Stock of the Company from 450 million to 900 million. In the event that such
proposal is approved, the authorized Class A Common Stock of Lexmark
International would be equal to 900 million shares at the time of the Merger in
accordance with the proposal.
Preferred Stock
Shares of Preferred Stock may be issued at any time and from time to time
in one or more series. The Board of Directors is authorized to designate the
series, and the number of shares to be included in such series, and to fix the
relative voting, dividend, conversion, liquidation, redemption and other rights,
preferences and limitations as between series. When Preferred Stock is issued,
holders of Common Stock are subject to the dividend and liquidation preferences
and other prior rights of the Preferred Stock.
The Board of Directors, without the prior consent of holders of Common
Stock, could issue additional series of Preferred Stock with voting and
conversion rights which could materially adversely affect the voting rights of
the holders of Common Stock. The issuance of shares of Preferred Stock to
management, existing stockholders or others could result in a situation where
the recordholders of such shares of Preferred Stock could have a significantly
disproportionate vote on certain material matters. In the event of a proposed
merger, tender offer, proxy contest or other attempt to gain corporate control,
it would be possible, subject to any limitations imposed by applicable law, the
Certificate of Incorporation, and the applicable rules of the securities
exchanges upon which the Common Stock may be listed, for the Board of Directors,
without the prior consent of holders of Common Stock, to authorize the issuance
of one or more series of Preferred Stock with voting rights or other rights and
preferences which would impede the success of such proposed merger, tender
offer, proxy contest or other attempt to gain corporate control. There are no
present plans to issue any shares of Preferred Stock.
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<PAGE> 24
Common Stock
A holder of Common Stock is entitled to receive dividends declared by the
Board of Directors on Common Stock and, upon liquidation, to share ratably in
all assets available for distribution to holders of Common Stock. The
stockholders do not have preemptive rights. A holder of Class A Common Stock is
entitled to one vote for each share of Class A Common Stock held of record on
all matters to be voted on by the holders of Common Stock. Holders of the Class
B Common Stock have no voting rights. The Class A Common Stock has no cumulative
voting rights, which means that the holders of shares entitled to exercise more
than 50% of the voting rights are able to elect 100% of the Directors.
Shares of the Class A Common Stock may be converted one-for-one into shares
of Class B Common Stock under certain circumstances for the sole purpose of
distribution to a regulated holder which is not permitted to own voting stock of
the Company. Shares of the Class B Common Stock may be converted one-for-one
into shares of Class A Common Stock to the extent that a regulated holder is
permitted to hold voting stock of the Company, and shares of Class B Common
Stock are automatically converted one-for-one into shares of Class A Common
Stock upon transfer by a regulated holder to an unregulated holder.
The outstanding shares of the Company's Common Stock are, and the shares of
Lexmark International to be distributed upon consummation of the Merger will be,
validly issued, fully paid and non-assessable.
The Stock Transfer Agent for the Company's Preferred and Common Stock is
ChaseMellon Shareholder Services, L.L.C. ("ChaseMellon"), Overpeck Centre, 85
Challenger Road, Ridgefield Park, New Jersey 07660. ChaseMellon will also serve
as the Stock Transfer Agent for Lexmark International.
Stockholder Rights Plan
The Board of Directors of the Company adopted a Stockholder Rights Plan in
February 1998 and amended and restated such Plan in February 1999. The
Stockholder Rights Plan provides for one Right for each outstanding share of the
Company's Common Stock. Each Right entitles its holder, under certain
circumstances, to buy one one-thousandth of a share of the Company's Series A
Junior Participating Preferred Stock at a purchase price of $200 (subject to
adjustment).
The Rights may not be exercised until at least 10 days after a person or
group acquires 15 percent or more of the Company's Class A Common Stock or other
voting securities of the Company representing 15 percent or more of the voting
power of the outstanding shares of the Company (the "Voting Stock"), or publicly
announces or commences a tender or exchange offer that if consummated would
result in 15 percent or more ownership of the Voting Stock of the Company.
Separate Rights certificates will not be issued and the Rights will not be
traded separately from the stock until then.
Should an acquirer become the beneficial owner of 15 percent or more of the
Voting Stock of the Company, and under certain additional circumstances, the
Company's stockholders (other than the acquirer) would have the right to buy
Class A Common Stock of the Company, or common stock of the surviving enterprise
if the Company is acquired, having a value equal to two times the purchase price
of the Right then in effect.
The Rights will expire on January 31, 2009, unless redeemed prior to that
date. The redemption price is $.001 per Right (subject to adjustment) and may be
paid in cash, shares of the Company's Common Stock, or other securities or
assets. The Company's independent Directors may redeem the Rights by a majority
vote during the 10-day period following public announcement that a person or
group has acquired 15 percent or more of the Voting Stock of the Company.
At any time after an acquirer has obtained 15 percent or more of the Voting
Stock of the Company, the independent Directors may approve by a majority vote
the exchange of the Rights in whole or in part, at an exchange ratio of one
share of Class A Common Stock (or a fraction of a share of the Series A Junior
Participating Preferred Stock having the same market value) per Right.
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<PAGE> 25
Following the Merger, the Stockholder Rights Plan will continue in effect
with respect to the stock of Lexmark International.
STOCK EXCHANGE LISTING
Lexmark International expects its Class A Common Stock to be listed on the
New York Stock Exchange under the same symbol as the Company, "LXK." Lexmark
International will be a publicly-held, reporting company under the Securities
and Exchange Act of 1934.
DIVIDEND POLICY
Lexmark International will follow the Company's current dividend policy.
The Company has never declared or paid, and has no current plans to declare or
pay, any cash dividends on its Common Stock. The payment of any future cash
dividends following the Merger will be determined by the Lexmark International
Board of Directors in light of conditions then existing, including Lexmark
International's earnings, financial condition and capital requirements,
restrictions in financing agreements, business conditions, certain corporate law
requirements and other factors.
MANAGEMENT
Lexmark International will have the same Directors, in the same classes and
with the same terms, and the same officers as the Company at the time of the
Merger.
DEBT STRUCTURE
Lexmark International is the borrower and the Company is currently the sole
guarantor under a $300,000,000 Revolving Credit Agreement dated January 27, 1998
with a group of Lexmark International's primary lenders (the "Credit
Agreement"). By virtue of the Merger, the Company will be eliminated as a
guarantor under the Credit Agreement at the time of the Merger. The Credit
Agreement will otherwise be unaffected by the Merger.
On May 11, 1998, Lexmark International issued $150,000,000 6 3/4% Senior
Notes due 2008 (the "Notes") which are fully and unconditionally guaranteed by
the Company. Pursuant to the trust indenture by and among Lexmark International
as issuer, the Company as guarantor, and the Bank of New York as trustee, dated
May 11, 1998, as supplemented (the "Indenture"), the Company will be eliminated
as guarantor of the Notes at the time of the Merger. The Notes and the Indenture
will otherwise be unaffected by the Merger.
STOCK, INCENTIVE AND OTHER BENEFIT PLANS
Lexmark International will assume and continue all of the Company's stock
and other compensation, benefit and incentive plans for employees, retirees, and
Directors and will assume all outstanding stock options and other obligations
previously granted or incurred under such plans. In connection with the Merger,
each of the Company's outstanding options will be converted into an option
covering the same number of shares of Lexmark International Class A Common
Stock, and with the same terms and conditions as the Company's outstanding
option. Shares of the Company's Class A Common Stock which are currently held by
the Lexmark Savings Plan and the Lexmark International Group, Inc. 1999 Employee
Stock Purchase Plan will automatically be converted into an equivalent number of
shares of Lexmark International's Class A Common Stock at the time of the
Merger.
A vote in favor of the Merger will also constitute a vote in favor of the
assumption and continuation by Lexmark International of all of the Company's
stock and other compensation, benefit and incentive plans approved by the
Company's stockholders prior to the Merger.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax
considerations of the Merger. To the extent such summary discusses matters of
law, it is based upon the opinion of Baker & McKenzie, special tax counsel to
the Company and Lexmark International. The following discussion is based upon
the current
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<PAGE> 26
provisions of the Code, its legislative history, administrative pronouncements,
judicial decisions and Treasury regulations, all of which are subject to change,
possibly with retroactive effect. The following discussion does not purport to
be a complete discussion of all U.S. federal income tax considerations. The
following discussion does not address the tax consequences of the Merger under
state, local or non-U.S. tax laws. In addition, the following discussion may not
apply, in whole or in part, to particular categories of stockholders, such as
dealers in securities, insurance companies, foreign persons, financial
institutions and tax-exempt organizations. Finally, a tax ruling from the
Internal Revenue Service has not been requested. THE FOLLOWING DISCUSSION IS
INCLUDED FOR GENERAL INFORMATION ONLY. ALL STOCKHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING ANY STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES.
In the opinion of Baker & McKenzie, special tax counsel to the Company and
Lexmark International, based upon certain representations of the Company and
Lexmark International, the Merger will be treated for U.S. federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
As such:
- Stockholders will recognize no gain or loss upon the conversion of shares
of the Company's stock into shares of Lexmark International's stock in
the Merger;
- A stockholder's tax basis in shares of Lexmark International stock
following the Merger will be the same as his or her tax basis in the
Company's stock owned prior to the Merger; and
- A stockholder's holding period in shares of Lexmark International stock
following the Merger will include the holding period of the Company's
stock, if the stockholder holds shares of the Company's stock as capital
assets at the time of the Merger.
NO APPRAISAL RIGHTS
Under the Delaware General Corporation Law, dissenting stockholders do not
have "appraisal rights" when a parent company merges into its own wholly-owned
subsidiary. Consequently, a stockholder of the Company who votes against this
proposal does not have a statutory right to demand payment of the "fair value"
of his or her stock of the Company.
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE THIRD RESTATED CERTIFICATE OF
INCORPORATION, AS AMENDED, THAT WOULD INCREASE THE NUMBER OF
AUTHORIZED SHARES OF CLASS A COMMON STOCK FROM 450 MILLION TO 900 MILLION
Approval of the amendment to the Third Restated Certificate of
Incorporation, as amended, 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 outstanding shares of Class A Common Stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THIS AMENDMENT TO THE COMPANY'S THIRD RESTATED CERTIFICATE OF
INCORPORATION, AS AMENDED. 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, as amended, that would increase the number of authorized shares
of Class A Common Stock from 450,000,000 to 900,000,000. If the proposed
amendment is approved, the text of the first paragraph of Article Fourth of the
Third Restated Certificate of Incorporation, as amended, 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 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
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<PAGE> 27
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, as amended, the term "Common Stock" shall
include the Class A Common Stock and the Class B Common Stock.
As of the record date of March 10, 2000, there were 450,000,000 shares of
Class A Common Stock authorized, 129,132,193 shares outstanding, 25,441,266
shares held in treasury, 20,734,673 reserved for benefit plans, 1,750,000
reserved for the potential conversion of Class B Common Stock to Class A Common
Stock and 272,941,868 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, as amended, 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
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 Company currently has no plans or proposals for the issuance of
any portion of the proposed additional shares of Class A Common Stock.
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, because the Company could theoretically use the additional shares
to render it more difficult or discourage an attempt to acquire control of the
Company. However, that is not the Company's purpose in presenting this proposal.
INFORMATION CONCERNING INDEPENDENT PUBLIC ACCOUNTANTS
The independent certified public accounting firm of PricewaterhouseCoopers,
LLP has audited the Company's accounts for the fiscal year ended December 31,
1999. A representative of PricewaterhouseCoopers, LLP 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 2000 fiscal year at its
April meeting.
SUBMISSION OF STOCKHOLDER 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, 2000.
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 nor more than 120 days prior to the
first anniversary of the date on which the Company first mailed its proxy
materials for the preceding year's Annual Meeting of Stockholders. If the date
of the Annual Meeting is advanced more than 30 days prior to or delayed by more
than 30 days after the first anniversary of the preceding year's Annual Meeting,
the notice must be received by the Secretary not later than the close of
business on the later of the 90th day prior to the Annual Meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made.
24
<PAGE> 28
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., 17 State Street, New York, NY 10004, to assist in the solicitation for an
estimated fee of $10,000 plus reasonable expenses. Brokers, nominees and other
similar record holders will be 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 2000 Annual Meeting of Stockholders will be held at 8:00 a.m. on
Thursday, April 27, 2000, at the Embassy Suites Hotel, 1801 Newtown Pike,
Lexington, Kentucky 40511.
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 TO EACH PERSON WHOSE PROXY IS BEING SOLICITED,
UPON WRITTEN REQUEST AND THE PAYMENT OF A REASONABLE DUPLICATING CHARGE, COPIES
OF ANY EXHIBITS TO ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
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.
/s/ Vincent J. Cole
Vincent J. Cole
Secretary
March 23, 2000
25
<PAGE> 29
EXHIBIT A
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").
A-1
<PAGE> 30
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.
(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
A-2
<PAGE> 31
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.
(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.
A-3
<PAGE> 32
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.
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.
A-4
<PAGE> 33
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.
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
A-5
<PAGE> 34
APPENDIX I
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF
LEXMARK INTERNATIONAL GROUP, INC.
The undersigned hereby appoints Paul J. Curlander, Gary E. Morin 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 of
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
27, 2000 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 AND 3.
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 AND 3. 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.
<PAGE> 35
[Reverse Side of Proxy]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE WITH RESPECT TO A
PROPOSAL, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS, FOR
PROPOSALS 2 AND 3, AND OTHERWISE IN ACCORDANCE WITH THE BEST JUDGMENT OF THE
PROXY HOLDER.
PLEASE MARK YOUR
VOTES AS INDICATED [ ]
IN THIS EXAMPLE:
1. ELECTION OF DIRECTORS - TERMS TO EXPIRE 2003 (Michael J. Maples,
Stephen R. Hardis, William R. Fields and Robert Holland, Jr.).
FOR all nominees WITHHOLD
listed above AUTHORITY
(except as marked (to vote for all nominees
to the contrary) listed above)
(INSTRUCTION: To withhold authority to vote
for any individual nominee, write the
nominee's name on the line provided below.)
--------------------------------------------
2. APPROVAL OF AN AGREEMENT AND PLAN OF MERGER PROVIDING FOR THE MERGER
OF THE COMPANY WITH AND INTO LEXMARK INTERNATIONAL, INC.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. APPROVAL OF AN AMENDMENT TO THE THIRD RESTATED CERTIFICATE OF
INCORPORATION, AS AMENDED, THAT WOULD INCREASE THE NUMBER OF
AUTHORIZED SHARES OF CLASS A COMMON STOCK FROM 450 MILLION TO 900
MILLION.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
I PLAN TO ATTEND THE MEETING [ ]
PLEASE SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
Please sign exactly as the name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Signature_____________________ Signature_____________________ Date______________
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- FOLD AND DETACH HERE -
Admission Ticket
ANNUAL MEETING OF
STOCKHOLDERS
LEXMARK INTERNATIONAL GROUP, INC.
APRIL 27, 2000
8:00 A.M.
EMBASSY SUITES HOTEL
1801 NEWTOWN PIKE
LEXINGTON, KENTUCKY 40511
