THIS NOTE HAS BEEN ISSUED PURSUANT TO A NON-PUBLIC OFFERING UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND THEREFORE CANNOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR ASSIGNED UNLESS IT IS REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ALL APPLICABLE STATE
SECURITIES LAWS, OR UNLESS AN EXEMPTION THEREFROM IS AVAILABLE.
GATEWAY, INC.
Convertible Senior Note due 2020
Gateway Inc., a Delaware corporation (the "COMPANY"), promises to pay
to America Online, Inc., a Delaware corporation ("AOL"), $200,000,000 (the
"PRINCIPAL AMOUNT") on December 22, 2020.
1. Interest.
The Company promises to pay interest on the Principal Amount at 3% per
annum from February 2, 2001 (the "ISSUE DATE") until the Principal Amount
becomes due and payable on the earlier of the Stated Maturity (as defined in
paragraph 2 below) or the date of redemption or purchase or, if earlier and
subject to the other terms hereof, the date the Principal Amount is no longer
outstanding. The Company shall pay interest in cash semi-annually in arrears on
June 22 and December 22 of each year, or if any such day is not a Business Day
(as defined below), on the next succeeding Business Day (each an "INTEREST
PAYMENT DATE"). Interest payments shall be made to the party who is the record
holder of the Note as of the date which is three Business Days prior to the
applicable Interest Payment Date (each a "RECORD DATE"). Interest on this Note
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date; PROVIDED that the first Interest
Payment Date shall be June 22, 2001. The Company shall pay interest on (a) any
overdue Principal ▇▇▇▇▇▇ and (b) any overdue interest after an Event of Default
occurs pursuant to subparagraph 10(a)(2) hereof, from time to time on demand, at
the Prime Rate plus 200 basis points, to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. As used herein,
(1) "BUSINESS DAY" shall refer to any day which is not a Saturday or Sunday or
any other day on which banking institutions in New York City are authorized or
obligated by law or executive order to close, (2) "PRIME RATE" shall refer to
the rate set forth as the prime rate in the Wall Street Journal, Western
Edition, on the date the applicable payment was due and payable or, in the event
that such a rate is not published prior to 9:00 A.M. Pacific Coast Time on the
applicable payment date, the Prime Rate shall be the arithmetic average of the
rates of interest publicly announced by each bank named on the Reuters Screen
NYMF Page as such bank's prime rate or base lending rate as in effect on such
payment date as quoted on the Reuters Screen NYMF Page, and (3) "REUTERS SCREEN
NYMF PAGE" means the display page designated as page "NYMF" on the Reuters
Monitor Money Rates Service (or such other page as may replace page NYMF on that
service for the purpose of displaying prime rates or base lending rates of major
U.S. banks.
2. Method of Payment.
Subject to the terms and conditions hereof, the Company will make
payments in respect of the Redemption Price (as defined in paragraph 4 below),
the Purchase Price (as defined in paragraph 5 below) and at Stated Maturity in
respect of this Note if surrendered to the Company to collect such payments. The
Principal Amount shall be payable on December 22, 2020 (the "STATED MATURITY")
if this Note has not been redeemed, purchased or converted prior thereto
pursuant to the terms hereof. The Company will pay cash amounts via wire
transfer of immediately available money of the United States that at the time of
payment is legal tender for payment of public and private debts to the account
of AOL as designated in writing to the Company at least two Business Days prior
to such payment date.
3. Investment Agreement.
(a) The Company issued this Note pursuant to an amendment, dated
January 10, 2001, to the Investment Agreement, dated as of October 20, 1999, as
previously amended on December 21, 2000 and December 27, 2000 (as amended, the
"INVESTMENT AGREEMENT"), between the Company and AOL. Capitalized terms used
herein and not defined herein have the meanings ascribed thereto in the
Investment Agreement. Except as otherwise expressly stated in this Note
(including, without limitation, by a specific cross reference to a provision or
provisions of the Investment Agreement), this Note and the common stock, par
value $.01 per share, of the Company (the "COMMON STOCK") issuable in connection
with this Note shall not be subject to the terms of the Investment Agreement.
(b) The Note is a senior unsecured obligation of the Company limited to
$200,000,000 aggregate Principal Amount, plus accrued and unpaid interest
thereon. The Company may not incur or otherwise become obligated with respect to
any unsecured indebtedness ranking senior in right of repayment to this Note,
but nothing in this Note shall, or shall be deemed to, limit the ability of the
Company to incur or otherwise become obligated with respect to any indebtedness
ranking pari passu in right of repayment with this Note. Other than pursuant to
the immediately preceding sentence, this Note does not limit the ability of the
Company to incur or otherwise become obligated with respect to indebtedness,
secured or unsecured.
4. Redemption at the Option of the Company.
(a) No sinking fund is provided for this Note. This Note is not
redeemable prior to December 22, 2004. This Note is redeemable in cash as a
whole (but not in part) at any time on or after December 22, 2004 at the option
of the Company for the Principal Amount plus accrued and unpaid interest (the
"REDEMPTION PRICE") through the date of redemption (the "REDEMPTION DATE"). If
the Company elects to redeem this Note pursuant to this paragraph 4, it shall
give AOL at least 20 Business Days' notice of the Redemption Date and the
Redemption Price.
(b) In the event that this Note is not surrendered to the Company on or
prior to the Redemption Date and money sufficient to pay the Redemption Price is
segregated by the Company prior to or on the Redemption Date, immediately after
such Redemption Date interest ceases to accrue on this Note.
2
(c) Once notice of redemption is given, this Note becomes due and
payable on the Redemption Date at the Redemption Price stated in the notice
except if this Note is converted in accordance herewith. Upon surrender to the
Company, this Note shall be paid at the Redemption ▇▇▇▇▇ stated in the notice.
5. Purchase By the Company at the Option of AOL.
(a) Subject to the terms and conditions hereof, the Company shall
become obligated to purchase, at the option of AOL, this Note in whole, but not
in part, on each of December 22, 2004, December 22, 2009, or December 22, 2014
(as applicable, the "PURCHASE DATE") for the Principal Amount plus accrued and
unpaid interest through the Purchase Date (the "PURCHASE PRICE") upon delivery
by AOL to the Company of a purchase notice containing the information set forth
below ("Purchase Notice"), at any time from the opening of business on the date
that is 20 Business Days prior to such Purchase Date until the close of business
on the Business Day immediately prior to such Purchase Date, and upon delivery
of this Note to the Company by AOL prior to 10:00 a.m. Pacific Coast Time on the
Purchase Date (together with all necessary endorsements), such delivery being a
condition to receipt by AOL of the Purchase Price therefor.
(b) The Purchase Notice shall contain the following information:
(1) that this Note shall be purchased as of the Purchase Date
pursuant to the terms and conditions specified herein, and
(2) in the event the Company elects, pursuant to subparagraph
5(d), to pay the Purchase Price to be paid as of such Purchase Date, in whole or
in part, in shares of Common Stock, but such portion of the Purchase Price shall
ultimately be payable entirely in cash because any of the conditions to payment
of the Purchase Price in Common Stock set forth in subparagraph 5(f) is not
satisfied, whether AOL elects (A) to withdraw such Purchase Notice or (B) to
receive cash in respect of the entire Purchase Price.
(c) If AOL, in its Purchase Notice and in any notice of withdrawal,
fails to indicate its choice with respect to the election set forth in clause
(2) of subparagraph 5(b), AOL shall be deemed to have elected to receive cash in
respect of the Purchase Price for this Note in the circumstances set forth in
subparagraph 5(b)(2). Any purchase by the Company contemplated pursuant to the
provisions of this paragraph 5 shall be consummated by the delivery of the
consideration to be received by AOL on the Purchase Date or, if AOL has not
delivered this Note to the Company by the time and date set forth in paragraph
5(a), promptly following the time of delivery of this Note.
(d) The Purchase Price may be paid, at the option of the Company, in
cash or by the issuance and delivery of shares of Common Stock of the Company,
or in any combination thereof. The Company's notice of election to purchase with
cash or Common Stock or any combination thereof shall be sent to AOL not less
than 20 Business Days prior to the applicable Purchase Date (the "COMPANY
NOTICE"). Such Company Notice shall state the manner of payment elected and, in
the event the Company has elected to pay the Purchase Price (or a specified
percentage thereof) with Common Stock, shall:
3
(1) state the amount of the Purchase Price to be paid in
Common Stock (except any cash amount to be paid in lieu of fractional shares)
and the amount, if any, of the Purchase Price to be paid in cash; and
(2) set forth the method for calculating the Fair Market Value
of the Common Stock to be delivered on the Purchase Date, determined in
accordance with Section 1.5(a) of the Investment Agreement as of the Purchase
Date (with the "Closing Date" referenced therein deemed to be the "Purchase
Date" and the 20-consecutive-trading day period referenced therein deemed to be
a five-consecutive-trading day period); PROVIDED, HOWEVER, that the provisions
of Section 1.5(c) of the Investment Agreement shall be applicable to the
five-consecutive-trading day period referenced in this subparagraph 5(d)(2).
(e) The Company will not issue a fractional share of Common Stock in
payment of the Purchase Price. Instead the Company will pay cash for the current
market value of the fractional share. The current market value of a fraction of
a share shall be determined by multiplying the Fair Market Value determined in
accordance with subparagraph 5(d)(2) by such fraction and rounding the product
to the nearest whole cent.
(f) The Company's right to exercise its election to purchase this Note
through the issuance of shares of Common Stock shall be conditioned upon:
(1) the Company's not having given its Company Notice of an
election to pay entirely in cash and its giving of timely Company Notice of
election to purchase this Note with Common Stock as provided herein;
(2) the registration of the shares of Common Stock to be
issued in payment of the Purchase Price under the Securities Act of 1933, as
amended from time to time (the "SECURITIES ACT"), and, if required, the
Securities Exchange Act of 1934, as amended from time to time (the "EXCHANGE
ACT");
(3) any necessary qualification or registration under
applicable state securities laws or the availability of an exemption from such
qualification and registration; and
(4) the shares of Common Stock to be issued in payment of the
Purchase Price shall have been approved for listing or quotation on each U.S.
national securities exchange or U.S. over-the-counter or other U.S. domestic
market on which the Common Stock is then listed or quoted;
(5) the shares of Common Stock to be issued in payment of the
Purchase Price not being subject to the transfer limitations set forth in
paragraph 11(a), (b) and (c); and
(6) the receipt by AOL of an officer's certificate signed by
the Company's Chief Executive Officer, President, Chief Financial Officer or
Treasurer and an opinion of counsel (which counsel may be inside counsel of the
Company) each stating that (A) the terms of the issuance of the Common Stock,
other than such terms under the control of AOL, are in conformity with this Note
and (B) the shares of Common Stock to be issued by the Company in payment of the
Purchase Price in respect of
4
this Note have been duly authorized and, when issued and delivered pursuant to
the terms hereof in payment of the Purchase Price in respect of this Note, will
be validly issued, fully paid, non-assessable and free from preemptive rights,
and, in the case of such officer's certificate, stating that conditions (1)-(5)
above and the conditions set forth in this subparagraph 5(f) have been satisfied
and, in the case of such opinion of counsel, stating that conditions (2)-(5)
above have been satisfied.
Such officer's certificate shall also set forth the number of shares of
Common Stock to be issued in payment of the Purchase Price of this Note, and the
Fair Market Value of a share of Common Stock. The Company may pay the Purchase
Price (or any portion thereof) in Common Stock only if the information necessary
to calculate the Fair Market Value is published in a daily newspaper of national
circulation. If the foregoing conditions are not satisfied prior to the close of
business on the Purchase Date and AOL has elected in accordance with
subparagraph 5(b)(2)(B) (or is deemed to elect so in accordance with
subparagraph 5(c)) to receive cash in respect of the entire Purchase Price for
this Note, the Company shall pay the entire Purchase Price for this Note in
cash.
(g) At the option of AOL and subject to the terms and conditions
hereof, the Company shall become obligated to purchase this Note in whole, but
not in part, 40 Business Days after the occurrence of a Fundamental Change (as
defined below) (the "FUNDAMENTAL CHANGE PURCHASE DATE") for the Principal Amount
plus accrued and unpaid interest through the Fundamental Change Purchase Date
(the "FUNDAMENTAL CHANGE PURCHASE PRICE") in cash or, at the option of the
Company in the event such Fundamental Change occurs on or prior to the first
anniversary of the Issue Date, in shares of common stock registered under the
Securities Act and listed on the U.S. national securities exchange or U.S.
over-the-counter or other U.S. domestic market on which the Common Stock is then
listed or quoted. A "FUNDAMENTAL CHANGE" means the occurrence of any transaction
or event in connection with which all or substantially all Common Stock shall be
exchanged for, converted into, acquired for or constitute solely the right to
receive (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise) consideration which is not all or substantially all common stock
listed (or, upon consummation of or immediately following such transaction or
event which will be listed) on a U.S. national securities exchange or approved
for quotation on the NASDAQ National Market or any similar U.S. system or
automated dissemination of quotations of securities prices; PROVIDED, HOWEVER,
that any such transaction or event that occurs on or prior to the first
anniversary of the Issue Date shall be deemed a Fundamental Change regardless of
whether the common stock issued or issuable with regard to such transaction or
event is (or will be) so listed or quoted. Notwithstanding anything to the
contrary contained herein, the Holding Period (as defined in subparagraph 11(a)
below) shall not apply to the common stock issued or issuable in connection with
a Fundamental Change on or prior to the first anniversary of the Issue Date
pursuant to the first sentence of this subparagraph 5(g).
(h) Within 15 Business Days after the occurrence of a Fundamental
Change, the Company shall send a notice of Fundamental Change to AOL stating (1)
briefly, the events causing a Fundamental Change and the date of such
Fundamental Change and (2) the date by which a Fundamental Change Purchase
Notice (as defined below) must be given. AOL may exercise its rights pursuant to
subparagraph 5(g) by delivering notice of its election to so exercise such
rights (a "FUNDAMENTAL CHANGE PURCHASE NOTICE") any time prior to the close of
business on the Business Day immediately prior to the Fundamental Change
Purchase Date.
5
(i) At the option of AOL and subject to the terms and conditions
hereof, the Company shall become obligated to purchase this Note in whole, but
not in part, 20 Business Days after the occurrence of a Registration Default (as
defined below) (the "REGISTRATION DEFAULT PURCHASE DATE") for the Principal
Amount plus accrued and unpaid interest through the Registration Default
Purchase Date (the "REGISTRATION DEFAULT PURCHASE PRICE") in cash. A
"REGISTRATION DEFAULT" means the occurrence during the period commencing on the
Issue Date and expiring one year thereafter of both (1) the termination of the
Holding Period (as defined in paragraph 11 hereof) on an accelerated basis
pursuant to clause (x), (y) or (z) of the proviso of subparagraph 11(a) (other
than such a termination due to the termination of the Strategic Agreement solely
because of a breach thereof by AOL) and (2) the continuing failure of the shares
of Common Stock issuable upon conversion of the Note to be registered under the
Securities Act solely because of the Company's failure to meet its obligations
under subparagraph 7(i).
(j) AOL may exercise its right pursuant to subparagraph 5(i) by
delivering notice of its election to so exercise such right (a "REGISTRATION
DEFAULT PURCHASE NOTICE") within 10 Business Days after the occurrence of a
Registration Default.
(k) AOL has the right to withdraw any Purchase Notice, Fundamental
Change Purchase Notice or Registration Default Purchase Notice, as the case may
be, by delivering to the Company a notice of withdrawal in accordance with the
provisions hereof at any time prior to the close of business on the Business Day
immediately prior to the Purchase Date, the Fundamental Change Purchase Date or
the Registration Default Purchase Date, as the case may be.
(l) The Company shall deliver, or cause to be delivered, to AOL (1) the
portion of the Purchase Price, the Fundamental Change Purchase Price or
Registration Default Purchase Price, as the case may be, to be paid in cash, if
any, no later than the Purchase Date, the Fundamental Change Purchase Date or
Registration Default Purchase Date, as the case may be, and (2) if applicable, a
certificate for the number of full shares of Common Stock issuable in payment of
the Purchase Price and cash in lieu of any fractional interests on a "T+3"
settlement basis as that term is generally used for settlement of publicly
traded securities. The person in whose name the certificate for such Common
Stock is registered shall be treated for all purposes as the holder of record of
shares of Common Stock from and following the Purchase Date. No payment or
adjustment will be made for dividends on the Common Stock the record date for
which occurred prior to the Purchase Date.
(m) If AOL, AOL TW (as defined below), or any direct or indirect
wholly-owned subsidiary of AOL TW is paid in whole or in part in Common Stock,
the Company shall pay any documentary, stamp or similar issue or transfer tax,
charge or fee due on such issue of shares of Common Stock to AOL or such
subsidiary. However, AOL shall pay any such tax, charge or fee which is due
because AOL requests the shares of Common Stock to be issued in another name
which is in excess of such tax, charge or fee which is otherwise payable
pursuant to the previous sentence. The Company may refuse to deliver the
certificates representing the Common Stock being issued in a name other than AOL
until the Company receives a sum sufficient to pay any such tax, charge or fee
which will be due because the shares of Common Stock are to be issued in a name
other than AOL. Nothing herein shall preclude any income tax withholding
required
6
by law or regulations, however all parties will use their respective
commercially reasonable efforts to minimize or avoid such withholdings.
6. Effect of Purchase Notice or Fundamental Change Purchase Notice.
(a) Upon receipt by the Company of the Purchase Notice specified in
subparagraph 5(a), the Fundamental Change Purchase Notice specified in
subparagraph 5(e), or Registration Default Purchase Notice specified in
subparagraph 5(j), AOL shall (unless such Purchase Notice, Fundamental Change
Purchase Notice or Registration Default Purchase Notice, as the case may be, is
withdrawn as specified in the following two paragraphs) thereafter be entitled
to receive solely the Purchase Price, the Fundamental Change Purchase Price or
Registration Default Purchase Price, as the case may be, with respect to this
Note. This Note may not be converted pursuant to paragraph 7 hereof on or after
the date of the delivery of a Purchase Notice, a Fundamental Change Purchase
Notice or Registration Default Purchase Notice, as the case may be, unless such
Purchase Notice, Fundamental Change Purchase Notice or Registration Default
Purchase Notice, as the case may be, has first been validly withdrawn as
specified in the following two paragraphs.
(b) AOL may withdraw a Purchase Notice, a Fundamental Change Purchase
Notice or Registration Default Purchase Notice, as the case may be, by means of
a notice of withdrawal received by the Company at any time prior to the close of
business on the Business Day immediately prior to the Purchase Date, the
Fundamental Change Purchase Date or Registration Default Purchase Date, as the
case may be.
(c) A notice of withdrawal of a Purchase Notice, a Fundamental Change
Purchase Notice or Registration Default Purchase Notice, as the case may be, may
be given as described in subparagraph 6(b) or may be in the form of a
conditional withdrawal contained in a Purchase Notice pursuant to the terms of
subparagraph 5(b)(2).
(d) There shall be no purchase of this Note pursuant to paragraph 5
through the issuance of Common Stock in payment of the Purchase Price, including
cash in lieu of fractional shares, if there has occurred (prior to, on or after,
as the case may be, the giving, by AOL, of the Purchase Notice) and is
continuing an Event of Default. There shall be no purchase of this Note pursuant
to paragraph 5 if there has occurred (prior to, on or after, as the case may be,
the giving, by AOL, of the Purchase Notice) and is continuing an Event of
Default under subparagraph 10(a)(4) or (5).
7. Contingent Conversion.
(a) Subject to the next three succeeding sentences, AOL may convert, at
any time before the close of business on the Business Day immediately prior to
December 22, 2020, this Note into that number of shares of Common Stock equal to
(1) $200,000,000 divided by (2) the then Conversion Price (as defined below). If
this Note is called for redemption, AOL may convert it at any time before the
close of business on the Business Day immediately prior to the Redemption Date.
If AOL has delivered a Purchase Notice exercising the option of AOL to require
the Company to purchase this Note, this Note may be converted only if such
notice of exercise is withdrawn in accordance with the terms of this Note. In
addition, AOL may only
7
convert this Note into Common Stock at any time when the Closing Price (as
defined in subparagraph 8(c)) of such Common Stock is at or above the then
Conversion Price for no less than each of the five consecutive trading days
immediately preceding the date the conversion notice is received, or deemed to
be received, by the Company in accordance with paragraph 15; PROVIDED, HOWEVER,
that the requirement set forth in this sentence shall not apply in the event
that (A) the Strategic Agreement has terminated in accordance with its terms or
(B) there has been a Change of Control of Gateway (as such term is defined in
the Investment Agreement).
(b) The initial Conversion Price is $33.676 and is subject to
adjustment from time to time in accordance with the provisions of paragraph 8
hereof (as so adjusted, the "CONVERSION PRICE"). The Company will not deliver
any fractional share of Common Stock upon a conversion. Instead, the Company
will deliver, or cause to be delivered, cash for the current market value of the
fractional share. The current market value of a fractional share shall be
determined by multiplying the Fair Market Value by such fraction and rounding
the product to the nearest whole cent. No later than three Business Days after
the Conversion Date, the Company shall deliver, or cause to be delivered, to
AOL, a certificate for the number of full shares of Common Stock issuable upon
the conversion and cash in lieu of any fractional share determined pursuant to
this subparagraph 7(b) together with an officer's certificate signed by the
Company's Chief Executive Officer, President, Chief Financial Officer or
Treasurer and opinion of counsel (which counsel may be inside counsel of the
Company) stating that (1) the terms of the issuance of the Common Stock, other
than such terms under the control of AOL, are in conformity with this Note and
(2) the shares of Common Stock being issued upon the conversion have been duly
authorized and, when issued and delivered pursuant to the terms of this Note,
will be validly issued, fully paid, non-assessable and free from preemptive
rights. The person in whose name the certificate is registered shall be treated
as the stockholder of record on and after the Conversion Date for all purposes;
PROVIDED, HOWEVER, that no surrender of this Note on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute
the person or persons entitled to receive the shares of Common Stock upon such
conversion as the record holder or holders of such shares of Common Stock on
such date, but such surrender shall be effective to constitute the person or
persons entitled to receive such shares of Common Stock as the record holder or
holders thereof for all purposes at the close of business on the next succeeding
day on which such stock transfer books are open and such conversion shall be
based upon the Conversion Price in effect on the date that this Note shall have
been surrendered for conversion, as if the stock transfer books of the Company
had not been closed. Upon conversion of this Note, AOL shall no longer be the
holder thereof.
(c) If this Note is surrendered for conversion during the period from
the close of business on any Record Date next preceding any Interest Payment
Date to the opening of business of such Interest Payment Date, AOL will be
entitled to receive the applicable interest payment on such Interest Payment
Date. Except as described in the previous sentence, no interest on a converted
Note will be payable by the Company on any Interest Payment Date subsequent to
the date of conversion.
(d) To convert this Note, AOL must (1) deliver notice to the Company of
its demand to convert this Note, (2) surrender this Note to the Company, (3)
furnish appropriate endorsements and transfer documents if reasonably required
by the Company and (4) pay any required documentary, stamp or similar issue or
transfer tax or other charge or fee for which
8
AOL is responsible. The date on which AOL satisfies all the preceding
requirements is the conversion date (the "CONVERSION DATE").
(e) No payment or adjustment will be made for dividends on the Common
Stock except as provided herein. On conversion of this Note, that portion of
interest attributable to the period from the later of (x) the Issue Date and (y)
the date on which interest was last paid through the Conversion Date with
respect to the Note shall not be cancelled, extinguished or forfeited, but
rather shall be deemed to be paid in full to AOL through the delivery of the
Common Stock (together with the cash payment, if any, in lieu of fractional
shares) in exchange for the Note.
(f) If the last day on which this Note may be converted is not a
Business Day, this Note may be surrendered on the next succeeding day that is a
Business Day.
(g) If AOL, AOL TW or any direct or indirect wholly-owned subsidiary of
AOL TW converts this Note, the Company shall pay any documentary, stamp or
similar issue or transfer tax or other charge or fee due on the issue of shares
of Common Stock upon conversion. However, AOL shall pay any such tax, charge or
fee which is due because AOL requests the shares of Common Stock to be issued in
another name. The Company may refuse to deliver the certificates representing
the Common Stock being issued in a name other than AOL until the Company
receives a sum sufficient to pay any tax, charge or fee which will be due
because the shares of Common Stock are to be issued in a name other than AOL.
Nothing herein shall preclude any income tax withholding required by law or
regulations, however all parties will use their respective commercially
reasonable efforts to minimize or avoid such withholdings.
(h) The Company shall reserve out of its authorized but unissued Common
Stock a sufficient number of shares of Common Stock to permit the conversion of
this Note. All shares of Common Stock delivered upon conversion of this Note
shall be newly issued shares or treasury shares, shall be duly and validly
issued and fully paid and nonassessable and shall be free from preemptive rights
and free of any lien or adverse claim created by the Company. The Company will
endeavor promptly to comply with all Federal and state securities laws
regulating the offer and delivery of shares of Common Stock upon conversion of
this Note, if any.
(i) The Company agrees to prepare and file with the Securities and
Exchange Commission (the "SEC") a registration statement on Form S-3 to the
extent available and, if not available, on such form as shall be available for
the sale of the Common Stock issuable upon conversion of this Note pursuant to
subparagraph 7(a) no later than April 2, 2001. In addition, the Company agrees
to use its commercially reasonable best efforts to (1) cause such registration
statement to be declared effective (subject to the provisions of subparagraphs
7(j) through (n)) under the Securities Act, (2) qualify or register as necessary
under any applicable state securities laws and (3) have approved for listing or
quotation on each U.S. national securities exchange or U.S. over-the-counter or
other U.S. domestic market on which the Common Stock is then listed or quoted,
the Common Stock issuable upon conversion of this Note pursuant to subparagraph
7(a) and to maintain the effectiveness of such registration and prepare and file
with the SEC such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the required period and to comply with the
provisions of the Securities Act with respect to the
9
disposition of all securities covered by such registration statement until the
earlier of (i) five years after the Issue Date, (ii) one year after the
Conversion Date, (iii) the sale by AOL of all such shares of Common Stock under
Rule 144 of the Securities Act or pursuant to an effective registration
statement, or (iv) the date on which AOL may sell such Common Stock under Rule
144(k) of the Securities Act.
(j) If, whenever and to the extent that the Company is required to use
its commercially reasonable best efforts to effect the registration of any of
the Common Stock under the Securities Act as provided in subparagraph 7(i), the
Company shall as promptly as possible:
(1) Furnish to AOL such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits, except that the Company shall not be obligated
to furnish AOL with more than two copies of such exhibits), such number of
copies of the prospectus comprised in such registration statement (including
each preliminary prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act, and such other related documents, as AOL may
reasonably request in order to facilitate the disposition of the shares of
Common Stock issuable upon conversion of this Note;
(2) Use its commercially reasonable best efforts to register
or qualify the shares of Common Stock issuable upon conversion of this Note
under such other securities or blue sky laws of such jurisdictions as AOL shall
reasonably request, and do any and all other acts and things which may be
necessary or advisable to enable AOL to consummate the disposition in such
jurisdictions of such Common Stock that the Company has been so requested by AOL
to so register, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, to subject itself to taxation in
any such jurisdiction, or to consent to general service of process in any such
jurisdiction;
(3) Use its commercially reasonable best efforts to furnish to
AOL (i) an opinion of counsel for the Company (which counsel may be inside
counsel of the Company) addressed to AOL, dated the effective date of the
registration statement and (ii) a "comfort" letter addressed to AOL signed by
the independent public accountants who have certified the Company's financial
statements included in the registration statement, covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of the issuers' counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of securities;
PROVIDED, however, that the Company shall not be obligated to furnish such an
accountants' letter except in connection with an underwritten offering;
(4) Notify AOL, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under
which they were made, and at the request of AOL prepare and furnish to AOL a
reasonable number of copies of a
10
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of the shares of Common Stock issuable
upon conversion of this Note, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(5) Use its commercially reasonable best efforts to list the
shares of Common Stock issuable upon conversion of this Note on any securities
exchange on which the Common Stock of the Company is then listed, if such
securities are not already so listed and if such listing is then permitted under
the rules of such exchange; and
(6) Enter into and perform customary agreements (including an
underwriting agreement in customary form if the Company determines to undertake
an underwritten offering) and take such other actions as are reasonably required
in order to facilitate the registration of the shares subject to the
registration statement.
(k) The registration expenses incurred in connection with any
registration pursuant to subparagraph 7(i) shall be paid in full by the Company
except that AOL shall pay its own legal expenses and all underwriting discounts
and commissions and transfer taxes, if any, relating to the sale or disposition
of any shares of Common Stock beneficially owned by AOL and sold pursuant to a
registration statement effected pursuant to subparagraph 7(i).
(l) Each of AOL and the Company agree to indemnify the other in
connection with any registration effected pursuant to subparagraph 7(i) (in
accordance with the indemnification procedures set forth in Section 6.2 of the
Investment Agreement) as follows:
(1) The Company will indemnify and hold harmless AOL, its
officers and directors and employees, agents, legal counsel, accountants and
other advisors, each underwriter, if any, of the shares of Common Stock issuable
upon conversion of this Note covered by such a registration statement, and each
person who controls AOL or such underwriter within the meaning of Section 15 of
the Securities Act, against all expenses, claims, losses, damages, and
liabilities (or actions, proceedings, or settlements in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular, or other document
(including any related registration statement, notification, or the like)
incident to any such registration, qualification, or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification, or
compliance, and will reimburse AOL, each of its officers, directors, employees,
agents, legal counsel, accountants and other advisors, each such underwriter,
and each person who controls AOL or such underwriter, for any legal and other
expenses reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability, or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability, or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company by
or on behalf of AOL or such
11
underwriter and stated to be specifically for use therein or any failure by AOL
or such underwriter to deliver a final prospectus or supplement or amendment
provided or made available to AOL or such underwriter correcting earlier
documents. It is agreed that the indemnity agreement contained in this
subparagraph 7(l)(1) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company (which consent has not been unreasonably withheld or
delayed).
(2) AOL will severally and not jointly indemnify and hold
harmless the Company, each of its officers, directors, employees, agents, legal
counsel, accountants and other advisors, each underwriter, if any, of the shares
of Common Stock issuable upon conversion of this Note covered by such a
registration statement, and each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages, and liabilities (or actions, proceedings, or
settlements respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, each of its officers, directors, employees, agents, legal counsel,
accountants and other advisors, each such underwriter, and each person who
controls the Company or such underwriter, for any legal and other expenses
reasonably incurred in connection with investigating and defending or settling
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
AOL and stated to be specifically for use therein. It is agreed that the
indemnity agreement contained in subparagraph 7(l)(2) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of AOL (which consent has not been
unreasonably withheld or delayed).
(3) If the indemnification provided for in this subparagraph
7(l) is held by a court of competent jurisdiction to be unavailable to the party
seeking such indemnification (the "INDEMNIFIED PARTY") with respect to any loss,
liability, claim, damage, or expense referred to therein, then the party which
is required to provide indemnification pursuant to this subparagraph 7(l) (the
"INDEMNIFYING PARTY") in lieu of indemnifying such Indemnified Party hereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions or actions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission. Notwithstanding
the provisions of this subparagraph 7(l)(3), AOL shall not be required to
contribute any amount in excess of the amount by which the total price at which
the shares of Common Stock issued to AOL on conversion of this Note were offered
to the public (net of underwriting discounts and
12
commissions) exceeds the amount of any damages that AOL has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(4) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, as between the Company and the
underwriter the provisions in the underwriting agreement shall control.
(m) The Company may require AOL to furnish the Company with such
information regarding AOL and the distribution of the shares of Common Stock
issuable in connection with the conversion of this Note as the Company may from
time to time request in writing and as shall be required by law or by the SEC in
connection therewith.
(n) Notwithstanding any other provision of this Note to the contrary,
if at any time while a registration statement filed pursuant to subparagraph
7(i) is effective the Company provides to AOL a certified resolution duly
adopted by the Board of Directors of the Company stating that, in its reasonable
business judgment, it would be materially disadvantageous to the Company
(because the sale of shares of Common Stock covered by such registration
statement or the disclosure of information therein or in any related prospectus
or prospectus supplement or other document could materially interfere with or
otherwise adversely affect in any material respect any existing or anticipated
acquisition, financing, corporate reorganization or other material transaction
or development involving the Company (a "DISADVANTAGEOUS CONDITION")) for sales
of shares of Common Stock thereunder to then be permitted, and setting forth in
general terms the reasons for such determination, the Company may refrain from
maintaining current the prospectus contained in such registration statement
until such Disadvantageous Condition no longer exists (notice of which the
Company shall promptly deliver to AOL). Furthermore, notwithstanding any other
provision of this Note to the contrary, with respect to any registration
statement filed, or to be filed, pursuant to subparagraph 7(i), if the Company
provides to AOL a certified resolution adopted by a majority vote of the entire
Board of Directors of the Company stating that, in its reasonable business
judgment, it would be materially disadvantageous to the Company (because of a
Disadvantageous Condition) for such a registration statement to be maintained
effective, or to be filed or to become effective, and setting forth in general
terms the reasons for such determination, the Company shall be entitled to cause
such registration statement to be withdrawn or the effectiveness of such
registration statement to be terminated, or, in the event no registration
statement has been filed, the Company shall be entitled to not file such
registration statement, until such Disadvantageous Condition no longer exists
(notice of which the Company shall promptly deliver to AOL).
Upon receipt by AOL of a resolution of the Board of Directors
of the Company referred to above, AOL shall forthwith discontinue use of the
prospectus and any prospectus supplement under such registration statement and
shall suspend sales of Common Stock registered thereunder until such
Disadvantageous Condition no longer exists and, if so directed by the Company by
such resolution, AOL will deliver to the Company all copies (other than
13
permanent file copies) then in AOL's possession of the prospectus and prospectus
supplements then covering such shares of Common Stock at the time of receipt of
such resolution.
The time period during which any registration statement under
subparagraph 7(i) must be maintained effective shall be extended by the number
of days in any delay period imposed pursuant to this subparagraph 7(n) (a "DELAY
PERIOD"). Notwithstanding anything else contained in this Note to the contrary,
the Company shall be entitled to not more than one Delay Period, not to exceed
90 days, in any twelve-month period. In no event shall the Company be entitled
to delay the maintaining current of a prospectus (and the suspension of sales of
Common Stock) in connection with any registration or to delay the filing or
effectiveness of any registration statement under subparagraph 7(i) unless the
Company shall concurrently prohibit sales by other security holders under
registration statements covering securities held by such other security holders.
8. Adjustments to Conversion Rate and Conversion Price.
(a) In the event that the Company at any time or from time to time
after the Issue Date shall declare and pay, without consideration, any dividend
on the Common Stock payable in Common Stock, or shall effect a subdivision of
the outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise than by payment of a
dividend in Common Stock or in any right to acquire Common Stock), or in the
event the outstanding shares of Common Stock shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of Common
Stock, the Conversion Price in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate.
(b) If after the Issue Date the Common Stock issuable upon conversion
of the Note shall be changed into the same or a different number of shares of
any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in subparagraph 8(a)), the Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or recapitalization,
be proportionately adjusted so that this Note shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of this Note immediately
before the change.
(c) If the Company shall, after the Issue Date, issue rights or
warrants to all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Fair Market
Price of the Common Stock on the record date for the determination of
stockholders entitled to receive such rights or warrants (excluding (1) any
transactions described in subparagraph 8(a) or (d), (2) any rights issued
pursuant to any shareholder rights plan adopted after the date hereof or (3) any
rights pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company or the investment of additional
optional amounts with respect to such plan), then in each case the Conversion
Price shall be adjusted by multiplying the Conversion Price in effect on such
record date by a fraction:
14
(x) the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding on such record date plus (2) the
number of shares of Common Stock actually delivered in connection with
the exercise of such rights or warrants and,
(y) the denominator of which shall be the sum of (1) the
number of shares of Common Stock outstanding on such record date plus
(2) the number of shares of Common Stock which the aggregate price
received in payment for the total number of shares of Common Stock
actually delivered in connection with the exercise of such rights or
warrants would purchase at such Fair Market Price (determined by
multiplying such total number of shares by the sum of (i) the exercise
price of such rights or warrants and (ii) the amount paid, if any, for
such rights or warrants and dividing the product so obtained by such
Fair Market Price).
Such adjustment shall become effective as of the open of business on the
Business Day next following the date on which such rights or warrants expire;
PROVIDED that, in the event that a conversion is effective after the record date
for the determination of the stockholders entitled to participate in such
issuance but before such adjustment shall be effective, then no later than three
Business Days following the effectiveness of such adjustment either the Company
shall deliver, or cause to be delivered, to the holder of the Note so converted,
upon the payment by such holder of the purchase price, if any, for such rights
or warrants in accordance with the terms of the issuance thereof, the number of
rights or warrants such holder would have been entitled to if such conversion
had occurred immediately prior to the record date for such determination, or
such holder shall return to the Company, as applicable, such number of shares of
Common Stock, if any, so that (giving effect to such transfer of shares of
Common Stock) such conversion was effected at a Conversion Price which reflects
the adjustments as provided in this subparagraph 8(c). For purposes of this
subparagraph 8(c), the issuance of rights or warrants to subscribe for or
purchase securities convertible into or exchangeable for Common Stock shall be
deemed to be the issuance of rights or warrants to purchase the Common Stock
into which such securities are convertible or exchangeable at a price equal to
the sum of (1) the amount paid, if any, for such rights or warrants, (2) the
exercise price of such rights or warrants and (3) the minimum amount, if any,
payable upon conversion or exchange of such securities into Common Stock.
For purposes of this paragraph 8, (i) "FAIR MARKET PRICE" on any day
means the average of the daily Closing Prices (as defined below) of a share of
Common Stock of the Company on the five (5) consecutive trading days ending on
the earlier of the day in question or the day before the "ex date" with respect
to any issuance or distribution in respect of which Fair Market Price is to be
determined, (ii) the term "EX DATE," when used with respect to any issuance or
distribution, means the first day on which the Common Stock trades regular way,
without the right to receive such issuance or distribution, on the exchange or
in the market, as the case may be, used to determine that day's Closing Price;
and (iii) "CLOSING PRICE" of a share of Common Stock on any date of
determination means the closing sale price (or, if no closing sale price is
reported, the last reported sale price) of such share on the New York Stock
Exchange (the "NYSE") on such date or, if the Common Stock is not listed for
trading on the NYSE on any such date, as reported in the composite transactions
for the principal U.S. securities exchange on which the Common Stock is so
listed, or if it is not so listed on a U.S. national or regional securities
exchange, as
15
reported by the Nasdaq Stock Market, or, if it is not so reported, the average
of the last quoted bid and ask price for the Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, or, if such bid and ask prices are not available, the market value
of a share of Common Stock on such date as determined by the Board of Directors
of the Company, which determination shall be conclusive.
(d) If the Company shall, after the Issue Date, pay a dividend or make
a distribution to all holders of its Common Stock consisting of evidences of its
indebtedness, rights or warrants to purchase securities of the Company or other
assets (including shares of capital stock of the Company other than Common Stock
but excluding (1) any cash dividends or distributions and (2) any dividends or
other distributions referred to in subparagraphs 8(a) or (c) or excluded in
subparagraphs (1), (2) or (3) of subparagraph 8(c), then in each such case the
Conversion Price shall be adjusted by multiplying the Conversion Price in effect
on the payment or distribution date, as applicable, for such dividend or
distribution, or the issue date of such rights or warrants, as the case may be,
by a fraction:
(x) the numerator of which shall be the Fair Market Price per
share of Common Stock less the fair market value (as determined by the
Board of Directors of the Company, whose determination shall be
conclusive) as of such payment, distribution or issue date of the
portion of the evidences of indebtedness or assets so distributed, plus
any amount payable upon the acquisition of such assets, in each case
applicable to one share of Common Stock; and
(y) the denominator of which shall be the Fair Market Price
per share of the Common Stock on such payment, distribution or issue
date;
PROVIDED, HOWEVER, that no such adjustment shall be required in connection with
such dividend or distribution if in conjunction therewith the Company pays a
dividend or makes a distribution to the holder of this Note which is the same as
the dividend or distribution that would have been made or paid with respect to
this Note had this Note been converted into shares of Common Stock immediately
prior to the record date for any such payment or distribution to holders of its
Common Stock.
Such adjustment shall become effective as of the open of business on the
Business Day next following the payment, distribution or issue date for such
dividend, distribution or issuance, as the case may be; PROVIDED that, in the
event that a conversion is effected after the record date for the determination
of the stockholders entitled to participate in such dividend, distribution or
issuance but before such adjustment shall become effective, then no later than
three Business Days following the effectiveness of such adjustment either the
Company shall deliver, or cause to be delivered, to the holder of this Note,
upon the payment of the purchase price, if any, for such rights or warrants in
accordance with the terms of the issuance thereof, such evidences of
indebtedness, securities or other assets as such stockholder would have been
entitled to if such conversion had occurred immediately prior to the record date
for such determination or such holder shall return to the Company, as
applicable, such number of shares of Common Stock, if any, so that (giving
effect to such transfer of shares of Common Stock) such conversion was effected
at a Conversion Price which reflects the adjustments as provided in this
subparagraph 8(d).
16
(e) In the case of any consolidation or merger to which the Company is
a party (other than a merger or consolidation in which the Company is the
continuing corporation and in which the Common Stock outstanding immediately
prior to the merger or consolidation remains unchanged), or in case of any
transaction as a result of which all outstanding shares of Common Stock are
converted into or exchanged for any other securities, cash or other property,
proper provision shall be made by the Company so that the Note shall,
immediately after consummation of such transaction, be subject to, upon a
conversion at the option of the holder, into the kind and amount of securities,
cash or other property receivable upon consummation of such transaction by a
holder of the number of shares of Common Stock into which the Note could have
been converted immediately prior to consummation of such transaction, assuming
that such holder of Common Stock failed to exercise rights of election, if any,
as to the kind or of amount of securities, cash or other property receivable
upon consummation of such transaction (provided that if the kind or amount of
securities, cash or other property receivable upon consummation of such
transaction is not the same for each non-electing share, then the kind and
amount of securities, cash or other property receivable upon consummation of
such transaction for each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares).
The kind and amount of securities into which the Note shall be
convertible after consummation of a transaction described in this subparagraph
8(e) above shall be subject to adjustment as described in this paragraph 8
following the date of consummation of such transaction.
(f) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this paragraph 8, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to the holder of this Note a certificate executed
by the Company's Chief Executive Officer, President, Chief Financial Officer or
Treasurer setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of the holder of this Note, furnish
or cause to be furnished to such holder a like certificate setting forth (1)
such adjustments and readjustments, (2) the Conversion Price at the time in
effect, and (3) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of this
Note.
(g) In the event that the Company shall propose at any time: (1) to
declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash dividend and
whether or not out of earnings or earned surplus; (2) to offer for subscription
pro rata to the holders of any class or series of its stock any additional
shares of stock of any class or series or other rights; (3) to effect any
reclassification or recapitalization of its Common Stock outstanding involving a
change in the Common Stock; or (4) to merge or consolidate with or into any
other corporation where the Company is not the surviving corporation, or sell,
lease or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; then, in connection with each such event, the Company shall
send to AOL:
(x) to the full extent practicable, at least 20 days' prior
notice of the record date for such dividend, distribution or
subscription rights (and specifying the date upon
17
which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote, if any, in respect of the matters referred
to in subparagraphs 8(g)(3) and (4); and
(y) in the case of the matters referred to in subparagraph
8(g)(3) and (4), to the full extent practicable, at least 20 days'
prior notice of the date when the same shall take place (and specifying
the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property
deliverable upon the occurrence of such event).
(h) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least one percent of the
Conversion Price then in effect; PROVIDED, HOWEVER, that any adjustments which
by reason of this subparagraph 8(h) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment or, if such
adjustment has not previously been made, upon any conversion. All adjustments to
the Conversion Price shall be made successively and without duplication.
9. Conversion Arrangement on Call for Redemption.
In the event this Note is called for redemption, unless surrendered for
conversion before the close of business on the Redemption Date, this Note may be
deemed to be purchased from AOL at an amount not less than the Redemption Price,
by one or more investment bankers or other purchasers who may agree with the
Company to purchase this Note from AOL, to convert them into Common Stock of the
Company and to make payment for this Note to the Company in trust for AOL. The
obligation of the Company to pay the Redemption Price of this Note shall be
deemed to be satisfied and discharged to the extent such amount is so paid by
such purchasers. If such an agreement is entered into, and this Note is not duly
surrendered for conversion by AOL, this Note may, at the option of the Company,
be deemed, to the fullest extent permitted by law, acquired by such purchasers
from AOL and surrendered by such purchasers for conversion, all as of
immediately prior to the close of business on the Redemption Date, subject to
payment of the Redemption Price.
10. Defaults and Remedies.
(a) An "EVENT OF DEFAULT" occurs if:
(1) the Company defaults in the payment of the Principal
Amount, the Redemption Price or the Purchase Price, as applicable, on the Note
when the same becomes due and payable at its Stated Maturity, upon redemption,
upon declaration, when due for purchase by the Company or otherwise;
(2) the Company defaults in the payment of interest upon the
Note when such interest becomes due and payable and such default continues for a
period of 15 days after receipt by the Company of a Notice of Default (as
defined below);
(3) the Company fails to comply with any of its agreements in
the Note (other than those referred to in subparagraphs (10)(a)(1) and
(10)(a)(2) above) and such failure continues for 90 days after receipt by the
Company of a Notice of Default;
18
(4) the Company pursuant to or under or within the meaning of
any Bankruptcy Law (as defined below):
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding or the commencement of any case
against it;
(C) consents to the appointment of a Custodian (as
defined below) of it or for any substantial part of its property;
(D) makes a general assignment for the benefit of its
creditors;
(E) files a petition in bankruptcy or answer or
consent seeking reorganization or relief; or
(F) consents to the filing of such petition or the
appointment of or taking possession by a Custodian; or
(5) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company in an
involuntary case or proceeding, or adjudicates the Company insolvent or
bankrupt;
(B) appoints a Custodian of the Company or for any
substantial part of its property; or
(C) orders the winding up or liquidation of the
Company
and the order or decree remains unstayed and in effect for 60 days.
For purposes of this paragraph 11, "BANKRUPTCY LAW" means Title 11, United
States Code, or any similar Federal or state law for the relief of debtors and
"CUSTODIAN" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
(b) A default under subparagraph 10(a)(3) is not an Event of Default
until AOL notifies the Company in writing of the default and the Company does
not cure such default (and such default is not waived) within the time specified
in subparagraph 10(a)(3) after actual receipt of such notice. Any such notice
must specify the default, demand that it be remedied and state that such notice
is a "Notice of Default" (referred to herein as a "NOTICE OF DEFAULT").
The Company shall deliver to AOL, within five days after it becomes
aware of the occurrence thereof, notice of any event which with the giving of
notice or the lapse of time, or both, would become an Event of Default under
subparagraph 10(a)(3), its status and what action the Company is taking or
proposes to take with respect thereto.
19
(c) If an Event of Default occurs (and, if required pursuant to this
paragraph 10, is continuing), AOL may declare the Note to be due and payable
immediately in cash for the Principal Amount plus all accrued and unpaid
interest through the date of the applicable Notice of Default.
11. Transferability.
(a) During the Holding Period (as defined below), neither AOL nor its
Affiliates (as defined below) shall, directly or indirectly, sell, transfer,
pledge or otherwise dispose of any interest in this Note or any Common Stock or
other security issued upon conversion of this Note except (1) to Gateway, (2) to
AOL Time Warner Inc. ("AOL TW") or any direct or indirect wholly-owned
subsidiary of AOL TW or (3) pursuant to any transaction permitted under
subparagraph 11(d). "HOLDING PERIOD" means the period beginning on the Issue
Date and continuing to and including December 22, 2004; PROVIDED that the
Holding Period shall terminate upon (x) termination of the Strategic Agreement,
in accordance with its terms, (y) a Change of Control of Gateway or (z) the
occurrence of an Event of Default, regardless of whether it shall be continuing.
"AFFILIATE" has the meaning set forth in Rule 12b-2 under the Exchange Act.
(b) During the Standstill Period (as defined below), neither AOL nor
any of its Affiliates shall, directly or indirectly, sell, transfer or otherwise
dispose of any interest in this Note or any Common Stock or other security
issued upon conversion of this Note to any purchaser or group (within the
meaning of Rule 13d-5(b) under the Exchange Act) of purchasers, if, after giving
effect to such sale, such purchaser or group of purchasers would, to AOL's
knowledge, own, or have the right to acquire, 5% or more of the Total Current
Voting Power (as defined below) of the Company, except to any Person that is not
obligated (or would not, by virtue of such purchase, reasonably be anticipated
to be obligated) to file a Schedule 13D with the SEC under the Exchange Act;
PROVIDED, HOWEVER, that neither AOL or any of its Affiliates shall have any duty
to inquire as to the identity of any purchaser in a transaction involving (1)
the sale of Common Stock in accordance with Rule 144 promulgated under the
Securities Act or (2) pursuant to a registration statement (other than as part
of a negotiated transaction), as to the amount of the Company equity securities
that such purchaser owns or has the right to acquire, or as to such purchaser's
filing obligations under the Exchange Act. "PERSON" means any individual, firm,
corporation, partnership, limited liability company, trust, joint venture, or
other entity. "STANDSTILL PERIOD" means the period from the Issue Date through
and including the earlier of (x) December 22, 2001, (y) a Change of Control of
Gateway and (z) a termination of the Strategic Agreement by AOL in accordance
with its terms as a result of a breach by the Company or Gateway Companies, Inc.
or by mutual agreement of the Company and AOL. "TOTAL CURRENT VOTING POWER" of
any Person means, as of any date of determination, the total number of votes
which may be cast in the election of members of the board of directors (or
similar governing body) of such Person if all equity securities entitled to so
vote are present and vote.
(c) Subject to subparagraph 11(b), neither AOL nor any of its
Affiliates shall sell, transfer or otherwise dispose of any of the capital
stock, partnership interest, member interest or other evidences of ownership of
any subsidiary of such Person that owns any interest in any Common Stock, except
(i) to another subsidiary of AOL that is an Affiliate of AOL or (ii) if such
20
sale, transfer or other disposition would otherwise be permitted by subparagraph
11(a) or 11(d) assuming Common Stock was being directly sold, transferred or
disposed of.
(d) Notwithstanding anything to the contrary in this Note, the transfer
restrictions on AOL and its Affiliates shall not apply to any transfer (1) by
operation of law incident to a merger or consolidation of AOL TW, so long as the
surviving or resulting entity continues to be bound by all of the restrictions
applicable to AOL under this Agreement, (2) pursuant to any tender offer or
exchange offer subject to Rule 13e-4 under the Exchange Act, (3) pursuant to any
tender offer or exchange offer subject to Regulation 14D under the Exchange Act
that is recommended by a majority of the "continuing members of the board of
directors" of the Company within the time the Company's board of directors is
required, pursuant to the rules and regulations promulgated under the Exchange
Act, to advise the Company's stockholders of its position on such offer, or (4)
pursuant to any merger, consolidation, share exchange, recapitalization, sale of
assets or other business combination transaction to which the Company is a
party, in any case constituting a Change of Control of Gateway. Nothing in this
paragraph 11 shall preclude AOL or its Affiliates from converting or exchanging
any Common Stock for equity securities of the surviving entity in a merger,
consolidation, share exchange, recapitalization, sale of assets or other
business combination transactions to which the Company is a party; PROVIDED,
HOWEVER, that if such transaction does not constitute a Change of Control of
Gateway, AOL and its Affiliates, as applicable, shall continue to be subject to
all of the restrictions applicable to AOL and its Affiliates under this
paragraph 11. For purposes of this subparagraph 11(d)(4), "continuing members of
the board of directors" shall mean those members of the board of directors of
the applicable entity who either (A) have been members of the board of directors
of such entity continuously since the date of this Note or (B) have been
initially elected or nominated for election as members of the board of directors
of such entity since the date of this Note by at least a majority of the members
of the board of directors of such entity described in clauses (A) and (B) who
were still in office at the time such election or nomination was approved by the
board of directors of such entity.
(e) Following the expiration of the Holding Period this Note and any
Common Stock or other securities issued upon conversion of this Note will no
longer be subject to the restrictions set forth in subparagraphs 11(a), (b) and
(c).
(f) Any transfer of this Note, shall be of this Note in its entirety
and shall be evidenced by the delivery to the Secretary of the Company of a
written instrument of transfer reasonably satisfactory to the Company pursuant
to which AOL transfers all of its rights under the Note and the transferee's
written agreement to be bound by the terms of this Note. In the event this Note
is transferred pursuant to this paragraph, from and after the date of such
transfer, all references herein to AOL shall be deemed to be references to such
new holder of this Note. AOL shall be treated as the record and beneficial owner
of this Note for all purposes.
12. Replacement Note.
(a) If a mutilated Note is surrendered to the Company, together with,
in proper cases, such security or indemnity as may be required by the Company to
save it harmless, the Company shall execute and deliver a replacement Note of
the same principal amount and containing identical terms and provisions.
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(b) If there shall be delivered to the Company (i) evidence to their
satisfaction of the destruction, loss or theft of this Note and (ii) such
security or indemnity as may be required by the Company to save it and any agent
of it harmless, then, in the absence of notice to the Company that this Note has
been acquired by a bona fide purchaser, the Company shall execute and deliver in
lieu of any such destroyed, lost or stolen Note, a replacement Note of the same
principal amount, containing identical terms and provisions and bearing a number
not contemporaneously outstanding, appertaining to the destroyed, lost or stolen
Note.
(c) In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay the Note.
(d) Upon the issuance of any new Note under this subparagraph, the
Company may require the payment of a sum sufficient to cover any tax or other
charge or fee that may be imposed in relation thereto and any other expenses
connected therewith.
(e) The provisions of this subparagraph are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of a mutilated, destroyed, lost or stolen Note.
13. Amendment; Waiver.
No change, amendment or modification of any provision of this Note will
be valid unless set forth in a written instrument signed by the Company and AOL,
and in each case, by an executive of at least the same standing to the executive
who signed the Investment Agreement. The failure of either the Company or AOL to
insist upon or enforce strict performance by the other party of any provision of
this Note or to exercise any right under this Note will not be construed as a
waiver or relinquishment to any extent of such party's right to assert or rely
upon any such provision or right, or any other provision or right, in that or
any other instance; rather, the same will be and remain in full force and
effect.
14. No Recourse Against Others.
No past, present or future director, officer, employee, agent, member,
manager, trustee or stockholder, as such, of the Company or any successor
thereto shall have any liability for any obligations of the Company or any
successor thereto either directly or through the Company or any successor
thereto under the Note or for any claim based on, in respect of or by reason of
such obligations or their creation whether by virtue of any rule of law, statute
or constitutional provision or by the enforcement of any assessment or by any
legal or equitable proceeding or otherwise. By accepting the Note, AOL waives
and releases all such liability. The waiver and release are part of the
consideration for the issue of the Note.
15. Notices.
All notices, demands, requests, offers, acceptances, deliveries or
other communications required or permitted to be given or delivered under this
Note, shall be in writing and shall be deemed delivered when served personally,
via courier, via facsimile, or on the third Business
22
Day after being deposited in the United States mail, certified or registered
mail, postage prepaid, addressed as follows:
If to the Company:
Gateway, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to AOL:
America Online, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, President, Business Affairs
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq., General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
▇▇▇▇▇▇▇, Swaine & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-7475
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Either party may from time to time change the address to which notices
are to be delivered or mailed by giving notice of such change to the other party
as provided herein.
16. Governing Law.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS NOTE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
-----------------------------
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IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed and delivered under its corporate seal.
[Corporate Seal] GATEWAY, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice President & CFO
Attest:
/s/▇▇▇▇▇▇▇▇▇ ▇▇▇▇
-------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Title: Assistant Secretary
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