ex10_1.htm


     

    Exhibit
10.1

    

      


      Execution
Version

      


      Lexmark
International, Inc.

      One
Lexmark Centre Drive

      740 West
New Circle Road

      Lexington,
KY  40550

      


                              October 21,
2008

      


      Re: Accelerated Share
Repurchase

      


      Ladies
and Gentlemen:

      


      This letter (the “Letter Agreement”)
sets forth the agreement we have reached with respect to a transaction between Bank of America, N.A. (“Bank of
America”), and
Lexmark International, Inc (the “Company”) in relation
to shares of the Company’s common stock, par value USD 0.01 (the “Common
Stock”).

      


      I.  Definitions

      


      As used
in this Letter Agreement, the following terms shall have the following
meanings:
 

      “Bankruptcy Code” has
the meaning specified in Section XV.

      


      “Cash Tender
Termination” has the meaning specified in Section VIII(a).

      


      “Corporate Event
Termination” has the meaning specified in Section VIII(b).

      


      “Defaulting Party” has
the meaning specified in Section IX.

      


      “Delisting
Termination” has the meaning specified in Section VIII(c).

      


      “Discount Per Share”
means an amount in U.S. dollars specified in Schedule I.

      


      “Disrupted Day” means
a Trading Day on which a Market Disruption Event occurs.

      


      “Dividend Event
Termination” has the meaning specified in Section VII(b).

      


      “Exchange” means New
York Stock Exchange or any successor exchange.

      


      “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

      


      “Expected Dividend
Amount” has the meaning specified in Section VII(a).

      


      “Indemnified Party”
has the meaning specified in Section XIV.

      


      “Initial Pricing Period
Termination Date” means the date specified in Schedule I.

      


      “Initial Settlement
Date” has the meaning specified in Section II(b).

      


      “Initial Share Price”
has the meaning specified in Section II(a).

      


      “Loss” has the meaning
specified in Section X(a).

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      


      “Loss Notice” has the
meaning specified in Section X(a).

      


      “Loss of Borrow
Termination” has the meaning specified in Section VI(b).

      


      “Market Disruption
Event” means any (i) suspension of or limitation imposed on trading by
any exchange or market on which the Common Stock is listed for trading, (ii)
event that disrupts or impairs (in the reasonable business judgment of Bank of
America) the ability of market participants in general to effect transaction in,
or obtain market values for, the shares of Common Stock or futures or options
contracts relating to the Common Stock or (iii) material decrease, on any
Trading Day, in the trading volume for the Common Stock such that in the
reasonable business judgment of Bank of America it cannot purchase the
contemplated number of shares for such Trading Day.

      


      “Maximum Borrow Cost”
means 50 basis points per annum based on the closing price per share of Common
Stock on the Trading Day immediately preceding the relevant day.

      


      “Non-Defaulting Party”
has the meaning specified in Section IX.

      


      “Number of Initial
Shares” has the meaning specified in Section II(b).

      


      “Number of Shares” has
the meaning specified in Section II(a).

      


      “Payment Amount” has
the meaning specified in Section III(b).

      


      “Pricing Period” means
the period of consecutive Trading Days commencing on the Pricing Period
Commencement Date and ending on the Pricing Period Termination Date; provided that the
Pricing Period may be extended by Bank of America upon the occurrence of a
Market Disruption Event.

      


      “Pricing Period Commencement
Date” means October 22, 2008.

      


      “Pricing Period Termination
Date” means the earlier of (a) the Scheduled Pricing Period Termination
Date, or (b) any Trading Day occurring on or following the Initial Pricing
Period Termination Date and immediately preceding any Trading Day, on which Bank
of America shall notify the Company, prior to the close of regular trading on
the Exchange on such Trading Day, of its intention to terminate the Pricing
Period; provided that, for
the avoidance of doubt, any date relating to the termination of the Transaction
and designated as such pursuant to Section X of this Letter Agreement shall not
be deemed the Pricing Period Termination Date and accordingly the settlement of
the Transaction shall be governed by such Section X and not by provisions of
Section III of this Letter Agreement.

      


      “Private Placement
Agreement” has the meaning set forth in Annex B hereto.

       

      “Private Placement
Price” has the meaning set forth in Annex B hereto.

       

      “Private Placement
Settlement” has the meaning set forth in
Section  III(b).

       

      “Private Securities”
has the meaning set forth in Annex B hereto.

       

      “Prospectus” has the
meaning specified in Annex A hereto.

      


      “Purchase Date” has
the meaning specified in Section II(a).

      


      “Purchase Price” has
the meaning specified in Section II(a).

      


      “Registered
Settlement” has the meaning set forth in
Section  III(b).

      


      “Registration
Statement” has the meaning specified in Annex A hereto.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      


      “Regulation M” means
Regulation M under the Exchange Act.

      


      “Remaining Share
Amount” for any Trading Day equals (i) the Number of Initial Shares,
minus (ii) the
cumulative number of shares of Common Stock that Bank of America has repurchased
to cover its short position in respect of this Transaction.  For the
avoidance of doubt, such shares shall be considered repurchased by Bank of
America as of the Trading Day on which such transactions settle.

      


      “Rule 10b-18” means
Rule 10b-18 under the Exchange Act.

      


      “Rule 10b-18 VWAP”
means, for any Trading Day, the volume-weighted average price at which the
Common Stock trades as reported in the composite transactions for the principal
U.S. securities exchange on which such Common Stock is then listed on such
Trading Day, excluding (i) trades that do not settle regular way, (ii) opening
(regular way) reported trades in the consolidated system on such Trading Day,
(iii) trades that occur in the last ten minutes before the scheduled close of
trading on the Exchange on such Trading Day and ten minutes before the scheduled
close of the primary trading in the market where the trade is effected, and (iv)
trades on such Trading Day that do not satisfy the requirements of Rule
10b-18(b)(3) of the Exchange Act, as determined in good faith by Bank of
America.  The Company acknowledges that Bank of America may refer to
the Bloomberg Page “LXK.N <Equity> AQR SEC” (or any successor thereto), in
its judgment, for such Trading Day to determine the Rule 10b-18
VWAP.

      


      “SEC” has the meaning
specified in Annex A hereto.

      


      “Scheduled Pricing Period
Termination Date” means the date specified in Schedule I; provided that, the
Scheduled Pricing Period Termination Date may be postponed by Bank of America
upon the occurrence of a Market Disruption Event on any scheduled Trading Day
during the Pricing Period.

      


      “Securities Act” means
the Securities Act of 1933, as amended.

      


      “Settlement Date”
means the fourth Trading Day immediately following the last day of the Pricing
Period.

      


      “Settlement Number”
means (a) the Purchase Price divided by the
Settlement Price, minus (b) the Number
of Initial Shares.

      


      “Settlement Price”
means (i) the average of the Rule 10b-18 VWAP prices for all Trading Days during
the Pricing Period minus (ii) the
Discount Per Share.

      


      “Share Cap” means, as
of any date of determination, ten (10) times the Number of Initial Shares minus
the number of shares of Common Stock delivered by the Company to Bank of America
on or prior to such date hereunder (in each case subject to adjustment pursuant
to Section VI(b) and VIII).

      


      “Trading Day” means
any day (i) other than a Saturday, a Sunday or a Disrupted Day, and (ii) on
which the Exchange is open for trading during its regular trading session,
notwithstanding the Exchange closing prior to its scheduled closing
time.

      


      “Transaction” means
the transaction contemplated by this Letter Agreement.

      


      “Transfer Agreement”
has the meaning specified in Annex A hereto.

      


      “Valuation Period”
means a period commencing on the first Trading Day immediately following the
last Trading Day of the Pricing Period and ending on the Trading Day on which
Bank of America completes its purchase of a number of shares of Common Stock
equal to the Settlement Number, pursuant to Section III(b), and as determined in
good faith by Bank of America in consultation with the Company.

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      


      


      


      II.  Initial
Shares

      


      (a)           Purchase.  Subject
to the terms and conditions of this Letter Agreement, the Company agrees to
purchase from Bank of America, and Bank of America will sell to the Company, on
the date hereof or on such other Trading Day as the Company and Bank of America
shall otherwise agree (the “Purchase Date”), for
a single aggregate price of $100,000,000 (the “Purchase Price”),
3,889,537 shares of Common Stock (“Number of Shares”)
and, if the Settlement Number is greater than zero, additional number of shares
of Common Stock equal to such Settlement Number.  Bank of America will
hedge this Transaction by entering into a short sale with respect to the Number
of Initial Shares effected at the closing price per share of Common Stock on the
Purchase Date (the “Initial Share
Price”).  Such purchase, sale and hedge shall be effected in
accordance with Bank of America’s customary procedures.

      


      (b)           Initial
Settlement.  On the third Trading Day immediately following the
Purchase Date (the “Initial Settlement
Date”), Bank of America shall deliver to the Company, a number of Shares
equal to the product of (i) 85% and (ii) the Number of Shares (the “Number of Initial
Shares”), upon payment by the Company of the Purchase Price in U.S.
dollars.

      


      III.  Settlement

      


      (a)           Bank of America Settlement
Obligation.  If, following the expiration of the Pricing
Period, the Settlement Number is greater than zero, on the Settlement Date, Bank
of America shall transfer to the Company through its agent, for no additional
consideration, a number of shares of Common Stock equal to the Settlement
Number.

      


      (b)           Company Settlement
Obligation.  If, following the expiration of the Pricing
Period, the Settlement Number is less than zero, on the Settlement Date, (i) the
Company shall, in accordance with the provisions of this paragraph (b), transfer
to Bank of America through its agent, for no additional consideration, a number
of shares of Common Stock equal to the absolute value of the Settlement Number
or, (ii) if the Company so elects pursuant to this paragraph, in lieu of such
share delivery, the Company shall make a cash payment to Bank of America in an
amount equal to the absolute value of the Settlement Number multiplied by the
weighted average purchase price at which Bank of America purchases shares of
Common Stock equal to the Settlement Number during the Valuation Period (the
“Payment
Amount”), to be paid on the Trading Day immediately following the last
day of the Valuation Period; provided that, for
the avoidance of doubt, in accordance with the calculation of the Settlement
Number, in calculating any corresponding settlement obligations of the parties,
Bank of America shall take into consideration the actual payments and deliveries
made by the parties on the Initial Settlement Date for the
Transaction.  The Company shall notify Bank of America in writing of
its election (i) to pay the absolute value of the Settlement Number in cash
or, (ii) to effect the delivery of the Settlement Number of shares in accordance
with Annex A (“Registered
Settlement”) or Annex B (“Private Placement
Settlement”) to this Letter Agreement; provided that (A) the
failure to make an election and notify Bank of America in accordance with the
preceding sentence with respect to matters described in clause (i), shall
constitute an irrevocable election by the Company to deliver shares, and, (B)
the failure to make an election and notify Bank of America with respect to
matters described in clause (ii), shall constitute an election of “Private
Placement Settlement”.

      


      (c)    Delivery
Limitation.  Notwithstanding anything to the contrary in this
Letter Agreement, the Company acknowledges and agrees that, on any day, Bank of
America (or its agent or affiliate) shall not be obligated to deliver or receive
any shares of Common Stock to or from the Company and the Company shall not be
entitled to receive any shares of Common Stock if such receipt or delivery would
result in Bank of America directly or indirectly beneficially owning (as such
term is defined for purposes of Section 13(d) of the Exchange Act) at any time
in excess of 4.9% of the outstanding shares of Common Stock.  Any
purported receipt or delivery of shares of Common Stock shall be void and have
no effect to the extent (but only to the extent) that any receipt or delivery of
such shares of Common Stock would result 

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      

      in Bank
of America directly or indirectly so beneficially owning in excess of 4.9% of
the outstanding shares of Common Stock.  If, on any day, any delivery
or receipt of shares of Common Stock by Bank of America (or its agent or
affiliate) is not effected, in whole or in part, as a result of this provision,
Bank of America’s and the Company’s respective obligations to make or accept
such receipt or delivery shall not be extinguished and such receipt or delivery
shall be effected over time as promptly as Bank of America reasonably determines
that such receipt or delivery would not result in Bank of America directly or
indirectly beneficially owning in excess of 4.9% of the outstanding shares of
Common Stock.

       

          (d)    Company Settlement
Representations.  The Company represents and warrants, as of
the Pricing Period Termination Date, that each of its filings under the
Securities Act, the Exchange Act or other applicable securities laws that are
required to be filed have been filed and that, as of the date of this
representation, there is no misstatement of material fact contained therein or
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading in the circumstances under which they were
made.

      


      IV.  Bank of America
Purchases

      


      (a)    Manner of
Purchases.  During the Pricing Period or, if applicable, the
Valuation Period, Bank of America (or its agent or affiliate) may purchase
shares of Common Stock in connection with this Transaction.  The
timing of such purchases by Bank of America, the price paid per share of Common
Stock pursuant to such purchases and the manner in which such purchases are
made, including without limitation whether such purchases are made on any
securities exchange or privately, shall be within the sole judgment of Bank of
America; provided that, during
the Valuation Period, Bank of America will use good faith efforts to make all
purchases of Common Stock in connection with this Transaction in a manner that
would comply with the limitations set forth in clauses (b)(2), (b)(3), (b)(4)
and (c) of Rule 10b-18 as if such rule were applicable to such purchases.


      


      (b)    10b5-1
Plan.  The Company acknowledges and agrees that (i) all
purchases pursuant to this Section IV hereunder shall be made in Bank of
America’s sole discretion and for Bank of America’s own account and (ii) the
Company does not have, and shall not attempt to exercise, any influence over
how, when or whether to make such purchases, including, without limitation, the
price paid per share of Common Stock pursuant to such purchases whether such
purchases are made on any securities exchange or privately.  It is the
intent of the Company and Bank of America that this Transaction comply with the
requirements of Rule 10b5-1(c) of the Exchange Act and that this Letter
Agreement shall be interpreted to comply with the requirements of Rule
10b5-1(c)(1)(i)(B) and Bank of America shall take no action that results in the
transaction not so complying with such requirements.

      


      (c)    Regulatory
Suspension.  In the event that Bank of America reasonably
concludes in good faith, that it is appropriate with respect to any legal,
regulatory or self-regulatory requirements or related policies and procedures
(whether or not such requirements, policies or procedures are imposed by law or
have been voluntarily adopted by Bank of America), or due to any Market
Disruption Event, for it to refrain from purchasing Common Stock on any Trading
Day during the Pricing Period, the Pricing Period
shall be suspended for such day.  Bank of America shall
promptly notify the Company upon exercising its rights pursuant to this Section
IV(c) and shall subsequently notify the Company in writing on the day Bank of
America believes that it may resume purchasing Common Stock.  Bank of
America shall not be required to communicate to the Company the reason for Bank
of America’s exercise of its rights pursuant to this Section IV(c) if Bank of
America reasonably determines in good faith that disclosing such reason may
result in a violation of any legal, regulatory, or self-regulatory requirements
or related policies and procedures.

      


      V.  Company
Purchases

      


      The Company (including  its “affiliated purchasers”, as defined
in Rule 10b-18) shall  not, without a prior written  consent of Bank of
America,  purchase any shares of Common Stock (or an equivalent interest, or any security convertible
into or exchangeable for such shares) on the open market, or
enter into 

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      

      any
accelerated share repurchase program, or any derivative share repurchase
transaction, or other similar transaction, during the Pricing Period and
thereafter until all payments or deliveries of shares pursuant to Section III
have been made.  During such time, any purchases of Common Stock by
the Company shall be made through Bank of America or its affiliates, subject to
such reasonable conditions as Bank of America or such affiliate shall impose,
and in compliance with Rule 10b-18 or otherwise in a manner that the Company and
Bank of America believe is in compliance with applicable
requirements.

      


      VI.  Borrow
Events

       

      (a)           Borrow Cost
Increase.  If at any time during this Transaction, Bank of
America does not, after using commercially reasonable efforts, successfully
borrow Common Stock (up to a number equal to the Remaining Share Amount) on
terms that require Bank of America to pay or bear costs in connection with such
borrow in an amount less than or equal to the Maximum Borrow Cost, then Bank of
America will act in good faith and in a commercially reasonable manner to (a)
make the corresponding adjustment(s), if any, as Bank of America determines
appropriate (and in consultation with the Company) to account for any excess
borrowing costs and (b) determine the effective date(s) of the
adjustment(s).

       

      (b)           Loss of Borrow
Termination.  On any Trading Day, Bank of America may elect to
terminate (“Loss of
Borrow Termination”) this Transaction, in whole or in part, as the case
may be, in the event and pro rata to the extent it is no longer able, after
commercially reasonable efforts, to borrow (or maintain a borrowing of),
including at a cost that may exceed the Maximum Borrow Cost, shares of Common
Stock in an amount equal to the Remaining Share Amount.  Upon the
occurrence of a Loss of Borrow Termination, an Event of Default shall be deemed
to have occurred with the Company deemed the Defaulting Party and Bank of
America, the Non-Defaulting Party.

      


      VII.  Dividend
Event

      


      (a)           Dividend Amount. If
100% of the aggregate gross cash dividends per share of Common Stock (including
any cash extraordinary dividends) declared by the Company and for which the
ex-date occurs at any time during the Pricing Period exceeds $0.00 per share of
Common Stock (subject to adjustment in accordance with Section VIII) (the “Expected Dividend
Amount”) per calendar quarter, a Dividend Event shall be deemed to have
occurred.

      


      (b)           Dividend Event
Termination.  Upon the occurrence of a Dividend Event, on any
Trading Day on or after the occurrence of such Dividend Event, Bank of America
may terminate this Transaction (a “Dividend Event
Termination”).  Upon the occurrence of a Dividend Event
Termination, an Event of Default shall be deemed to have occurred with the
Company deemed the Defaulting Party and Bank of America, the Non-Defaulting
Party.

      


      VIII.  Extraordinary
Events

      


      (a)           
Tender
Offers.  In the event an offer is made to the holders of Common
Stock to tender in excess of 15% of the outstanding shares of Common Stock for
cash, Bank of America may, in its reasonable discretion, (i) adjust the terms of
this Transaction, so that (x) the final day of the Pricing Period shall be the
earlier of the scheduled final Trading Day of the Pricing Period and the date
the tender offer is consummated and (y) for each of the Trading Days in the
Pricing Period following the date on which the offer is made, the price used in
computing the Settlement Price shall equal the price per share of Common Stock
at which the tender offer is to be consummated, where Bank of America shall
notify the Company in writing as to the terms of any adjustment made pursuant to
this Section VIII(a) no later than 5 days after the tender offer is made or (ii)
elect to terminate this Transaction (a “Cash Tender
Termination”).  Upon the occurrence of a Cash Tender
Termination, an Event of Default shall be deemed to have occurred with the
Company deemed the Defaulting Party and Bank of America, the Non-Defaulting
Party.

      


      (b)           
Corporate
Events.  In the event of any corporate event involving the
Company or the Common Stock not specifically addressed in subsection (a) of this
Section VIII (including, without 

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      

      limitation,
the announcement of a non-cash dividend, stock split, reorganization, merger,
offer to tender Common Stock for consideration other than cash, rights offering,
recapitalization or spin-off) or in the event that Bank of America, in its
reasonable good faith judgment, determines that the adjustments described in
subsection (a) of this Section VIII will not result in an equitable adjustment
of the terms of this Transaction, Bank of America may (i) adjust the terms of
this Transaction (including, without limitation, with respect to the Expected
Dividend Amount and the number of Trading Days in the Pricing Period) as in the
exercise of its good faith judgment it deems appropriate under the circumstances
or (ii) elect to terminate this Transaction (a “Corporate Event
Termination”).  Upon the occurrence of a Corporate Event
Termination, an Event of Default shall be deemed to have occurred with the
Company deemed the Defaulting Party and Bank of America, the Non-Defaulting
Party.

      


      (c)           Delisting.  In
the event that the Exchange announces that pursuant to the rules of such
Exchange, the Common Stock ceases (or will cease) to be listed, traded or
publicly quoted on the Exchange for any reason (other than the occurrence of an
event addressed in subsections (a) or (b) of this Section VIII) and are not
immediately re-listed, re-traded or re-quoted on an exchange or quotation system
located in the same country as the Exchange (or, where the Exchange is within
the European Union, in any member state of the European Union), Bank of America
may (i) adjust the terms of this Transaction or (ii) elect to terminate this
Transaction (a “Delisting
Termination”).  Upon the occurrence of a Delisting Termination,
an Event of Default shall be deemed to have occurred with the Company deemed the
Defaulting Party and Bank of America, the Non-Defaulting Party.

      


      IX.  Events of
Default

      


      In
addition to events contemplated by Sections VI(b), VII(b) and VIII, the
occurrence of any of the following events with respect to a party (such party,
the “Defaulting
Party” with respect to such event, and the other party, the “Non-Defaulting
Party”) shall be an Event of Default:

      


      (a)           Payment.  The
failure to make any payment or any delivery of shares pursuant to the terms of
the Letter Agreement.

      


      (b)           Breach.  Any
representation or warranty made in this Letter Agreement shall prove to have
been false in any material respect at the time it was made, given or
reaffirmed.

      


      (c)           Performance.  The
failure to perform or comply in any material respect with any other obligation
in this Letter Agreement which failure shall continue for 5 business days after
written notice of such failure has been sent to the Defaulting
Party.

      


      (d)           Insolvency.  (A)
The initiation of any case, proceeding or other action (1) under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or other relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to have itself adjudicated as
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution or composition or other relief under
bankruptcy or insolvency law with respect to it or its debts or (2) which seeks
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets; (B) a general
assignment for the benefit of its creditors; (C) the initiation of any case,
proceeding or other action of a nature referred to in clause (A) hereof which
(1) results in the entry of an order for relief or any such adjudication or
appointment with respect to the party or any of its assets or (2) is not
dismissed, stayed, discharged or bonded for a period of 5 days; (D) the
initiation of any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, or similar process against all or any substantial part
of its assets, which case, proceeding or other action results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 30 days from the entry thereof; (E) a
party shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clauses (A) - (D)
hereof; or (F) either party shall generally not, or shall admit in writing its
inability to, pay its debts as they become due.

      


      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      

      (e)           Cross-Default.  Any
loan or other obligation in respect of borrowed money (whether present or
future, contingent or otherwise, as principal or surety or otherwise) of a party
in an amount, (i) in the case of the Company, in excess of $100,000,000, or (ii)
in the case of Bank of America, in excess of 3% of shareholders’ equity shall
have become payable before the due date thereof as a result of acceleration of
maturity caused by the occurrence of any event of default thereunder or if any
other such loan or obligation shall not be repaid when due, as extended by any
applicable grace period specified in the contracts or agreements constituting
such loan or obligation.

      


      (f)           Merger,
Consolidation.  Any consolidation or amalgamation or merger
with or into, or any transfer of all or substantially all its assets (i) to
another entity by a party, resulting in the creditworthiness of the surviving or
transferee entity being materially weaker than that of the party immediately
prior to such action, or (ii) into any person unless the surviving person is the
Company or another person formed under the laws of a State of the United States
of America and such entity assumes or is responsible, by operation of law, for
all obligations of the Company hereunder.

      


      X.  Remedies

      


      (a)           Settlement Loss
Determination.  Upon the occurrence and the continuance of an
Event of Default, notwithstanding any other provision to the contrary in this
Letter Agreement, the Non-Defaulting Party, upon notice to the Defaulting Party,
may, in its sole discretion, immediately terminate this Transaction and, if
applicable, purchasing the number of Shares equal to the Remaining Share Amount
to cover its short position or adjusting any other term hereof, and may sell,
liquidate, offset or take any other action with respect to any short position
established or maintained by it in connection with this
Transaction.  The Non-Defaulting Party shall act in good faith and in
a commercially reasonable manner to determine the amount that such party
reasonably in good faith believes to be its total unreimbursed net losses and
costs (which may be positive or negative) incurred in connection with the
termination of this Letter Agreement (the “Loss”) and upon
completion of such determination shall deliver to the Defaulting Party a written
notice indicating the amount of such Loss (a “Loss
Notice”).  Such computation shall include any out-of-pocket
losses (which may include but not be limited to the difference between the
Initial Share Price and the average price at which the shares are purchased
during the term of this Transaction (as this Transaction may be terminated early
as a result of the operation of this Section X(a)) and any actual or anticipated loss or cost incurred as
a result of its terminating, liquidating, obtaining or reestablishing any hedge
or related trading position.  In addition to the foregoing, the
Non-Defaulting Party may include in its determination of its Loss hereunder such
losses and costs (or gains) in respect of any payment or delivery required to
have been made on or before the relevant termination date.  In
determining Loss, the Non-Defaulting Party may consider any relevant
information, including, without limitation, one or more of the following types
of information: (i) quotations (either firm or indicative) for replacement
transactions supplied by one or more third parties that may take into account
the creditworthiness of the Non-Defaulting Party at the time the quotation is
provided and the terms of any relevant documentation, including credit support
documentation, between the Non-Defaulting Party and the third party providing
the quotation; (ii) information consisting of relevant market data in the
relevant market supplied by one or more third parties including, without
limitation, relevant rates, prices, yields, yield curves, volatilities, spreads,
correlations or other relevant market data in the relevant market; or (iii)
information of the types described in clause (i) or (ii) above from internal
sources (including any of the Non-Defaulting Party’s affiliates) if that
information is of the same type used by the Non-Defaulting Party in the regular
course of its business for the valuation of similar transactions.  The
Non-Defaulting Party will consider, taking into account the standards and
procedures described in this paragraph, quotations pursuant to clause (i) above
or relevant market data pursuant to clause (ii) above unless the Non-Defaulting
Party reasonably believes in good faith that such quotations or relevant market
data are not readily available or would produce a result that would not satisfy
those standards.  When considering information described in clause
(i), (ii) or (iii) above, the Non-Defaulting Party may include costs of funding,
to the extent costs of funding are not and would not be a component of the other
information being utilized.  Third parties supplying quotations
pursuant to clause (i) above or market data pursuant to clause (ii) above may
include, without limitation, dealers in the relevant markets, end-users of the
relevant product, information vendors, brokers and other sources of market
information.  Notwithstanding the foregoing, and without affecting the
respective parties’ obligations to make payments 

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      

      in
accordance with Section X(b), upon reasonable written request by the Defaulting
Party, the Non-Defaulting Party shall provide a written explanation of any
calculation or adjustment made by it in connection with calculation of the Loss,
including, where applicable, a reasonable description of the methodology and the
basis for such calculation or adjustment in reasonable detail and shall consult
with the Defaulting Party with respect to the amount of such Loss, it being
understood that the Non-Defaulting Party shall not be obligated to disclose any
proprietary models used by it for such calculation.

      


      (b)           Payments.  Upon 
receipt of a Loss Notice  from the  Non-Defaulting Party, (i) if the
amount  determined in  accordance with paragraph  (a) above is
a  positive number, then the Defaulting Party shall promptly pay to the
Non-Defaulting Party, the amount of such Loss in cash or (ii) if the amount
determined in accordance with paragraph (a) above is a negative number, then the
Non-Defaulting Party shall promptly pay to the Defaulting Party, the absolute
value of the amount of such Loss in cash; provided that, in the
event the Company is the party owing the Loss amount, then this paragraph (b)
shall be subject to the terms of paragraphs (c) and (d) below.

      


      (c)    Loss Settlement
Election.  If the Company is the owing party in accordance with
paragraph (b) above, upon receipt of a Loss Notice from Bank of America as the
Non-Defaulting Party, the Company may, in addition to its option to promptly pay
to Bank of America the amount of such Loss in cash, elect to deliver to Bank of
America within two Trading Days a number of shares of Common Stock equal to (i)
the amount of such Loss divided by (ii) the
closing price of the Common Stock on the Exchange for the day upon which the
Company receives such Loss Notice, rounded up to the nearest whole
share.  Such share delivery is subject to the provisions of the last
sentence of Section III(b); provided that, for
the avoidance of doubt, in calculating any settlement obligations of the parties
in accordance with this Section X, Bank of America shall take into consideration
the actual payments and deliveries made by the parties on the Initial Settlement
Date for the Transaction; provided, further that in no
event shall the Company be required to deliver a number of shares of Common
Stock that exceeds the then applicable Share Cap.

      


      (d)    Costs and
Expenses.  In addition to the payments set forth in subsections
(b) and (c) above, the Defaulting Party agrees to indemnify the Non-Defaulting
Party from and against any reasonable expenses (including reasonable external
counsel fees and other expenses of collection) it may incur as a result of any
default by such party.

      


      XI.  Representations of the
Parties

      


      Each
party represents to the other party that:

       

      (a)           Status.  It
is duly organized and validly existing under the laws of the jurisdiction of its
organization or incorporation and, if relevant under such laws, in good
standing;

       

      (b)           Powers.  It
has the corporate or other organizational power to execute and deliver this
Letter Agreement and to perform its obligations under this Letter Agreement and
has taken all necessary action to authorize such execution, delivery and
performance;

       

      (c)           No Violation or
Conflict.  Such execution, delivery and performance do not
violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other agency of
government applicable to it or any of its assets or any contractual restriction
binding on or affecting it or any of its assets;

       

      (d)           Consents.  All
governmental and other consents that are required to have been obtained by it
with respect to this Letter Agreement have been obtained and are in full force
and effect and all conditions of any such consents have been complied
with;

       

      (e)           Obligations
Binding.  Its obligations under this Letter Agreement
constitute its legal, valid and binding obligations, enforceable in accordance
with its respective terms (subject to applicable 

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      

      bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors’
rights generally and subject, as to enforceability, to equitable principles of
general application (regardless of whether enforcement is sought in a proceeding
in equity or at law)); and

       

      (f)           Absence of Certain
Events.  No Event of Default (as defined in the Agreement) or
event that, with the giving of notice or the passage of time or both, would
constitute an Event of Default has occurred and is continuing and no such event
or circumstance would occur as a result of its entering into or performing its
obligations under this Letter Agreement.

       

      XII.  Representations of the
Company

       

      The
Company additionally hereby represents on the Purchase Date to Bank of America
that:

       

      (a)    Liquidity.  Its
financial condition is such that it has no need for liquidity with respect to
its investment in the transactions contemplated by this Letter Agreement and no
need to dispose of any portion thereof to satisfy any existing or contemplated
undertaking or indebtedness.  Its investments in and liabilities in
respect of such transactions, which it understands are not readily marketable,
is not disproportionate to its net worth;

      


      (b)    Private Placement.  It acknowledges that the offer and sale of
this Transaction to it is intended to be
exempt from registration under the Securities Act, by virtue of Section 4(2)
thereof.  Accordingly, the Company represents and warrants to Bank of
America that (i) it is an “accredited investor” as that term is defined in
Regulation D as promulgated under the Securities Act, (ii) it is entering into
this Transaction for its own account and
without a view to the distribution or resale thereof, and it understands that Bank
of America has no obligation or intention to register the transactions
contemplated by this Letter Agreement under the Securities Act or any state
securities law or other applicable federal securities law;

      


      (c)    No Deposit
Insurance.  It understands
that no obligations of Bank of America to it hereunder will be entitled to the
benefit of deposit insurance and that such obligations will not be guaranteed by
any affiliate of Bank of America or any governmental agency;

      


      (d)    Assumption of
Risk.  IT UNDERSTANDS THAT THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT ARE SUBJECT TO COMPLEX RISKS THAT MAY ARISE WITHOUT WARNING AND
MAY AT TIMES BE VOLATILE AND THAT LOSSES MAY OCCUR QUICKLY AND IN UNANTICIPATED
MAGNITUDE AND IS WILLING TO ACCEPT SUCH TERMS AND CONDITIONS AND ASSUME
(FINANCIALLY AND OTHERWISE) SUCH RISKS;

      


      (e)    Compliance with Filing
Requirements.  Each of its filings under the Securities Act,
the Exchange Act, or other applicable securities laws that are required to be
filed have been filed and that, as of the respective dates thereof, there is no
misstatement of material fact contained therein or omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading

      


      (f)    Material Non-Public
Information.  It is not
entering into this Letter Agreement on the basis of, and is not aware of, any
material non-public information with respect to the Common Stock or in
anticipation of, in connection with, or to facilitate, a distribution of its
securities, a self tender offer or a third-party tender offer;

      


      (g)    No Manipulation.  It is not entering into any
transaction to create, and will not engage in any other securities or
derivatives transactions to create, actual or apparent trading activity in the
Common Stock (or any security convertible into or exchangeable for Common Stock)
or to raise or depress or to manipulate the price of the Common Stock (or any
security convertible into or exchangeable for Common Stock);

      


      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      

      (h)    Compliance with Securities
Laws.  It has not and will
not directly or indirectly violate any applicable law, rule or regulation
(including, without limitation, the Securities Act and the Exchange Act) in
connection with the transactions contemplated by this Letter
Agreement;

      


      (i)    Required Company
Approvals.  The transactions contemplated by this Letter
Agreement and any repurchase of Common Stock by the Company in connection with
such transactions are pursuant to a publicly announced share repurchase program
that has been approved by its Board of Directors and any such repurchase has
been or will when so required be publicly disclosed in its periodic filings
under the Exchange Act and its financial statements and notes thereto and, at
the time of making this representation, such transactions are not subject to any
internal policy or procedure of the Company which would prohibit the Company
from effecting any transactions in the shares of Common Stock at such
time;

      


      (j)    Regulation
M.  The Company is not on the date hereof, and will not be
during the term of the transactions contemplated by this Letter Agreement,
engaged in a distribution, as such term is used in Regulation M under the
Exchange Act, that would preclude purchases by the Company of the Common Stock
or cause the Company to violate any law, rule or regulation with respect to such
purchases;

      


      (k)    Non-Reliance.  It
is not relying, and has not relied upon, Bank of America or any of its affiliates with respect to the
legal, accounting, tax or other implications of this Letter Agreement and that
it has conducted its own analyses of the legal, accounting, tax and other
implications of this Letter Agreement.  Further, it acknowledges and agrees that neither Bank of America
nor any affiliate of Bank of America has acted as its advisor in any capacity in
connection with this Letter Agreement or the transactions contemplated
hereby.  The Company is entering into this Letter Agreement with a
full understanding of all of the terms and risks hereof (economic and
otherwise), has adequate expertise in financial matters to evaluate those terms
and risks and is capable of assuming (financially and otherwise) those
risks; and

      


      (l)    Acknowledgement of Bank of
America Activity.  It understands and acknowledges that Bank of
America and its affiliates may from time to time effect transactions for their
own account or the account of customers and hold positions in securities or
options on securities of the Company and that Bank of America and its affiliates
may continue to conduct such transactions during the Pricing Period and the
Valuation Period.

      


      XIII.  Agreements of the
Company

      


      (a)    Authorized
Shares.  The Company agrees that while this Letter Agreement is
in effect, it shall cause (i) the number of authorized shares of Common
Stock minus
(ii) the number of outstanding shares of Common Stock minus (iii) the
number of shares of Common Stock reserved for other purposes minus
(iv) without duplication of clause (iii), the aggregate maximum number of
shares of Common Stock deliverable under warrants, options, swaps, forwards,
convertible or exchangeable securities or other similar transactions, agreements
or instruments issued by the Company or to which the Company is a party that
provide for physical or net share settlement or otherwise may require the
issuance of shares of Common Stock by the Company, to exceed the then applicable
Share Cap.  At the conclusion of the Pricing Period, the Company will
have a sufficient number of treasury shares or duly authorized but unissued
shares of Common Stock available to satisfy its obligations with respect to this
Transaction, such shares of Common Stock to be fully paid and nonassessable and
free of preemptive and other rights.  The Company agrees that a
failure by the Company to comply with the preceding sentence shall be an Event
of Default hereunder with respect to the Company without regard to any grace
period that would otherwise be applicable.

      


      (b)    Nature of
Rights.  The Company acknowledges and agrees that this Letter
Agreement is not intended to convey to Bank of America rights against the
Company hereunder that are senior to the claims of common stockholders in any
U.S. bankruptcy proceedings of the Company; provided, however, that nothing
herein shall limit or shall be deemed to limit Bank of America’s right to pursue
remedies in the event of a breach by the Company of its obligations and
agreements with respect to this Letter Agreement; 

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      

      and
provided further that in pursuing a claim against the Company in the event of a
bankruptcy, insolvency or dissolution with respect to Company, Bank of America’s
rights hereunder shall rank on a parity with the rights of a holder of shares of
Common Stock enforcing similar rights under a contract involving shares of
Common Stock.

      


      (c)    Disclosure.  The
Company agrees that the material terms of this Transaction (and any other
similar transactions), and the consequences of such transactions on the
financial condition and results of operations of the Company, will be disclosed
by the Company in accordance with all rules, regulations, accounting principles
(including EITF Issue No. 00-19) and laws applicable to the Company in its
periodic filings under the Exchange Act and its financial statements and notes
thereto.

      


      (d)           Corporate Event
Notification.  During the Pricing
Period, the Company shall (i) notify Bank of America prior to the opening of
trading in the Common Stock on any day on which the Company makes, or expects to
be made, any public announcement (as defined in Rule 165(f) under the Securities
Act) of any merger, acquisition, or similar transaction involving a
recapitalization relating to the Company (other than any such transaction in
which the consideration consists solely of cash and there is no valuation
period), (ii) promptly notify Bank of America following any such announcement
that such announcement has been made, and (iii) promptly deliver to Bank of
America following the making of any such announcement a certificate indicating
(A) the Company’s average daily Rule 10b-18 purchases (as defined in Rule
10b-18) during the three full calendar months preceding the date of the
announcement of such transaction and (B) the Company’s block purchases (as
defined in Rule 10b-18) effected pursuant to paragraph (b)(4) of Rule 10b-18
during the three full calendar months preceding the date of the announcement of
such transaction.  In addition, the Company shall promptly notify Bank
of America of the earlier to occur of the completion of such transaction and the
completion of the vote by target shareholders.  The Company
acknowledges that any such public announcement may cause the Pricing Period to
be suspended pursuant to Section IV(c).  Accordingly, the Company
acknowledges that its actions in relation to any such announcement or
transaction must comply with the standards set forth in Section
IV(a).

      


      XIV.  Indemnification

      


      The
Company agrees to indemnify and hold harmless Bank of America, its affiliates
and its assignees and their respective directors, officers, employees, agents
and controlling persons (Bank of America and each such person being an “Indemnified Party”)
from and against any and all losses, claims, damages and liabilities, joint or
several, to which such Indemnified Party may become subject, and relating to or
arising out of the transactions contemplated by this Letter Agreement, and will
reimburse any Indemnified Party for all expenses (including reasonable counsel
fees and expenses) as they are incurred in connection with the investigation of,
preparation for or defense or settlement of any pending or threatened claim or
any action, suit or proceeding arising therefrom, whether or not such
Indemnified Party is a party thereto and whether or not such claim, action, suit
or proceeding is initiated or brought by or on behalf of the
Company.  The Company will not be liable under the foregoing
indemnification provision to the extent that any loss, claim, damage, liability
or expense is found in a nonappealable judgment by a court of competent
jurisdiction to have resulted from Bank of America’s breach of a material term
of this Letter Agreement, willful misconduct or negligence.  If for
any reason the foregoing indemnification is unavailable to any Indemnified Party
or insufficient to hold harmless any Indemnified Party, then the Company shall
contribute, to the maximum extent permitted by law (but only to the extent that
such harm was not caused by Bank of America’s breach of a material term of this
Letter Agreement, willful misconduct or negligence), to the amount paid or
payable by the Indemnified Party as a result of such loss, claim, damage or
liability.  The Company also agrees that no Indemnified Party shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of any matter referred
to in this Letter Agreement except to the extent that any losses, claims,
damages, liabilities or expenses incurred by the Company result from the breach
of a material term of this Letter Agreement, or the Indemnified Party’s
negligence or willful misconduct.  The provisions of this Section XIV
shall survive completion of the transactions contemplated by this Letter
Agreement and shall inure to the benefit of any permitted assignee of Bank of
America.

      


      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      

      XV.  Miscellaneous

      


      (a)           No
Collateral.  Notwithstanding  any provision of this Letter
Agreement, or any  other agreement  between the parties, to the
contrary, the obligations  of the Company under this Letter Agreement are
not secured by any collateral.

      


      (b)           Waiver of Trial by
Jury.  EACH OF THE COMPANY AND BANK OF AMERICA HEREBY
IRREVOCABLY WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, ON BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS LETTER AGREEMENT OR THE ACTIONS OF BANK OF
AMERICA OR ITS AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT
HEREOF.

      


      (c)           Governing
Law.   THIS  LETTER AGREEMENT SHALL BE 
GOVERNED  BY THE  LAW OF THE STATE OF  NEW YORK WITHOUT 
REFERENCE TO  THE CHOICE OF LAW RULES THEREOF.

      


      (d)           Submission to
Jurisdiction.  THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH
ALL MATTERS RELATING HERETO AND WAIVE ANY OBJECTION TO THE LAYING OF VENUE IN,
AND ANY CLAIM OF INCONVENIENT FORUM WITH RESPECT TO, THESE COURTS.

      


      (e)           Non-Confidentiality.  Notwithstanding
anything to the contrary herein, (i) Bank of America acknowledges that this
Letter Agreement may be intended to produce U.S. federal income tax benefits for
the Company and (ii) the Company and Bank of America hereby agree that
(A) the Company is not obligated to Bank of America to keep confidential
from any and all persons or otherwise limit the use of any aspect of this Letter
Agreement relating to the structure or tax aspects thereof, and (B) Bank of
America does not assert any claim of proprietary ownership in respect of any
such aspect of this Letter Agreement.

      


      (f)           Bankruptcy
Code.  The parties hereto intend for (i) the Transaction
hereunder to be a “securities contract” and a “swap agreement” as defined in the
Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”),
and the parties hereto are entitled to the protections afforded by, among other
Sections, Sections 362(b)(6), 362(b)(17), 362(o), 546, 555, 560 and 561 of the
Bankruptcy Code; (ii) a party’s right to liquidate, terminate or accelerate the
Transaction and to exercise any other remedies upon the occurrence of any Event
of Default, a Loss of Borrow Termination, a Dividend Event Termination, a Cash
Tender Termination, a Corporate Event Termination or a Delisting Termination
under this Letter Agreement with respect to the other party to constitute a
“contractual right” within the meaning of the Bankruptcy Code; (iii) all
transfers of cash, securities or other property under or in connection with the
Transaction are “transfers” made “by or to (or for the benefit of)” a “master
netting agreement participant”, a “financial institution”, a “financial
participant”, a “forward contract merchant” or a “swap participant”, (each as
defined in the Bankruptcy Code) within the meaning of Sections 546(e), 546(f),
546(g) and 546(j) of the Bankruptcy Code; (iv) all obligations under or in
connection with the Transaction represent obligations in respect of “termination
values”, “payment amounts” or “other transfer obligations” within the meaning of
Section 362, 560 and 561 of the Bankruptcy Code; and (v) each of the parties
hereto to be a “swap participant” and “financial participant” within the meaning
of Sections 101(53C) and 101(22A) of the Bankruptcy Code.

      


      (g)           Assignment and
Transfer.  The rights and duties under this Letter Agreement
may not be assigned or transferred by either party hereto without the prior
written consent of the other party hereto; provided, however, that Bank of
America may assign its obligation to deliver or receive delivery of Common Stock
hereunder to any of its affiliates without the prior written consent of the
Company.  Upon 

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      

      any such
assignment Bank of America shall indemnify the Company from and against any
loss, cost or expense relating to the failure of such affiliate to perform its
delivery obligation.

      


      (h)           Calculations.  To
the extent any calculation, adjustment or determination is required to be made
by Bank of America hereunder, Bank of America shall make any such calculation,
adjustment, or determination in good faith.

      


      (i)           Notices.  Unless
otherwise specified, notices under this Letter Agreement may be made by
telephone, to be confirmed in writing to the address below.  Changes
to the Notices must be made in writing.

      


      (i)           
If to the Company:

      Lexmark
International, Inc.

      One
Lexmark Centre Drive

      740 West
New Circle Road

      Lexington,
KY  40550

      Attn:  Richard
Pelini

      Telephone:  (859)
232-5108

      Facsimile:  (859)
232-5137

      


      (ii)           If
to Bank of America:

      Bank of
America, N.A.

      Bank of America Tower

      One
Bryant Park, 3rd
Floor

      New York, NY 10036

      Attn:  John
Servidio

      Telephone: (646) 855-7127

      Facsimile: (704) 208-2869

      


      



      
        
           


        

        
          14

          
            

          

        

        
           


        

      


      Please
confirm your agreement to the foregoing by signing and returning to us the
enclosed duplicate of this Letter Agreement.

      


      Very truly yours,

      


      BANK
OF AMERICA, N.A.

      


      By:   /s/Jake
Mendelsohn                                                                    

      Name: Jake Mendelsohn

      Title: Principal

      


      


      Acknowledged
and agreed to as of

      the date
first above written,

      


      LEXMARK
INTERNATIONAL, INC.

      


      By:   /s/Bruce J.
Frost           

      Name:
Bruce J. Frost

      Title:
Assistant Treasurer


      
        
           


        

        
          15