November 13, 2006

by Earthlink
November 15th, 2006

Exhibit 10.1

November 13, 2006

To:

 

Earthlink, Inc.

 

 

1375 Peachtree St.

 

 

Atlanta, Georgia 30309

 

 

Attn: General Counsel

 

 

Telephone: (404) 748-6634

 

 

Facsimile: (404) 892-7616

 

 

 

From:

 

UBS AG, London Branch

 

 

c/o UBS Securities LLC

 

 

299 Park Avenue

 

 

New York, NY 10171

 

 

Attn: Adam Frieman

 

 

Telephone: (212) 821-2100

 

 

Facsimile: (212) 821-4610

 

Re:                                                                             Convertible Bond Hedge Transaction

                                                                                                (UBS Reference Number:__________________)     

Ladies and Gentlemen:

The purpose of this communication (this “Confirmation”) is to set forth the terms and conditions of the above-referenced transaction entered into on the Trade Date specified below (the “Transaction”) between UBS AG, London Branch (“Dealer”) represented by UBS Securities LLC (“Agent”) as its agent, and Earthlink, Inc. (“Counterparty”).  This communication constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.

1. This Confirmation is subject to, and incorporates, the definitions and provisions of the 2000 ISDA Definitions (including the Annex thereto) (the “2000 Definitions”) and the definitions and provisions of the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”, and together with the 2000 Definitions, the “Definitions”), in each case as published by the International Swaps and Derivatives Association, Inc. (“ISDA”).  In the event of any inconsistency between the 2000 Definitions and the Equity Definitions, the Equity Definitions will govern.  Certain defined terms used herein have the meanings assigned to them in the indenture to be dated as of November 17, 2006 between Counterparty and Wells Fargo Bank, N.A., as trustee (the “Trustee”) relating to the USD 225,000,000 principal amount of 3.25% Convertible Notes due November 15, 2026 (the “Convertible Notes”).  In the event of any inconsistency between the terms defined in the Indenture and this Confirmation, this Confirmation shall govern.  For the avoidance of doubt, references herein to sections of the “Indenture” are based on the draft of such Indenture, to be dated as of November 17, 2006, between Counterparty and the Trustee, (the “Indenture”) most recently reviewed by the parties at the time of execution of this Confirmation. If any relevant sections of the Indenture are changed, added or renumbered following execution of this Confirmation, the parties will amend this Confirmation in good faith to preserve the economic intent of the parties.

Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.

This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as to the terms of the Transaction to which this Confirmation relates.  This Confirmation shall be subject to an agreement (the “Agreement”) in the form of the 2002 ISDA Master Agreement (the “ISDA Form”) as if Dealer and Counterparty had executed an agreement in such form (without any Schedule but with the elections set forth in this Confirmation).  For the avoidance of doubt, the Transaction shall be the only transaction under the Agreement.

All provisions contained in, or incorporated by reference to, the Agreement will govern this Confirmation except as expressly modified herein.  In the event of any inconsistency between this Confirmation and either the Definitions or the Agreement, this Confirmation shall govern. 




 

2. The Transaction constitutes a Share Option Transaction for purposes of the Equity Definitions.  The terms of the particular Transaction to which this Confirmation relates are as follows:

General Terms:

Trade Date:

 

November 13, 2006

 

 

 

Effective Date:

 

November 17, 2006, subject to Section 8(m)

 

 

 

Option Style:

 

Modified American, as described under “Procedures for Exercise” below.

 

 

 

Option Type:

 

Call

 

 

 

Seller:

 

Dealer

 

 

 

Buyer:

 

Counterparty

 

 

 

Shares:

 

The Common Stock of Counterparty, par value USD 0.01 per share (Ticker Symbol: “ELNK”).

 

 

 

Number of Options:

 

The number of Convertible Notes in denominations of USD1,000 principal amount issued by Counterparty on the closing date for the initial issuance of the Convertible Notes; provided that the Number of Options shall be increased as of the date of exercise by UBS Securities LLC and Banc of America Securities LLC, of its option pursuant to Section 3 of the Underwriting Agreement dated as of November 13, 2006 among Counterparty, UBS Securities LLC and Banc of America Securities LLC (the “Underwriting Agreement”) by the number of Convertible Notes in denominations of USD1,000 principal amount issued pursuant to such exercise (such Convertible Notes, the “Additional Convertible Notes”), subject to agreement by the parties hereto on the amount of additional Premium payable by Buyer to Seller in respect thereof. For the avoidance of doubt, the Number of Options outstanding shall be reduced by each exercise of Options hereunder.

 

 

 

Option Entitlement:

 

As of any date, a number of Shares per Option equal to the Conversion Rate (as defined in the Indenture, but without regard to any adjustments to the Conversion Rate pursuant to Section 10.05(f), Section 10.08, Section 10.14(a) or Section 10.14(b) of the Indenture and without regard to any election by Counterparty to adjust the Conversion Rate and the conversion obligation pursuant to Section 10.14(e) of the Indenture).

 

 

 

Strike Price:

 

As of any date, an amount in USD, rounded to the nearest cent (with 0.5 cents being rounded upwards), equal to USD1,000 divided by the Option Entitlement.

 

 

 

Applicable Percentage:

 

67%

 

 

 

Number of Shares:

 

The product of the Number of Options and the Option Entitlement and the Applicable Percentage.

 

 

 

Premium:

 

USD 26,908,875(Premium per Option USD 178.50); provided that if the Number of Options is increased pursuant to the proviso to the definition of “Number of Options” above, an additional Premium in an amount as agreed to by the parties shall be paid on the Additional Premium Payment

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Date.

 

 

 

Premium Payment Date:

 

The Effective Date

 

 

 

Additional Premium Payment Date:

 

The closing date for the purchase and sale of the Additional Convertible Notes.

 

 

 

Exchange:

 

NASDAQ Global Select Market

 

 

 

Related Exchange:

 

All Exchanges

 

 

 

Procedures for Exercise:

 

 

 

 

 

Potential Exercise Dates:

 

Each Conversion Date.

 

 

 

Conversion Date:

 

Each “Conversion Date”, as defined in the Indenture, of Convertible Notes (such Convertible Notes, the “Relevant Convertible Notes” for such Conversion Date) occurring on or prior to the Expiration Date.

 

 

 

 

 

If the principal amount of Relevant Convertible Notes for any Conversion Date is less than the aggregate principal amount of Convertible Notes then outstanding, then the terms of the Transaction shall continue to apply, subject to the provisions of this Confirmation, with respect to the remaining outstanding principal amount of the Convertible Notes.

 

 

 

Required Exercise on Conversion Dates:

 

On each Conversion Date for Relevant Convertible Notes, a number of Options equal to the number of Relevant Convertible Notes in denominations of USD1,000 principal amount submitted for conversion on such Conversion Date in accordance with the terms of the Indenture shall be automatically exercised, subject to “Notice of Exercise” below.

 

 

 

Exercise Period:

 

The period from and excluding the Trade Date to and including the Expiration Date.

 

 

 

Expiration Date:

 

The earlier of (x) last day on which any Convertible Notes remain outstanding and (y) November 15, 2011.

 

 

 

Multiple Exercise:

 

Applicable, as provided above under “Required Exercise on Conversion Dates”.

 

 

 

Minimum Number of Options:

 

1

 

 

 

Maximum Number of Options:

 

Number of Options

 

 

 

Integral Multiple:

 

Not Applicable

 

 

 

Automatic Exercise:

 

As provided above under “Required Exercise on Conversion Dates”.

 

 

 

Notice of Exercise:

 

Notwithstanding anything to the contrary in the Equity Definitions, in order to exercise any Options, Counterparty must notify Dealer in writing prior to 5:00 PM, New York City time, on the Exchange Business Day prior to the first Trading Day (as such term is defined in the Indenture) of the “Cash Settlement Averaging Period”, as defined in the Indenture, relating to the Relevant Convertible Notes converted on the Conversion Date relating to the relevant Exercise Date (the “Notice Deadline”) of (i) the number of Options being exercised on such Exercise Date; (ii) the

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scheduled settlement date under the Indenture for the Relevant Convertible Notes converted on the Conversion Date corresponding to such Exercise Date and (iii) the “Cash Percentage,” as defined in the Indenture, for the Relevant Convertible Notes converted on the Conversion Date corresponding to such Exercise Date; provided that, notwithstanding the foregoing, such notice (and the related exercise of Options) shall be effective if given after the Notice Deadline, but prior to 5:00 PM New York City time, on the fifth Exchange Business Day of such “Cash Settlement Averaging Period”, in which event the Calculation Agent shall have the right to adjust the Delivery Obligation as appropriate to reflect the additional costs (including, but not limited to, hedging mismatches and market losses) and expenses incurred by Dealer in connection with its hedging activities (including the unwinding of any hedge position) as a result of Dealer not having received such notice prior to the Notice Deadline.

 

 

 

Dealer’s Telephone Number and Telex and/or Facsimile Number and Contact Details for purpose of Giving Notice:

 

To: UBS AG, London Branch

 

 

c/o UBS Securities LLC

 

 

299 Park Avenue

 

 

New York, NY 10171

 

 

Attn: Adam Frieman

 

 

Telephone: (212) 821-2100

 

 

Facsimile: (212) 821-4610

Settlement Terms:

 

 

 

 

 

Settlement Date:

 

In respect of an Exercise Date occurring on a Conversion Date, the settlement date for the Shares, cash or a combination thereof to be delivered in respect of the Relevant Convertible Notes under the terms of the Indenture; provided that the Settlement Date will not be prior to the later of (i) the date one Settlement Cycle following the final day of the “Cash Settlement Averaging Period”, as defined in the Indenture, or (ii) the Exchange Business Day immediately following the date on which Counterparty gives notice to Dealer of such Settlement Date prior to 5:00 PM, New York City time.

 

 

 

Delivery Obligation:

 

In lieu of the obligations set forth in Sections 8.1 and 9.1 of the Equity Definitions, and subject to “Notice of Exercise” above, in respect of an Exercise Date occurring on a Conversion Date, Dealer will deliver to Counterparty, on the related Settlement Date, the product of the Applicable Percentage and a number of Shares, an amount of cash or a combination thereof equal or in an amount equal to, as the case may be, the aggregate number of Shares, the aggregate amount of cash or combination thereof representing the sum of the Daily Share Amounts (as such term is defined in the Indenture) for each Trading Day (as such term is defined in the Indenture) in the Cash Settlement Averaging Period that Counterparty is obligated to deliver to the holder(s) of the Relevant Convertible Notes converted on such Conversion Date pursuant to Section 10.02(a) or Section 10.02(h), as the case may be, of the Indenture (the “Convertible Obligation”);

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provided that such obligation shall be determined (x) excluding any Shares, cash or a combination thereof that Counterparty is obligated to deliver to holder(s) of the Relevant Convertible Notes as a result of any adjustments to the Conversion Rate pursuant to Section 10.05(f), Section 10.08, Section 10.14(a) or Section 10.14(b) of the Indenture and (y) without regard to any election by Counterparty to adjust the Conversion Rate and the conversion obligation pursuant to Section 10.14(e) of the Indenture. For the avoidance of doubt, the Convertible Obligation shall not include the Daily Principal Amount for any Trading Day in the relevant Cash Settlement Averaging Period.

 

 

 

Other Applicable Provisions:

 

To the extent Dealer is obligated to deliver Shares hereunder, the provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 and 9.12 of the Equity Definitions will be applicable, except that all references in such provisions to “Physically-Settled” shall be read as references to “Net Share Settled”; and provided that the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws as a result of the fact that “Buyer” is the issuer of the Shares.

 

 

 

Restricted Certificated Shares:

 

Notwithstanding anything to the contrary in the Equity Definitions, Dealer may, in whole or in part, deliver Shares in certificated form representing the Number of Shares to be Delivered to Counterparty in lieu of delivery through the Clearance System.

 

 

 

Adjustments:

 

 

 

 

 

Method of Adjustment:

 

Notwithstanding Section 11.2 of the Equity Definitions, upon the occurrence of any event or condition set forth in Section 10.05(a), Section 10.05(b), Section 10.05(c) or Section 10.05(d) of the Indenture, the Calculation Agent shall make the corresponding adjustment in respect of any one or more of the Number of Options, the Option Entitlement and any other variable relevant to the exercise, settlement or payment of the Transaction, to the extent an analogous adjustment is made under the Indenture.

 

 

 

Extraordinary Events:

 

 

 

 

 

Merger Events:

 

Notwithstanding Section 12.1(b) of the Equity Definitions, a “Merger Event” means the occurrence of any event or condition set forth in clause (i), clause (ii) or clause (iii) of the first paragraph Section 10.11 of the Indenture.

 

 

 

Tender Offer:

 

Applicable. Notwithstanding Section 12.1(d) of the Equity Definitions, a “Tender Offer” means the occurrence of any event or condition set forth in Section 10.05(e) of the Indenture.

 

 

 

Consequences of Merger Events and Tender Offers:

 

Notwithstanding Sections 12.2 and 12.3 of the Equity Definitions, upon the occurrence of a Merger Event or Tender Offer, the Calculation Agent shall make the corresponding adjustment in respect of any adjustment under the Indenture to any one or more of the nature of the Shares, the Number of

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Options, the Option Entitlement and any other variable relevant to the exercise, settlement or payment for the Transaction, to the extent an analogous adjustment is made under the Indenture; provided that such adjustment shall be made (x) without regard to any adjustment to the Conversion Rate for the issuance of additional shares as set forth in Section 10.14(a) or Section 10.14(b) of the Indenture and (y) without regard to any election by Counterparty to adjust the Conversion Rate and the conversion obligation pursuant to Section 10.14(e) of the Indenture; and provided further that the Calculation Agent may limit or alter any such adjustment referenced in this paragraph so that the fair value of the Transaction to the Dealer is not reduced as a result of such adjustment.

 

 

 

 

 

Nationalization, Insolvency or Delisting:

 

Cancellation and Payment (Calculation Agent Determination); provided that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the American Stock Exchange or the NASDAQ Global Select Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall thereafter be deemed to be the Exchange.

 

Additional Disruption Events:

 

 

 

 

 

 

 

(a) Change in Law:

 

Applicable

 

 

 

 

 

(b) Failure to Deliver:

 

Applicable

 

 

 

 

 

(c) Insolvency Filing:

 

Applicable

 

 

 

 

 

(d) Hedging Disruption:

 

Applicable

 

 

 

 

 

(e) Increased Cost of Hedging:

 

Applicable

 

 

 

 

 

Hedging Party:

 

For all applicable Additional Disruption Events, Dealer

 

 

 

 

 

Determining Party:

 

For all applicable Additional Disruption Events, Dealer

 

 

 

 

 

Non-Reliance:

 

Applicable

 

 

 

 

 

Agreements and Acknowledgments

 

 

 

Regarding Hedging Activities:

 

Applicable

 

 

 

 

 

Additional Acknowledgments:

 

Applicable

 

 

 

 

 

3. Calculation Agent:

 

Dealer

 

 

 

 

 

4. Account Details:

 

 

 

 

 

 

 

Dealer Payment Instructions:

 

 

 

 

 

 

 

UBS AG Stamford

 

 

 

SWIFT: UBSWUS33XXX

 

 

 

Bank Routing: 026-007-993

 

 

 

Account Name: UBS AG, London Branch

 

Account No. : 101-WA-140007-000

 

 

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Counterparty Payment Instructions:

To be provided by Counterparty.

5.  Offices:

The Office of Dealer for the Transaction is:

UBS AG

100 Liverpool Street

London EC2M 2RH

United Kingdom

Telephone:  +44 207 568 0687

Facsimile:  +44 207 568 9895/6

 

The Office of Counterparty for the Transaction is: N/A

For the purpose of Section 10(c) of the Agreement, neither party is a Multibranch Party.

6.   Notices: For purposes of this Confirmation:

(a)           Address for notices or communications to Issuer:

To:

1375 Peachtree St.

 

 

Atlanta, Georgia 30309

 

Attn:

General Counsel

 

Telephone:

(404) 748-6634

 

Facsimile:

(404) 892-7616

 

(b)           Address for notices or communications to Dealer:

To:

UBS AG, London Branch

 

 

c/o UBS Securities LLC

 

 

299 Park Avenue

 

 

New York, NY  10171

 

Attn:

Adam Frieman

 

Telephone:

(212) 821-2100

 

Facsimile:

(212) 821-4610

 

 

 

 

With a copy to:

 

 

 

 

 

To:

Equities Legal Department

 

 

677 Washington Boulevard

 

 

Stamford, CT  06901

 

Attn:

David Kelly and Gordon Kiesling

 

Telephone:

(203) 719-0268

 

Facsimile:

(203) 719-5627

 

 

 

 

and:

 

 

 

 

 

To:

Equities Volatility Trading

 

 

677 Washington Boulevard

 

 

Stamford, CT  06901

 

Attn:

Namuk Cho and Bennett Lieberman

 

Telephone:

(203) 719-7330

 

Facsimile:

(203) 719-7910

 

7.  Representations, Warranties and Agreements:

(a)           In addition to the representations and warranties in the Agreement and those contained elsewhere herein, Counterparty represents and warrants to and for the benefit of, and agrees with, Dealer as follows:

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 (i)           On the Trade Date, (A) Counterparty is not aware of any material nonpublic information regarding Counterparty or the Shares and (B) all reports and other documents filed by Counterparty with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the “Securities Act”) and Securities Exchange Act of 1934, as amended (the “Exchange Act”) when considered as a whole (with the more recent such reports and documents deemed to amend inconsistent statements contained in any earlier such reports and documents), do not contain any untrue statement of a material fact or any omission of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading.

(ii)           On the Trade Date, neither Counterparty nor any “affiliate” or “affiliated purchaser” (each as defined in Rule 10b-18 of the Exchange Act (“Rule 10b-18”)) shall directly or indirectly (including, without limitation, by means of any cash-settled or other derivative instrument) purchase, offer to purchase, place any bid or limit order that would effect a purchase of, or commence any tender offer relating to, any Shares (or an equivalent interest, including a unit of beneficial interest in a trust or limited partnership or a depository share) or any security convertible into or exchangeable or exercisable for Shares, except through Dealer.

(iii)          Without limiting the generality of Section 13.1 of the Equity Definitions, Counterparty acknowledges that Dealer is not making any representations or warranties with respect to the treatment of the Transaction under FASB Statements 149 or 150, EITF Issue No. 00-19 (or any successor issue statements) or under FASB’s Liabilities & Equity Project.

(iv)          Without limiting the generality of Section 3(a)(iii) of the Agreement, the Transaction will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act.

(v)           Prior to the Trade Date, Counterparty shall deliver to Dealer a resolution of Counterparty’s board of directors authorizing the Transaction and such other certificate or certificates as Dealer shall reasonably request.

(vi)          Counterparty is not entering into this Confirmation to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for Shares) or otherwise in violation of the Exchange Act. 

(vii)         Counterparty is not, and after giving effect to the transactions contemplated hereby will not be, an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

(viii)        On the Trade Date (A) the assets of Counterparty at their fair valuation exceed the liabilities of Counterparty, including contingent liabilities, (B) the capital of Counterparty is adequate to conduct the business of Counterparty and (C) Counterparty has the ability to pay its debts and obligations as such debts mature and does not intend to, or does not believe that it will, incur debt beyond its ability to pay as such debts mature.

(ix)           The representations and warranties of Counterparty set forth in Section 3 of the Agreement and Section 3 of the Underwriting Agreement are true and correct and are hereby deemed to be repeated to Dealer as if set forth herein.

(x)            Counterparty understands that no obligations of Dealer to it hereunder will be entitled to the benefit of deposit insurance and that such obligations will not be guaranteed by any affiliate of Dealer or any governmental agency.

(b)           Each of Dealer and Counterparty agrees and represents that it is an “eligible contract participant” as defined in Section 1a(12) of the U.S. Commodity Exchange Act, as amended.

(c)           Each of Dealer and Counterparty acknowledges that the offer and sale of the Transaction to it is intended to be exempt from registration under the Securities Act by virtue of Section 4(2) thereof.  Accordingly, Counterparty represents and warrants to Dealer that (i) it has the financial ability to bear the economic risk of its investment in the Transaction and is able to bear a total loss of its investment and its investments in and liabilities in respect of the Transaction, which it understands are not readily marketable, are not disproportionate to its net worth, and it is able to bear any loss in connection with the Transaction, including the loss of its entire investment in the

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Transaction, (ii) it is an “accredited investor” as that term is defined in Regulation D as promulgated under the Securities Act, (iii) it is entering into the Transaction for its own account and without a view to the distribution or resale thereof, (iv) the assignment, transfer or other disposition of the Transaction has not been and will not be registered under the Securities Act and is restricted under this Confirmation, the Securities Act and state securities laws, and (v) its financial condition is such that it has no need for liquidity with respect to its investment in the Transaction and no need to dispose of any portion thereof to satisfy any existing or contemplated undertaking or indebtedness and is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of the Transaction.

(d)           Each of Dealer and Counterparty agrees and acknowledges (A) that this Confirmation is (i) a “securities contract,” as such term is defined in Section 741(7) of Title 11 of the United States Code (the “Bankruptcy Code”), with respect to which each payment and delivery hereunder is a “settlement payment,” as such term is defined in Section 741(8) of the Bankruptcy Code, and (ii) a “swap agreement,” as such term is defined in Section 101(53B) of the Bankruptcy Code, with respect to which each payment and delivery hereunder is a “transfer,” as such term is defined in Section 101(54) of the Bankruptcy Code, and (B) that Dealer is entitled to the protections afforded by, among other sections, Section 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy Code. 

8.  Other Provisions:

(a)           Right to Extend.  Dealer may postpone any Potential Exercise Date or any other date of valuation or delivery by Dealer, with respect to some or all of the relevant Options (in which event the Calculation Agent shall make appropriate adjustments to the Delivery Obligation), if Dealer determines, in its reasonable discretion, that such extension is reasonably necessary to enable Dealer to effect purchases of Shares in connection with its hedging or settlement activity hereunder in a manner that would, if Dealer were Counterparty or an affiliated purchaser of Counterparty, be in compliance with applicable legal, regulatory or self-regulatory requirements, or with related policies and procedures applicable to Dealer.

(b)           Additional Termination Events.  The occurrence of (i) an event of default with respect to Counterparty under the terms of the Convertible Notes as set forth in Section 6.01 of the Indenture that results in an acceleration of the Convertible Notes pursuant to the terms of the Indenture, (ii) an Amendment Event or (iii) a Repayment Event shall be an Additional Termination Event with respect to which the Transaction is the sole Affected Transaction and Counterparty is the sole Affected Party, and Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement; provided that in the case of a Repayment Event the Transaction shall be subject to termination only in respect of the number of Convertible Notes that cease to be outstanding in connection with or as a result of such Repayment Event.

Amendment Event” means that Counterparty amends, modifies, supplements or waives any term of the Indenture or the Convertible Notes governing the principal amount, coupon, maturity, repurchase obligation of Counterparty, redemption right of Counterparty, any term relating to conversion of the Convertible Notes (including changes to the conversion price, conversion settlement dates or conversion conditions), or any term that would require consent of the holders of not less than 100% of the principal amount of the Convertible Notes to amend, in each case without the prior consent of Dealer, such consent not to be unreasonably withheld.

Repayment Event” means that (A) any Convertible Notes are repurchased (whether in connection with or as a result of a change of control, howsoever defined, or for any other reason) by Counterparty or any of its subsidiaries, (B) any Convertible Notes are delivered to Counterparty in exchange for delivery of any property or assets of Counterparty or any of its subsidiaries (howsoever described), (C) any principal of any of the Convertible Notes is repaid prior to the final maturity date of the Convertible Notes (whether following acceleration of the Convertible Notes or otherwise), or (D) any Convertible Notes are exchanged by or for the benefit of the holders thereof for any other securities of Counterparty or any of its affiliates (or any other property, or any combination thereof) pursuant to any exchange offer or similar transaction; provided that, in the case of clause (B) and clause (D), conversions of the Convertible Notes pursuant to the terms of the Indenture as in effect on the date hereof shall not be Repayment Events.

(c)           Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events.  If, subject to Section 8(k) below, Dealer shall owe Counterparty any amount pursuant to Sections 12.6, 12.7

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or 12.9 of the Equity Definitions or pursuant to Section 6(d)(ii) of the Agreement (except in the event of an Event of Default in which Counterparty is the Defaulting Party or a Termination Event in which Counterparty is the Affected Party, that resulted from an event or events within Counterparty’s control) (a “Payment Obligation”), Counterparty shall have the right, in its sole discretion, to require Dealer to satisfy any such Payment Obligation by the Share Termination Alternative (as defined below) by giving irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled Trading Day, between the hours of 9:00 A.M. and 4:00 P.M. New York City time on the Announcement Date or Early Termination Date, as applicable (“Notice of Share Termination”).  Upon such Notice of Share Termination, the following provisions shall apply on the Scheduled Trading Day immediately following the Announcement Date or Early Termination Date, as applicable:

Share Termination Alternative:

 

Applicable and means that Dealer shall deliver to Counterparty the Share Termination Delivery Property on the date on which the Payment Obligation would otherwise be due pursuant to Section 12.7 or 12.9 of the Equity Definitions or Section 6(d)(ii) of the Agreement, as applicable (the “Share Termination Payment Date”), in satisfaction of the Payment Obligation.

 

 

 

Share Termination Delivery

 

 

Property:

 

A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the Payment Obligation divided by the Share Termination Unit Price. The Calculation Agent shall adjust the Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price.

 

 

 

Share Termination Unit Price:

 

The value of property contained in one Share Termination Delivery Unit on the date such Share Termination Delivery Units are to be delivered as Share Termination Delivery Property, as determined by the Calculation Agent in its discretion by commercially reasonable means and notified by the Calculation Agent to Dealer at the time of notification of the Payment Obligation.

 

 

 

Share Termination Delivery Unit:

 

In the case of a Termination Event, Event of Default or Delisting, one Share or, in the case of an Insolvency or Nationalization, one Share or a unit consisting of the number or amount of each type of property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Insolvency or Nationalization. If such Insolvency or Nationalization involves a choice of consideration to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash.

 

 

 

Failure to Deliver:

 

Applicable

 

 

 

Other applicable provisions:

 

If Share Termination Alternative is applicable, the provisions of Sections 9.8, 9.9, 9.10, 9.11 and 9.12 of the Equity Definitions will be applicable, except that all references in such provisions to “Physical Settlement” shall be read as references to “Share Termination Alternative” and all references to “Shares” shall be read as references to “Share Termination Delivery Units”; and provided that the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws as a result of the fact that Buyer is the issuer of any Share Termination Delivery Units (or any part thereof).

 

(d)           Disposition of Hedge Shares.  Counterparty hereby agrees that if, in the good faith reasonable judgment of Dealer, the Shares (the “Hedge Shares”) acquired by Dealer for the purpose of hedging its obligations pursuant to the Transaction cannot be sold in the U.S. public market by Dealer without registration under the Securities Act, Counterparty shall, at its election: (i) in order to allow Dealer to sell the Hedge Shares in a registered offering, make available to Dealer an effective registration statement under the Securities Act to cover the resale of such Hedge Shares and (A) enter into an agreement, in form and substance satisfactory to Dealer, substantially in the

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form of an underwriting agreement for a registered offering, (B) provide accountant’s “comfort” letters in customary form for registered offerings of equity securities, (C) provide disclosure opinions of nationally recognized outside counsel to Counterparty reasonably acceptable to Dealer, (D) provide other customary opinions, certificates and closing documents customary in form for registered offerings of equity securities and (E) afford Dealer a reasonable opportunity to conduct a “due diligence” investigation with respect to Counterparty customary in scope for underwritten offerings of equity securities; provided, however, that if Dealer, in its sole reasonable discretion, is not satisfied with access to due diligence materials, the results of its due diligence investigation, or the procedures and documentation for the registered offering referred to above, then clause (ii) or clause (iii) of this Section 8(c) shall apply at the election of Counterparty; (ii) in order to allow Dealer to sell the Hedge Shares in a private placement, enter into a private placement agreement substantially similar to private placement purchase agreements customary for private placements of equity securities, in form and substance satisfactory to Dealer, including customary representations, covenants, blue sky and other governmental filings and/or registrations, indemnities to Dealer, due diligence rights (for Dealer or any designated buyer of the Hedge Shares from Dealer), opinions and certificates and such other documentation as is customary for private placements agreements, all reasonably acceptable to Dealer (in which case, the Calculation Agent shall make any adjustments to the terms of the Transaction that are necessary, in its reasonable judgment, to compensate Dealer for any discount from the public market price of the Shares incurred on the sale of Hedge Shares in a private placement); or (iii) purchase the Hedge Shares from Dealer at the VWAP Price on such Exchange Business Days, and in the amounts, requested by Dealer.  “VWAP Price” means, on any Exchange Business Day, the per Share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page ELNK <Equity> VAP (or any successor thereto) in respect of the period from 9:30 a.m. to 4:00 p.m. (New York City time) on such Exchange Business Day (or if such volume-weighted average price is unavailable, the market value of one Share on such Exchange Business Day, as determined by the Calculation Agent using a volume-weighted method).

(e)           Amendment to Equity Definitions and the Agreement.  The following amendment shall be made to the Equity Definitions and to the Agreement: Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1) deleting from the fourth line thereof the word “or” after the word “official” and inserting a comma therefor, and (2) deleting the semi-colon at the end of subsection (B) thereof and inserting the following words therefor “or (C) at Dealer’s option, the occurrence of any of the events specified in Section 5(a)(vii) (1) through (9) of the ISDA Master Agreement with respect to that Issuer.”

(f)            Repurchase Notices.  Counterparty shall, on any day on which Counterparty effects any repurchase of Shares, promptly give Dealer a written notice of such repurchase (a “Repurchase Notice”) on such day if, following such repurchase, the Notice Percentage as determined on such day (i) in the case of the first such Repurchase Notice, is greater than 8.00% and (ii) in the case of any subsequent Repurchase Notice, (A) is greater than 8.00% and (B) is greater by at least 0.5% than the Notice Percentage included in the immediately preceding Repurchase Notice.    The “Notice Percentage” as of any day is the fraction, expressed as a percentage, the numerator of which is the Number of Shares and the denominator of which is the number of Shares outstanding on such day.  In the event that Counterparty fails to provide Dealer with a Repurchase Notice on the day and in the manner specified in this Section 8(f) then Counterparty agrees to indemnify and hold harmless Dealer, its affiliates and their respective directors, officers, employees, agents and controlling persons (Dealer and each such person being an “Indemnified Party”) from and against any and all losses, claims, damages and liabilities (or actions in respect thereof), joint or several, to which such Indemnified Party may become subject under applicable securities laws, including without limitation, Section 16 of the Exchange Act, relating to or arising out of such failure.  If for any reason the foregoing indemnification is unavailable to any Indemnified Party or insufficient to hold harmless any Indemnified Party, then Counterparty shall contribute, to the maximum extent permitted by law, to the amount paid or payable by the Indemnified Party as a result of such loss, claim, damage or liability.  In addition, Counterparty will reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred (after notice to Counterparty) 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 Counterparty.  This indemnity shall survive the completion of the Transaction contemplated by this Confirmation and any assignment and delegation of the Transaction made pursuant to this Confirmation or the Agreement shall inure to the benefit of any permitted assignee of Dealer.

(g)           Transfer and Assignment.  Dealer may transfer or assign its rights and obligations hereunder and under the Agreement, in whole or in part, to any of its affiliates without the consent of Counterparty.  In addition,

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Dealer may transfer or assign its rights and obligations hereunder and under the Agreement, in whole or in part, to any unaffiliated third-party financial institution without the consent of Counterparty, so long as the senior unsecured debt rating of such third-party (or any guarantor of its obligations under the Transaction) is equal to or greater than A+ as specified by Standard and Poor’s Rating Services or Aa3 as specified by Moody’s Investor Service, Inc., at the time of such assignment or transfer.  In connection with any transfer or assignment by Dealer of its rights and obligations hereunder and under the Agreement, Dealer shall promptly provide written notice to Counterparty of such transfer or assignment, as the case may be, and the identity of the relevant transferee or assignee.  In connection with any assignment or transfer pursuant to the second immediately preceding sentence, the guarantee of any guarantor of the relevant transferee’s obligations under the Transaction shall constitute a Credit Support Document under Agreement.  If at any time at which the Equity Percentage exceeds 7.5%, Dealer, in its discretion, is unable to effect a transfer or assignment to an unaffiliated third party after its commercially reasonable efforts on pricing terms reasonably acceptable to Dealer such that the Equity Percentage is reduced to 7.5% or less, Dealer may designate any Scheduled Trading Day as an Early Termination Date with respect to a portion (the “Terminated Portion”) of the Transaction, such that the Equity Percentage following such partial termination will be equal to or less than 7.5%.  In the event that Dealer so designates an Early Termination Date with respect to a portion of the Transaction, a payment or delivery shall be made pursuant to Section 6 of the Agreement as if (i) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Terminated Portion of the Transaction, (ii) Counterparty shall be the sole Affected Party with respect to such partial termination and (iii) such portion of the Transaction shall be the only Terminated Transaction.  The “Equity Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the Number of Shares and (B) the denominator of which is the number of Shares outstanding on such day.  Counterparty may transfer or assign its rights and obligations hereunder and under the Agreement, in whole or in part, to any party with the consent of Dealer, such consent not to be unreasonably withheld.

(h)           Staggered Settlement. If the Staggered Settlement Equity Percentage as of any Exchange Business Day during the relevant “Cash Settlement Averaging Period”, as defined in the Indenture, is greater than 4.5%, Dealer may, by notice to Counterparty prior to any Settlement Date (a “Nominal Settlement Date”), elect to deliver any Shares, cash or combination thereof due hereunder on two or more dates (each, a “Staggered Settlement Date”) or at two or more times on the Nominal Settlement Date as follows:

(i)            in such notice, Dealer will specify to Counterparty the related Staggered Settlement Dates (each of which will be on or prior to such Nominal Settlement Date, but not prior to the beginning of such “Conversion Reference Period”) or delivery times and how it will allocate the Shares it is required to deliver under “Delivery Obligation” (above) among the Staggered Settlement Dates or delivery times; and

(ii)           the aggregate number of Shares and the aggregate amount of cash that Dealer will deliver to Counterparty hereunder on all such Staggered Settlement Dates and delivery times will equal the number of Shares and the amount of cash that Dealer would otherwise be required to deliver on such Nominal Settlement Date.

The “Staggered Settlement Equity Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the sum of (x) the number of Shares that Dealer or any of its affiliates beneficially own (within the meaning of Section 13 of the Exchange Act) on such day, other than any Shares so owned as a hedge of the Transaction, and (y) the Number of Shares and (B) the denominator of which is the number of Shares outstanding on such day.

(i)            Disclosure.  Effective from the date of commencement of discussions concerning the Transaction, Counterparty and each of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to Counterparty relating to such tax treatment and tax structure.

(j)            Designation by Dealer.  Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities to or from Counterparty, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such shares or other securities and otherwise to perform Dealer obligations in respect of the Transaction and any such designee may assume such obligations.  Dealer shall be discharged of its obligations to Counterparty to the extent of any such performance.

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(k)           Netting and Set-off.  Each party waives any and all rights it may have to set off, whether arising under any agreement, applicable law or otherwise.  The provisions of Section 2(c) of the Agreement shall not be applicable to the Transaction.

(l)            Equity Rights.  Dealer acknowledges and agrees that this Confirmation is not intended to convey to it rights with respect to the Transaction that are senior to the claims of common stockholders in the event of Counterparty’s bankruptcy.  For the avoidance of doubt, the parties agree that the preceding sentence shall not apply at any time other than during Counterparty’s bankruptcy to any claim arising as a result of a breach by Counterparty of any of its obligations under this Confirmation or the Agreement. 

(m)          Early Unwind.  In the event the sale by Counterparty of the Convertible Notes is not consummated with UBS Securities LLC and Banc of America Securities LLC pursuant to the Underwriting Agreement for any reason by the close of business in New York on November 17, 2006 (or such later date as agreed upon by the parties) (November 17, 2006 or such later date being the “Early Unwind Date”), the Transaction shall automatically terminate (the “Early Unwind”), on the Early Unwind Date and (i) the Transaction and all of the respective rights and obligations of Dealer and Counterparty thereunder shall be cancelled and terminated and (ii) Counterparty shall pay to Dealer, other than in cases involving a breach of the Underwriting Agreement by UBS Securities LLC, an amount in cash equal to the aggregate amount of costs and expenses  relating to the unwinding of Dealer’s hedging activities in respect of the Transaction (including market losses incurred in reselling any Shares purchased by Dealer or its affiliates in connection with such hedging activities).  Following such termination, cancellation and payment, each party shall be released and discharged by the other party from and agrees not to make any claim against the other party with respect to any obligations or liabilities of either party arising out of and to be performed in connection with the Transaction either prior to or after the Early Unwind Date.  Dealer and Counterparty represent and acknowledge to the other that upon an Early Unwind and following the payment referred to above, all obligations with respect to the Transaction shall be deemed fully and finally discharged.

(n)           Waiver of Trial by JuryEACH OF COUNTERPARTY AND DEALER 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 THE TRANSACTION OR THE ACTIONS OF DEALER OR ITS AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.

(o)           Governing LawTHIS CONFIRMATION SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.  THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES 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.

(p)           Role of Agent. Each party agrees and acknowledges that Agent is acting as agent for both parties but does not guarantee the performance of either party and neither Dealer nor Counterparty shall contact the other with respect to any matter relating to the Transaction without the direct involvement of Agent; (ii) Agent is not a member of the Securities Investor Protection Corporation; (iii) Agent, Dealer and Counterparty each hereby acknowledges that any transactions by Dealer or Agent in the Shares will be undertaken by Dealer or Agent, as the case may, as principal for its own account; (iv) all of the actions to be taken by Dealer and Agent in connection with the Transaction, including but not limited to any exercise of any rights with respect to the Options, shall be taken by Dealer or Agent independently and without any advance or subsequent consultation with Counterparty; and (v) Agent is hereby authorized to act as agent for Counterparty only to the extent required to satisfy the requirements of Rule 15a-6 under the Exchange Act in respect of the Options described hereunder.

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Counterparty hereby agrees (a) to check this Confirmation carefully and immediately upon receipt so that errors or discrepancies can be promptly identified and rectified and (b) to confirm that the foregoing (in the exact form provided by Dealer) correctly sets forth the terms of the agreement between Dealer and Counterparty with respect to the Transaction, by manually signing this Confirmation or this page hereof as evidence of agreement to such terms and providing the other information requested herein and immediately returning an executed copy to Equity Risk Management (Corporates), Facsimile No. (212) 821-4610.

 

Yours faithfully,

 

 

 

 

 

UBS AG, LONDON BRANCH

 

 

 

 

 

 

 

 

By:

/s/ Dmitriy Mandel

 

 

 

Name:

 

Dmitriy Mandel

 

 

 

Title:

 

Executive Director

 

 

 

 

 

Equity Risk Management

 

 

 

 

 

 

 

 

 

 

By:

/s/ Akshay Mansukhani

 

 

 

Name:

 

Akshay Mansukhani

 

 

 

Title:

 

Associate Director

 

 

 

 

 

Equity Risk Management

 

 

 

 

 

 

 

 

 

 

UBS SECURITIES LLC, as agent

 

 

 

 

 

 

 

 

 

 

By:

/s/ Dmitriy Mandel

 

 

 

Name:

 

Dmitriy Mandel

 

 

 

Title:

 

Executive Director

 

 

 

 

 

Equity Risk Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Akshay Mansukhani

 

 

 

Name:

 

Akshay Mansukhani

 

 

 

Title:

 

Associate Director

 

 

 

 

 

Equity Risk Management

 

Agreed and Accepted By:

EARTHLINK, INC.

 

By:

/s/ Kevin M. Dotts

 

Name:

Kevin M. Dotts

 

Title:

Executive Vice President,
Chief Financial Officer

 

 

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