SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT /X/
FILED BY A PARTY OTHER THAN THE REGISTRANT / /
CHECK THE APPROPRIATE BOX:
/ / 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 Section 240.14a-11(c) or Section
240.14a-12
LEXMARK INTERNATIONAL GROUP,
INC.
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(Name of Registrant as Specified In Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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LEXMARK INTERNATIONAL GROUP, INC.
ONE LEXMARK CENTRE DRIVE
LEXINGTON, KENTUCKY 40550
March 26, 1998
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 30,
1998, at 10:00 a.m., at the Renaissance Waverly Hotel, 2450 Galleria Parkway,
Atlanta, Georgia 30339.
The attached notice of meeting and proxy statement describe the matters to
be acted upon at the meeting. I would like to focus your attention on the
request for your approval of the Stock Incentive Plan, as amended and restated.
Your Board of Directors and management believe strongly that the success of the
Company is due in large part to the significant portion of overall compensation
that the Company's management receives from stock based incentives, which
closely align management's interests with those of our stockholders, and that
these stock based incentives enable the Company to continue to attract and
retain extremely well qualified and talented individuals. In order to be able to
continue these stock based compensation programs, we need your approval of an
increase in the number of shares available for such programs, and we ask that
you approve an increase of approximately 3,000,000 shares. In addition, your
approval of these amendments will enable the Company to take full advantage of
tax deductions available for executive compensation. The details of this and the
other proposed amendments to the Stock Incentive Plan are described in the Proxy
Statement and the full text of the Stock Incentive Plan, as amended and
restated, is included in the Proxy Statement as Exhibit A.
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 30.
Sincerely,
/s/ Marvin L. Mann
Marvin L. Mann
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
LEXMARK INTERNATIONAL GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
ON THURSDAY, APRIL 30, 1998
March 26, 1998
To the Stockholders:
The Annual Meeting of Stockholders of Lexmark International Group, Inc. (the
"Company") will be held on Thursday, April 30, 1998, at 10:00 a.m. at the
Renaissance Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia 30339, for
the following purposes:
1. To elect three Directors for terms expiring in 2001;
2. To approve the Company's Stock Incentive Plan, as amended and
restated; and
3. 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 March 13, 1998 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 Six Concourse Parkway, Suite 1900, Atlanta, Georgia
30328-5346 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.
LEXMARK INTERNATIONAL GROUP, INC.
ONE LEXMARK CENTRE DRIVE
LEXINGTON, KENTUCKY 40550
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PROXY STATEMENT
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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 30, 1998, to be held at 10:00 a.m. at the Renaissance Waverly
Hotel, 2450 Galleria Parkway, Atlanta, Georgia 30339. This Proxy Statement and
accompanying form of proxy are being mailed to stockholders beginning on or
about March 26, 1998. The Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1997 is enclosed.
Only stockholders of record at the close of business on March 13, 1998 will
be entitled to vote at the meeting. As of such date, there were 68,294,456
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.
The cost of solicitation of proxies will be borne by the Company. In
addition to solicitation of proxies by use of the mail, proxies may be solicited
by directors, officers and regularly engaged employees of the Company. 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.
Votes cast by proxy or in person at the meeting will be tabulated by the
election inspectors appointed for the meeting and the inspectors will determine
whether a quorum is present. The Directors to be elected at the meeting will be
elected by a plurality of the votes cast by the stockholders present in person
or by proxy and entitled to vote. Votes may be cast for or withheld from a
nominee. Votes that are withheld will have no effect on the outcome of the
election because Directors will be elected by a plurality of votes cast.
Abstentions may be specified on all proposals submitted to a stockholder
vote other than the election of the Directors. Abstentions will be counted as
present for purposes of determining the existence of a quorum regarding other
proposals. The affirmative vote of a majority of the shares of Class A Common
Stock present in person or by proxy is required to approve the Company's Stock
Incentive Plan, as amended and restated. Abstentions on proposals that require
the approval of a majority of the shares of Class A Common Stock present in
person or by proxy and entitled to vote will have the effect of a vote against
such proposals.
If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares will
not be considered as present and entitled to vote with respect to that matter
and, thus, will not be counted in determining whether that matter receives a
majority of the shares of Class A Common Stock present and entitled to vote at
the meeting.
ELECTION OF DIRECTORS
Action will be taken at the 1998 Annual Meeting to elect three Class I
Directors to serve until the 2001 Annual Meeting of Stockholders. The nominees,
as well as the Class II and Class III Directors who are continuing to serve, are
listed below together with certain information about each of them. The nominees
for election at the 1998 Annual Meeting of Stockholders are Frank T. Cary, Paul
J. Curlander and Martin D. Walker. Mr. Cary has been a Director since March 1991
and was elected by the stockholders in October 1995 to serve as a Class I
director with a term expiring at the 1998 Annual Meeting of Stockholders. Dr.
Curlander and Mr. Walker were elected to the Board of Directors by action of the
Board on February 13, 1997 for terms expiring at the 1998 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 I (TERM ENDING 2001)
Mr. Frank T. Cary, age 77, has been a director of the Company since March
1991. Mr. Cary retired as Chief Executive Officer of International Business
Machines Corporation ("IBM") in January 1981. Mr. Cary currently serves as a
director of Celgene Corporation, Cygnus Therapeutic Systems, ICOS Corporation,
Lincare, Inc., SPS Transaction Services, Inc., Teltrend Inc., Vion
Pharmaceuticals and SEER Technologies, Inc.
Dr. Paul J. Curlander, age 45, has been a Director of the Company since
February 1997. Since February 1997, Dr. Curlander has been President and Chief
Operating Officer of the Company, and from January 1995 to February 1997 he was
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 65, has been a Director of the Company since
February 1997. Mr. Walker retired as Chairman and Chief Executive Officer of the
M.A. Hanna Company. He served as Chairman and Chief Executive Officer of the
M.A. Hanna Company from September 1986 until December 1996, and then continued
as Chairman of the Board until June 30, 1997 when he retired. Mr. Walker is also
a director of Comerica, Inc., The Goodyear Tire & Rubber Co., M.A. Hanna
Company, Meritor Automotive, Inc., Reynolds & Reynolds Company, Textron, Inc.,
and The Timken Company.
The Company wishes to express its gratitude and appreciation for the
expertise Sir Roderick H. Carnegie, a Class I director who is not seeking
re-election to the Board when his term expires at the 1998 Annual Meeting,
brought to the Board of Directors and the significant contributions he made to
the progress of the Company since joining the Board in October 1994.
The following information on Class II and Class III Directors is submitted
concerning the other Directors of the Company whose election is not being sought
at this meeting and whose terms of office will continue after the 1998 Annual
Meeting of Stockholders.
CLASS II (TERM ENDING 1999)
Mr. B. Charles Ames, age 72, has been a Director of the Company since March
1991. Since prior to 1991, Mr. Ames has been a principal of Clayton, Dubilier &
Rice, Inc. ("CD&R") and a general partner of Clayton & Dubilier Associates IV
Limited Partnership ("Associates IV"), the general partner of The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D Fund IV"). Mr. Ames
was previously Chairman and Chief Executive Officer of Reliance Electric
Company, Uniroyal Goodrich Tire Company and Acme Cleveland Corporation. Mr. Ames
is the Chairman of WESCO Distribution, Inc. and
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its parent, CDW Holding Corp, each of which is a corporation in which C&D Fund
IV has an investment, and Riverwood International Corp. and its parent,
Riverwood Holding, Inc., a corporation in which The Clayton, Dubilier & Rice
Private Equity Fund V Limited Partnership ("CD&R Fund V") has an investment. Mr.
Ames also serves as a director of M.A. Hanna Company and The Progressive
Corporation.
Mr. Donald J. Gogel, age 49, has been a Director of the Company since March
1991. Mr. Gogel is President of CD&R and, since prior to 1991, has been a
principal of CD&R and a general partner of Associates IV, the general partner of
C&D Fund IV. Mr. Gogel is a director of A.P.S., Inc. and its parent, APS Holding
Corporation, Alliant Foodservice, Inc. and its parent, CDRF Holding, Inc., and
Global Decisions Group LLC, each of which is a corporation in which C&D Fund IV
has an investment, and Kinko's Inc., in which CD&R Fund V has an investment. Mr.
Gogel also serves as a director of TurboChef, Inc.
Mr. Ralph E. Gomory, age 68, 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 Ashland Inc., The
Bank of New York, The Washington Post Company and Polaroid Corporation.
Mr. Marvin L. Mann, age 64, has been Chairman of the Board and Chief
Executive Officer of the Company since March 1991, and from March 1991 through
February 1997 he was also President of the Company. Prior to such time, Mr. Mann
held numerous positions with IBM. During his IBM career, Mr. Mann held a number
of executive positions including President of the Information Products Division,
President of the Service Sector Division and President and Chief Executive
Officer of the Satellite Business Systems. He was elected an IBM Vice President
in 1985. Mr. Mann also serves on the Board of Directors of M.A. Hanna Company
and Imation Corporation and is a member of the board of trustees of Fidelity
Investments.
CLASS III (TERM ENDING 2000)
Mr. Michael J. Maples, age 55, 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.
Mr. Stephen R. Hardis, age 62, has been a Director of the Company since
November 1996. Mr. Hardis is Chairman and Chief Executive Officer of Eaton
Corporation which he joined in 1979 as Executive Vice President--Finance and
Administration. He was elected Vice Chairman and designated Chief Financial and
Administrative Officer in 1986. He became Chief Executive Officer of Eaton
Corporation in September 1995 and Chairman in January 1996. Mr. Hardis also
serves as a director of KeyCorp, Nordson Corporation and The Progressive
Corporation.
Mr. William R. Fields, age 48, has been a Director of the Company since
December 1996. Mr. Fields joined Hudson's Bay Company in June 1997 as a member
of the Board of Directors and as President and Chief Executive Officer.
Previously, he was Chairman and Chief Executive officer of Blockbuster
Entertainment Group, a division of Viacom, Inc. Mr. Fields has also held
numerous positions with Wal-Mart, 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, Inc.
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COMPOSITION OF BOARD AND COMMITTEES
The Company's Third Restated Certificate of Incorporation divides the Board
of Directors into three classes. Of the eleven members of the Board of
Directors, four have been elected as Class I Directors with terms expiring at
the time of the Annual Meeting of Stockholders to be held in 1998; four have
been elected as Class II Directors with terms expiring at the time of the Annual
Meeting of Stockholders to be held in 1999 and three have been elected as Class
III Directors with terms expiring at the time of the Annual Meeting of
Stockholders to be held in 2000. At each succeeding Annual Meeting of
Stockholders, the respective successors of the Directors whose terms are
expiring shall be elected for terms expiring at the Annual Meeting of
Stockholders held in the third succeeding year. Directors may only be removed
from the Board for cause.
The Board of Directors held five meetings during 1997. 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 Mr. Gomory who attended 60% of the Board and
committee meetings.
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 and Walker,
with Mr. Mann serving as Chairman. Mr. Gogel served on this Committee until
February 1997. The Executive Committee is responsible for overseeing the
management of the property, affairs and business of the Company and has been
delegated authority to exercise the powers of the Board during intervals between
Board meetings. The Committee did not meet during 1997.
The Finance and Audit Committee consists of Messrs. Cary, Fields, Maples and
Sir Roderick Carnegie, with Mr. Cary serving as Chairman. Mr. Gomory served on
this Committee until February 1997. The Finance and Audit Committee is
responsible for recommending the actions and policies relating to the capital
structure of the Company and the borrowing and repayment of funds by the
Company; recommending the firm to be appointed as independent accountants to
audit the Company's financial statements and to perform services related to the
audit; reviewing the scope and results of the audit with the independent
accountants; reviewing with management and the independent accountants the
Company's year-end operating results; considering the adequacy of the internal
auditing, accounting and control procedures of the Company; and reviewing the
non-audit services, if any, to be performed by the independent accountants and
considering the effect of such service on the accountants' independence. The
Committee held seven meetings during 1997.
The Compensation and Pension Committee consists of Messrs. Ames, Gomory,
Hardis and Walker, with Mr. Ames serving as Chairman. Mr. Andrall E. Pearson
served as Chairman of this Committee until his resignation from the Board in
February 1997. The Compensation and Pension Committee is responsible for the
review, recommendation and approval of compensation arrangements for Directors
and executive officers, for the approval of such arrangements for other senior
level employees, and for the administration of certain benefit and compensation
plans and arrangements of the Company and its subsidiaries, including the
Lexmark Retirement Plan and Lexmark Savings Plan. The Committee held five
meetings during 1997.
The Corporate Governance and Public Policy Committee consists of Messrs.
Gogel, Gomory and Mann, with Mr. Gomory serving as Chairman. Mr. Cary served on
this Committee until February 1997 and Mr. Joseph L. Rice, III served on this
Committee as Chairman until his resignation from the Board in February 1997. The
Corporate Governance and Public Policy Committee is responsible for the
nomination of persons for election to the Board and other matters concerning
Directors' practices and issues of corporate public responsibility. The
Corporate Governance and Public Policy Committee will consider nominees
recommended by stockholders. The Committee did not meet during 1997.
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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 C&D
Fund IV or any other 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 C&D
Fund IV or any other principal stockholder of the Company receive an annual
retainer of $25,000, a daily attendance fee of $2,500 for attendance at Board
and/or committee meetings and $750 per meeting for participation in telephonic
meetings. Any such nonemployee Director who serves as a chairperson of a
committee will also receive an annual retainer of $2,500. In addition, such
nonemployee Directors will be eligible to participate in the Nonemployee
Director Stock Plan described below. All Eligible Directors received an Annual
Award (as defined below) in 1997 of options to purchase 5,000 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.
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 C&D Fund IV or
any other principal stockholder (each, an "Eligible Director") will receive a
one-time grant of options to purchase 10,000 shares (unless another number is
determined by the Board at the time of such grant) 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"). 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.
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SECURITY OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table furnishes certain information, to the best knowledge of
the Company, as of March 13, 1998, as to the shares of Class A Common Stock
beneficially owned by (i) each Director of the Company, (ii) the Chief Executive
Officer and the four other most highly compensated officers of the Company,
(iii) all Directors and executive officers of the Company as a group and (iv)
each person owning beneficially more than 5% of the outstanding shares of Class
A Common Stock. Except as otherwise indicated, the address of each person listed
below is the address of the Company.
AMOUNT AND NATURE PERCENTAGE
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
- -------------------------------------------------- ----------------------------- -----------------
The Clayton & Dubilier Private Equity %
Fund IV Limited Partnership (1)................. 6,654,829 9.74
270 Greenwich Avenue,
Greenwich, CT 06830
B. Charles Ames(2)................................ 6,679,829 9.78
William A. Barbe(2)............................... 6,654,829 9.74
Donald J. Gogel(2)................................ 6,654,829 9.74
Leon J. Hendrix, Jr.(2)........................... 6,654,829 9.74
Hubbard C. Howe(2)................................ 6,654,829 9.74
Joseph L. Rice, III(2)............................ 6,654,829 9.74
Leeway & Co.(3)................................... 3,017,265 4.42
Mellon Bank, N.A.,(4)
as trustee for First Plaza Group Trust.......... 3,049,748 4.47
One Mellon Bank Center,
Pittsburgh, PA 15258
Barclays Global Investors, N.A.(5)................ 3,529,051 5.17
45 Fremont Street,
San Francisco, CA 94105
The Capital Group Companies, Inc. (6)............. 3,525,000 5.16
333 South Hope Street,
Los Angeles, CA 90071
Roderick H. Carnegie.............................. 13,820(8) *
Frank T. Cary..................................... 29,851(8) *
William R. Fields................................. 3,397(8) *
Ralph E. Gomory................................... 37,576(8) *
Stephen R. Hardis................................. 14,025(8) *
Marvin L. Mann.................................... 888,835(7)(8) 1.30
Michael J. Maples................................. 7,433(8) *
Martin D. Walker.................................. 6,677(8) *
Paul J. Curlander................................. 299,839(8) *
Gary E. Morin..................................... 45,501(8) *
Donald C. Shropshire, Jr.......................... 178,759(8) *
John A. Stanley................................... 179,396(8) *
All Directors and executive officers as a group
(23 persons).................................... 1,918,834(8) 2.81%
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* Less than 1% of class.
(1) C&D Fund IV is an investment partnership, the general partner of which is
Associates IV. The general partners of Associates IV are Messrs. Ames,
Barbe, Gogel, Hendrix, Howe and Rice, who share investment discretion with
respect to the securities held by C&D Fund IV. Messrs. Gogel and Rice own
all of the outstanding stock of CD&R.
(2) Except in the case of Mr. Ames who beneficially owns 25,000 shares, the
ownership of the shares reported consists solely of shares owned by C&D Fund
IV. Messrs. Ames, Barbe, Gogel, Hendrix, Howe and Rice may be deemed to
share beneficial ownership of the shares owned of record by C&D Fund IV by
virtue of their status as general partners of Associates IV, but each
expressly disclaims such beneficial ownership of the shares owned by C&D
Fund IV. Messrs. Ames, Barbe, Gogel, Hendrix, Howe and Rice share investment
and voting power with respect to securities owned by C&D Fund IV. The
business address for each of them is c/o Clayton, Dubilier & Rice, Inc., 375
Park Avenue, 18th Floor, New York, New York 10152.
6
(3) Leeway & Co. is the nominee for the Long Term Investment Trust, a trust for
the benefit of AT&T and Lucent pension plans. The address is Leeway & Co.,
State Street Bank & Trust Co., Master Trust Division, One Enterprise Drive,
Solomon Willard Bldg., North Quincy, MA 02171.
(4) Mellon Bank, N.A., acts as the trustee (the "Trustee") for First Plaza Group
Trust ("FPGT"), a trust under and for the benefit of certain employee
benefit plans of General Motors Corporation ("GM") and its subsidiaries.
These shares may be deemed to be owned beneficially by General Motors
Investment Management Corporation ("GMIMCo"), a wholly-owned subsidiary of
GM. GMIMCo's principal business is providing investment advice and
investment management services with respect to the assets of certain
employee benefit plans of GM and its subsidiaries and with respect to the
assets of certain direct and indirect subsidiaries of GM and associated
entities. GMIMCo is serving as FPGT's investment manager with respect to
these shares and in that capacity it has the sole power to direct the
Trustee as to the voting and disposition of these shares. Because of the
Trustee's limited role, beneficial ownership of the shares by the Trustee is
disclaimed.
(5) Based on Schedule 13Gs filed by Barclays Global Investors, N.A., Barclays
Trust and Banking Company (Japan) Ltd. and Barclays Global Fund Advisors,
these shares are held in trust accounts for the economic benefit of the
beneficiaries of those accounts.
(6) Based on a Schedule 13G filed by The Capital Group Companies, Inc., these
shares are owned by accounts under the investment management of one or more
of six investment management companies of which The Capital Group Companies,
Inc. is the parent company.
(7) Mr. Mann's shares do not include 96,786 shares and an option to purchase
32,214 shares that are held by an irrevocable trust established by Mr. Mann
for the benefit of certain relatives. Mr. Mann's shares include 75,000
shares owned by a family limited partnership of which Mr. Mann is a general
partner and 501 shares owned by Mr. Mann's wife. Mr. Mann disclaims
beneficial ownership of all such shares.
(8) Shares beneficially owned include shares that may be acquired pursuant to
the exercise of options that are exercisable within 60 days following March
13, 1998 by the following persons and groups in the following amounts:
Roderick H. Carnegie, 5,000 shares; Frank T. Cary, 5,000 shares; Paul J.
Curlander, 172,466 shares; William R. Fields, 2,416 shares; Ralph E. Gomory,
5,000 shares; Stephen R. Hardis, 2,500 shares; Marvin L. Mann, 509,946
shares; Michael J. Maples, 5,000 shares; Martin D. Walker, 2,250 shares;
Gary E. Morin, 22,372 shares; Donald C. Shropshire, Jr., 124,634 shares;
John A. Stanley, 125,646 shares; and all Directors and executive officers as
a group (23 persons), 1,083,541 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 his participation in the Lexmark Savings
Plan. Such shares held in the Lexmark Savings Plan can be voted by each
employee, and each employee has investment authority over the shares held in
such employee's account in such plan. In the case of a tender offer, the
trustee shall tender or not tender shares as directed by each participant.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
As required by the Securities and Exchange Commission rules under Section 16
of the Securities and Exchange Act of 1934, the Company notes that Mr. Walker
failed to timely file a Form 3 reporting the indirect beneficial ownership of
shares of the Company's Class A Common Stock in the Mary J. Walker Trust. Mrs.
Mary J. Walker is married to Mr. Walker. C&D Fund IV, Messrs. Ames and Gogel and
the other entities and individuals identified in footnote 2 of the "Security
Ownership by Management and Principal Stockholders" failed to timely file a Form
4 reporting the disposition of beneficial ownership of shares of the Company's
Class A Common Stock.
EXECUTIVE COMPENSATION
The information set forth below describes the components of the total
compensation of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company based on 1997 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, 1997, 1996 and 1995.
7
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION(8)
ANNUAL COMPENSATION -----------------
--------------------------- SECURITIES
ANNUAL INCENTIVE UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) OPTIONS(#) COMPENSATION
- -------------------------------------------- --------- --------- ---------------- ----------------- -------------
M. L. Mann.................................. 1997 $ 707,055 $ 725,000 90,000 $ 3,487(4)
Chairman of the Board and CEO 1996 $ 670,833 $1,060,004(2) 0 $ 4,275(4)
1995 $ 625,000 $1,004,000 277,500(3) $ 2,772(4)
P. J. Curlander............................. 1997 $ 465,342 $ 401,235(2) 65,000 $ 3,487(4)
President and Chief Operating Officer 1996 $ 400,000 $ 533,057(2) 0 $ 4,275(4)
1995 $ 393,750 $ 482,992 217,500(3) $ 2,772(4)
G. E. Morin................................. 1997 $ 266,027 $ 248,110(2) 35,372(3) $ 3,487(4)
Vice President and Chief Financial Officer 1996 $ 245,218 $ 277,834(2) 52,500 $ 132,137(5)
D. C. Shropshire............................ 1997 $ 275,000 $ 236,097 26,134(3) $ 3,487(4)
Vice President and General Manager 1996 $ 275,000 $ 232,705 0 $ 4,275(4)
1995 $ 275,000 $ 280,962 30,000 $ 2,772(4)
J. A. Stanley(6)............................ 1997 $ 366,393 $ 281,647 26,146(3) $ 80,000(7)
Vice President and President of Lexmark 1996 $ 356,250 $ 387,099 0 $ 86,250(7)
Europe 1995 $ 326,000 $ 470,354 45,000 $ 78,970(7)
- ------------------------
(1) Annual Incentive Compensation includes amounts deferred into Elective
Deferred Stock Units and the value of Supplemental Units received as a
result of such deferral, which Supplemental Units become vested in full on
the fifth anniversary of their grant subject to continued employment.
(2) Messrs. Curlander and Morin elected to defer $330,137 and $163,054,
respectively, of their 1997 Annual Incentive Compensation into 7,700 and
3,803 Elective Deferred Stock Units, respectively, and as a result received
an additional $66,027 and $32,628, respectively, in Supplemental Units (or
1,540 and 761 Supplemental Units). Messrs. Mann, Curlander and Morin elected
to defer $299,992, $438,620 and $187,544, respectively, of their 1996 Annual
Incentive Compensation into 10,714, 15,655 and 6,698 Elective Deferred Stock
Units, respectively, and as a result received an additional $60,004, $87,724
and $37,520, respectively, in Supplemental Units (or 2,143, 3,133 and 1,340
Supplemental Units).
(3) Includes replacement (reload) options awarded automatically upon exercise of
options paid for with previously owned shares of Lexmark Class A Common
Stock, as follows: Mr. Mann--165,000 (1995); Dr. Curlander--52,500 (1995);
Mr. Morin--5,372 (1997); Mr. Shropshire--6,134 (1997); Mr. Stanley--6,146
(1997).
(4) Matching contribution by the Company under the Lexmark Savings Plan.
(5) Relocation expenses paid to Mr. Morin in connection with his move from Ohio
to Lexington, Kentucky.
(6) Amounts shown for Salary and All Other Compensation have been converted to
U.S. dollars from British pounds on the basis of an exchange rate of .610
pounds per U.S. dollar for 1997, .640 pounds per U.S. dollar for 1996 and
.699 pounds per U.S. dollar for 1995, the average exchange rates during
1997, 1996 and 1995. The Annual Incentive Compensation amount was converted
to U.S. dollars on the basis of an exchange rate of .606 pounds per U.S.
dollar for 1997, .624 pounds per U.S. dollar for 1996 and .653 pounds per
U.S. dollar for 1995, the rates in effect on the date the Annual Incentive
Compensation was paid.
(7) Reflects an international living allowance paid to Mr. Stanley in connection
with his overseas assignment at Lexmark International headquarters in Paris,
France. Mr. Stanley is a British citizen.
(8) No awards were paid to the Named Executive Officers under the Long-Term
Incentive Plan for the performance period January 1, 1995 through December
31, 1997. 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, 1997 closing stock price of
$38.00 per share and including the additional 40% of the performance award
value payable in cash) of target performance awards to each of the Named
Executive Officers is as follows: Mr. Mann--13,500/$718,200; Dr. Curlander--
10,500/$558,600; Mr. Morin-- 7,500/$399,000; Mr. Shropshire--5,250/$279,300;
and Mr. Stanley-- 5,250/$279,300. At year end, the aggregate number and
value of Supplemental Units for Messrs. Mann, Curlander and Morin are as
follows: Mr. Mann-- 2,143/$81,434; Dr. Curlander--4,673/$177,574; and Mr.
Morin--2,101/$79,838.
8
OPTION GRANTS IN 1997
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------- ANNUAL RATES OF
PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------------------- ----------- ----------------- ----------- ------------ ------------ ------------
M. L. Mann........................... 90,000(1) 6.6% $ 25.3750 02/13/2007 $ 1,436,238 $ 3,639,709
P. J. Curlander...................... 65,000(1) 4.8% $ 25.3750 02/13/2007 $ 1,037,283 $ 2,628,679
G. E. Morin.......................... 30,000(1) 2.2% $ 25.3750 02/13/2007 $ 478,746 $ 1,213,236
5,372(2) 0.4% $ 32.8125 01/08/2006 $ 89,812 $ 217,762
D. C. Shropshire..................... 20,000(1) 1.5% $ 25.3750 02/13/2007 $ 319,164 $ 808,824
6,134(2) 0.5% $ 32.6350 08/28/2001 $ 44,079 $ 95,119
J. A. Stanley........................ 20,000(1) 1.5% $ 25.3750 02/13/2007 $ 319,164 $ 808,824
6,146(2) 0.5% $ 32.5625 08/28/2001 $ 44,080 $ 95,123
- ------------------------
(1) Each option granted has a ten year term and becomes vested as to 20% of the
award on the first anniversary of the grant date, and as to an additional
20% on each of the next four anniversary dates. Each option permits the
optionee (i) to pay for the exercise price with previously owned shares of
Class A Common Stock and (ii) to satisfy tax-withholding obligations with
shares acquired upon exercise. Unless the Compensation and Pension Committee
determines otherwise, replacement (reload) options are automatically granted
upon exercise of options paid for with previously owned shares of Class A
Common Stock.
(2) These are reload options which have the same terms and conditions (including
the same expiration date) as the related option that was exercised using
previously owned shares of Class A Common Stock, except that the exercise
price of the reload option is equal to the Fair Market Value of a share of
Class A Common Stock on the date such reload option is granted and such
reload option is not exercisable until the six month anniversary of the
reload grant date.
(3) The amounts shown under these columns are calculated at the 5% and 10%
annual rates set by the Securities and Exchange Commission and are not
intended to forecast future appreciation of the Company's stock price.
AGGREGATED OPTION EXERCISES IN 1997
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each Named Executive Officer
with regard to stock option exercises during 1997 and the aggregate stock
options held at December 31, 1997.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE AT FY-END (#) FY-END ($)
NAME BY EXERCISES(#) REALIZED EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
- ---------------------------------------- --------------- ---------- -------------------------- --------------------------
M. L. Mann.............................. 0 $ 0 509,946/139,500 $ 12,642,672/$2,124,000
P. J. Curlander......................... 0 $ 0 172,466/133,000 $ 3,526,594/$2,294,500
G. E. Morin............................. 10,000 $ 151,875 17,000/ 60,872 $ 299,875/$ 972,680
D.C. Shropshire......................... 30,000 $ 778,650 143,500/ 40,134 $ 4,193,575/$ 558,970
J. A. Stanley........................... 30,000 $ 776,775 149,500/ 49,146 $ 4,369,075/$ 721,419
- ------------------------
(1) Represents the number of shares subject to outstanding options.
(2) Based on a price of $38.00 per share, the closing price of the Company's
Class A Common Stock on December 31, 1997, minus the exercise price.
9
LONG-TERM INCENTIVE PLAN--AWARDS IN 1997
During 1995, the Company established the 1995-1997 Long-Term Incentive Plan
(the "Long-Term Incentive Plan"). Performance Awards under the Long-Term
Incentive Plan represent contingent share awards that would be earned if
specific performance objectives were attained by the Company over the three year
period specified by the Compensation and Pension Committee. The performance
objectives, established by such Committee for the period January 1, 1995 through
December 31, 1997, related to revenue growth in excess of the Company's
strategic business plan and achievement of a pre-established average return on
equity, in each case, over the three-year performance period and attainment of a
specified debt to total capital ratio as of the end of the performance period.
The target Performance Award would be earned if the revenue and return on
equity performance criteria were achieved by the Company during the performance
period, as determined by the Committee. The maximum Performance Award would be
earned if, in addition to attaining the revenue and return on equity goals, the
Company achieved the debt to total capital ratio target, as determined by the
Committee. No payments were made to executive officers under this plan even
though the Company far exceeded its return on equity goal and debt to total
capital target because revenue fell short of the objective of growth in excess
of the Company's strategic business plan.
In 1997, the Committee granted Performance Awards under the Company's Stock
Incentive Plan to certain executive officers. The following table describes the
Performance Awards that were granted under the Stock Incentive Plan during 1997
to the Named Executive Officers. In addition to the number of shares listed in
the table, participants will receive in cash 40% of the fair market value, as of
December 31, 2000, of any stock earned under the plan.
ESTIMATED FUTURE PAYOUTS IN SHARES
(#)
NUMBER OF PERFORMANCE -----------------------------------
NAME SHARES PERIOD MINIMUM TARGET MAXIMUM
- ------------------------------------------------- ----------- ---------------- ----------- --------- -----------
M. L. Mann....................................... 13,500 1/1/97 through 4,050 13,500 23,625
12/31/2000
P. J. Curlander.................................. 10,500 1/1/97 through 3,150 10,500 18,375
12/31/2000
G. E. Morin...................................... 7,500 1/1/97 through 2,250 7,500 13,125
12/31/2000
D. C. Shropshire................................. 5,250 1/1/97 through 1,575 5,250 9,188
12/31/2000
J. A. Stanley.................................... 5,250 1/1/97 through 1,575 5,250 9,188
12/31/2000
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 Committee relate to increasing shareholder value
as measured by Shareholder Value Add and Earnings Per Share, in each case over
the four year performance period ending December 31, 2000.
The 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 are payable if the Company attains the
maximum performance objectives. Minimum Performance Awards are payable if
minimum objectives are achieved. The Performance Awards payable for attainment
between performance levels will be based on interpolation.
10
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, 1981, including
compensation earned while employed by IBM.
In August 1997, the Company announced changes to the Lexmark Retirement Plan
that were effective January 1, 1998. With the new defined benefit plan, called
the Retirement Growth Account, 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 will run concurrently with the new plan through year-end 1999,
with additional accruals under the Lexmark Retirement Plan continuing through
year-end 1999. At that point, plan accruals of the Lexmark Retirement Plan will
be frozen, and will grow only with the addition of annual interest on the
Personal Retirement Provision element of the Plan. Participants will also
receive service credit beyond year-end 1999 that will count toward retirement
eligibility under the provisions of the Lexmark Retirement Plan. Upon departing
from the Company, individuals who have accruals under both plan designs will
receive the greater of the two accrued values.
The Company has adopted a Supplemental Retirement Plan to pay retirement
benefits which, but for limitations under the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code, would have been paid under
the Lexmark Retirement Plan. These benefits will be paid out of the general
funds of the Company.
Under the foregoing plans, each of the Named Executive Officers is entitled
to an estimated annual retirement pension, calculated as of February 28, 1998,
upon retirement at the later of age 62 or their current age, in the following
amounts: Mr. Mann--$187,446, Dr. Curlander--$416,670, Mr. Morin-- $64,151, and
Mr. Shropshire--$240,832. Mr. Stanley's pension is provided in part under U.K.
law pursuant to the Lexmark U.K. Pension Plan to which he contributes
approximately $19,000 per year and partly by a supplemental pension plan. He is
currently entitled to an estimated annual pension upon retirement at age 61 of
approximately $75,000 per year.
EMPLOYMENT CONTRACTS
The Company is party to employment agreements with each of Messrs. Mann,
Morin, Shropshire and Stanley with employment terms expiring March 31, 1998 and
with Dr. Curlander with an employment term expiring March 31, 2001. Pursuant to
the agreements, Mr. Mann receives an annual base salary of $725,000, Dr.
Curlander receives an annual base salary of $475,000, Mr. Morin receives an
annual base salary of $275,000, and each of the other executives receives the
base salary reflected in the Summary Compensation Table for 1997. Such salaries
may be increased by the Committee, in its discretion, from time to time. In
addition, each executive is entitled to receive an annual bonus equal to a
percentage of such base salary ranging from 0% to 200% in the case of Mr. Mann,
0% to 160% in the case of
11
Dr. Curlander, 0% to 125% in the case of Mr. Morin and 0% to 140% in the case of
Messrs. Shropshire and Stanley, depending upon the performance of the Company
measured against performance goals established by the Committee. In the event of
a termination of an executive's employment by the Company without "cause" or by
the executive for "good reason" (each as defined in the employment agreements),
the executive will continue to receive payments of his base salary 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. Mr. Mann's agreement further provides that,
following his retirement, Mr. Mann will be entitled to an annual pension of
$150,000, increased with respect to services rendered and compensation earned by
Mr. Mann from and after April 1, 1996 in accordance with the retirement benefit
formula under the Lexmark Retirement Plan described herein. See "Lexmark
Retirement Plan." Each of the employment agreements contains covenants regarding
nondisclosure of confidential information, non-competition and non-solicitation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, Messrs. Pearson, Ames, Gomory, Hardis and Walker served on the
Compensation and Pension Committee. Mr. Pearson served as Chairman of this
Committee until his resignation from the Board in February, 1997, and Mr. Ames
has served as Chairman since that time.
Messrs. Ames and Pearson are each principals of CD&R. The Company paid CD&R
fees of $500,000 for advisory, management consulting and monitoring services
rendered during fiscal 1997. The Company has agreed to indemnify the members of
the Board of Directors and CD&R against certain liabilities incurred under
securities laws or with respect to their services for the Company.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
CD&R AND C&D FUND IV
C&D Fund IV, which is the Company's largest stockholder as of the record
date, is a private investment fund managed by CD&R. Amounts contributed to C&D
Fund IV by its limited partners are invested at the discretion of the general
partner, in equity or equity-related securities of entities formed to effect
leveraged buy-out transactions and in the equity of corporations where the
infusion of capital coupled with the provision of managerial assistance by CD&R
can be expected to generate returns on investments comparable to returns
historically achieved in leveraged buy-out transactions. The general partner of
C&D Fund IV is Associates IV. B. Charles Ames, Donald J. Gogel, Andrall E.
Pearson and Joseph L. Rice, III, each of whom is or was a principal of CD&R and
a general partner of Associates IV, served as Directors of the Company during
1997. Messrs. Pearson and Rice resigned from the Board of Directors in February
1997. The Company was formed by CD&R to effect the Acquisition (as defined
below). Prior to the Acquisition, Mr. Gogel served as Vice President, Secretary
and Assistant Treasurer and Mr. Rice served as President and Treasurer of the
Company. In connection with the Acquisition, C&D Fund IV acquired 30,761,805
shares of Class A Common Stock at a purchase price of $6.67 per share, of which
6,654,829 shares were owned by C&D Fund IV as of the record date. See "Security
Ownership by Management and Principal Stockholders".
The Company paid CD&R fees of $375,000 in 1991 and $500,000 during each
fiscal year thereafter for advisory, management consulting and monitoring
services. The Company will pay CD&R a fee of $125,000 for services for the first
three months of 1998 after which time the Company will cease paying such fee.
None of the principals of CD&R who serve as Directors of the Company receive
Directors' fees or participate in the Director Plan. Two principals of CD&R,
Messrs. Ames and Gogel, continue to serve as Class II Directors with terms
expiring at the 1999 Annual Meeting of Stockholders.
The Company paid fees to the law firm of Debevoise & Plimpton during 1997
for legal services rendered. Franci J. Blassberg, Esq., a member of Debevoise &
Plimpton, is married to Joseph L. Rice, III, who was until February 1997 a
director of the Company and who is currently a general partner of C&D Fund IV.
12
The Company has entered into an indemnification agreement with CD&R and C&D
Fund IV pursuant to which the Company has agreed, subject to certain exceptions,
to indemnify certain members of its Board of Directors, as well as CD&R, C&D
Fund IV and certain of their associates and affiliates (the "Indemnitees"), to
the fullest extent allowable under applicable Delaware law and to indemnify the
Indemnitees against any suits, claims, damages or expenses which may be made
against or incurred by them under applicable securities laws in connection with
offerings of securities of the Company, liabilities to third parties arising out
of any action or failure to act by the Company and, except in cases of gross
negligence or intentional misconduct, the provision by CD&R of advisory,
management consulting and monitoring services.
The Company entered into an agreement dated as of October 21, 1997 (the
"1997 Stock Disposition Agreement") with C&D Fund IV pursuant to which the
Company agreed, concurrently with the consummation of a secondary offering (the
"Offering"), to repurchase from C&D Fund IV 3,000,000 shares of Class A Common
Stock at a price per share equal to the lesser of $34.8125 and the initial
public offering price for the Offering net of the underwriting discount.
Although C&D Fund IV had the right to assign its rights and obligations pursuant
to the 1997 Stock Disposition Agreement to other selling stockholders
participating in the Offering, the Company repurchased substantially all of such
shares from C&D Fund IV on November 4, 1997 at $29.90, the initial public
offering price net of underwriting discount.
The Company entered into an agreement dated as of March 9, 1998 (the "1998
Stock Disposition Agreement") with C&D Fund IV to repurchase 2,000,000 shares of
its Class A Common Stock (less any shares sold pursuant to the exercise of any
underwriter's over-allotment option granted in connection with a proposed
secondary offering) at a price per share equal to the lower of $44.25 and the
net proceeds received by the selling stockholders in the offering. The company's
obligation to repurchase is conditioned upon the sale by the selling
stockholders of at least 6,000,000 shares of Class A Common Stock. C&D Fund IV
has the ability to assign its rights under the 1998 Stock Disposition Agreement
to any other selling stockholder.
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 1997 regarding the compensation paid to Marvin L. Mann, who
serves as the Chairman and Chief Executive Officer of the Company (the "CEO"),
and other executive officers of the Company. In developing the practices and
policies described in this report, the Compensation and Pension Committee (the
"Committee") has been advised by outside consultants experienced in the design
and implementation of executive compensation arrangements. The Compensation and
Pension Committee is composed entirely of independent outside Directors. In
February 1997, the composition of the Committee was changed by the resignation
of Mr. Pearson and the addition of Messrs. Gomory and Walker.
FRAMEWORK FOR COMPENSATION DECISIONS
The 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 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 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.
13
The Company utilized information regarding each executive officer's title,
position, responsibilities, length of experience, 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. These analyses
were based on company size, as measured by revenue ($2.5 billion for 1997, $2.1
billion for 1996 and $2.0 billion for 1995). The Company then established
compensation ranges for each senior management position by comparing its target
and actual compensation to predicted market values at various levels to ensure
competitiveness to firms of comparable size. The mid points of the Company's
base salary and total compensation ranges are set at the 50th percentile
(median) and the 65th percentile, respectively.
Stock option grant levels were established based on competitive survey data
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 Committee has consistently applied the following philosophy in making
its recommendations or decisions on the compensation paid or awarded to its
executive officers:
Establish a pay-for-performance philosophy and policy that places a
meaningful portion of each executive's compensation at risk in alignment with
stockholders' risk, commensurate with the executive's ability to affect bottom
line results, and which can significantly differentiate compensation awards
based on corporate, business unit and individual performance and the ability of
the executive to affect those results;
Provide incentives to executives to achieve a level of performance
consistent with the Company's strategic business objectives and reward them for
their achievement;
Provide total compensation opportunities which are market competitive, are
subject to associated downside risk and offer significant upside opportunities
based on performance, thus allowing the Company to compete for and retain
outstanding, talented and highly motivated executives who are vital to the
Company's long-term success; and
Align the interests of executives with the long-term interests of the
stockholders through incentive award opportunities that are linked to the
long-term performance of the Company and that result in the ownership of the
Company's Class A Common Stock.
BASE SALARY
As discussed above, the Committee determines base salaries for executive
officers by evaluating the responsibilities of the position held and the
experience of the individual, and by reference to the information compiled from
compensation surveys regarding the competitive marketplace for executive talent,
including a comparison to base salaries for comparable marketplace positions,
and to historical levels of salary paid by the Company. Salary adjustments are
based on a periodic evaluation of the performance of the Company and of each
executive officer, and also take into account new responsibilities as well as
changes in the competitive marketplace.
ANNUAL INCENTIVE COMPENSATION
Annual incentive compensation awards were structured to become payable to
the Company's executive officers upon the attainment of pre-established annual
financial and individual performance objectives. The annual incentive
compensation opportunity is determined for each executive officer based on the
survey data for annual incentive awards and total compensation published in the
survey sources referenced above. Consistent with the Company's pay for
performance philosophy, executives' total cash compensation is highly leveraged.
As discussed above, the Company benchmarks base salary range mid
14
points at the 50th percentile and total compensation range mid points at the
65th percentile of the survey data. The 1997 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 1997, corporate and
business unit performance was measured with reference to revenue, cash from
operations and operating income. 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.
LONG TERM INCENTIVE COMPENSATION
1995-1997 LONG TERM INCENTIVE PLAN AWARDS
The Company had a long-term incentive compensation program to reward the
achievement of financial objectives over the three-year period beginning January
1, 1995 and ending December 31, 1997. Under this plan, certain executive
officers were granted contingent share awards ("Performance Awards") which were
to be payable if specific performance objectives, established by the Committee,
were achieved. The objectives related to revenue growth in excess of the
Company's strategic business plan and a pre-established average return on
equity, in each case measured over the three-year performance period, and
attainment of a specified debt to total capital ratio as of the end of the
performance period. Target Performance Awards would be paid if the revenue and
average return on equity objectives were achieved. Maximum Performance Awards
would be paid if, in addition to achieving the revenue and average return on
equity goals, the Company achieved the target debt to total capital ratio, as
determined by the Committee. No payments were made to executive officers under
this plan even though the Company far exceeded its return on equity goal and
debt to total capital target because revenue fell short of the objective of
growth in excess of the Company's strategic business plan.
1997-2000 LONG TERM INCENTIVE AWARDS
In 1997, the 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
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 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.
STOCK OPTIONS
The grant of stock option awards is intended to foster and promote the
long-term financial success of the Company and to materially increase
stockholder value by motivating superior performance by employees, by providing
employees with an ownership interest in the Company in order to align their
interests with those of the stockholders, and enabling the Company to attract
and retain the services of an outstanding management team upon whose judgment,
interest and special effort the successful conduct of its operations is largely
dependent. As discussed above, stock option grant levels are determined based on
competitive survey data, prior option grants and an evaluation of each
executive's contribution to business results.
15
DEFERRED STOCK UNITS
The 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
Committee, other cash compensation, and receive in lieu thereof an award of
Deferred Stock Units (the "Elective Units"). The 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 Committee
recommended and the Board approved the grant of 22,200 Restricted Stock Units to
certain executive officers, including each of the Named Executive Officers. The
Committee recommended the grant of Restricted Stock Units to recognize the
significant achievements of the Company over the three-year period ended 1997
and to help ensure retention of its key executive team. The Restricted Stock
Units become fully vested four years after the grant date, 50% after two years
and 25% per annum on each of the two following anniversaries of the grant date.
CEO COMPENSATION
For 1997, Mr. Mann received an annual base salary of $707,055 pursuant to
the terms of his employment agreement, and an annual incentive compensation
award of $725,000. Mr. Mann's annual incentive compensation award opportunity is
based on the achievement of annual financial goals established by the Board of
Directors and personal objectives relating to the overall achievement of the
Company's strategic objectives. For 1997, the financial performance objectives
were equally weighted and involved annual operating income, cash from operations
and revenue. In 1997, annual operating income grew 19.2%, slightly below the
targeted level, annual cash from operations exceeded the maximum attainment
level and revenue was below the threshold level. In addition to the cash
compensation described above, Mr. Mann was granted 90,000 non-qualified stock
options.
OTHER
Pursuant to certain transition rules applicable to a newly public company
contained in final Treasury regulations issued in December 1995, compensation
paid or earned in 1997 pursuant to the Company's compensation plans and
arrangements is not subject to the Federal income tax deduction limitation under
Section 162(m) of the Internal Revenue Code.
The Compensation and Pension Committee
of the Board of Directors
B. Charles Ames, Chairman
Ralph E. Gomory
Stephen R. Hardis
Martin D. Walker
16
PERFORMANCE GRAPH
The following graph compares cumulative total shareholder 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, 1997. The Class A
Common Stock began trading on the New York Stock Exchange on November 15, 1995.
The graph assumes that the value of the investment in the Class A Common Stock
and each index was $100 at November 15, 1995 and that all dividends were
reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LEXMARK S&P 500 INDEX S&P TECHNOLOGY SECTOR INDEX
11/15/95 $100 $100 $100
12/29/95 91 105 97
12/31/96 138 129 137
12/31/97 190 172 173
11/15/95 12/29/95 12/31/96 12/31/97
----------- ----------- ----------- -----------
Lexmark................................................................... $ 100 $ 91 $ 138 $ 190
S&P 500 Index............................................................. $ 100 $ 105 $ 129 $ 172
S&P Technology Sector Index............................................... $ 100 $ 97 $ 137 $ 173
17
APPROVAL OF THE COMPANY'S STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED
VOTE REQUIRED
Approval of the Stock Incentive Plan, as amended and restated, will require
the affirmative vote of the holders of a majority of the shares of Class A
Common Stock represented and voting on this proposal at the Annual Meeting.
THE DIRECTORS RECOMMEND A VOTE FOR THIS PROPOSAL. PROXIES WILL BE VOTED FOR
THIS PROPOSAL, UNLESS STOCKHOLDERS SPECIFY A DIFFERENT CHOICE IN THEIR PROXIES.
INTRODUCTION
The Board of Directors has approved, and is recommending that the
stockholders approve, an amendment and restatement of the Stock Incentive Plan
that was approved by a majority of the Company's stockholders on October 26,
1995 to, among other things, implement the significant changes described below
to the existing Stock Incentive Plan. The reason the Board of Directors is
recommending these amendments is that the Board believes strongly that the
success of the Company is due in large part to the significant portion of
overall compensation that the Company's management receive from stock based
incentives, which closely align management's interests with those of the
stockholders, and that these stock based incentives enable the Company to
continue to attract and retain extremely well qualified and talented
individuals. The increase in shares available for awards under the Stock
Incentive Plan is necessary for the Company to continue its emphasis on stock
based compensation. All of the Company's approximately 6,500 regular employees
are eligible for awards under the Stock Incentive Plan, as amended and restated,
as determined by the Compensation and Pension Committee of the Board of
Directors. In addition, your approval of these amendments will enable the
Company to take full advantage of tax deductions available for executive
compensation.
A summary of the significant features of the Stock Incentive Plan, as
amended and restated, is provided below, but is qualified in its entirety by the
full text of the Stock Incentive Plan, as amended and restated, which is
attached to this proxy as Exhibit A.
INCREASE SHARES AVAILABLE FOR AWARDS
The existing Stock Incentive Plan limits the maximum number of shares of the
Company's Class A Common Stock that may be issued under the Stock Incentive Plan
to 4,380,000 plus shares unissued under Predecessor Plans (as defined below).
The Board is recommending that the number of shares available for awards under
the Stock Incentive Plan be increased by 3,000,000 and that the definition of
Predecessor Plan be amended to include the 1995-1997 Long Term Incentive Plan,
resulting in an aggregate increase from 4,380,000 plus shares that were not
utilized under Predecessor Plans to 7,380,000 plus shares that were not utilized
under Predecessor Plans, which would also include the 142,123 shares that were
not utilized in the 1995-1997 Long Term Incentive Plan. The increase in overhang
(as defined below) from these additional shares is approximately 3.6%, resulting
in an aggregate overhang of 13.9%, which compares favorably to the Company's
competitors in the technology industry where overhang ranges from 15% to 20% on
average. Overhang is defined as the total number of shares underlying
outstanding awards and awards that may be granted, divided by the sum of the
number of shares outstanding and those shares underlying outstanding awards and
awards available for grant.
ELIMINATE OPTION REPRICING
Unlike the existing plan, the Stock Incentive Plan, as amended and restated,
would prohibit the lowering of the exercise price of an outstanding option.
18
LIMIT ON CERTAIN TYPES OF AWARDS
The Stock Incentive Plan, as amended and restated, would limit the number of
option and stock appreciation rights ("SAR") awards that may be granted to an
individual to 1.5 million over five years and would limit certain other awards
(e.g., restricted stock and performance awards) under the Stock Incentive Plan,
as amended and restated, to 500,000 in the aggregate over five years to all
participants and 100,000 in the aggregate over five years to any individual.
SHARES SUBJECT TO THE STOCK INCENTIVE PLAN
The maximum number of shares of the Company's Class A Common Stock that may
be delivered under the Stock Incentive Plan, as amended and restated, is
7,380,000 shares of Class A Common Stock plus shares that have not been utilized
under Predecessor Plans. "Predecessor Plans" means the Stock Option Plan for
Executives and Senior Officers, the Stock Option Plan for Senior Managers, the
Employee Stock Option Plan and the 1995-1997 Long Term Incentive Plan, and there
are approximately 750,000 shares that have not been utilized under Predecessor
Plans. The shares may be unissued shares or treasury shares. If there is a stock
split, stock dividend, recapitalization or other relevant change affecting the
Company's shares, appropriate adjustments will be made in the number of shares
that may be issued in the future and in the number and kind of shares and price
under all outstanding grants made before the event. If an award under the Stock
Incentive Plan, as amended and restated, terminates without the issuance of
shares subject to such award, those shares will again be available for inclusion
in future grants under the Stock Incentive Plan, as amended and restated. Shares
that are delivered to the Company in payment of the exercise price for any
option granted under the Stock Incentive Plan, as amended and restated, or under
any of the Company's Predecessor Plans will also be available for future grants
under the Stock Incentive Plan, as amended and restated. In addition, shares of
Class A Common Stock under awards granted under Predecessor Plans that terminate
without the issuance of such shares of Class A Common Stock will be available
for inclusion in grants under the Stock Incentive Plan, as amended and restated.
Payment of cash in lieu of shares generally will not be considered a delivery of
shares of Class A Common Stock.
ADMINISTRATION
The Stock Incentive Plan, as amended and restated, will be administered by
the Compensation and Pension Committee of the Board of Directors (the
"Committee"), in its discretion. The Board may at any time amend or modify the
Stock Incentive Plan, as amended and restated, provided that any amendment that
increases the number of shares that may be delivered under the plan or increases
the limit on the number of shares that may be delivered per type of award, shall
be subject to shareholder approval.
GRANTS UNDER THE STOCK INCENTIVE PLAN
The Committee has the authority to grant the following types of awards under
the Stock Incentive Plan, as amended and restated: (i) stock options; (ii) stock
appreciation rights; (iii) restricted stock; (iv) performance shares; and/or (v)
deferred stock units. Each of these awards may be granted alone or together with
other awards under the Stock Incentive Plan, as amended and restated, and/or
cash awards outside the Stock Incentive Plan, as amended and restated.
STOCK OPTIONS
The Committee may grant nonqualified options and/or options qualifying as
incentive stock options under the Internal Revenue Code. Incentive stock options
("ISOs") and nonqualified stock options may be granted for such number of shares
as the Committee shall determine, except that no participant may be granted more
than 1.5 million stock options in a five year period. The option price of either
a nonqualified stock option or an ISO will not be less than the fair market
value of the underlying Class A Common Stock
19
on the date of grant. To exercise an option, the grantee (or a permitted
transferee of the grantee) may pay the option price in cash, or, if permitted by
the Committee, by delivering other shares of Class A Common Stock owned by the
grantee (or permitted transferee). If provided by the Committee at or after the
date of grant, a grantee (or permitted transferee) who delivers previously-owned
shares of Class A Common Stock to exercise an option, will automatically be
granted options for a number of shares of Class A Common Stock equal to the
number of shares so delivered, with an option price not less than the fair
market value of the underlying Class A Common Stock on the date of such
delivery.
The term of each option will be fixed by the Committee but may not exceed
ten years from the date of grant. Options will become exercisable at such time
or times as may be determined by the Committee. The exercisability of options
may be accelerated by the Committee at or after the date of grant.
STOCK APPRECIATION RIGHTS
The Committee may grant a SAR in conjunction with an option granted under
the Stock Incentive Plan, as amended and restated (a "Tandem SAR") or
independent of any option (a "Freestanding SAR"). Tandem SARs may be granted
with respect to that number of shares of Class A Common Stock subject to the
option granted in conjunction with such Tandem SAR. Freestanding SARs may be
granted with respect to such number of shares as the Committee shall determine,
except that no participant may be granted Freestanding SARs in any five year
period with respect to more than 1.5 million shares. The Committee will
determine the time or times at which a SAR may be exercised and, in the case of
Freestanding SARs, the base price with respect to the shares of Class A Common
Stock for which such SAR is granted, generally the fair market value of the
Class A Common Stock on the date of grant unless the Committee determines
otherwise. SARs may be exercised in installments and the exercisability of SARs
may be accelerated by the Committee at or after the date of grant. The Committee
may also grant limited SARs which become exercisable only in the event of a
change in control of the Company and may provide at the time of grant that SARs
will be automatically cashed out in the event of a change in control, on the
basis of the change in control price, as such terms are defined in the Stock
Incentive Plan, as amended and restated.
If a grantee exercises a SAR, the grantee will generally receive a payment
equal to the excess of the fair market value of the shares with respect to which
the SAR is being exercised at the time of exercise over, in the case of a Tandem
SAR, the option exercise price under the related option, and, in the case of a
Freestanding SAR, the price for such shares fixed by the Committee at the time
the SAR was granted. Payment may be made in cash, in shares or in a combination
of cash and shares, as the Committee determines. Upon the exercise of a Tandem
SAR, the related option will terminate as to the number of shares with respect
to which the Tandem SAR is exercised.
RESTRICTED STOCK GRANTS
The Committee may also award shares of Class A Common Stock under a
restricted stock grant, except that no more than 500,000 grants may be made in
the aggregate in a five year period to all participants and no more than 100,000
grants may be made over such five year period to any individual. Subject to
certain exceptions, the grant will set forth a specified period of time of at
least three years (the "Restriction Period") during which shares of the
restricted stock will remain subject to forfeiture in the event of certain
terminations of the grantee's employment. During the Restriction Period, the
grantee will generally have all the rights of a stockholder, including the right
to vote the shares and receive dividends. Each certificate will bear a legend
giving notice of the restrictions in the grant.
PERFORMANCE SHARE GRANTS
The Committee may also award shares of Class A Common Stock under a
performance share grant which will set forth the performance goals and period of
time during which such performance goals must
20
be attained for the performance shares to become vested, except that no more
than 500,000 grants may be made in the aggregate in a five year period to all
participants and no more than 100,000 grants may be made over such five year
period to any individual. Subject to certain exceptions, the performance period
will be at least three years, and during such period the performance shares will
remain subject to forfeiture unless, on or prior to the expiration of such
period, the performance goals are attained. During this period, the grantee will
generally have all the rights of a stockholder, including the right to vote the
shares and receive dividends. Each certificate will bear a legend giving notice
of the restrictions in the grant. The performance goals may consist of (i)
earnings per share, (ii) revenues, (iii) operating cash flow, (iv) operating
earnings, (v) working capital, (vi) inventory turnover rates, (vii) return on
capital, (viii) return on equity, (ix) return on revenue, and (x) shareholder
value add. Performance goals may be measured on a corporate, subsidiary,
affiliate, division or business unit basis, or a combination thereof.
DEFERRED STOCK UNITS
The Committee may also make deferred stock unit awards under the Stock
Incentive Plan, as amended and restated. This type of award is not limited in
number and will entitle a participant to elect, on fixed dates established by
the Committee, to defer receipt of all or a portion of such participant's annual
incentive compensation or, in the discretion of the Committee, other
compensation and receive in lieu thereof an award of deferred stock units (the
"Elective Deferred Stock Units"). The Committee may provide that a participant
who elects to defer receipt of any portion of his annual incentive compensation
(or other compensation) will receive an additional award of deferred stock units
with a value equal to 20% (or such other percentage as the Committee shall
determine) of the annual incentive compensation (or other compensation) deferred
by the participant (the "Supplemental Deferred Unit Award"). The Supplemental
Deferred Unit Award, together with any Dividend Equivalents (as defined below)
credited with respect thereto, will become vested, in full, on the fifth
anniversary of the date the corresponding deferred compensation would have been
paid absent the participant's election to defer, so long as the participant
remains in the continuous employ of the Company or one of its affiliates through
such date. If the participant's employment terminates prior to such fifth
anniversary for reasons other than death, long term disability or retirement (as
defined in the Stock Incentive Plan, as amended and restated), the participant
will forfeit all rights to such Supplemental Deferred Unit Award and related
Dividend Equivalents but will continue to be entitled to Elective Deferred Stock
Units (and related Dividend Equivalents) granted in lieu of the current payment
of the participant's annual incentive compensation (or other compensation). The
Committee may also grant deferred stock unit awards under the Stock Incentive
Plan without regard to whether a participant has elected to defer any annual
incentive compensation or other compensation, on such terms and subject to such
conditions (including conditions regarding the vesting and payment thereof) as
the Committee may specify at the date of grant. Notwithstanding the foregoing,
the Committee may accelerate the vesting of, or waive any deferral restrictions
applicable to, any deferred stock unit award at or after the date of grant.
No shares of Class A Common Stock will actually be issued at the time a
deferred stock unit award is made. Rather, the Company will establish a separate
account for the participant and will record in such account the number of
deferred stock units awarded to the participant (which shall be equal to the
annual incentive bonus deferred by the participant (or, in the case of a
Supplemental Deferred Unit Award, 20% (or such other percentage as the Committee
shall determine) of the amount of such bonus deferred) divided by the fair
market value of a share of Class A Common Stock on the date of such award). The
Committee will determine whether and to what extent to credit to the account of,
or to pay currently to, each recipient of a deferred stock unit award, an amount
equal to any dividends paid the Company during the period of deferral with
respect to the corresponding number of shares of Class A Common Stock ("Dividend
Equivalents").
21
STOCK INCENTIVE PLAN BENEFITS
Awards under the Stock Incentive Plan in fiscal 1997 to the Named Executive
Officers are set forth in the column "Securities Underlying Options (#)" in the
Summary Compensation Table, in the "Option Grants in 1997" table and in the
"Long-Term Incentive Plan--Awards in 1997" table. The table below sets forth the
Awards made to the indicated groups during fiscal 1997 under the Stock Incentive
Plan. The executive officer group includes the Named Executive Officers.
Nonemployee Directors do not participate in the Stock Incentive Plan.
LTIP PERFORMANCE
DEFERRED AWARDS (# OF SHARE UNITS) RESTRICTED
STOCK STOCK ----------------------------------- STOCK
OPTIONS (#) UNITS (#) MINIMUM TARGET MAXIMUM UNITS (#)
----------- ----------- ----------- --------- ----------- -----------
Executive Officer Group..................... 392,757 19,380 22,650 75,500 132,125 0
Non-Executive Officer Employee Group........ 962,998 6,440 900 3,000 5,250 16,508
TERMINATION OF EMPLOYMENT
The Committee may provide at or after the date of grant of any award under
the Stock Incentive Plan, as amended and restated, that, in the event of the
grantee's termination of employment by reason of retirement (as defined by the
Committee), long term disability (as so defined), death, special termination
with the consent of the Company or any other termination specified by the
Committee, any restrictions on shares of restricted stock, performance shares or
deferred stock units will lapse and such shares will become fully vested and
freely transferable or, in the case of deferred stock units, the participant
will become entitled to payment with respect thereto. In addition, in the case
of any option or SAR, the Committee may provide that such option or SAR will
remain exercisable following termination of employment under such circumstances
and for such period of time as the Committee shall determine, subject in each
case to the stated term of the option or SAR unless the Committee provides
otherwise. Unless the Committee has determined otherwise, following a
participant's termination of employment, any options and SARs that have not
become exercisable upon or prior to such termination will terminate and any
shares of restricted stock, performance shares and deferred stock units and
related Dividend Equivalents then outstanding as to which the period of
restriction has not lapsed on or before the date of termination of employment
will be forfeited. Vested deferred stock units and the related Dividend
Equivalents, if any, will become payable as described below.
TRANSFERABILITY
Awards granted under the Stock Incentive Plan, as amended and restated, may,
subject to prior approval, be transferred to a family member or other entity for
estate planning purposes.
CHANGE OF CONTROL PROVISIONS
The Stock Incentive Plan, as amended and restated, provides that, except as
described below, in the event of a "Change in Control" (as defined in the Stock
Incentive Plan, as amended and restated), (i) all SARs will automatically be
cashed out based on the highest price paid for Class A Common Stock during the
preceding 60-day period; (ii) the restrictions and deferral limitations
applicable to outstanding restricted stock, performance shares and deferred
stock unit awards will lapse and the shares in question will fully vest and, in
the case of deferred stock units, become payable; and (iii) each option will be
canceled in exchange for a cash payment equal to the excess of the highest price
paid for Class A Common Stock during the preceding 60-day period over the
exercise price for such option. Notwithstanding the foregoing, if the Committee
determines that the grantee of such award will receive a new award (or have his
prior award honored) in a manner which preserves its value and eliminates the
risk that the value of the
22
award will be forfeited due to involuntary termination, no acceleration of
exercisability or vesting, lapse of restriction or deferral limitations, or cash
settlement will occur as a result of a Change in Control.
OTHER INFORMATION
The Board may terminate or suspend the Stock Incentive Plan, as amended and
restated, at any time but such termination or suspension will not affect any
stock options, SARs or restricted stock, performance share or deferred stock
unit awards then outstanding under the Stock Incentive Plan, as amended and
restated. The Board may also amend the Stock Incentive Plan, as amended and
restated, as it deems advisable, except that any amendment that would increase
the number of shares that may be delivered under the Stock Incentive Plan, as
amended and restated, or increases the limit on the number of shares that may be
delivered per type of award, shall be subject to stockholder approval.
FEDERAL INCOME TAX ASPECTS
The following is a brief summary of the Federal income tax consequences of
awards made under the Stock Incentive Plan, as amended and restated, and the
Predecessor Plans described below, based upon the Federal income tax laws in
effect on the date hereof. This summary is not intended to be exhaustive and
does not describe state or local tax consequences.
INCENTIVE STOCK OPTIONS
No taxable income is realized by the participant upon the grant or exercise
of an ISO. If a participant does not sell the stock received upon the exercise
of an ISO ("ISO Shares") for at least two years from the date of grant and one
year from the date of exercise, any gain or loss realized upon the subsequent
sale of such ISO Shares will be taxed as long-term capital gain or loss. In such
circumstances, no deduction with respect to the ISO Shares will be allowed to
the Company for Federal income tax purposes.
If ISO Shares are disposed of prior to the expiration of the holding periods
described above, the participant generally will realize ordinary income at the
time of such disposition equal to the excess, if any, of the fair market value
of the shares at exercise (or, if less, the amount realized on the disposition
of the shares) over the price paid for such ISO Shares. The Company will be
entitled to deduct any such recognized amount. Any further gain or loss realized
by the participant will be taxed as short-term or long-term capital gain or
loss. Subject to certain exceptions for disability or death, if an ISO is
exercised more than three months following the termination of the participant's
employment, the ISO will generally be taxed as a nonqualified stock option.
Special rules apply in the event all or a portion of the exercise price is paid
in already owned shares of Class A Common Stock.
NONQUALIFIED STOCK OPTIONS
No income is realized by the participant at the time a nonqualified stock
option is granted. Generally upon exercise of a nonqualified stock option, the
participant will realize ordinary income in an amount equal to the difference
between the price paid for the shares and the fair market value of the shares on
the date of exercise. The Company will be entitled to a tax deduction in the
same amount. Any appreciation (or depreciation) after date of exercise will be
either short-term or long-term capital gain or loss, depending upon the length
of time that the participant has held the shares. The rate of tax payable on
capital gains also varies depending on the length of time the shares are held.
Special rules apply in the event all or a portion of the exercise price is paid
in already owned shares of Class A Common Stock.
STOCK APPRECIATION RIGHTS
No income will be realized by a participant in connection with the grant of
a SAR. When the SAR is exercised, the participant will generally be required to
include as taxable ordinary income in the year of exercise, an amount equal to
the amount of cash and the fair market value of any shares received. The Company
will be entitled to a deduction at the time and in the amount included in the
participant's income
23
by reason of the exercise. If the participant receives common stock upon
exercise of a SAR, the post-exercise appreciation or depreciation will be
treated in the same manner discussed above under Nonqualified Stock Options.
RESTRICTED STOCK AND PERFORMANCE SHARES
A participant receiving restricted stock or performance shares generally
will recognize ordinary income in the amount of the fair market value of the
restricted stock or performance shares at the time the stock is no longer
subject to forfeiture, less any consideration paid for the stock. The Company
will be entitled to a deduction at same time and in same amount. The holding
period to determine whether the participant has long-term or short-term capital
gain or loss on a subsequent sale of such shares generally begins when the
restriction period expires, and the participant's tax basis for such shares will
generally equal the fair market value of such shares on such date.
However, a participant may elect under Section 83(b) of the Code, within 30
days of the grant of the restricted stock or performance shares, to recognize
taxable ordinary income on the date of grant equal to the excess of the fair
market value of the shares of restricted stock or performance shares (determined
without regard to the restrictions) over any consideration paid by the
participant for the restricted stock or performance shares, as applicable. By
reason of such an election, the participant's holding period will commence on
the date of grant and the participant's tax basis will be equal to the fair
market value of the shares on that date (determined without regard to
restrictions). Likewise, the Company generally will be entitled to a deduction
at that time in the amount that is taxable as ordinary income to the
participant. If shares are forfeited after making such an election, the
participant will be entitled to a capital loss for tax purposes in an amount
equal to the excess of the consideration paid for the forfeited shares over the
amount, if any, realized by the participant upon the forfeiture of the shares.
DEFERRED STOCK UNITS
A participant receiving a deferred stock unit award will not have taxable
income when the deferred stock units or the Dividend Equivalents are credited to
the participant's account. The participant will recognize ordinary income equal
to the fair market value of the shares of Class A Common Stock delivered (or the
amount of cash paid in lieu of such shares) plus the amount of cash and the fair
market value of any property credited to the participant's account as Dividend
Equivalents when the shares and/or cash are delivered or paid in accordance with
the Stock Incentive Plan, as amended and restated. The participant will also
recognize ordinary income to the extent he receives current payments of Dividend
Equivalents in respect of his deferred stock units when the Company pays a
dividend on Class A Common Stock. The Company will generally be entitled to a
deduction for the year and to the extent the participant has ordinary income.
24
INFORMATION CONCERNING INDEPENDENT PUBLIC ACCOUNTANTS
The independent certified public accounting firm of Coopers & Lybrand,
L.L.P. has audited the Company's accounts for the fiscal year ended December 31,
1997. A representative of Coopers & Lybrand, L.L.P. is expected to be present at
the meeting, and will have an opportunity to make a statement and to respond to
appropriate questions. The Board of Directors expects to select an independent
certified public accounting firm for the 1998 fiscal year at its April meeting.
SUBMISSION OF SHAREHOLDER PROPOSALS
If a holder of the Company's Class A Common Stock wishes to present a
proposal for consideration at next year's annual meeting, any such proposal must
be received at the Company's offices at One Lexmark Centre Drive, Lexington,
Kentucky 40550, Attention: Corporate Secretary, on or before November 27, 1998.
In addition, the Company's By-Laws provide that in order for any stockholder to
nominate a director or propose to transact any corporate business at an annual
meeting of stockholders, the stockholder must have given written notice, by
certified mail, to the Secretary of the Company which must be received by the
Secretary of the Company not less than 60 days prior to the meeting. (If less
than 60 days advance notice of the meeting is given, then such notice must be
received by the close of business on the seventh day following the date the
notice of meeting was mailed.)
ATTENDANCE AT ANNUAL MEETING
The 1998 Annual Meeting of Stockholders will be held at 10:00 a.m. on April
30, 1998 at the Renaissance Waverly Hotel, 2450 Galleria Parkway, Atlanta,
Georgia 30339.
Admission to the meeting is limited to stockholders of the Company or their
designated representatives. One admission ticket to the meeting is attached to
each proxy used. If you intend to attend the meeting, please detach and retain
the admission ticket and check the "I plan to attend the meeting" box on the
form of proxy itself to validate the admission ticket. Only ticket-holders will
be admitted to the Annual Meeting.
OTHER MATTERS
The management knows of no other matters which are likely to be brought
before the meeting, but if any such matters properly come before the meeting,
the persons named in the enclosed proxy, or their substitutes, will vote the
proxy in accordance with their best judgment.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON WRITTEN REQUEST, A COPY OF ITS ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (EXCLUDING EXHIBITS). COPIES OF ANY EXHIBITS THERETO ALSO
WILL BE FURNISHED UPON THE PAYMENT OF A REASONABLE DUPLICATING CHARGE. REQUESTS
IN WRITING FOR COPIES OF ANY SUCH MATERIALS SHOULD BE DIRECTED TO INVESTOR
RELATIONS, LEXMARK INTERNATIONAL GROUP, INC., ONE LEXMARK CENTRE DRIVE,
LEXINGTON, KENTUCKY 40550.
/S/ VINCENT J. COLE
VINCENT J. COLE
SECRETARY
March 26, 1998
25
EXHIBIT A
LEXMARK INTERNATIONAL GROUP, INC.
STOCK INCENTIVE PLAN
(Amended and Restated Effective April 30, 1998)
SECTION 1.
PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of the Company and materially increase shareholder value by (a)
motivating superior performance by means of performance-related incentives, (b)
encouraging and providing for the acquisition of an ownership interest in the
Company by Employees and (c) 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.
SECTION 2.
DEFINITIONS
2.1. DEFINITIONS. Whenever used herein, the following terms shall have the
respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Adjustment Event" shall mean any stock dividend, stock split or
share combination of, or extraordinary cash dividend on, the Common Stock or
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase
Common Stock at a price substantially below Fair Market Value, or other
similar event affecting the Common Stock of the Company.
(c) "Award Agreement" means the agreement, certificate or other
instrument evidencing the grant of any Incentive Award under the Plan.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause", with respect to any Incentive Award, shall have the meaning
assigned thereto in the Award Agreement evidencing such Incentive Award or,
if there is no such meaning assigned, shall mean (I) the willful failure by
the Participant to perform substantially his duties as an employee of the
Company or any Subsidiary (other than due to physical or mental illness)
after reasonable notice to the Participant of such failure, (II) the
Participant's engaging in serious misconduct that is injurious to the
Company or any Subsidiary, (III) the Participant's having been convicted of,
or entered a plea of NOLO CONTENDERE to, a crime that constitutes a felony
or (IV) the breach by the Participant of any written covenant or agreement
with the Company or any Subsidiary not to disclose information pertaining to
the Company or any Subsidiary or not to compete or interfere with the
Company or any Subsidiary.
(f) "Change in Control" shall mean the occurrence of any of the
following events:
(i) a majority of the members of the Board at any time cease for any
reason other than due to death or disability to be persons who were
members of the Board twenty-four months prior to such time (the
"Incumbent Directors"); provided that any director whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least a majority of the
1
members of the Board then still in office who are Incumbent Directors
shall be treated as an Incumbent Director;
(ii) any "person," including a "group" (as such terms are used in
Sections 13(d) and 14(d)(2) of the Act, but excluding the Company, its
Subsidiaries, any employee benefit plan of the Company or any Subsidiary,
employees of the Company or any Subsidiary or any group of which any of
the foregoing is a member) is or becomes the "beneficial owner" (as
defined in Rule 13(d)(3) under the Act), directly or indirectly,
including without limitation, by means of a tender or exchange offer, of
securities of the Company representing 30% or more of the combined voting
power of the Company's then outstanding securities; or
(iii) the stockholders of the Company shall approve a definitive
agreement (X) for the merger or other business combination of the Company
with or into another corporation immediately following which merger or
combination (A) the stock of the surviving entity is not readily
tradeable on an established securities market, (B) a majority of the
directors of the surviving entity are persons who (1) were not directors
of the Company immediately prior to the merger and (2) are not nominees
or representatives of the Company or (C) any "person," including a
"group" (as such terms are used in Sections 13(d) and 14(d)(2) of the
Act, but excluding the Company, its Subsidiaries, any employee benefit
plan of the Company or any Subsidiary, employees of the Company or any
Subsidiary or any group of which any of the foregoing is a member) is or
becomes the "beneficial owner" (as defined in Rule 13(d)(3) under the
Act), directly or indirectly, of 30% or more of the securities of the
surviving entity or (Y) for the direct or indirect sale or other
disposition of all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
occur in the event the Company files for bankruptcy, liquidation or
reorganization under the United States Bankruptcy Code.
(g) "Change in Control Price" shall mean the highest price per share of
Common Stock paid in conjunction with any transaction resulting in a Change
in Control (as determined in good faith by the Committee if any part of the
offered price is payable other than in cash) or, in the case of a Change in
Control occurring solely by reason of a change in the composition of the
Board, the highest Fair Market Value of the Common Stock on any of the 30
trading days immediately preceding the date on which such Change in Control
occurs.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means (i) the Compensation and Pension Committee of the
Board, unless Section16 under the Act requires the approval of a committee
of the Board that is composed solely of two or more Non-Employee Directors
(as defined in Rule 16b-3(b)(3) as promulgated under the Act) in which case
"Committee" shall mean such committee or (ii) the Board itself.
(j) "Common Stock" means the Class A common stock of the Company, par
value $0.01 per share, or such other shares or kind of securities as
determined by the Board.
(k) "Company" means Lexmark International Group, Inc., a Delaware
corporation, and any successor thereto.
(l) "Deferred Stock Unit" means a Participant's right to receive
pursuant to the Plan one share of Common Stock, or, if provided by the
Committee, cash equal to the Fair Market Value of a share of Common Stock,
at the end of a specified period of time.
(m) "Disability", with respect to any Incentive Award, shall have the
meaning assigned thereto in the Award Agreement evidencing such Incentive
Award, or, if there is no such meaning assigned, shall mean a physical or
mental disability or infirmity of a Participant, as defined in any
disability plan sponsored by the Company or any Subsidiary which employs
such Participant, or, if no such plan is sponsored by such Participant's
employer, the Lexmark Medical Disability Income Plan.
2
(n) "Employee" means any employee of the Company or any of its
Subsidiaries.
(o) "Fair Market Value" means, as of any date of determination, the
closing price of a share of Common Stock on a national securities exchange
on that day, as reported for such day in the Wall Street Journal, or the
last bid price for a share of Common Stock on such immediately preceding
day, as reported on a nationally recognized system of price quotation. In
the event that there are no Common Stock transactions reported on such
exchange or system on such day, Fair Market Value shall mean the closing
price or the last bid price, whichever is applicable, on the immediately
preceding day on which Common Stock transactions were so reported.
(p) "Incentive Award" means any award under the Plan of an Option, Stock
Appreciation Right, Restricted Stock or Deferred Stock Unit. Each of these
awards may be granted alone or together with other awards under the Plan
and/or cash awards outside the Plan.
(q) "Option" means the right to purchase a stated number of shares of
Common Stock at a stated price (as specified in Section 6.2 hereof) for a
specified period of time. For purposes of the Plan, an Option may be either
(i) an "Incentive Stock Option" within the meaning of section 422 of the
Code or (ii) an Option which is not an Incentive Stock Option (a
"Non-Qualified Stock Option").
(r) "Participant" means any Employee designated by the Committee to
receive an Incentive Award under the Plan.
(s) "Plan" means the Lexmark International Group, Inc. Stock Incentive
Plan, as set forth herein and as the same may be amended from time to time.
(t) "Predecessor Plans" means the Lexmark Holding, Inc. Stock Option
Plan for Executives and Senior Officers, the Lexmark Holding, Inc. Stock
Option Plan for Senior Managers, the Lexmark Holding, Inc. Employee Stock
Option Plan and the 1995-1997 Long Term Incentive Plan.
(u) "Qualifying Common Stock" means shares of Common Stock which (i) are
not subject to any loan or other obligation or pledged as collateral with
respect to any loan or other obligation of the Participant (subject to the
consent of the Committee, other than any loan extended to the Participant by
the Company or a Subsidiary) and (ii) either (A) have been owned by the
Participant for at least six months (or such greater or lesser period as the
Committee shall determine) or (B) were purchased by the Participant on a
national securities exchange or nationally recognized over-the-counter
market.
(v) "Restriction Period" means the period during which shares of
Restricted Stock are subject to forfeiture or restrictions on transfer (if
applicable) as described in Section 7 of the Plan and any applicable Award
Agreement, provided that such period shall not be less than three years.
(w) "Restricted Stock" means Common Stock or units with respect to
Common Stock awarded to a Participant pursuant to the Plan which is subject
to forfeiture and restrictions on transferability in accordance with Section
7 of the Plan.
(x) "Retirement", with respect to any Incentive Award, shall have the
meaning assigned thereto in the Award Agreement evidencing such Incentive
Award, or, if there is no such meaning assigned, shall mean a Participant's
retirement at or after normal retirement age under the terms of the
retirement plan sponsored by the Company or any Subsidiary which employs
such Participant.
(y) "Stock Appreciation Right" means the right to receive a payment from
the Company, in cash, Common Stock or a combination thereof, equal to the
excess of the Fair Market Value of a share of Common Stock at the date of
exercise over a specified price fixed by the Committee (as specified in
Section 6.7(c) hereof).
(z) "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or any other entity in which the Company has a
significant equity interest, as determined by the Committee.
3
2.2. GENDER AND NUMBER. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
SECTION 3.
ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those Employees selected by the Committee
to participate in the Plan.
SECTION 4.
ADMINISTRATION
4.1. POWER TO GRANT AND ESTABLISH TERMS OF AWARDS. The Committee shall have
the discretionary authority, subject to the terms of the Plan, to determine the
Employees to whom Incentive Awards shall be granted and the terms and conditions
of such Incentive Awards, including but not limited to the number of shares of
Common Stock to be covered by each Incentive Award; the time or times at which
Incentive Awards may be exercised, paid or transferred, as the case may be;
whether Options shall be designated as Incentive Stock Options or Non-Qualified
Stock Options; the form and manner of payment of any amount due from a
Participant (or his beneficiary or permitted transferee, if applicable) in
connection with any Incentive Award; whether any Reload Option (as defined in
Section 6.6) will be granted to any Participant pursuant to Section 6.6; whether
any restriction (including any provision as to vesting, exercisability, payment
or transferability) shall be modified or waived, in whole or in part, after the
date of grant of the Incentive Award; the rights of a Participant (or his
beneficiary or permitted transferee) with respect to any Incentive Award
following the Participant's termination of employment; whether amounts payable
by the Company in respect of any Incentive Award shall be paid in Common Stock,
cash or any combination thereof; whether and to what extent any Incentive Award
may be transferred by the Participant; and the terms, provisions and conditions
to be included in any Incentive Award Agreement.
The officers of the Company may suggest to the Committee the Participants
who should receive Incentive Awards under the Plan. In accordance with the terms
of the Plan, the terms and conditions of each Incentive Award shall be
determined by the Committee at the time of grant, and such terms and conditions
may be subsequently changed by the Committee, in its discretion, provided that
no such change may be effected which would adversely affect a Participant's
rights with respect to an Incentive Award then outstanding, without the consent
of such Participant. The Committee may establish different terms and conditions
for different Participants receiving Incentive Awards and for the same
Participant for each Incentive Award such Participant may receive, whether or
not granted at different times. The grant of any Incentive Award to any Employee
shall not entitle such Employee to the grant of any other Incentive Awards.
Notwithstanding anything else contained in the Plan to the contrary, the
Committee may delegate, subject to such terms and conditions as it shall
determine, to any officer of the Company or to a committee of officers of the
Company, the authority to grant Incentive Awards (and to make any and all
determinations related thereto) to Participants who are not, and are not
expected to become, subject to the reporting requirements of Section 16(a) of
the Act and whose compensation will not be subject to the limitations on the
deductibility thereof by the Company or its Subsidiaries pursuant to Section
162(m) of the Code.
4.2. ADMINISTRATION. The Committee shall be responsible for the
administration of the Plan. Any Incentive Award granted by the Committee may be
subject to such conditions, not inconsistent with the terms of the Plan, as the
Committee shall determine, in its discretion. The Committee, by majority action
thereof, has discretionary authority to prescribe, amend and rescind rules and
regulations relating to the Plan, to interpret and apply the provisions of the
Plan, to provide for conditions deemed necessary or advisable to protect the
interests of the Company or to interpret the Plan and to make all other
4
determinations necessary or advisable for the administration and interpretation
of the Plan and to carry out its provisions and purposes.
4.3. DISCRETIONARY AUTHORITY OF COMMITTEE. All of the powers and authority
conferred upon the Committee pursuant to any term of the Plan shall be exercised
by the Committee, in its discretion. All determinations, interpretations or
other actions made or taken by the Committee pursuant to the provisions of the
Plan shall be final, binding and conclusive for all purposes and upon all
persons and, in the event of any judicial review thereof, shall be overturned
only if arbitrary and capricious. The Committee may consult with legal counsel,
who may be counsel to the Company, and shall not incur any liability for any
action taken in good faith in reliance upon the advice of counsel.
SECTION 5.
STOCK SUBJECT TO PLAN
5.1. NUMBER. Subject to the provisions of Section 5.3, the number of shares
of Common Stock that may be delivered under the Plan may not exceed 7,380,000,
plus any shares that become available for grant pursuant to Section 5.2. The
shares to be delivered under the Plan may consist, in whole or in part, of
Common Stock held in treasury or authorized but unissued Common Stock, not
reserved for any other purpose, or from Common Stock reacquired by the Company.
5.2. CANCELED, TERMINATED, OR FORFEITED AWARDS. Any shares of Common Stock
subject to any portion of an Incentive Award and any shares of Common Stock
subject to any option or award granted under a Predecessor Plan which, in any
such case and for any reason, expires, or is canceled, terminated or otherwise
settled, without the issuance of such shares of Common Stock, including shares
covered by an Incentive Award used to satisfy tax withholding requirements on
behalf of a Participant as provided for in Section 11.4, shall again be
available for award under the Plan. Shares of Common Stock that are delivered to
the Company, either actually or by attestation, in payment of the exercise price
for any Option granted under the Plan or under a Predecessor Plan will also be
available for future grants under the Plan.
5.3. ADJUSTMENT IN CAPITALIZATION. The aggregate number of shares of Common
Stock available for Incentive Awards, under Section 5.1, or subject to
outstanding Incentive Awards, and the respective prices and/or vesting criteria
applicable to outstanding Incentive Awards shall be proportionately adjusted to
reflect, as deemed equitable and appropriate by the Committee, an Adjustment
Event. To the extent deemed equitable and appropriate by the Committee, subject
to any required action by stockholders, in any merger, consolidation,
reorganization, liquidation, dissolution or other similar transaction, any
Incentive Award granted under the Plan shall pertain to the securities and other
property to which a holder of the number of shares of Common Stock covered by
the Incentive Award would have been entitled to receive in connection with such
event.
Any shares of stock (whether Common Stock, shares of stock into which shares
of Common Stock are converted or for which shares of Common Stock are exchanged
or shares of stock distributed with respect to Common Stock) or cash or other
property received with respect to any Incentive Award granted under the Plan as
a result of any Adjustment Event, any distribution of property or any merger,
consolidation, reorganization, liquidation, dissolution or other similar
transaction shall, except as provided in Section 7.4, Section 8.3 or as
otherwise provided by the Committee at or after the date any such award is made,
be subject to the same terms and conditions, including vesting and restrictions
on exercisability or transfer, as are applicable to the Incentive Award with
respect to which such shares, cash or other property is received, and any Award
Agreement and stock certificate(s) representing or evidencing any shares of
stock or other property so received shall so provide and be legended as
appropriate.
5
SECTION 6.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
6.1. GRANT OF OPTIONS. Options may be granted to Participants at such time
or times as shall be determined by the Committee. Options granted under the Plan
may be of two types: (I) Incentive Stock Options and (II) Non-Qualified Stock
Options, except that no Incentive Stock Option may be granted to any Employee of
a Subsidiary which is not a corporation. The date of grant of an Option under
the Plan will be the date on which the Option is awarded by the Committee or, if
so determined by the Committee, the date on which occurs any event the
occurrence of which is an express condition precedent to the grant of the
Option. The Committee shall determine the number of Options, if any, to be
granted to a Participant, provided that, in no event shall the number of shares
of Common Stock subject to all Options granted to any Participant under the Plan
for the five-year period from April 30, 1998 through April 30, 2003 exceed
1,500,000 shares (adjusted pursuant to Section 5.3 if an Adjustment Event shall
occur). Each Option shall be evidenced by an Award Agreement that shall specify
the type of Option granted, the exercise price, the duration of the Option, the
number of shares of Common Stock to which the Option pertains and such other
terms and conditions not inconsistent with the Plan as the Committee shall
determine.
6.2. OPTION PRICE. Options granted pursuant to the Plan shall have an
exercise price which is not less than the Fair Market Value on the date the
Option is granted, except that if a Non-Qualified Stock Option is granted
retroactively in tandem with or in substitution for a Stock Appreciation Rights
grant, the designated Fair Market Value for purposes of establishing the
exercise price for such option may be the Fair Market Value on the date the
Stock Appreciation Rights were granted.
6.3. EXERCISE OF OPTIONS. Options awarded to a Participant under the Plan
shall be exercisable at such time or times and subject to such restrictions or
other conditions, including the performance of a minimum period of service or
the satisfaction of performance goals, as the Committee shall determine either
at or after the date of grant of such Options, subject to the Committee's right
to accelerate or waive any conditions to the exercisability of any Option
granted under the Plan. To the extent not specified otherwise by the Committee,
Options will become exercisable in three installments as follows, subject to the
Participant's continued employment until the applicable date:
PERCENTAGE OF ANNIVERSARY
GRANT EXERCISABLE OF DATE OF GRANT
- ----------------------------------------------------------------------- ---------------------
60%.................................................................... Third anniversary
80%.................................................................... Fourth anniversary
100%................................................................... Fifth anniversary
Once exercisable, an Option may be exercised from time to time, in whole or in
part, up to the total number of shares of Common Stock with respect to which it
is then exercisable. Notwithstanding the foregoing, except as provided in
Section 6.8, no Option shall be exercisable for more than 10 years after the
date on which it is granted.
6.4. PAYMENT. The Committee shall establish procedures governing the
exercise of Options, which shall require that written notice of exercise be
given and that the Option price be paid in full at the time of exercise (I) in
cash or cash equivalents, (II) in the discretion of the Committee, in shares of
Qualifying Common Stock having a Fair Market Value on the date of exercise equal
to such Option price or in a combination of cash and Qualifying Common Stock or
(III) in accordance with such other procedures or in such other form as the
Committee shall from time to time determine. As soon as practicable after
receipt of a written exercise notice and payment of the exercise price in
accordance with this Section 6.4, the Company shall direct its stock transfer
agent to make (or to cause to be made) an appropriate book entry reflecting the
Participant's ownership of the shares of Common Stock so acquired.
6
6.5. INCENTIVE STOCK OPTIONS. Notwithstanding anything in the Plan to the
contrary, no term of the Plan relating to Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of any Participant affected thereby, to
cause any Incentive Stock Option previously granted to fail to qualify for the
Federal income tax treatment afforded Incentive Stock Options under Section 421
of the Code.
6.6. RELOAD OPTIONS. If provided by the Committee at or after the date of
grant, a Participant (or, if applicable, his permitted transferee) who delivers
shares of Common Stock that have been owned by such Participant (or permitted
transferee) for any minimum period of time specified by the Committee to
exercise an Option or an option granted under a Predecessor Plan, will
automatically be granted new Options ("Reload Options") for a number of shares
of Common Stock equal to the number of shares so delivered. Unless the Committee
determines otherwise, such Reload Options will be subject to the same terms and
conditions (including the same expiration date) as the related Option except (I)
that the exercise price shall be equal to the Fair Market Value of a share of
Common Stock on the date such Reload Option is granted and (II) such Reload
Option shall not be exercisable prior to the six month anniversary of the date
of grant and, thereafter, shall be exercisable in full.
6.7. STOCK APPRECIATION RIGHTS.
(a) Stock Appreciation Rights may be granted to Participants at such time or
times and with respect to such number of shares of Common Stock as shall be
determined by the Committee and shall be subject to such terms and conditions as
the Committee may impose, provided that no Participant may receive Stock
Appreciation Rights under the Plan covering shares of Common Stock in excess of
1,500,000 (adjusted pursuant to Section 5.3 if an Adjustment Event shall occur)
during the five-year period April 30, 1998 through April 30, 2003. Each grant of
an Incentive Award of Stock Appreciation Rights shall be evidenced by an Award
Agreement.
(b) Stock Appreciation Rights may be exercised at such time or times and
subject to such conditions, including the performance of a minimum period of
service, the satisfaction of performance goals or the occurrence of any event or
events, including a Change in Control, as the Committee shall determine, either
at or after the date of grant. Stock Appreciation Rights which are granted in
tandem with an Option may only be exercised upon the surrender of the right to
exercise such Option for an equivalent number of shares and may be exercised
only with respect to the shares of Common Stock for which the related Option is
then exercisable. Notwithstanding any other provision of the Plan, the Committee
may impose such conditions on the exercise of a Stock Appreciation Right
(including, without limitation, the right of the Committee to limit the time of
exercise to specified periods) as may be required to satisfy the applicable
provisions of Rule 16b-3 as promulgated under the Act or any successor rule.
(c) Subject to the provisions of Section 11.4 of the Plan, upon exercise of
a Stock Appreciation Right, the Participant shall be entitled to receive payment
in cash, Common Stock or in a combination of cash and Common Stock, as
determined by the Committee, of an amount determined by multiplying:
(i) any increase in the Fair Market Value of a share of Common Stock at
the date of exercise over the price fixed by the Committee at the date of
grant of such Right, by
(ii) the number of shares of Common Stock with respect to which the
Stock Appreciation Right is exercised.
6.8. EXERCISABILITY FOLLOWING TERMINATION OF EMPLOYMENT. Unless otherwise
determined by the Committee at or after the date of grant, in the event a
Participant's employment with the Company and the Subsidiaries terminates by
reason of Retirement, Disability, death or special termination with the consent
of the Company, all Options and Stock Appreciation Rights then held by such
Participant that are exercisable at the date of such termination of employment
shall thereafter remain exercisable by the Participant or, if applicable, the
Participant's beneficiary, for a period of one year from the date of
7
termination, but in no event later than the expiration of the stated term of the
Option or Stock Appreciation Right. Notwithstanding the foregoing, to the extent
provided by the Committee at or after the date of grant, in the event of a
Participant's termination of employment due to death or Disability, all such
Options and Stock Appreciation Rights shall remain exercisable for a minimum
period of one year, without regard to the stated term of the Option or Stock
Appreciation Right. Unless otherwise determined by the Committee at or after the
date of grant, in the event a Participant's employment with the Company and the
Subsidiaries terminates for any reason other than Retirement, Disability, death
or by the Company for Cause, all Options and Stock Appreciation Rights then held
by such Participant that are then exercisable shall remain exercisable for the
90 day period immediately following such termination of employment or until the
expiration of the term of such Option or Stock Appreciation Right, whichever
period is shorter. Unless otherwise determined by the Committee at or after the
date of grant, in the event of a Participant's termination of employment with
the Company and the Subsidiaries by the Company for Cause, all Options and Stock
Appreciation Rights then held by such Participant shall immediately terminate
and be canceled, in full, on the date of such termination of employment. All
Options that are not exercisable following a Participant's termination of
employment shall immediately terminate and be canceled on the date of such
termination of employment and all other Options shall terminate and be canceled
on the date the period for exercise has expired to the extent not exercised
prior to such date.
6.9. COMMITTEE DISCRETION. Notwithstanding anything else contained in this
Section 6 to the contrary, the Committee may, at or after the date of grant,
accelerate or waive any conditions to the exercisability of any Option or Stock
Appreciation Right granted under the Plan and may permit all or any portion of
any such Option or Stock Appreciation Right to be exercised following a
Participant's termination of employment for any reason on such terms and subject
to such conditions as the Committee shall determine for a period up to and
including, but not beyond, the expiration of the term of such Options (except as
provided in Section 6.8 in the case of termination due to death or Disability).
SECTION 7.
RESTRICTED STOCK
7.1. GRANT OF RESTRICTED STOCK. The Committee may grant Incentive Awards
of Restricted Stock to Participants at such times and in such amounts, and
subject to such other terms and conditions not inconsistent with the Plan, as it
shall determine; provided that in no event shall the number of shares of Common
Stock subject to Incentive Awards of Restricted Stock exceed 500,000 (adjusted
pursuant to Section 5.3 if an Adjustment Event shall occur) in the aggregate for
all Participants during the five-year period from April 30, 1998 through April
30, 2003, and 100,000 (adjusted pursuant to Section 5.3 if an Adjustment Event
shall occur) in the aggregate for any individual Participant during such
five-year period. Unless the Committee provides otherwise at or after the date
of grant, stock certificates evidencing any shares of Restricted Stock so
granted shall be held in the custody of the Secretary of the Company until the
Restriction Period lapses, and, as a condition to the grant of any Incentive
Award of shares of Restricted Stock, the Participant shall have delivered to the
Company a stock power, endorsed in blank, relating to the shares of Common Stock
covered by such Incentive Award. Each grant of Restricted Stock shall be
evidenced by an Incentive Award Agreement.
7.2. PAYMENT. Upon the expiration or termination of the Restriction Period
and the satisfaction (as determined by the Committee) of any other conditions
determined by the Committee, the restrictions applicable to the Restricted Stock
shall lapse and the Company shall cancel and direct its stock transfer agent to
make (or to cause to be made) an appropriate book entry reflecting the
Participant's ownership of such number of shares of Common Stock with respect to
which the restrictions have lapsed, free of all such restrictions, other than
any imposed by applicable law. Upon request, the Company shall deliver to the
Participant a stock certificate registered in such Participant's name and
representing the number of shares
8
of Common Stock with respect to which the restrictions have lapsed, free of all
such restrictions except any that may be imposed by law. To the extent provided
by the Committee, in its discretion, in lieu of delivering shares of Common
Stock, the Company may make a cash payment in full or partial satisfaction of
any Incentive Award of Restricted Stock equal to the Fair Market Value, on the
date the applicable restrictions lapse, of the number of shares or units of
Restricted Stock with respect to which such restrictions have lapsed. No payment
will be required to be made by the Participant upon the delivery of such shares
of Common Stock and/or cash, except as otherwise provided in Section 11.4 of the
Plan. Subject to Section 7.6, at or after the date of grant, the Committee may
accelerate the vesting of any award of Restricted Stock or waive any conditions
to the vesting of any such award.
7.3. RESTRICTION PERIOD; RESTRICTIONS ON TRANSFERABILITY DURING RESTRICTION
PERIOD. Unless otherwise determined by the Committee at or after the date of
grant, the Restriction Period applicable to any award of Restricted Stock shall
lapse, and such shares of Restricted Stock shall become freely transferable, on
the earlier of (I) the Participant's 60th birthday or (II) the date of the
Participant's termination of employment with the Company and the Subsidiaries
due to Retirement, death or Disability, subject in any such case to the
Participant's continuous employment with the Company or a Subsidiary through
such date. Except as provided in Section 11.1, shares of Restricted Stock may
not be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated until such time as the Restriction Period applicable thereto shall
have lapsed upon the satisfaction of such conditions, including without
limitation, the completion of a minimum period of service, the satisfaction of
performance goals or the occurrence of such event or events, as shall be
determined by the Committee either at or after the time of grant.
7.4. RIGHTS AS A STOCKHOLDER. Unless otherwise determined by the Committee
at or after the date of grant, Participants granted shares of Restricted Stock
shall be entitled to receive, either currently or at a future date, as specified
by the Committee, all dividends and other distributions paid with respect to
those shares, provided that if any such dividends or distributions are paid in
shares of Common Stock or other property (other than cash), such shares and
other property shall be subject to the same forfeiture restrictions and
restrictions on transferability as apply to the shares of Restricted Stock with
respect to which they were paid.
7.5. LEGEND. To the extent any stock certificate is issued to a
Participant in respect of shares of Restricted Stock awarded under the Plan
prior to the expiration of the applicable Restriction Period, such certificate
shall be registered in the name of the Participant and shall bear the following
(or similar) legend:
"The shares of stock represented by this certificate are subject to the
terms and conditions contained in the Lexmark International Group, Inc.
Stock Incentive Plan, as amended and restated, and the Incentive Award
Agreement, dated as of , between the Company and the Participant,
and may not be sold, pledged, transferred, assigned, hypothecated or
otherwise encumbered in any manner (except as provided in Article
of the Plan or in such Incentive Award Agreement) until ."
Upon the lapse of the Restriction Period with respect to any such shares of
Restricted Stock, the Company shall, upon the Participant's request, issue or
have issued new share certificates without the legend described herein in
exchange for those previously issued.
7.6. PERFORMANCE RELATED AWARDS. Notwithstanding anything else contained
in the Plan to the contrary, unless the Committee otherwise determines at the
time of grant, any award of Restricted Stock, or an award of Common Stock or
Restricted Stock made in conjunction with other incentive plans established by
the Company, to an officer of the Company or a Subsidiary who is subject to the
reporting requirements of Section 16(a) of the Act, other than an award which
will vest solely on the basis of the passage of time, shall, to the extent
required to ensure that an amount with respect to such award is deductible by
the Company or such Subsidiary pursuant to Section 162(m) of the Code, become
vested, if
9
at all, upon the determination by the Committee that performance objectives
established by the Committee have been attained, in whole or in part (a
"Performance Award"); provided that in no event shall the number of shares of
Common Stock subject to Performance Awards exceed 500,000 (adjusted pursuant to
Section 5.3 if an Adjustment Event shall occur) in the aggregate for all
Participants during the five-year period from April 30, 1998 through April 30,
2003, and 100,000 (adjusted pursuant to Section 5.3 if an Adjustment Event shall
occur) in the aggregate for any individual Participant during such five-year
period. Such performance objectives shall be determined over a measurement
period or periods established by the Committee, which period shall not be less
than three years, and related to one or more of the following criteria, which
may be determined solely by reference to the performance of (i) the Company,
(ii) a Subsidiary, (iii) an affiliate of the Company or (iv) a division or unit
of any of the foregoing or based on comparative performance of any of the
foregoing relative to other companies: (A) earnings per share; (B) revenues; (C)
operating cash flow; (D) operating earnings; (E) working capital; (F) inventory
turnover rates; (G) return on capital; (H) return on equity; and (I) shareholder
value add (the "Performance Criteria").
SECTION 8.
DEFERRED STOCK UNITS
8.1. DEFERRED STOCK UNIT AWARDS. On fixed dates established by the
Committee and subject to such terms and conditions as the Committee shall
determine, a Participant may be permitted to elect to defer receipt of all or a
portion of his annual compensation and/or annual incentive compensation
("Deferred Annual Amount") payable by the Company or a Subsidiary and receive in
lieu thereof an Incentive Award of a number of Deferred Stock Units (the
"Elective Units") equal to the greatest whole number which may be obtained by
dividing (X) the amount of the Deferred Annual Amount, by (Y) the Fair Market
Value of a share of Common Stock on the date of grant. No shares of Common Stock
will be issued at the time an award of Deferred Stock Units is made and the
Company shall not be required to set aside a fund for the payment of any such
award. The Company will establish a separate account for the Participant and
will record in such account the number of Deferred Stock Units awarded to the
Participant. Unless the Committee determines otherwise, each Participant who
receives an award of Elective Units shall receive an additional award of
Deferred Stock Units (the "Supplemental Units") equal to the greatest whole
number which may be obtained by dividing (X) 20% (or such other percentage as
may be determined by the Committee at the date of grant) of the Deferred Annual
Amount, by (Y) the Fair Market Value of a share of Common Stock on the date of
grant. The Committee may also grant a Participant an Incentive Award of Deferred
Stock Units ("Freestanding Deferred Stock Units") without regard to any election
by the Participant to defer receipt of any compensation or bonus amount payable
to him.
8.2. DIVIDENDS WITH RESPECT TO DEFERRED STOCK UNITS. The Committee will
determine whether and to what extent to credit to the account of, or to pay
currently to, each recipient of a Deferred Stock Unit award, an amount equal to
any dividends paid by the Company during the period of deferral with respect to
the corresponding number of shares of Common Stock ("Dividend Equivalents"). To
the extent provided by the Committee at or after the date of grant, any Dividend
Equivalents with respect to cash dividends on the Common Stock credited to a
Participant's account shall be deemed to have been invested in shares of Common
Stock on the record date established for the related dividend and, accordingly,
a number of Deferred Stock Units shall be credited to such Participant's account
equal to the greatest whole number which may be obtained by dividing (X) the
value of such Dividend Equivalent on the record date, by (Y) the Fair Market
Value of a share of Common Stock on such date.
8.3. VESTING OF DEFERRED STOCK UNIT AWARDS. The portion of each Deferred
Stock Unit award that consists of Elective Units, together with any Dividend
Equivalents credited with respect thereto, shall be fully vested at all times.
Unless the Committee provides otherwise at or after the date of grant, the
portion
10
of each Deferred Stock Unit award that consists of Supplemental Units or
Freestanding Deferred Stock Units, together with any Dividend Equivalents
credited with respect thereto, will become vested in full on the fifth
anniversary of (X) in the case of Supplemental Units, the date the corresponding
Deferred Annual Amount would have been paid absent the Participant's election to
defer and (Y) in the case of Freestanding Deferred Stock Units, the fifth
anniversary of the date of grant of such Units, provided the Participant remains
in the continuous employ of the Company or a Subsidiary through such applicable
date. Notwithstanding the foregoing, the Committee may accelerate the vesting of
any Deferred Stock Unit award at or after the date of grant.
8.4. RIGHTS AS A STOCKHOLDER. A Participant shall not have any right in
respect of Deferred Stock Units awarded pursuant to the Plan to vote on any
matter submitted to the Company's stockholders until such time as the shares of
Common Stock attributable to such Deferred Stock Units have been issued to such
Participant or his beneficiary.
8.5. SETTLEMENT OF DEFERRED STOCK UNITS. Unless the Committee determines
otherwise at or after the date of grant, a Participant shall receive one share
of Common Stock for each Elective Unit (and related Dividend Equivalents) as of
the earlier of (X) the fifth anniversary of the date of grant and (Y) the date
of such Participant's termination of employment due to Retirement, death or
Disability (or such later date as may be elected by the Participant in
accordance with the rules and procedures of the Committee). Unless the Committee
determines otherwise at or after the date of grant, a Participant shall receive
one share of Common Stock for each Supplemental Unit and/or Freestanding
Deferred Stock Unit (and related Dividend Equivalents) that shall have become
vested on or prior to the date of such Participant's termination of employment
with the Company and the Subsidiaries, other than any such termination for
Cause, on (X) in the case of the Participant's termination of employment due to
Retirement, death or Disability, the date of such termination of employment and
(Y) in the case of any other termination of the Participant's employment, on the
later of (I) the Participant's 60th birthday and (II) the date of such
termination of employment (or, in any such case, on such earlier date as the
Committee shall permit or such later date as may be elected by the Participant
in accordance with the rules and procedures of the Committee). In the event of
the termination of a Participant's employment with the Company and the
Subsidiaries for Cause, the Participant shall immediately forfeit all rights
with respect to any Supplemental Units and Freestanding Deferred Stock Units
(and Related Dividend Equivalents) credited to his account. The Committee may
provide in the Award Agreement applicable to any Incentive Award of Deferred
Stock Units that, in lieu of issuing shares of Common Stock in settlement of the
vested portion of such Deferred Stock Unit, the Committee may direct the Company
to pay to the Participant the cash balance of such Deferred Stock Units.
SECTION 9.
CHANGE IN CONTROL
9.1. ACCELERATED VESTING AND PAYMENT. Subject to the provisions of Section
9.2 below, in the event of a Change in Control, (i) each Option and Stock
Appreciation Right shall promptly be canceled in exchange for a payment in cash
of an amount equal to the excess of the Change in Control Price over the
exercise price for such Option or the base price for such Stock Appreciation
Right, whichever is applicable (except that the Change in Control Price shall
not apply to Stock Appreciation Rights granted in tandem with Incentive Stock
Options), (ii) the Restriction Period applicable to all shares of Restricted
Stock shall expire and all such shares shall become nonforfeitable and
immediately transferable and (iii) all Deferred Stock Units shall become fully
vested and the shares of Common Stock with respect thereto shall be immediately
payable.
9.2. ALTERNATIVE AWARDS. Notwithstanding Section 9.1, no cancellation,
acceleration of exercisability, vesting, cash settlement or other payment shall
occur with respect to any Incentive Award or any class of
11
Incentive Awards if the Committee reasonably determines in good faith prior to
the occurrence of a Change in Control that such Incentive Award or class of
Incentive Awards shall be honored or assumed, or new rights substituted therefor
(such honored, assumed or substituted award hereinafter called an "Alternative
Award") by a Participant's employer (or the parent or a subsidiary of such
employer) immediately following the Change in Control, provided that any such
Alternative Award must:
(i) be based on stock which is traded on an established securities
market, or which will be so traded within 60 days following the Change in
Control;
(ii) provide such Participant (or each Participant in a class of
Participants) with rights and entitlements substantially equivalent to or
better than the rights and entitlements applicable under such Incentive
Award, including, but not limited to, an identical or better exercise or
vesting schedule and identical or better timing and methods of payment;
(iii) have substantially equivalent economic value to such Incentive
Award (determined by the Committee as constituted immediately prior to the
Change in Control, in its sole discretion, promptly after the Change in
Control); and
(iv) have terms and conditions which provide that in the event that the
Participant's employment is involuntarily terminated or constructively
terminated (other than for Cause) upon or following such Change in Control,
any conditions on a Participant's rights under, or any restrictions on
transfer or exercisability applicable to, each such Alternative Award shall
be waived or shall lapse, as the case may be.
For this purpose, a constructive termination shall mean a termination by a
Participant following a material reduction in the Participant's compensation, a
material reduction in the Participant's responsibilities or the relocation of
the Participant's principal place of employment to another location a material
distance farther away from the Participant's home, in each case, without the
Participant's prior written consent.
SECTION 10.
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board may at any time terminate or suspend the Plan, and from time to
time may amend or modify the Plan, provided, however, that any amendment which
would (I) increase the number of shares available for issuance under Sections
5.1, 6.1, 6.7, 7.1 and 7.6, (II) lower the minimum exercise price for Options
and Stock Appreciation Rights or (III) materially modify the requirements for
eligibility to participate in the Plan, shall be subject to the approval of the
Company's stockholders. No action of the Board may, without the consent of a
Participant, alter or impair such Participant's rights under any previously
granted Incentive Award.
12
SECTION 11.
MISCELLANEOUS PROVISIONS
11.1. NONTRANSFERABILITY OF AWARDS. Unless the Board, the Committee or the
Company's Vice President, Human Resources and Vice President and General Counsel
shall permit an Incentive Award to be transferred by a Participant to a
Participant's family member for estate planning purposes or to a trust,
partnership, corporation or other entity established by the Participant for
estate planning purposes, on such terms and conditions as the Board, the
Committee or such officers may specify, no Incentive Award granted under the
Plan may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution. All
rights with respect to any Incentive Award granted to a Participant under the
Plan shall be exercisable by the tranferee only for as long as they could have
been exercisable by such Participant. If any Incentive Award is transferred to a
family member, trust, partnership, corporation or other entity as contemplated
by the first sentence hereof, all references herein and in the applicable Award
Agreement to the Participant shall be deemed to refer to such permitted
transfereee, other than any such references with respect to the personal status
of the Participant.
11.2. BENEFICIARY DESIGNATION. Each Participant under the Plan may from
time to time name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
or by whom any right under the Plan is to be exercised in case of his death.
Each designation will revoke all prior designations by the same Participant,
shall be in a form prescribed by the Committee and will be effective only when
filed by the Participant in writing with the Committee during his lifetime. In
the absence of any such designation, benefits remaining unpaid or Incentive
Awards outstanding at the Participant's death shall be paid to or exercised by
the Participant's surviving spouse, if any, or otherwise to or by his estate.
11.3. NO GUARANTEE OF EMPLOYMENT OR PARTICIPATION. Nothing in the Plan
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time and for any
reason, nor confer upon any Participant any right to continue in the employ of
the Company or any Subsidiary. No Employee shall have a right to be selected as
a Participant, or, having been so selected, to receive any Incentive Awards
under the Plan.
11.4. TAX WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company promptly upon notification of the
amount due, an amount determined by the Company, in its discretion, to be
sufficient to satisfy all Federal, state and local withholding tax requirements
in respect of any Incentive Award, and the Company may defer payment of cash or
issuance or delivery of Common Stock until such requirements are satisfied. The
Committee may permit or require a Participant to satisfy his tax withholding
obligation hereunder in such other manner, subject to such conditions, as the
Committee shall determine, including, without limitation, (I) to have Common
Stock otherwise issuable or deliverable under the Plan withheld by the Company
or (II) to deliver to the Company previously acquired shares of Common Stock
that have been owned by the Participant for at least six months, in each case,
having a Fair Market Value sufficient to satisfy all or part of the
Participant's Federal, state and local withholding tax obligation.
11.5. INDEMNIFICATION. Each person who is or shall have been a member of
the Committee or the Board shall be indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by him in connection with or resulting from any claim,
action, suit or proceeding to which he may be made a party or in which he may be
involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him in satisfaction of any judgment in any such
action, suit or proceeding against him, provided that he shall give the Company
an opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive and shall be independent of any other
13
rights of indemnification to which such persons may be entitled under the
Company's articles of incorporation or by-laws, by contract, as a matter of law
or otherwise.
11.6. NO LIMITATION ON COMPENSATION. Nothing in the Plan shall be
construed to limit the right of the Company to establish other plans or to pay
compensation to its employees in cash or property, in a manner which is not
expressly authorized under the Plan.
11.7. REQUIREMENTS OF LAW. The granting of Incentive Awards and the
issuance of shares of Common Stock shall be subject to all applicable laws,
rules and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be appropriate or required, as determined
by the Committee.
11.8. GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware,
without regard to principles of conflicts of laws.
11.9. NO IMPACT ON BENEFITS. Incentive Awards granted under the Plan are
not compensation for purposes of calculating an Employee's rights under any
employee benefit plan, except to the extent provided in any such plan.
11.10 SECURITIES LAW COMPLIANCE. Instruments evidencing Incentive Awards
may contain such other provisions, not inconsistent with the Plan, as the
Committee deems advisable, including a requirement that the Participant
represent to the Company in writing, when an Incentive Award is granted or when
he receives shares with respect to such Award (or at such other times as the
Committee deems appropriate) that he is accepting such Incentive Award, or
receiving or acquiring such shares (unless they are then covered by a Securities
Act of 1933 registration statement), for his own account for investment only and
with no present intention to transfer, sell or otherwise dispose of such shares
except such disposition by a legal representative as shall be required by will
or the laws of any jurisdiction in winding up the estate of the Participant or
pursuant to a transfer permitted by Section 11.1. Such shares shall be
transferable only if the proposed transfer shall be permissible pursuant to the
Plan and if, in the opinion of counsel satisfactory to the Company, such
transfer at such time will be in compliance with applicable securities laws.
11.11 NO RIGHT TO PARTICULAR ASSETS. Nothing contained in this Plan and no
action taken pursuant to this Plan shall create or be construed to create a
trust of any kind or any fiduciary relationship between the Company and any
Participant, the executor, administrator or other personal representative or
designated beneficiary of such Participant, or any other persons. Any reserves
that may be established by the Company in connection with this Plan shall
continue to be held as part of the general funds of the Company, and no
individual or entity other than the Company shall have any interest in such
funds until paid to a Participant. To the extent that any Participant or his
executor, administrator or other personal representative, as the case may be,
acquires a right to receive any payment from the Company pursuant to this Plan,
such right shall be no greater than the right of an unsecured general creditor
of the Company.
11.12 NOTICES. Each Participant shall be responsible for furnishing the
Committee with the current and proper address for the mailing of notices and
delivery of agreements and shares of Common Stock. Any notices required or
permitted to be given shall be deemed given if directed to the person to whom
addressed at such address and mailed by regular United States mail, first-class
and prepaid. If any item mailed to such address is returned as undeliverable to
the addressee, mailing will be suspended until the Participant furnishes the
proper address.
11.13 SEVERABILITY OF PROVISIONS. If any provision of this Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provision had not been included.
11.14 INCAPACITY. Any benefit payable to or for the benefit of a minor, an
incompetent person or other person incapable of receiving such benefit shall be
deemed paid when paid to such person's guardian
14
or to the party providing or reasonably appearing to provide for the care of
such person, and such payment shall fully discharge the Committee, the Company
and other parties with respect thereto.
11.15 HEADINGS AND CAPTIONS. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of this Plan
and shall not be employed in the construction of this Plan.
11.16 DEFERRAL OF AWARDS. Notwithstanding any provision contained herein
to the contrary, the transfer of earned Incentive Awards and Performance Awards
to a Participant may be deferred by a Participant in accordance with such
procedures and upon such terms and conditions as may be established by the
Committee.
11.17. COMPLIANCE WITH SECTION 162(M). Notwithstanding anything else
contained in the Plan to the contrary, unless the Committee otherwise determines
at the time of grant, any Incentive Award made hereunder to an officer who is
subject to the reporting requirements of Section 16(a) of the Act is intended to
qualify as other performance based compensation within the meaning of Section
162(m)(4)(C) of the Code, and the Committee shall not be entitled to exercise
any discretion otherwise authorized under the Plan with respect to such award
if, and to the extent that, the ability to exercise such discretion (as opposed
to the exercise of such discretion) would cause such award to fail to qualify as
other performance based compensation.
15
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF LEXMARK
INTERNATIONAL GROUP, INC.
The undersigned hereby appoints Marvin L. Mann, Paul J. Curlander and Vincent J.
Cole attorneys and proxies, each with power to act without the other and with
power of substitution, and hereby authorizes them to represent and vote all the
shares of stock of Lexmark International Group, Inc. standing in the name of the
undersigned with all powers which the undersigned would possess if present at
the Annual Meeting of Stockholders of the Company to be held April 30, 1998 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" PROPOSAL 2. 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" PROPOSAL 2. 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.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE Please mark [X]
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF your votes
NO DIRECTION IS MADE WITH RESPECT TO A PROPOSAL, THIS as indicated
PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR in this
PROPOSAL 2 AND OTHERWISE IN ACCORDANCE WITH THE BEST example
JUDGMENT OF THE PROXY HOLDER.
I PLAN TO ATTEND THE MEETING / /
1. ELECTION OF DIRECTORS-TERMS TO EXPIRE 2001 (Frank T. Cary, Paul J.
Curlander and Martin D. Walker).
FOR all nominees WITHHOLD AUTHORITY (INSTRUCTION: To withhold
listed above (except to vote for all nom- authority to vote for any
as marked to the inees listed individual nominee, write the
contrary) / / above) / / nominee's name on the line
provided below.)
----------------------------------
2. APPROVAL OF THE STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED.
FOR / / AGAINST / / ABSTAIN / /
3. In their discretion upon such other Please sign exactly as name appears
business as may properly come hereon. When shares are held by joint
before the meeting or any adjourn- tenants, both should sign. When
ment or postponement thereof. 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.
Dated: , 1998
(Signature)
(Signature if held jointly)
PLEASE SIGN, DATE, AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
FOLD AND DETACH HERE
ADMISSION TICKET
ANNUAL MEETING OF
STOCKHOLDERS
LEXMARK INTERNATIONAL GROUP, INC.
APRIL 30, 1998
10:00 A.M.
THE RENAISSANCE WAVERLY HOTEL
2450 GALLERIA PARKWAY
ATLANTA, GEORGIA 30339