- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
For the year ended December 31, 1999 Commission File No. 0-25581
priceline.com Incorporated
(Exact name of registrant as specified in its charter)
Delaware 0-25581 06-1528493
(State or other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
800 Connecticut Avenue, Norwalk, Connecticut 06854
(Address of Principal Office) (Zip Code)
Registrant's telephone number, including area code:
(203) 299-8000
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, par value $0.008 per share
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]
Aggregate market value of voting stock held by non-affiliates
of the registrant as of March 10, 2000................$5,664,836,331
Number of shares of common stock outstanding as of
March 10, 2000...........................................170,115,752
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report on Form 10-K,
to the extent not set forth herein, is incorporated herein by reference from the
registrant's definitive proxy statement relating to the annual meeting of
stockholders to be held on April 24, 2000, which definitive proxy statement was
filed on March 27, 2000 with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
priceline.com Incorporated
Form 10-K
For the Year Ended December 31, 1999
INDEX
PAGE
PART I
Item 1. Business............................................................ 1
Item 2. Properties..........................................................22
Item 3. Legal Proceedings...................................................22
Item 4. Submission of Matters to a Vote of Security Holders. ...............23
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters................................................23
Item 6. Selected Financial Data.............................................24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................24
Item 7A. Quantitative and Qualitative Disclosure About Market Risk...........35
Item 8. Financial Statements and Supplementary Data. .......................35
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure...............................................35
PART III
Item 10. Directors and Executive Officers of the Registrant..................35
Item 11. Executive Compensation..............................................35
Item 12. Security Ownership of Certain Beneficial Owners and Management......35
Item 13. Certain Relationships and Related Transactions......................35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....36
Signatures....................................................................39
Financial Statements..........................................................41
<PAGE>
PART I
Item 1. Business
General
Priceline.com Incorporated ("priceline.com," the "Company," "we," "us" or
"our") has pioneered a unique e-commerce pricing system known as a "demand
collection system" that enables consumers to use the Internet to save money on a
wide range of products and services while enabling sellers to generate
incremental revenue. Using a simple and compelling consumer proposition - Name
Your Own Price(sm) - priceline.com collects consumer demand, in the form of
individual customer offers guaranteed by a credit card, for a particular product
or service at a price set by the customer. Priceline.com then either
communicates that demand directly to participating sellers or accesses
participating sellers' private databases to determine whether priceline.com can
fulfill the customer's offer. Consumers agree to hold their offers open for a
specified period of time and, once fulfilled, offers cannot be canceled.
Priceline.com benefits consumers by enabling them to save money, while at the
same time benefitting sellers by providing them with an effective revenue
management tool capable of identifying and capturing incremental revenues. By
requiring consumers to be flexible with respect to brands, sellers and product
features, priceline.com enables sellers to generate incremental revenue without
disrupting their existing distribution channels or retail pricing structures.
Priceline.com believes that its unique business model can be applied to a
broad range of products and services. The Company believes that this broad
applicability of its business model, its first mover advantage, the strength of
the priceline.com brand, its network of seller participants, its proprietary
software systems and its intellectual property strategies provide it with
significant competitive advantages. Priceline.com's strategy is to increase its
revenues in existing products and services by improving product offerings,
expand its Name Your Own Price(sm) service to new products and services and
offer its services in international markets through investments in independent
licensee companies.
Priceline.com commenced its service on April 6, 1998 with the sale of
leisure airline tickets and at December 31, 1999 offered services for leisure
airline tickets, hotel rooms, mortgages and new automobiles. In December 1999
and February 2000, the Company launched two different rental car offerings. In
the near term, the Company intends to launch a Name Your Own Price(sm) service
for international and domestic long distance service. In addition, the Company's
licensee, Priceline WebHouse Club, Inc., launched a Name Your Own Price(sm)
service for groceries in the fourth quarter of 1999. Another licensee,
Priceline Perfect Yard Sale, Inc., launched on a test basis in the first quarter
of 2000 a consumer-to-consumer based Name Your Own Price(sm) service for the
sale of quality used goods over the Internet.
For the year ended December 31, 1999, priceline.com had revenues of $482.4
million. The revenues for the year ended December 31, 1999 were comprised
primarily of: (1) transaction revenues representing the selling price of airline
tickets and hotel rooms; (2) fee income from adaptive marketing programs offered
in connection with priceline.com's product offerings; (3) ancillary revenues
consisting primarily of reservation booking fees and customer processing fees;
and (4) fee income from priceline.com's home financing and auto programs.
Priceline.com was formed as a Delaware limited liability company in 1997
and was converted into a Delaware corporation in July 1998. The Company
completed its initial public offering in April 1999, and its comon stock is
listed on the Nasdaq National Market under the symbol "PCLN." Priceline.com
recently completed the relocation of its principal corporate offices from
Stamford, Connecticut to Norwalk, Connecticut.
The priceline.com Business Model
Priceline.com has developed a unique pricing system known as a "demand
collection system" that uses the information sharing and communications power of
the Internet to create a new way of pricing products and services. Priceline.com
creates a new balance between the interests of buyers, who are willing to accept
trade-offs in order to save money, and sellers, who are prepared to generate
incremental revenue by selling products at below
<PAGE>
retail prices, provided that they can do so without disrupting their existing
distribution channels or retail pricing structures. Priceline.com's demand
collection system allows consumers to specify the price they are prepared to pay
when submitting an offer for a particular product or service within a specified
range of substitutability. Priceline.com then either communicates these offers
to participating sellers or accesses participating sellers' private databases to
determine whether it can fulfill the customer's offer. Consumers agree to hold
their offers open for a specified period of time to enable priceline.com to
fulfill their offers from inventory provided by participating sellers. Once
fulfilled, offers generally cannot be canceled. This system uses the flexibility
of buyers to enable sellers to accept a lower price in order to sell excess
inventory or capacity or increase sales velocity. Priceline.com believes that
its demand collection system addresses limitations inherent in traditional
seller-driven pricing mechanisms in a manner that offers substantial benefits to
both buyers and sellers. The principal advantages of the priceline.com system
include the following:
o Cost Savings and Preferred Method Of Purchasing For Consumers.
Priceline.com's Name Your Own Price(sm) demand collection system
allows consumers to save money in a simple and compelling way.
Buyers effectively trade off flexibility about brands, product
features and/or sellers in return for prices that are lower than
those that can be obtained at that time through traditional retail
distribution channels. Priceline.com believes that in many cases,
such as purchasing a new car or obtaining a home mortgage, the
Internet represents a preferred method to traditional retail
channels.
o Incremental Revenue For Sellers. Sellers use priceline.com as a
revenue management tool to generate incremental revenue without
disrupting their existing distribution channels or retail pricing
structures. Priceline.com requires consumers to be flexible with
respect to brands and product features. As a result, sellers' brands
are not revealed to customers prior to the consummation of a
transaction, thereby protecting their brand integrity. This
shielding of brand identity enables sellers to sell products and
services at discounted prices without cannibalizing their own retail
sales by publicly announcing discount prices and without competing
against their own distributors.
o Proprietary Seller Networks. Priceline.com assembles proprietary
networks of industry leading sellers that represent high quality
brands. By establishing attractive networks of seller participants
with reputations for quality, scale and national presence,
priceline.com fosters increased participation by both buyers and
sellers.
o Guaranteed Consumer Demand For Sellers. Each customer who makes an
offer through priceline.com must guarantee his or her offer with a
major credit card. The guaranteed aspect of the demand is attractive
to sellers because they know that priceline.com offers them a
confirmed sale.
o Broad Applications Across Multiple Markets. In contrast to many
e-commerce companies that are building brands in vertical categories
or groups of related categories, priceline.com believes that its
e-commerce business model has horizontal application to products and
services in a wide range of industries. Priceline.com further
believes that the broad applicability of the priceline.com service
and the strength of the priceline.com brand afford it the
opportunity to obtain substantial economies of scale and offer the
potential for priceline.com to become a major new channel of
distribution.
The priceline.com Strategy
Priceline.com's objective is to continue to expand the priceline.com
business and to operate priceline.com's demand collection system as a leading
source for the purchase of products and services on the Internet. The key
elements of priceline.com's strategy are as follows:
2
<PAGE>
o Strengthen the priceline.com Brand. The Company intends to expand
consumer recognition of priceline.com as the leading consumer brand
for buyer-driven commerce over the Internet. To achieve this
objective, priceline.com intends to continue to pursue an aggressive
brand development strategy through mass market and targeted
advertising and promotions, press coverage and strong word-of-mouth
support. While priceline.com is already one of the most recognized
e-commerce brands among adult Americans, priceline.com believes that
it can expand the public's association with the priceline.com Name
Your Own Price(sm) proposition to a broad range of products and
services. See "- Marketing and Brand Awareness."
o Leverage the priceline.com Brand Over Numerous Products and
Services. Priceline.com intends to continue to leverage the
priceline.com brand across numerous products and services to achieve
significant revenue scale and growth. In contrast to most e-commerce
businesses that operate in one or two "vertical" markets,
priceline.com is a "horizontal" commerce system that can benefit
both buyers and sellers across a broad range of products and
services. Priceline.com's strategy is to make available multiple
product and service offerings at a single Web site under a common
brand to take advantage of these market opportunities. Priceline.com
intends to expand directly in certain vertical markets and license
its business model and name to independent licensees in other
markets. Priceline.com and its licensees have launched or expanded
offerings in several new categories over the past twelve months and
these efforts will continue. See "- Products and Services."
o Enhance Site Functionality and Increase Consumer Usage.
Priceline.com intends to continue to frequently update and enhance
the features of the priceline.com service. Priceline.com continually
monitors feedback from consumers and frequently adds new features to
further refine and simplify the buying process. Priceline.com also
receives offers by telephone and provides customer service by
telephone and e-mail to assist consumers in the offer process. By
continuing to increase the functionality of the service and enhance
the consumer experience, priceline.com believes that it will
continue to increase customer usage and loyalty.
o Pursue International Expansion. Priceline.com believes that the
international scope of the Internet and the global demand for the
types of products and services available through priceline.com
presents opportunities to expand its service internationally.
Priceline has announced initiatives in Australia/New Zealand and
Asia and intends to pursue additional overseas opportunities. See "-
Products and Services - International Expansion."
Products and Services
Priceline.com launched the priceline.com service on April 6, 1998 with the
sale of leisure airline tickets. The priceline.com service now includes the sale
of new automobiles, hotel room reservations, rental cars and home financing
services. Priceline.com also intends to expand its product offerings to include:
other leisure travel products such as cruises; time shares and vacation
packages; pre-paid long distance and other telecommunications services; credit
cards; and automobile, personal insurance and other financial services products.
In addition, priceline.com has announced initiatives to expand the priceline.com
service internationally.
3
<PAGE>
Travel Services
Leisure Airline Tickets. Priceline.com commenced its service with the sale
of leisure airline tickets. The number of airlines participating in
priceline.com's airline ticket service has increased to a total of 10 domestic
airlines and 20 international airlines.
Consumers can make offers to purchase airline tickets through the
priceline.com Web site or the 1-800-PRICELINE(sm) call center. The vast majority
of all airline ticket requests are made through priceline.com's Web site. To
make an offer, a customer specifies (1) the origin and destination of the trip,
(2) the dates on which the customer wishes to depart and return, (3) the price
the customer is willing to pay and (4) the customer's valid credit card to
guarantee the offer. When making an offer, consumers must agree to:
o fly on any major full-service airline;
o leave at any time of day between 6 a.m. and 10 p.m.on their
desired dates of departure and return;
o purchase only round trip economy class tickets between the
same two points of departure and return;
o accept at least one stop or connection;
o receive no frequent flier miles or upgrades; and
o accept tickets that cannot be refunded or changed.
When priceline.com receives an offer, it determines whether to fulfill the
offer based upon the available fares, rules and inventory provided to
priceline.com by its participating airlines. A customer is notified whether his
or her offer has been accepted within one hour. If priceline.com is able to
obtain an airline ticket within the parameters specified by the customer, the
customer's offer is accepted and his or her credit card is charged the offer
price, plus applicable taxes, surcharges and standard processing fees, and the
ticket is delivered to the customer by the delivery method specified by the
customer. As with pricelines.com's other travel products, once a customer's
offer for airline tickets is accepted, that offer cannot be withdrawn or
cancelled.
Hotels. In October 1998, priceline.com launched its Name Your Own
Price(sm) travel service for hotel room reservations. Priceline.com's hotel room
reservation service currently is available in substantially all major cities and
metropolitan areas in the United States. Seller participants in the hotel room
reservation service include several of the most significant national hotel
chains as well as several important real estate investment trusts and
independent property owners. Hotels participate by filing private discounted
rates with related inventory control rules in priceline.com's private database
in a central reservation system for hotel rooms. These rates generally are not
available to the general public or to consolidators and other discount
distributors who sell to the public.
Priceline.com's hotel room reservation service operates in a manner
similar to its airline ticket service. Consumers are required to accept certain
trade-offs with respect to brands or product features in return for saving
money. For example, consumers are required to accept a reservation in any hotel
within a specified geographic
4
<PAGE>
area within a designated "class" of service (1, 2, 3, 4 or 5-star) and must
accept limitations on changes and cancellations. As with the airline ticket
service, the target market for priceline.com's hotel room reservation service is
the leisure travel market.
Rental Cars. Priceline.com offers two different rental car services. In
December 1999, priceline.com launched its Insiders Rates(sm) service and, in
February 2000, priceline.com launched its Name Your Own Price(sm) service.
Priceline.com's rental car services are currently available in substantially all
major United States markets. Three of the top five brand name rental car
companies in the United States are seller participants in priceline.com's rental
car program.
Under priceline.com's Insiders Rates(sm) service, participating car rental
companies offer priceline.com customers who have successfully purchased an
airline ticket from priceline.com rates on car rentals in connection
with a customer's planned travel arrangements. An offer is provided to a
customer by e-mail and on priceline.com's Web site when a customer checks the
status of his or her request.
Priceline.com's Name Your Own Price(sm) rental car service operates in a
manner similar to its airline ticket and hotel reservation services. Consumers
can access priceline.com's Web site and select where and when they want to rent
a car, what kind of car they want to rent (i.e., economy, compact, mid-size,
SUV) and the price they want to pay per-day, excluding taxes, fees and
surcharges. When priceline.com receives an offer, it determines whether to
fulfill the offer based upon the available rates, rules and inventory. A
customer is notified whether his or her offer has been accepted within one hour.
If a customer's offer is accepted, priceline.com will immediately reserve the
rental car, charge the customer's credit card and notify the customer of the car
rental company and location providing the rental car.
Other Travel Services. Priceline.com intends to expand its products and
services within the leisure travel industry over the next two years to encompass
cruises, all-inclusive resorts, time share and vacation packages.
Home Financing Services. Priceline.com introduced its home financing
service in January 1999. Under the terms of separate agreements with Alliance
Partners, L.P. and LendingTree, priceline.com's financing service allows
consumers to name their interest rate and points for mortgages of a specified
term, including, purchase money mortgages, refinancings and home equity loans.
Alliance relationship. Under the terms of priceline.com's agreement with
Alliance Partners, which was entered into on March 17, 2000, priceline.com
provides advertising and marketing support and a license of certain
priceline.com intellectual property to a newly formed indirect subsidiary of
Alliance Partners. This Subsidiary conducts business as a broker and/or lender
of residential mortgage loans under the name "pricelinemortgage." Pursuant to an
intellectual property license from priceline.com, pricelinemortgage utilizes the
priceline.com Name Your Own Price(sm) business model. Pricelinemortgage is
controlled by First Alliance Bank, a federally chartered savings association
supervised by the Office of Thrift Supervision and a wholly owned subsidiary of
Alliance Partners. Pricelinemortgage has access to the management resources and
expertise of Alliance Partners and its affiliates, including Alliance Mortgage
Company, a residential mortgage lender since 1962. Alliance Partners provides
management services to pricelinemortgage, including the procurement of personnel
and office space and assistance in obtaining regulatory approvals.
Pricelinemortgage is operating in all 50 states.
5
<PAGE>
LendingTree relationship. Under priceline.com's agreement with
LendingTree, priceline.com is responsible for maintaining the home financing
service on the priceline.com Web site and for consumer marketing. LendingTree
serves as the back-end processing system, which presents offers received
through the priceline.com Web site to multiple mortgage lending institutions for
consideration. There are currently more than 30 lenders participating in the
home financing services through LendingTree.
To obtain a home mortgage, refinancing or home equity loan, consumers
access the priceline.com Web site and specify the amount of the loan, the term,
the interest rate and the points that they are willing to pay. Customers
complete a simplified loan application as part of the process of making an
offer. In connection with making an offer, customers are required to guarantee
with a major credit card the payment of a good-faith deposit of $200 that is
applied towards closing costs. Priceline.com notifies a customer within six
hours whether his or her offer has been accepted by a participating lender.
Participating lenders may submit counteroffers through Priceline.com for up to
one business day following the customer's offer.
Other Financial Services Products
Priceline.com intends to expand its products and services within the
financial services industry over the next two years to include unsecured
personal loans, automobile loans, credit cards and credit card balance
consolidations and automobile and life insurance policies. As with its other
products and services, priceline.com may expand its financial services products
by entering into licensing transactions or strategic relationships with leading
industry participants.
New Car Sales
Priceline.com introduced its new car sales service on a test basis in the
New York metropolitan area in July 1998. Since that time, priceline's new
automobile service has been expanded to include 26 states and the Company
intends to continue domestic expansion, subject to resolution of any regulatory
issues.
6
<PAGE>
Priceline.com's new car sales service accepts offers for every major brand
of automobile. To purchase a new car through the priceline.com service, the
customer identifies the exact vehicle desired to be purchased or leased,
including the make, model and specified options, the geographic area in which
the customer is willing to pick up the vehicle and the purchase price or lease
price the customer is willing to pay. All sales are made through
factory-authorized dealers.
Upon receiving an offer for a new car, priceline.com transmits the
customer's offer to factory authorized dealers within the specified geographic
radius, without disclosing the identity of the customer. Priceline.com directs
the sale to the first dealer that notifies the Company that it is willing to
accept the customer's offer. Priceline.com then notifies the customer to pick up
the vehicle from that dealer and the transaction is closed directly between
them.
Due to the numerous features and options on a new automobile, the range of
product substitutability that consumers will accept is lower in the case of new
cars than with airline tickets or hotels. As a result, a dealer that may not be
able to precisely fulfill a customer's offer is permitted to make a counteroffer
through priceline.com. The counteroffer may specify a different product package
or price. The customer is free to accept or reject such a counteroffer. The
customer also is permitted to submit an additional offer through priceline.com.
Priceline.com facilitates the exchange of customer offers and dealer acceptances
or counteroffers. Priceline.com does not negotiate on behalf of customers or
dealers and does not represent to its customers or dealers that it is acting as
an agent or broker on behalf of either party.
Once an offer for a new car is accepted by a dealer, the consumer
completes the transaction directly with the dealer and receives the same
standard manufacturer's warranty and other terms that are available with respect
to any new car purchased from that dealer. In most states, when a sale is
completed, priceline.com is paid a $50 fee from the customer and a $200 fee from
the selling dealer. In other states, the Company does not currently receive
compensation from the customer or dealer as a result of regulatory restrictions.
If the customer fails to consummate the transaction within a specified time
period after being notified that an offer is accepted, the customer is charged a
cancellation fee.
The priceline.com new car sales service is differentiated from other
Internet car sales services, which serve as lead generators for participating
car dealers. Under such services, multiple dealers may contact the customer in
response to the customer's inquiry to the Internet service. By contrast,
priceline.com's new car sales service does not reveal the identity of the
customer to the auto dealer until the dealer has accepted the customer's offer.
Furthermore, in contrast to other Internet car sales services, dealers are not
currently required to pay a participation fee to review offers from the
priceline.com service.
Long Distance Service. In the near term, the Company intends to launch a
Name Your Own Price(sm) service for international and domestic long distance
calls. The Company intends to allow consumers to name their own price for
phone-to-phone international and domestic long distance calls.
Licensees
WebHouse Club. The Company has licensed its patented Name Your Own
Price(sm) business model and affiliated trademarks and software systems to
Priceline WebHouse Club, Inc., which operates an Internet-based service for
groceries and other retail products. Walker Digital Corporation owns 34.1% of
the outstanding capital stock of WebHouse Club and the balance is owned by
certain institutional and individual investors. Priceline.com owns a warrant
that entitles it to purchase up to 137.5 million shares of common stock of
WebHouse Club, or 77.5% of the fully diluted equity of WebHouse Club, at an
exercise price of $3.00 per share, upon the satisfaction of certain conditions.
Unless and until that warrant is exercised, WebHouse Club and its financial
results will not be included in priceline.com's financial statements. In
connection with the WebHouse Club transaction, Walker Digital, granted to
priceline.com an exclusive (in the field of retail commerce other than vending
machines or restaurants) worldwide license to certain intellectual property,
including patent and patent applications, useful in WebHouse Club's business.
The Company exclusively sublicensed these intellectual property rights to
WebHouse Club and granted to WebHouse Club an exclusive worldwide license to its
buyer-driven commerce patent rights and other intellectual property for use in
the sale of groceries, health and beauty items and household supplies by
retailers, as well as a non-exclusive worldwide license to such intellectual
property for use in Internet-based,
- --------
7
<PAGE>
buyer-driven commerce for the sale, by retailers, of other products or services.
WebHouse Club pays priceline.com a sliding scale royalty descending from 1.0% of
net revenues. In addition to the patent and technology license, priceline.com
and WebHouse Club share certain information technology infrastructure, and
priceline.com provides WebHouse Club with marketing and information technology
services.
Perfect Yard Sale. Priceline.com also has licensed its patented Name Your
Own Price(sm) business model and affiliated trademarks to Priceline Perfect Yard
Sale, Inc., a subsidiary of Walker Digital which operates a consumer-to-consumer
service for the sale of quality used goods over the Internet. Walker Digital has
agreed to grant priceline.com an exclusive, worldwide license to certain
intellectual property including patents useful in Perfect Yard Sale's business.
Under the terms of a preliminary agreement between priceline.com and Perfect
Yard Sale, priceline.com granted to Perfect Yard Sale an exclusive royalty-free
license to certain intellectual property licensed by Walker Digital to
priceline.com, as well as to the priceline.com buyer-driven commerce patent
rights and related intellectual property, and the Priceline name and associated
trademarks for use in Perfect Yard Sale's business, and agreed to provide
related services on a royalty-free basis pending execution of definitive
documentation. Under the terms of the Perfect Yard Sale preliminary agreement,
priceline.com has the right to receive a warrant to purchase a majority of the
outstanding voting equity of Perfect Yard Sale on mutually agreed upon terms.
Until that warrant is exercised, Perfect Yard Sale and its financial results
will not be included in priceline.com's financial statements.
International Expansion
On February 29, 2000, priceline.com announced that it had entered into
definitive agreements, to introduce priceline.com's buyer-driven e-commerce
system to the residents of Australia and New Zealand. This service will be
offered by a newly formed entity, MyPrice PTY Ltd ACN. Upon consummation of the
transactions contemplated by the definitive agreements, which is subject to
receipt of required Australian regulatory approvals, the outstanding equity of
MyPrice will be owned by a consortium of Australian and international business
executives and investors. MyPrice initially will offer leisure airline tickets
and intends to expand into other areas, including hotels, rental cars, financial
services (including credit cards, loans and insurance), telecommunications and
automotive sales. Upon consummation of the transactions, priceline.com will
license its business model to MyPrice and will receive an annual licensing
payment from MyPrice. Priceline.com will purchase a convertible note allowing it
to take a 50% interest in MyPrice under certain conditions. Unless and until
that note is converted, MyPrice and its financial results will not be included
in priceline.com's financial statements. MyPrice expects to launch two web sites
later this year - MyPrice.com.au and MyPrice.com.nz (both powered by
priceline.com).
On January 26, 2000, the Company announced that it had entered into an
agreement in principle to form an alliance with Hutchison Whampoa Limited to
introduce priceline.com's buyer-driven e-commerce system to 2.6 billion
consumers in China (and Hong Kong), India, Taiwan, Indonesia, Singapore,
Thailand, Korea, Malaysia, the Philippines, Vietnam and certain other Asian
countries. Under the terms of the agreement in principle between priceline.com
and a subsidiary of Hutchison, upon execution of mutually acceptable definitive
agreements, a new company will be created to launch and manage the Name Your Own
Price(sm) service in Asia. The Company will license its business model to the
newly created company and provide technology, marketing and operations support.
Hutchison will contribute its strong brand and leverage its extensive customer
base and retail network in Asia. The new company will pay priceline.com an
annual licensing fee in respect of priceline.com's intellectual property and
technology marketing and operation services fees. In addition, Priceline.com
will purchase a convertible note allowing it to take up to a 50% interest in the
new company under certain conditions. Unless and until that note is converted,
the new company and its financial results will not be included in
priceline.com's financial statements. Hutchison will also purchase equity
securities in the new company and is also providing management services. The new
company is expected to launch its first service for leisure airline tickets
later this year completion of the transaction is subject to negotiation and
execution of definitive agreements and certain other conditions.
Priceline.com is continuing to pursue additional opportunities to expand
its service internationally.
Adaptive Marketing Programs
8
<PAGE>
Priceline.com has developed adaptive marketing programs to help bridge the
gap between consumer offers and seller prices, provide users of the
priceline.com service with other desired products, and generate additional
revenue for the Company. These programs also serve as an integral part of
priceline.com's strategy of building customer loyalty.
Priceline.com's adaptive marketing programs presently include two distinct
initiatives. The first, which it refers to as "adaptive promotions," allows
consumers to increase the amount of their offers, and thus their likelihood of
success, at no additional cost by participating in sponsor promotions during the
process of making a priceline.com offer. For example, a customer making an offer
to buy a round-trip airline ticket can immediately have the amount of his or her
offer increased (and thereby increase his or her likelihood of success) by
applying online for a credit card.
The second type of adaptive marketing program is referred to as "adaptive
cross selling" and utilizes cross selling of multiple products to increase the
number of successful transactions. For example, a customer whose offer for an
airline ticket was marginally below acceptable levels could be offered a second
related product such as a hotel room reservation or a rental car day at a
combined price that provided an acceptable margin for priceline.com.
During 1999, priceline.com added adaptive marketing partners and, as a
result, reduced its dependence on any one partner. Priceline.com intends to
continue to add adaptive marketing programs so that consumers have a variety of
programs from which to choose and priceline.com has a diversified source of
adaptive marketing revenues.
Walker Digital owns the intellectual property rights underlying the
technology associated with the Company's adaptive marketing programs. Walker
Digital has licensed to the Company the right to use these intellectual property
rights under a perpetual, exclusive, royalty-free license agreement. Walker
Digital has pending several United States patent applications directed to
different aspects of the processes and technology supporting the Company's
adaptive marketing programs.
Marketing and Brand Awareness
Priceline.com has established itself as a leading e-commerce brand through
an aggressive marketing and promotion campaign. During fiscal year 1999,
priceline.com incurred $79.6 million for sales and marketing expense. It intends
to continue to pursue an aggressive marketing strategy designed to promote brand
awareness and the concept that consumers can save money on a wide range of
products and services through priceline.com. Underlying priceline.com's
marketing strategy is the Company's belief that its target market is all
consumers, not just Internet-savvy consumers. Substantially all of such spending
has been for television, radio and newspaper advertising. Priceline.com's
campaign features the actor William Shatner as its spokesperson.
Priceline.com supplements its paid advertising and promotion with targeted
media coverage. Priceline.com has been featured in hundreds of news stories in
national publications such as The New York Times, The Wall Street Journal and
USA Today, reflecting the intuitive appeal of the priceline.com business model
and its strong word-of-mouth support. In addition, priceline.com engages in
grass roots marketing such as promotional events on college campuses and
co-promotions with popular media such as MTV.
Competition
Priceline.com competes with both online and traditional sellers of the
products and services offered on priceline.com. The market for selling products
and services over the Internet is new, rapidly evolving and intensely
competitive. Current and new competitors can launch new sites at a relatively
low cost. In addition, the traditional retail industry for the products and
services priceline.com offers is intensely competitive.
Priceline.com currently or potentially competes with a variety of
companies with respect to each product or service it offers. With respect to
travel products, these competitors include:
o Internet travel agents such as Microsoft's Expedia;
o traditional travel agencies;
9
<PAGE>
o consolidators and wholesalers of airline tickets and other
travel products, including online consolidators such as
Cheaptickets.com;
o individual or groups of airlines, hotels, rental car
companies, cruise operators and other travel service
providers; and
o operators of travel industry reservation databases such as
Worldspan and Sabre.
Priceline.com's current or potential competitors with respect to new
automobiles include traditional and online auto dealers, including newly
developing auto super stores such as AutoNation, Auto-by-Tel and Microsoft's
CarPoint.
With respect to financial service products, priceline.com's competitors
include:
o banks and other financial institutions;
o online and traditional mortgage and insurance brokers,
including mortgage.com, Quicken Mortgage, E-Loan and iOwn,
Inc.; and
o insurance companies.
Priceline.com's current or potential competitors with respect to rental
cars include, among others, rental car companies and traditional and online
travel agencies and travel service providers.
With respect to long distance services, priceline.com's potential
competitors include long distance providers, local exchange providers that may
be entering the long distance market and Internet Protocol telephone services.
Priceline.com potentially faces competition from a number of large
Internet companies and services that have expertise in developing online
commerce and in facilitating Internet traffic, including Amazon.com, America
Online, Microsoft and Yahoo!, who could choose to compete with priceline.com
either directly or indirectly through affiliations with other e-commerce or
offline companies. Other large companies with strong brand recognition,
technical expertise and experience in Internet commerce could also seek to
compete with priceline.com. The Company also believes that a number of airlines
intend to invest in and offer discount airfares and travel services through a
site or sites to be established and similar steps may be under consideration by
certain hotel companies and travel service providers. Competition from these and
other sources could have a material adverse effect on priceline.com's business,
results of operations and financial condition.
Priceline.com believes that the principal competitive factors in its
markets are brand recognition, price, Web site accessibility, ability to fulfill
offers, customer service, reliability of delivery, ease of use, and technical
expertise and capabilities. Many of priceline.com's current and potential
competitors, including Internet directories and search engines and large
traditional retailers, have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing,
technical and other resources than priceline.com. Some of these competitors may
be able to secure products and services on more favorable terms than
priceline.com. In addition, many of these competitors may be able to devote
significantly greater resources to: (1) marketing and promotional campaigns, (2)
attracting traffic to their Web sites, (3) attracting and retaining key
employees, (4) securing vendors and inventory and (5) Web site and systems
development.
Increased competition could result in reduced operating margins and loss
of market share and could damage priceline.com's brand. There can be no
assurance that priceline.com will be able to compete successfully against
current and future competitors or that competition will not have a material
adverse effect on priceline.com's business, results of operations and financial
condition.
10
<PAGE>
Operations and Technology
Priceline.com's business is supported by a state of the art systems
platform, which was designed with an emphasis on scalability, performance and
reliability. Priceline.com's core demand collection and offer processing systems
are proprietary to priceline.com. The software platform and architecture are
built on server-side Java, C++, and ISO standard SQL scripts integrated with an
Oracle relational database system. This internal platform was designed to
include open application protocol interfaces that can provide real-time
connectivity to vendors in the range of industries in which priceline.com
operates. These include large global inventory systems, such as airline and
hotel room reservation systems and financial service providers, as well as
individual inventory suppliers, such as auto dealers, individual hotels and hard
goods merchants. Priceline.com's Internet servers utilize Verisign digital
certificates to help it conduct secure communications and transactions.
Priceline.com out-sources most of its call center and customer service
functions, and uses a real-time interactive voice response system with transfer
capabilities to its call centers and customer service centers in Norwalk,
Connecticut, Boston, Massachusetts, Columbus, Ohio, and Salt Lake City, Utah.
Priceline.com's systems infrastructure, Web and database servers are
hosted at Exodus Communications, Inc. in Jersey City, New Jersey, which provides
communication lines from multiple providers including UUNet and AT&T, as well as
24-hour monitoring and engineering support. Exodus has its own generator and
multiple back-up systems in Jersey City. Priceline.com also maintains an
uninterruptible power supply system and generator and redundant servers at its
Stamford, Connecticut site to provide service capability if the Exodus site
fails.
Priceline.com also offers phone service through its toll-free number,
1-800-PRICELINE(sm), which allows consumers who do not have access to a computer
to phone in their orders. In addition, consumers who choose not to transmit
their credit card information via the Internet have the option of submitting
their credit card information through the phone service. Priceline.com also uses
its toll-free number to provide customer service. Because priceline.com is an
Internet business, it intends to phase out its telephone ordering and credit
card submission services over time and, in the future, will use its toll-free
number only to provide customer service.
Intellectual Property
Priceline.com currently holds four issued United States patents, Nos.
5,794,207, 5,797,127, 5,897,620 and 6,041,308, over 25 pending United States
patent applications and corresponding pending international patent applications.
Priceline.com files additional patent applications on new inventions, as
appropriate.
While priceline.com believes that its issued patents and pending patent
applications help to protect the priceline.com business, there can be no
assurance that
o any patent can be successfully defended against challenges by
third parties;
- --------
11
<PAGE>
o the pending patent applications will result in the issuance of
patents;
o competitors or potential competitors of priceline.com will not
devise new methods of competing with the Company that are not
covered by priceline.com's patents or patent applications;
o because of variations in the application of our business model
to each of our products and services, our patents will be
effective in preventing one or more third parties from
utilizing a copycat business model to offer the same product
or service in one or more categories;
o new prior art will not be discovered which may diminish the
value of or invalidate an issued patent; or
o a third party will not have or obtain one or more patents that
prevent priceline.com from practicing features of its business
or will require priceline.com to pay for a license to use
those features.
There has been recent discussion in the press regarding the examination
and issuance of so called "business-method" patents. As a result, the United
States Patent and Trademark Office has indicated that it intends to intensify
the review process applicable to such patent applications. The new procedures
are not expected to have a direct effect on patents already granted.
Priceline.com can not anticipate what affect, if any, the new process will have
on the Company's pending patent applications.
Priceline.com has been notified that a third-party patent applicant has
challenged its U.S. Patent No. 5,794,207 patent by attempting to provoke an
interference action in the United States Patent and Trademark Office. See "-
Legal Proceedings."
Walker Digital owns certain intellectual property rights associated with
the business of WebHouse Club that have been licensed exclusively to
priceline.com in the field of buyer-driven commerce (other than vending machines
or restaurants) which, in turn, sublicensed such rights to WebHouse Club for use
in its business. Walker Digital also owns certain intellectual property rights
associated with the business of Perfect Yard Sale. In a preliminary agreement,
Walker Digital has agreed to license such rights exclusively to priceline.com in
the field of buyer-driven commerce which, in turn, will be sublicensed to
Perfect Yard Sale for use in its business. See "- Products and Services -
Licensees."
Walker Digital owns the intellectual property rights underlying the
technology associated with priceline.com's adaptive marketing programs. Walker
Digital has licensed to priceline.com the right to use these intellectual
property rights. Walker Digital has several pending United States patent
applications directed to different aspects of the processes and technology
supporting adaptive marketing programs.
Priceline.com seeks to protect its copyrights, service marks, trademarks,
trade dress and trade secrets through a combination of laws and contractual
restrictions, such as confidentiality agreements. For example, priceline.com
attempts to register its trademarks and service marks in the United States and
internationally. However, effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which priceline.com's
services are made available online. See "- Additional Factors That May Affect
Future Results -Our Success Depends on Our Ability to Protect Our Intellectual
Property." A third party has sued priceline.com for, among other things,
misappropriation of trade secrets. See "Legal Proceedings."
Priceline.com currently owns the Internet domain name "priceline.com" in
the United States. Domain names are generally regulated by Internet regulatory
bodies. The relationship between trademark and similar laws and domain name
registration is evolving, including passage during 1999 of the
Anti-Cybersquatting Consumer Protection Act, which significantly enhances the
ability to prevent incorporation by third parties of trademarks into domain
names. Priceline.com actively pursues infringers who improperly incorporate its
trademarks into domain names, as appropriate, to maintain and enhance the
strength of its trademarks. See "- Additional Factors That May Affect Future
Results - Our Success Depends On Our Ability To Protect Our Intellectual
Property."
12
<PAGE>
Governmental Regulation
The products and services provided by the Company are subject to various
federal, state and local regulations. For example, the Company's travel service
is subject to laws governing the offer and/or sale of travel services as well as
laws requiring the Company to register as a "seller of travel." With respect to
the Company's new car sales service, the Company is subject to regulations
governing the registration and conduct of automobile dealers and brokers. In
connection with the Company's plans to expand its new car sales service
domestically, the Company may be required to register as an automobile
dealer/broker in each applicable jurisdiction. However, the Company may be
unable to expand to those jurisdictions that require dealer/brokers to maintain
a dealer lot zoned for automobiles, obtain a franchise agreement with automobile
manufacturers, or other related requirements. The Company will consider
variations to its business model to address regulatory issues or offer its
services without compensation pending resolution of any regulatory issues.
The Company is also subject to laws governing the licensing and conduct of
persons providing mortgage brokerage services. Such laws typically require
certain consumer protection disclosures and loan solicitation procedures. For
example, the Real Estate Settlement Procedures Act prohibits the payment and
receipt of mortgage loan referral fees, and permit persons to be compensated
only for the fair market value of non-referral services. Accordingly, the
Company has structured its home financing services such that it provides
non-referral services such as Web site development and advertising to a licensed
mortgage broker who, in turn, provides the back-end processing of the loan
referrals. Although the mortgage broker compensates the Company only for the
fair market value of its non-referral services, it is possible that governmental
authorities could scrutinize the compensation agreement under the Real Estate
Settlement Procedures Act or enact new legislation that might limit or prohibit
the Company's present arrangement.
All of the Company's services are subject to federal and state consumer
protection laws and regulations prohibiting unfair and deceptive trade
practices. The Company is also subject to regulations applicable to businesses
conducting online commerce. Today there are relatively few laws specifically
directed toward online services. However, due to the increasing popularity and
use of the Internet and online services, it is possible that laws and
regulations will be adopted with respect to the Internet or online services.
These laws and regulations could cover issues such as online contracts, user
privacy, freedom of expression, pricing, fraud, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain, but any
such new legislation could have a material adverse effect on the Company's
business, operating results and financial condition. In addition, some states
may require the Company to qualify in that state to do business as a foreign
corporation because the Company's service is available in that state over the
Internet. Although the Company is qualified to do business in a number of
states, failure to meet the qualifications of certain states could subject the
Company to taxes and penalties.
As the Company expands its international presence, it will also be subject
to various foreign regulations and governing bodies that might limit the
Company's products and services. Likewise, the Company may be subject to
unexpected changes in regulatory requirements and various tariffs and trade
barriers in connection with online commerce. While the Company's licensees will
generally be responsible for complying with applicable regulations, any failure
on their part to comply may have an adverse effect on the Company.
Employees
As of March 10, 2000, the Company employed approximately 373 full-time
employees. Priceline.com also employs independent contractors to support its
customer service and system support functions.
- --------
13
<PAGE>
Priceline.com has never had a work stoppage and its employees are not
represented by any collective bargaining unit. It considers its relations with
its employees to be good. Priceline.com's future success will depend, in part,
on its ability to continue to attract, integrate, retain and motivate highly
qualified technical and managerial personnel, for whom competition is intense.
Additional Factors That May Affect Future Results
Our Limited Operating History Makes Evaluating Our Business Difficult
Priceline.com was formed in July 1997 and began operations on April 6,
1998. As a result, we have only a limited operating history on which you can
base an evaluation of our business and prospects. Our prospects must be
considered in the light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets, such as online
commerce, using new and unproven business models. To address these risks and
uncertainties, we must, among other things:
o attract leading sellers and consumers to the priceline.com
service;
o maintain and enhance our brand, and expand our product and
service offerings;
o attract, integrate, retain and motivate qualified personnel;
and
o adapt to meet changes in our markets and competitive
developments.
We may not be successful in accomplishing these objectives.
We Are Not Profitable and Expect to Continue to Incur Losses
As of December 31, 1999, we had an accumulated deficit of $1.18 billion,
of which $1.07 billion related to certain non-cash charges arising from equity
issuances to a number of participating airlines, our chief executive officer and
other parties, which was partially offset by $188.8 million of income
representing the amount of estimated fair value of warrants received by us in
connection with our relationship with our licensee WebHouse Club. We have not
achieved profitability and expect to continue to incur losses. The principal
causes of our losses are likely to continue to be significant brand development
costs, marketing, personnel and promotion costs and technology and systems
development costs.
Almost all of our revenues to date have been derived from airline ticket
sales, hotel room reservations and related adaptive marketing programs. As our
business model evolves, we have introduced and expect to continue to introduce a
number of new products and services. With respect to both current and future
product and service offerings, we expect to increase significantly our operating
expenses in order to increase our customer base, enhance our brand image and
support our growing infrastructure. For us to make a profit, our revenues and
gross profit margins will need to increase sufficiently to cover these and other
future costs. Otherwise, we may never achieve profitability.
We Are Dependent on Adaptive Marketing Programs
Our adaptive marketing programs permit consumers to increase the amount of
their offers at no additional cost by participating in sponsor promotions during
the process of making an offer through the priceline.com service. The fees paid
to us by sponsors offering the promotions generate significant revenues. Since
these fees historically have involved no direct costs, they have had a
disproportionately positive impact on our gross profit margins. A significant
reduction in consumer acceptance of our adaptive marketing programs,
significantly increased costs that we may incur in connection with adaptive
marketing programs, reductions in fees paid to us
14
<PAGE>
in connection with such programs or any material decline in such programs could
result in a material reduction in our revenues and our gross profit. We may not
be able to replace such revenues through other programs or through product
sales.
We cannot guarantee that any of our adaptive marketing programs will
continue beyond their initial terms or, even if continued, that they will be
successful, or if additional adaptive marketing programs will be initiated. If
such programs are not successful, our gross profit and results of operations
could be adversely affected.
Potential Fluctuations in Our Financial Results Makes Financial
Forecasting Difficult
We expect our revenues and operating results to vary significantly from
quarter to quarter. As a result, quarter to quarter comparisons of our revenues
and operating results may not be meaningful. In addition, due to our limited
operating history and our new and relatively unproven business model, we cannot
predict our future revenues or results of operations accurately. It is likely
that in one or more future quarters our operating results will fall below the
expectations of securities analysts and investors. If this happens, the trading
price of our common stock would almost certainly be materially and adversely
affected.
Our business has no backlog and almost all of our revenues for a
particular quarter are derived from transactions that are both initiated and
completed during that quarter. Our current and future expense levels are based
largely on our investment plans and estimates of future revenues and are, to a
large extent, fixed. Accordingly, we may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall, and any
significant shortfall in revenues relative to our planned expenditures could
have an immediate adverse effect on our business and results of operations.
Our limited operating history and rapid growth makes it difficult for us
to assess the impact of seasonal factors on our business. Nevertheless, we
expect our business to be subject to seasonal fluctuations, reflecting a
combination of seasonality trends for the products and services offered by the
priceline.com service and seasonality patterns affecting Internet use. For
example, with regard to our travel products, demand for leisure travel may
increase over summer vacations and holiday periods, while Internet usage may
decline during the summer months. Our results also may be affected by seasonal
fluctuations in the inventory made available to the priceline.com service by
participating sellers. Airlines, for example, typically enjoy high demand for
tickets through traditional distribution channels for travel during Thanksgiving
and the year-end holiday period. As a result, during those periods, less excess
airline ticket inventory would be available to priceline.com. Our business also
may be subject to cyclical variations for the products and services offered; for
example, leisure travel and home mortgage financing tend to decrease in economic
downturns.
We Are Dependent On the Airline Industry and Certain Airlines
Our near term, and possibly long term, prospects are significantly
dependent upon our sale of leisure airline tickets. Sales of leisure airline
tickets represented a substantial majority of total revenue for the year ended
December 31, 1999. Leisure travel, including the sale of leisure airline
tickets, is dependent on personal discretionary spending levels. As a result,
sales of leisure airline tickets and other leisure travel products tend to
decline during general economic downturns and recessions. Unforeseen events,
such as political instability, regional hostilities, increases in fuel prices,
travel-related accidents and unusual weather patterns also may adversely affect
the leisure travel industry. As a result, our business also is likely to be
affected by those events. Significantly reducing our dependence on the airline
and travel industries is likely to take a long time and there can be no
guarantee that we will succeed in reducing that dependence.
Sales of airline tickets from priceline.com's six largest airline
suppliers accounted for approximately 93% of airline ticket revenue for
the year ended December 31, 1999. As a result, currently we are substantially
- --------
15
<PAGE>
dependent upon the continued participation of these airlines in the
priceline.com service in order to maintain and continue to grow our total
airline ticket revenues. We currently have 30 participating airlines. However,
our airline participation agreements:
o do not require the airlines to make tickets available for any
particular routes;
o do not require the airlines to provide any specific quantity
of airline tickets;
o do not require the airlines to provide particular prices or
levels of discount;
o do not require the airlines to deal exclusively with us in the
public sale of discounted airline tickets; and
o generally, can be terminated upon relatively short notice.
These agreements also outline the terms and conditions under which ticket
inventory provided by the airlines may be sold.
Our agreement with Delta contains certain restrictions relating to the
terms of participation in our service by other carriers and the circumstances
under which we may transfer or license our intellectual property to other travel
providers. It is possible that, as the priceline.com service grows and becomes a
significant channel of distribution for airline tickets and as other carriers
seek participation in the priceline.com service, these competitively restrictive
provisions of the Delta agreement could raise issues under federal and state
antitrust laws. If that happened, either a federal or state government agency or
private party could initiate litigation seeking to enjoin us and Delta from
enforcing these provisions or seeking to collect treble damages. The outcome of
any such litigation would be uncertain. If, however, such a lawsuit resulted in
an injunction or subjected us to damages, our business and financial condition
could suffer.
Due to our dependence on the airline industry, we could be severely
affected by changes in that industry, and, in many cases, we will have no
control over such changes or their timing. For example, if the Federal Aviation
Administration grounded a popular aircraft model, excess seat capacity could be
dramatically reduced and, as a result, our source of inventory could be
significantly curtailed. In addition, given the concentration of the airline
industry, particularly in the domestic market, major airlines that are not
participating in the priceline.com service could exert pressure on other
airlines not to supply us with tickets. Alternatively, the airlines could
attempt to establish their own buyer-driven commerce service or other similar
service to compete with us. We also could be materially adversely affected by
the bankruptcy, insolvency or other material adverse change in the business or
financial condition of one or more of our airline participants.
Our Business Model is Novel and Relatively Unproven
The priceline.com service is based on a novel and relatively unproven
business model. We will be successful only if consumers and sellers actively use
the priceline.com service. Prior to the launch of the priceline.com service,
consumers and sellers had never bought and sold products and services through a
demand
16
<PAGE>
collection system over the Internet. Therefore, it is impossible to predict the
degree to which consumers and sellers will use the priceline.com service.
Many of the factors influencing consumers' and sellers' willingness to use
the priceline.com service are outside our control. For example, a labor dispute
that disrupts airline service or an airline accident could make consumers
unwilling to use a service like priceline.com that does not permit the customer
to designate the airline on which the customer purchases a ticket. In addition,
a breach of security on the Internet, even if we were not involved, could make
consumers unwilling to guarantee orders online with a credit card. Consequently,
it is possible that consumers and sellers will never utilize the priceline.com
service to the degree necessary for us to achieve profitability.
We Need to Sell New Products and Services
We are unlikely to make significant profits unless we continue to make new
or complementary products and services and a broader range of existing products
and services available through the priceline.com service or through services
provided by our licensees. We will incur substantial expenses and use
significant resources in trying to continue to expand the type and range of the
products and services that we offer. However, we may not be able to attract
sellers, other participants and licensees to provide such products and services
or consumers to purchase such products and services through the priceline.com
service. In addition, if we or our licensees launch new products or services
that are not favorably received by consumers, our reputation and the value of
the priceline.com brand could be damaged.
The great majority of our experience to date is in the travel industry.
The travel industry is characterized by "expiring" inventories. For example, if
not used by a specific date, an airline ticket, hotel room reservation or rental
car reservation has no value. The expiring nature of the inventory creates
incentives for airlines, hotels and rental car companies to sell seats, hotel
room reservations or rental car reservations at reduced rates. Because we have
only limited experience in selling "non- expiring" inventories on the
priceline.com service, such as new cars or financial services, we cannot predict
whether the priceline.com business model can be successfully applied to such
products and services.
New Businesses We Are Evaluating May Not Be Successful
We intend to expand our current Name Your Own Price(sm) business model
into other areas of e-commerce and to other regions, directly and through
licensees. We recently licensed our name and business model to WebHouse Club, a
privately held independent start-up company affiliated with Walker Digital for
use in a business that enables consumers to use the Internet to identify the
purchase terms for groceries and other retail merchandise which they would
subsequently pick up from participating retailers. We also recently entered into
a similar preliminary licensing arrangement with Perfect Yard Sale, another
privately held independent start-up company affiliated with Walker Digital for
use in a consumer-to-consumer business in which buyers would make conditional
purchase offers to acquire goods from other consumers. In addition, we have
licensed our name and business model to Alliance Partners in connection with our
home financing services. We also have entered into, and intend to continue to
enter into, similar licensing arrangements with third parties in connection with
international expansion of the priceline.com service. These new businesses
typically incur start-up costs and operating losses and, may not be successful.
If these new businesses are not favorably received by consumers, the association
of our brand name and business model with these new entities may adversely
affect our business and reputation and may dilute the value of our brand name.
In addition, to the extent that we need to service these licensees, our core
business may suffer. Moreover, expansion of our core business model will expose
us to additional risks not currently applicable to our existing operations. The
additional risks associated with the expansion of our core business could have a
material adverse effect on our business generally. In addition, as we expand our
business model to other areas of e-commerce, these new businesses will face
competition from established providers in those areas.
We May Be Unable to Effectively Manage Our Rapid Growth
17
<PAGE>
We have rapidly and significantly expanded our operations and anticipate
that further expansion will be required to realize our growth strategy. Our
rapid growth has placed significant demands on our management and other
resources which, given our expected future growth rate, is likely to continue.
To manage our future growth, we will need to attract, hire and retain highly
skilled and motivated officers and employees and improve existing systems and/or
implement new systems for: (1) transaction processing; (2) operational and
financial management; and (3) training, integrating and managing our growing
employee base.
If We Lose Our Key Personnel or Cannot Recruit Additional Personnel, Our
Business May Suffer
Competition for personnel with experience in Internet commerce is intense.
If we do not succeed in attracting new employees or retaining and motivating our
current and future employees, our business could suffer significantly.
Since our formation in July 1997, we have expanded from 10 to 373
full-time employees as of March 10, 2000. We also have employed many key
personnel since our launch in April 1998, including our Chairman and Chief
Executive Officer, our President and Chief Operating Officer, our Senior
Executive Vice President Stategy, Planning and Administration and Chief
Financial Officer, our Executive Vice President and General Counsel, our
Executive Vice President and Chief Marketing Officer, and a number of key
managerial, marketing, planning, financial, technical and operations personnel.
We expect to continue to add additional key personnel in the near future. We do
not have "key person" life insurance policies on any of our key personnel.
We believe our performance is substantially dependent on:
o our ability to retain and motivate our senior management and
other key employees; and
o our ability to identify, attract, hire, train, retain and
motivate other highly skilled technical, managerial, marketing
and customer service personnel.
We Rely on Third-Party Systems
We rely on certain third-party computer systems or third-party service
providers, including the computerized central reservation systems of the airline
and hotel industries to satisfy demand for airline tickets and hotel room
reservations. Any interruption in these third-party services, or a deterioration
in their performance, could be disruptive to our business. Our agreements with
third-party service providers are terminable upon short notice. In the event our
arrangement with any of such third parties is terminated, we may not be able to
find an alternative source of systems support on a timely basis or on
commercially reasonable terms.
Intense Competition Could Reduce Our Market Share and Harm Our Financial
Performance
The markets for the products and services offered on the priceline.com
service are intensely competitive. We compete with both traditional distribution
channels and online services. Increased competition could diminish our ability
to become profitable or result in loss of market share and damage the
priceline.com brand. See "- Competition."
Our Success Depends on Our Ability to Protect Our Intellectual Property
18
<PAGE>
We have developed what we believe is a comprehensive program for securing
and protecting rights in patentable inventions, trademarks, trade secrets and
copyrightable materials. If we are not successful in protecting our intellectual
property, there could be a material adverse effect on our business. See "-
Intellectual Property" and "Legal Proceedings."
Legal Proceedings
We have received a copy of a Petition for Interference that requests the
United States Patent and Trademark Office to declare an "interference" between a
patent filed by a third party describing an electronic market for used and
collectible goods and our U.S. Patent No. 5,794,207. We also are a party to
other legal proceedings described in Item 3 - "Legal Proceedings." An adverse
outcome in any of the actions described in Item 3 could have a material adverse
effect on our business. See "Legal Proceedings."
The Success of Our Business Will Depend on Continued Growth of Internet
Commerce
The market for the purchase of products and services over the Internet is
a new and emerging market. As an Internet commerce business, our future revenues
and profits are substantially dependent upon the widespread acceptance and use
of the Internet and other online services as a medium for commerce by consumers
and sellers. If widespread acceptance and growth of Internet use does not occur,
our business and financial performance will suffer. Rapid growth in the use of
and interest in the Internet and other online services is a recent phenomenon.
This growth may not continue. A sufficiently broad base of consumers may not
adopt, or continue to use, the Internet as a medium of commerce. Demand for and
market acceptance of recently introduced products and services over the Internet
are subject to a high level of uncertainty, and there are few proven products
and services. For us to grow, consumers who historically have purchased through
traditional means of commerce, such as a travel agent for airline tickets or a
branch of a bank for home financings, will need to elect to purchase online
products and services. Sellers of products and services will need to adopt or
expand use of the Internet as a channel of distribution.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security, and the
timely development of complementary products, such as high-speed modems, for
providing reliable Internet access and services.
The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure and could face such outages
and delays in the future. Outages and delays are likely to affect the level of
Internet usage generally, as well as the processing of transactions on the
priceline.com Web site. It is unlikely that the level of orders lost in those
circumstances could be made up by increased phone orders. In addition, the
Internet could lose its viability due to delays in the development or adoption
of new standards to handle increased levels of activity or due to increased
government regulation. The adoption of new standards or government regulation
may, however, require us to incur substantial compliance costs.
Capacity Constraints and System Failures Could Harm Our Business
If our systems cannot be expanded to cope with increased demand or fail to
perform, we could experience:
o unanticipated disruptions in service;
o slower response times;
o decreased customer service and customer satisfaction; or
o delays in the introduction of new products and services;
any of which could impair our reputation, damage the priceline.com brand and
materially and adversely affect our revenues. Publicity about a service
disruption also could cause a material decline in our stock price.
We use internally developed systems to operate the priceline.com service,
including transaction processing and order management systems that were designed
to be scalable. However, if the number of users of the priceline.com service
increases substantially, we will need to significantly expand and upgrade our
technology, transaction processing systems and network infrastructure. We do not
know whether we will be able to accurately project the rate or timing of any
such increases, or expand and upgrade our systems and infrastructure to
accommodate such increases in a timely manner.
Our ability to facilitate transactions successfully and provide high
quality customer service also depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. The priceline.com
service has experienced periodic system interruptions, which we believe will
continue to occur from time to time. Our systems and operations also are
vulnerable to damage or interruption from human error, natural disasters, power
loss, telecommunication failures, break-ins, sabotage, computer viruses,
intentional acts of vandalism and similar events. While we currently maintain
redundant servers at our Stamford, Connecticut premises to provide limited
service during system disruptions at our production, we do not have fully
redundant systems, a formal disaster recovery plan or alternative providers of
hosting services. In addition, we do not carry sufficient business interruption
insurance to compensate for losses that could occur. Any system failure that
causes an interruption in service or decreases the responsiveness of the
priceline.com service could impair our reputation, damage our brand name and
materially adversely affect our revenues.
We May Not Be Able to Keep Up with Rapid Technological and Other Changes
The markets in which we compete are characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
announcements, introductions and enhancements and changing consumer demands. We
may not be able to keep up with these rapid changes. In addition, these market
characteristics are heightened by the emerging nature of the Internet and the
apparent need of companies from many industries to offer Internet-based products
and services. As a result, our future success will depend on our ability to
adapt to rapidly changing technologies, to adapt our services to evolving
industry standards and to continually improve the performance, features and
reliability of our service in response to competitive service and product
offerings and the evolving demands of the marketplace. In addition, the
widespread adoption of new Internet,
19
<PAGE>
networking or telecommunications technologies or other technological changes
could require us to incur substantial expenditures to modify or adapt our
services or infrastructure.
Online Security Breaches Could Harm Our Business
The secure transmission of confidential information over the Internet is
essential in maintaining consumer and supplier confidence in the priceline.com
service. Substantial or ongoing security breaches on our system or other
Internet-based systems could significantly harm our business. We currently
require buyers to guarantee their offers with their credit card, either online
or through our toll-free telephone service. We rely on licensed encryption and
authentication technology to effect secure transmission of confidential
information, including credit card numbers. It is possible that advances in
computer capabilities, new discoveries or other developments could result in a
compromise or breach of the technology used by us to protect customer
transaction data.
We incur substantial expense to protect against and remedy security
breaches and their consequences. However, we cannot guarantee that our security
measures will prevent security breaches. A party that is able to circumvent our
security systems could steal proprietary information or cause significant
interruptions in our operations. For instance, several major Web sites recently
experienced significant interruptions as a result of improper direction of
excess traffic to those sites. Security breaches also could damage our
reputation and expose us to a risk of loss or litigation and possible liability.
Our insurance policies carry low coverage limits, which may not be adequate to
reimburse us for losses caused by security breaches.
We also face risks associated with security breaches affecting third
parties conducting business over the Internet. Consumers generally are concerned
with security and privacy on the Internet and any publicized security problems
could inhibit the growth of the Internet and, therefore, the priceline.com
service as a means of conducting commercial transactions.
Our Stock Price is Highly Volatile
The market price of our common stock is highly volatile and is likely to
continue to be subject to wide fluctuations in response to factors such as the
following, some of which are beyond our control:
o quarterly variations in our operating results;
o operating results that vary from the expectations of securities
analysis and investors;
o changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
o changes in market valuations of other Internet or online service
companies;
o announcements of technological innovations or new services by us or
our competitors;
o announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o loss of a major seller participant, such as an airline or hotel
chain;
o changes in the status of our intellectual property rights;
o lack of success in the expansion of our business model horizontally
or geographically;
o announcements by third parties of significant claims or proceedings
against us or adverse developments in pending proceedings;
20
<PAGE>
o additions or departures of key personnel; and
o stock market price and volume fluctuations.
Sales of a substantial number of shares of our common stock could
adversely affect the market price of our common stock by introducing a large
number of sellers to the market. Given the volatility that exists for our
shares, such sales could cause the market price of our common stock to decline.
In addition, the trading prices of Internet stocks in general, including
ours, have experienced extreme price and volume fluctuations. These fluctuations
often have been unrelated or disproportionate to the operating performance of
these companies. The valuations of many Internet stocks, including ours, are
extremely high based on conventional valuation standards, such as price to
earnings and price to sales ratios. The trading price of our common stock has
increased significantly from the initial public offering price. These trading
prices and valuations may not be sustained. Any negative change in the public's
perception of the prospects of Internet or e-commerce companies could depress
our stock price regardless of our results. Other broad market and industry
factors may decrease the market price of our common stock, regardless of our
operating performance. Market fluctuations, as well as general political and
economic conditions, such as a recession or interest rate or currency rate
fluctuations, also may decrease the market price of our common stock.
In the past, securities class action litigation often has been brought
against a company following periods of volatility in the market price of their
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.
Our Business is Subject to Tax Uncertainties
Potential Federal Air Transportation Tax on Airline Ticket Sales. A
Federal transportation tax is imposed upon the sale of airline tickets. The tax
is based on a percentage of the cost of transportation, which was 9% for periods
prior to October 1, 1998, 8% for the period October 1, 1998 through September
30, 1999 and 7.5% thereafter. The Company has historically interpreted the tax
regulations as requiring that the tax be computed based on the amount charged by
the airline to the Company for the airline ticket and the Company's
participating airlines have collected and remitted the tax based on this amount.
The Company applied for a ruling from the Internal Revenue Service confirming
this interpretation. In December 1999, the Internal Revenue Service indicated to
the Company that it was unlikely that a favorable ruling would be issued. The
Company subsequently withdrew its ruling request because of the uncertainty of
the outcome. Because the Company anticipated the possibility of an adverse
ruling on this issue, the Company accrued approximately $1.9 million relating to
the balance of the tax liability for tickets sold prior to that date. The
Company believes this accrual to be adequate, but there can be no assurance as
to the final outcome because a formal ruling has not been issued by the Internal
Revenue Service.
State Taxes. We file tax returns in such states as required by law based
on principles applicable to traditional businesses. In addition, we do not
collect sales or other similar taxes in respect of transactions conducted
through the priceline.com service (other than the federal air transportation tax
referred to above). However, one or more states could seek to impose additional
income tax obligations or sales tax collection obligations on out-of-state
companies, such as ours, which engage in or facilitate online commerce. A number
of proposals have been made at state and local levels that could impose such
taxes on the sale of products and services through the Internet or the income
derived from such sales. Such proposals, if adopted, could substantially impair
the growth of e-commerce and adversely affect our opportunity to become
profitable.
Legislation limiting the ability of the states to impose taxes on
Internet-based transactions has been enacted by the United States Congress.
However, this legislation, known as the Internet Tax Freedom Act, imposes only a
three-year moratorium, which commenced October 1, 1998 and ends on October 21,
2001, on state and local taxes on (1) electronic commerce where such taxes are
discriminatory and (2) Internet access unless such taxes were generally imposed
and actually enforced prior to October 1, 1998. It is possible that the tax
moratorium could fail to be renewed prior to October 21, 2001. Failure to renew
this legislation would allow various states to impose
21
<PAGE>
taxes on Internet-based commerce. The imposition of such taxes could adversely
affect our ability to become profitable.
Regulatory and Legal Uncertainties Could Harm Our Business
The products and services we offer through the priceline.com service are
regulated by federal and state governments. Our ability to provide such products
and services is and will continue to be affected by such regulations. The
implementation of unfavorable regulations or unfavorable interpretations of
existing regulations by courts or regulatory bodies, could require us to incur
significant compliance costs, cause the development of the affected markets to
become impractical and otherwise adversely affect our financial performance. See
"-Government Regulation."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Sections of this Annual Report on Form 10-K, including the "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
the descriptions of the Company's business, contain forward- looking statements.
In some cases, readers can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue," or the negative
of such terms or other comparable terminology. These statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the factors described in "- Additional
Factors That May Affect Future Results." We undertake no duty to update any of
the forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 2. Properties
Priceline.com's executive, administrative and operating offices are
located in approximately 140,510 square feet of leased office space located in
Norwalk, Connecticut and 10,000 square feet of leased office space located in
Stamford, Connecticut. Priceline.com is subleasing the Stamford office space
from Walker Digital on a month-to-month basis. Priceline.com also has guaranteed
Walker Digital's obligations under a lease of office space in New York City that
is used by both companies. Priceline.com anticipates that it will require
additional space within the next 12 months to accommodate its anticipated
growth.
The Company did not own any real estate as of March 31, 2000.
Item 3. Legal Proceedings
Legal Proceedings
On January 6, 1999, priceline.com received notice that a third-party
patent applicant and patent attorney, Thomas G. Woolston, purportedly had filed
in December 1998 with the United States Patent and Trademark Office a request to
declare an interference between a patent application filed by Woolston and
priceline.com's U.S. Patent No. 5,794,207. Priceline.com currently is awaiting
information from the Patent Office regarding whether it will initiate an
interference proceeding.
On January 19, 1999, Marketel International Inc., a California
corporation, filed a lawsuit against priceline.com, among others. On February
22, 1999, Marketel filed an amended and supplemental complaint. The amended
complaint filed by Marketel alleges causes of action for, among other things,
misappropriation of trade secrets, breach of contract, conversion, breach of
confidential relationship, copyright infringement, fraud, unfair competition and
false advertising, and seeks injunctive relief and damages in an unspecified
amount. In its amended complaint, Marketel alleges, among other things, that the
defendants conspired to misappropriate Marketel's business model, which
allegedly was provided in confidence approximately ten years ago. The amended
complaint also alleges that four former Marketel employees are the actual sole
inventors or co-inventors of U.S. Patent No. 5,794,207 which was issued on
August 11, 1998 and has been assigned to priceline.com. Marketel asks that the
patent's inventorship be corrected accordingly.
- --------
22
<PAGE>
On February 5 and February 10, 1999, the Company filed its answer and
amended answer, respectively, to the amended complaint, in which it denied the
material allegations of liability in the complaint. The cause of action is
currently pending against priceline.com and Priceline Travel, Inc. under the
caption Marketel International, Inc. v. Priceline.com, et al., No. C-99-1061
(N.D. Cal. 1999). Priceline.com and all other defendants strongly dispute the
material legal and factual allegations contained in Marketel's amended complaint
and believe that the amended complaint is without merit. Priceline.com intends
to defend vigorously against the action. Pursuant to the indemnification
obligations contained in the Purchase and Intercompany Services Agreement with
Walker Digital, Walker Digital has agreed to indemnify, defend and hold harmless
priceline.com for damages, liabilities and legal expenses incurred in connection
with the Marketel litigation.
On October 13, 1999, priceline.com filed a complaint in the United States
District Court for the District of Connecticut under the caption Priceline.com
Incorporated v. Microsoft Corporation and Expedia, Inc., No. 399CV1991 (AWT)
alleging that Microsoft Corporation and Expedia, Inc., a subsidiary of Microsoft
Corporation, infringe priceline.com's U.S. Patent No. 5,794,207 by operating the
defendants' "Hotel Price Matcher" service, and that the defendants' conduct
toward priceline.com violated the Connecticut Unfair Trade Practices Act. On
December 20, 1999, defendants moved the Court to dismiss the complaint for
failure to name a necessary party, Marketel. On March 21, 2000, the presiding
judge stated that he intends to deny defendants' motion to dismiss, and that a
decision will be forthcoming. On December 23, 1999, the Court granted
priceline.com's motion to supplement the complaint to expressly include
defendants' "Flight Price Matcher" service. In the lawsuit, priceline.com is
seeking declaratory relief, permanent injunctive relief and actual and punitive
damages.
From time to time the Company has been and expects to continue to be
subject to legal proceedings and claims in the ordinary course of business,
including claims of alleged infringement of third-party intellectual property
rights by the Company. Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
The Company is unable to predict the outcome of the legal proceedings
referred to above.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of stockholders of the Company during
the fourth quarter of the year ended December 31, 1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Price Range of Common Stock
Priceline.com's common stock has been quoted on the Nasdaq National Market
under the symbol "PCLN" since priceline.com's initial public offering on March
29, 1999. Prior to such time, there was no public market for the common stock of
priceline.com. The following table sets forth, for the periods indicated, the
high and low closing sales prices per share of the common stock as reported on
the Nasdaq National Market:
1999 High Low
First Quarter (from March 29, 1999) .................. $ 82.875 $ 69.00
Second Quarter ....................................... 162.375 59.875
Third Quarter ........................................ 112.00 55.625
23
<PAGE>
Fourth Quarter ....................................... 76.875 46.750
Dividend Policy
Priceline.com has not declared or paid any cash dividends on its capital
stock since its inception and does not expect to pay any cash dividends for the
foreseeable future. Priceline.com currently intends to retain future earnings,
if any, to finance the expansion of its business.
Holders
As of March 17, 2000, there were approximately 476 stockholders of record
of priceline.com's common stock, although the Company believes that there is a
significantly larger number of beneficial owners.
Use of Proceeds of Initial Public Offering
On April 1, 1999, priceline.com completed an initial public offering in
which it sold 10,000,000 shares of its common stock. The managing underwriters
in the offering were Morgan Stanley & Co., Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, BancBoston Stephens Inc. and Donaldson Lufkin &
Jenrette Securities Corporation. The shares of common stock sold in the offering
were registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-1 (the "Registration Statement") (Reg. No. 333-69657) that
was declared effective by the Securities and Exchange Commission on March 29,
1999. All 10,000,000 shares of common stock registered under the Registration
Statement were sold at a price of $16.00 per share for gross proceeds of $160.0
million. Offering proceeds to priceline.com, net of approximately $11.2 million
in aggregate underwriter discounts and commissions and $4.5 million in other
related expenses, were approximately $144.3 million.
Net offering proceeds received on April 1, 1999 from the initial public
offering were used for general corporate purposes, including working capital to
fund anticipated operating losses, expenses associated with its advertising
campaigns, brand-name promotions and other marketing efforts and capital
expenditures. Priceline.com also may use a portion of the net proceeds,
currently intended for general corporate purposes, to acquire or invest in
businesses, technologies, products or services, although no specific
acquisitions are planned and no portion of the net proceeds has been allocated
for any acquisition. None of the net offering proceeds of priceline.com have
been paid directly or indirectly to any director, officer, general partner of
priceline.com or their associates, persons owning 10% or more of any class of
priceline.com's equity securities, or an affiliate of priceline.com other than
compensation to and other related arrangements with officers of priceline.com in
the ordinary course of business and payments that were made in the ordinary
course of business to Walker Digital Corporation pursuant to a reciprocal
services arrangement.
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the financial
statements of the Company, and should be read in connection with those
statements, which are included herein. All share and per share amounts have been
retroactively adjusted to reflect the 1.25:1 stock split during 1999.
<TABLE>
<CAPTION>
July 18,
Year Ended December 31, (inception) to
---------------------------------- December 31,
1999 1998 1997
----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues ...................................................... $ 482,410 $ 35,237
Cost of revenues:
Product costs ............................................... 423,056 33,496
Supplier warrant costs ...................................... 1,523 3,029
----------- -----------
Total cost of revenues .................................. 424,579 36,525
----------- -----------
Gross profit .................................................. 57,831 (1,288)
----------- -----------
Operating expenses:
Warrant costs, net .......................................... 998,832 57,979
Sales and marketing ......................................... 79,577 24,388 $ 441
General and administrative (including $1,812 of
option payroll taxes in 1999) ............................. 27,609 18,004 1,012
Systems and business development ............................ 14,023 11,132 1,060
----------- ----------- -----------
Total operating expenses ................................ 1,120,041 111,503 2,513
----------- ----------- -----------
Operating loss .............................................. (1,062,210) (112,791) (2,513)
Other income (expense) ...................................... 7,120 548
----------- ----------- -----------
Net loss .................................................... (1,055,090) (112,243) (2,513)
Accretion on preferred stock ................................ (8,354) (2,183)
----------- ----------- -----------
Net loss applicable to common shareholders .................. $(1,063,444) $ (114,426) $ (2,513)
=========== =========== ===========
Net loss applicable to common shareholders per
basic and diluted common share ............................ $ (7.90) $ (1.41) $ (.05)
=========== =========== ===========
Weighted average number of basic and diluted
common shares outstanding ................................. 134,622 81,231 50,834
=========== =========== ===========
<CAPTION>
As of December 31,
---------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Cash and cash equivalents and short-term
investments ................................................. $ 171,943 $ 53,593 $ 16
Working capital ............................................... 172,489 49,922 (2,389)
Total assets .................................................. 441,886 66,572 1,449
Long-term obligations ......................................... 1,015 51
Total liabilities ............................................. 39,250 11,296 2,706
Total stockholders' equity .................................... 402,636 55,276 (1,257)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Priceline.com has pioneered a unique e-commerce pricing system known as a
"demand collection system" that enables consumers to use the Internet to save
money on a wide range of products and services while enabling sellers to
generate incremental revenue. Using a simple and compelling consumer
proposition--Name Your Own Price(SM)--we collect consumer demand, in the form of
individual customer offers guaranteed by a credit card, for a particular product
or service at a price set by the customer. We then either communicate that
demand directly to participating sellers or access participating sellers'
private databases to determine whether we can fulfill the customer's offer.
Consumers agree to hold their offers open for a specified period of time and,
once fulfilled, offers cannot be canceled. We benefit consumers by enabling them
to save money, while at the same time benefiting sellers by providing them with
an effective revenue management tool capable of identifying and capturing
incremental revenues. By requiring consumers to be flexible with respect to
brands, sellers and product features, we enable sellers to generate incremental
revenue without disrupting their existing distribution channels or retail
pricing structures.
Priceline.com was formed in July 1997 and our primary activities during
the period prior to launch consisted of recruiting and training employees,
developing our business model, implementing systems to support our business
model, developing relationships with seller participants and developing the
priceline.com brand. We commenced operations in April 1998 with the sale of
leisure airline tickets. Since that time, our business has grown significantly
and the priceline.com service includes the following products and services:
o leisure airline tickets, provided by ten domestic and 20
international airline participants;
o hotel rooms, which was launched in October 1998, in substantially
all major United States markets with more than 15 leading national
hotel chains as participants;
o rental cars, which was launched in December 1999, in substantially
all major United States markets with three leading rental car chains
as participants;
o new automobiles, which was launched on a test basis in the New York
Metropolitan Area in July 1998 and is now offered in 26 states;
o home financing services, which was launched in January 1999 with
home mortgage services and now also includes home equity loans and
refinancing services.
Priceline.com also is currently planning an expansion of its core Name
Your Own Price(SM) business model to other areas of e-commerce, including long
distance telephone service, cruises and vacation packages.
Through the innovative use of "adaptive marketing programs," priceline.com
also markets customer acquisition programs for third parties. These programs
facilitate the completion of a higher percentage of successful transactions
through the priceline.com service, while generating fee income for the Company.
During 1999, the Company increased its number of adaptive marketing partners
from one to ten, thus reducing its dependence on any one partner. Priceline.com
intends to continue to add adaptive marketing programs so that consumers have a
variety of programs from which to choose and priceline.com has a diversified
source of adaptive marketing revenues.
Priceline.com has announced several transactions pursuant to which third
parties ("Licensees") license the priceline.com name and demand collection
system for offering a particular product or service or for offering a number of
products or services in a distinct international region. Pursuant to the
Licensee transactions, priceline.com generally receives a royalty under the
license and may also receive fees for services and reimbursement of certain
24
<PAGE>
expenses. Priceline.com also holds convertible debt or warrants entitling it to
acquire a significant percentage of such Licensee's equity securities upon the
occurrence of certain events. Unless such equity securities are converted, the
results of Licensees will not be included in priceline.com's financial results.
In 1999, priceline.com licensed its name and demand collection system to
Priceline WebHouse Club, Inc. and agreed to provide certain services to WebHouse
Club. WebHouse Club offers a Name Your Own Price(SM) service for groceries and
has announced the planned offering of a service for gasoline. Under the
negotiated agreements, priceline.com receives a royalty based on a percentage of
WebHouse Club revenues and compensation at fair value for certain services
rendered. As an inducement to enter into a relationship with WebHouse Club,
priceline.com received a warrant to purchase a majority of the shares of
WebHouse Club common stock. The warrants are non-forfeitable, fully vested upon
grant, exercisable in five years or earlier upon the occurrence of certain
events, and do not require the performance of any additional services. Upon
receipt of the warrant in the fourth quarter, priceline.com recognized $188.8
million of income representing the amount of the estimated fair value of the
warrants, based on an independent valuation.
In March 2000, the Company entered into an agreement with Alliance
Partners, LP, pursuant to which Alliance has formed an operating subsidiary,
Priceline Mortgage, for the primary purpose of acting as a broker and/or lender
of residential mortgage loans in connection with the priceline.com mortgage
service. Priceline.com has agreed to provide $3.62 million of financing to an
affiliate of Alliance in the form of a convertible secured note and has agreed
to license the "priceline" name and business model for use by Priceline
Mortgage. Alliance has agreed to provide management services to Priceline
Mortgage, including the procurement of personnel and office space and assistance
in obtaining regulatory approvals. A pilot program was launched in early October
1999 and currently is operating in all 50 states.
Because the priceline.com system does not set minimum offer thresholds,
and consumers are not charged to make offers for its products, it is expected
that we will receive a significant number of unreasonable or "fantasy offers".
Accordingly, in addition to analyzing our actual fulfillment rates, we also
analyze the percentage of "reasonable" offers that we are able to fill. We
consider an offer for an airline ticket, hotel room or rental car to be
"reasonable" when it is no more than 30% lower than the lowest generally
available advance-purchase fare for the same product. Using this standard, the
overall percentage of offers considered reasonable for the year ended December
31, 1999 was approximately 57.0%. The Company measures its "bind" rate as the
percentage of reasonable offers that the Company ultimately fulfills. The
Company's bind rate for 1999 was 43.6% for all reasonable airline ticket, hotel
room and rental car offers.
When making offers for airline tickets through the priceline.com service,
consumers are permitted to make only one offer within a seven day period unless
they change some feature of their itinerary, such as the date on which or the
airport from which they are willing to fly. As a result of the Company's
"checkstatus" feature, introduced in April 1999, consumers whose initial
requests are not satisfied are permitted to resubmit revised offers that reflect
at least one change to their itinerary. Effective with this change, each initial
offer and any resubmitted offers are treated as a single offer for purposes of
measuring our total offer volume and our offer fulfillment rates. Previously,
each had been counted as a separate offer. Therefore, comparisons with prior
periods may not be meaningful.
As of December 31, 1999, the Company had an accumulated deficit of $1.18
billion, of which $1.07 billion related to certain non-cash charges arising from
equity issuances to a number of participating airlines, its chief executive
officer and other parties, as more fully described below, partially offset by
the WebHouse Club warrant income described above. Priceline.com believes that
its continued growth will depend in large part on its ability to continue to
promote the priceline.com brand and to apply the priceline.com business model to
a wide range of products and services.
25
<PAGE>
Priceline.com intends to continue to invest heavily in marketing and promotion,
technology and personnel. As a result, it expects to incur additional losses.
However, the Company's plans call for reduction of operating losses and
improvement in its gross margins in an effort to achieve profitability.
Priceline.com's limited operating history makes the prediction of future results
of operations difficult, and accordingly, there can be no assurance that it will
achieve or sustain revenue growth or profitability.
As of December 31, 1999, the Company had outstanding non-qualified stock
options to purchase 27,024,740 shares issued to various employees, consultants
and directors pursuant to the Company's 1997 Omnibus Plan and 1999 Omnibus Plan.
The options entitle the holders to purchase common stock at a weighted average
exercise price of approximately $13.93 per share, subject to adjustment in
accordance with the 1997 Omnibus Plan and the 1999 Omnibus Plan. Upon exercise
of an option, priceline.com will be required to make payments on behalf of the
option holders for certain payroll taxes such as Social Security and Medicare.
These payroll taxes will appear as a general and administrative expense on
priceline.com's statement of operations and will amount to approximately 1.5% to
2.0% of the difference between the exercise price and the then fair market value
of the common stock at the time of exercise. However, upon exercise of
outstanding options, priceline.com will be paid the exercise price of the
options that are exercised. The total exercise price of the options outstanding
at December 31, 1999 is $376.5 million. Priceline.com also will be entitled to
an income tax deduction equal to the sum of (1) the difference between the
exercise price of the option and the then fair market value of the common stock
at the time of exercise and (2) the total amount of payroll tax payments. Such
deduction would be utilized to the extent that the Company generates taxable
income. The calculation of the payroll tax expense and income tax deduction, and
the timing of those events and the receipt of the related cash inflow, is
directly dependent upon the exercise of options and the value of shares of
priceline.com Common Stock at the time of exercise. As the decision to exercise
options is at the sole discretion of the holder of the options, the timing and
amount of the expense, income tax deduction and timing of the cash inflows
cannot be estimated.
During July 1999, priceline.com issued to Continental Airlines a warrant
to purchase common stock that will become exercisable upon the earlier of July
2004 or upon the achievement of certain performance thresholds. However, the
agreement does not require Continental to make any performance commitments.
Accordingly, priceline.com incurred a non-cash charge of approximately $88.4
million during the third quarter of 1999 representing the fair value of the
warrant on the grant date. In November 1999, the Company amended the Continental
warrant to allow the exercise price to fall within the range of the warrants
issued to other airlines discussed below. Priceline.com incurred a non-cash
charge of approximately $3.5 million during the fourth quarter as a result of
the warrant amendment.
In August 1998, priceline.com entered into a warrant agreement granting
Delta Airlines ("Delta") the right to purchase up to 18,892,603 shares of common
stock at an exercise price of approximately $0.93 per share. Vesting was
contingent upon achievement of certain predetermined performance thresholds.
However, there was no penalty for failure to provide ticket inventory to satisfy
these performance thresholds. Accordingly, no expense was recorded when the
warrant was issued. On December 31, 1998, priceline.com amended its agreement
with Delta to eliminate the vesting contingencies and fix the number of shares
subject to the warrant at 18,619,402. The amended warrant issued to Delta became
exercisable at the earlier of seven years or upon the achievement of certain
performance thresholds. However, the agreement did not require Delta to make any
performance commitments, is non-exclusive and allows Delta to participate in
other programs similar to the priceline.com service. Therefore, the Company
recorded a non-cash charge of approximately $58.7 million, reflecting the fair
value of the Delta warrant on December 31, 1998.
In November 1999, the Company further amended the Delta warrant to provide
Delta with a cashless exercise right. Upon the exercise of the warrant, Delta
acquired a total of 16,525,834 shares of
26
<PAGE>
Common Stock of priceline.com. In conjunction with that transaction, Delta sold
2,085,767 shares of priceline.com Common Stock to priceline.com's founder and
Vice Chairman Jay S. Walker for an aggregate purchase price of $125 million. The
Company further gave Delta the right to exchange six million shares of
priceline.com Common Stock for six million shares of newly issued convertible
preferred stock that may be converted into priceline.com Common Stock on a
one-for-one basis. To date, Delta has not elected to exercise the conversion
right.
In November 1999, the Company entered into separate Participation Warrant
Agreements with each of eight major domestic airlines relating to their
inclusion in the Company's leisure airline ticket service. Under the
Participation Warrant Agreements, the airlines were granted warrants to purchase
a total of 20 million shares of priceline.com Common Stock at exercise prices
ranging from $52.625 to $59.933 per share. All warrants were fully vested on the
date of grant, but generally are not exercisable until November 2005, subject to
acceleration under certain circumstances. Priceline.com incurred additional
warrant costs of approximately $1.1 billion during the fourth quarter as a
result of the issuance of the warrants.
Results of Operations
Priceline.com did not commence operations until April 1998. Accordingly,
discussion of comparisons with the prior year is not meaningful.
Year Ended December 31, 1999
Revenues
Year Ended
December 31,
($000)
------------------- %
1999 1998 Change
-------- -------- --------
Revenues....................................... $482,410 $35,237 1,269%
Revenues for the year ended December 31, 1999 were comprised primarily of:
(1) transaction revenues representing the selling price of airline tickets,
hotel rooms and rental cars; (2) fee income from adaptive marketing programs
offered in connection with our product offerings; (3) ancillary revenues
consisting primarily of Worldspan reservation booking fees and customer
processing fees; and (4) fee income from our home financing and auto programs.
Revenues increased during 1999 as a result of the substantial development
of our unique customer base, repeat purchases by existing customers and the
inclusion of the hotel room, rental car, automobile, and home financing services
and adaptive marketing programs. The Company has launched certain of its
services in select geographic markets and then expanded to other regions. During
1999, the Company's hotel room reservation service expanded from 25 cities to
nationwide coverage. The Company's auto program was launched in the New York
City area and expanded to cover 26 states at December 31, 1999. The Company's
rental car service was launched nationally during the fourth quarter. The
Company currently plans to launch its products for long distance telephone
services, cruises and vacation packages during 2000. The Company believes each
of these products has the potential to increase revenues in 2000.
As of December 31, 1999 priceline.com had a base of approximately 3.8
million unique customers. A unique customer is defined as someone who has made a
guaranteed offer for at least one of priceline.com's products. Of the total
unique customer base, approximately 3.0 million made their first offer on
priceline.com during 1999. During 1999, priceline.com customers made
approximately 4.3 million offers for services.
27
<PAGE>
Ancillary revenues for the year ended December 31, 1999 increased as a
result of volume driven increases in Worldspan reservation booking fees and the
introduction of a customer processing fee in the airline and hotel services.
Fee-based income and ancillary revenues represented 8.4% of total revenues for
the year ended December 31, 1999.
Product Costs and Gross Profit
Year Ended
December 31,
($000)
------------------- %
1999 1998 Change
-------- -------- --------
Product Costs.................................. $424,579 $36,525 1,062%
% of Revenues.................................. 88% 104%
Gross Profit................................... $57,831 $(1,288) 4,590%
Gross Margin................................... 12.0% (4.0)%
For the year ended December 31, 1999, product costs were comprised of (1)
the cost of airline tickets from our suppliers, net of the federal air
transportation tax, segment fees and passenger facility charges imposed in
connection with the sale of airline tickets; (2) the cost of hotel rooms from
our suppliers, net of hotel tax; and (3) supplier warrant costs that represent a
non-cash expense related to the issuance of common stock warrants to one of our
airline program participants in January 1999. We anticipate that we will
recognize additional non-cash supplier warrant costs in the amount of
approximately $381,000 in each of the next four fiscal quarters.
Gross profit is comprised of revenues less cost of revenues. Excluding the
effect of non-cash supplier warrant costs for the year ended December 31, 1999,
the Company had gross profit of $59.4 million. During 1999, gross profit was
positive as a result of the transactional sales volumes that were sold at
positive margins, and the launch of products generating fee-based revenues.
Because fee-based and ancillary revenues generally do not involve separate
costs, these revenues had a disproportionately positive impact on total gross
profit and made a substantial contribution to gross profit for the year ended
December 31, 1999.
For the year ended December 31, 1999, gross margin increased each quarter
as a result of increased sales volume, increased fee-based revenue and decreased
sales of tickets that were sold below cost. Fee-based revenues, such as adaptive
marketing revenues, ancillary revenues and revenues from financial services and
automobiles generate higher margins than transaction revenues, on which the
gross margin generated is derived from the spread between customer payments and
product costs.
The Company expects that gross profit and gross margin will improve in the
first quarter of 2000 as a result of anticipated consumer demand sufficient to
allow the Company to increase revenues while selling its products at increasing
positive margins. As a result of this anticipated growth, the Company expects
the proportion of its gross profit and gross margin attributable to adaptive
marketing revenues to decline.
Operating Expenses
Warrant Costs, Net
Year Ended
December 31,
($000)
------------------- %
1999 1998 Change
-------- -------- --------
Warrant Costs, Net............................. $998,832 $57,979 1,623%
28
<PAGE>
Warrant costs, net consist of the fair value of warrants issued to airline
suppliers during 1999, as discussed above. Such costs were partially offset by
warrant income of $188.8 million recognized in the fourth quarter as a result of
the receipt of warrants to purchase common stock of WebHouse.
Sales and Marketing
Year Ended
December 31,
($000)
------------------- %
1999 1998 Change
-------- -------- --------
Sales & Marketing..................................$79,577 $24,388 226.3%
% of Revenues...................................... 16.5% 69.2%
Sales and marketing expenses for the year ended December 31, 1999
consisted primarily of: (1) advertising and promotions; (2) credit card
processing fees; (3) fees payable to a third party service provider that
operates priceline.com's call center; (4) compensation for priceline.com's sales
and marketing personnel; and (5) provisions for customer charge-backs (based
upon a percentage reflecting priceline.com's historical experience). The Company
plans to continue to invest heavily in advertising and other marketing programs
and expects that all marketing costs will increase. However, with the exception
of processing fees and provisions for customer accommodations and charge-backs,
which the Company anticipates will grow proportionately with transaction based
revenue, the Company anticipates that the other marketing costs will decrease as
a percentage of revenues as the result of anticipated revenue growth.
General and Administrative
Year Ended
December 31,
($000)
------------------- %
1999 1998 Change
-------- -------- --------
General & Administrative....................... $27,609 $18,004 53.3%
% of Revenues.................................. 5.7% 51.1%
General and administrative expenses for the year ended December 31, 1999
were comprised primarily of compensation for personnel, fees for outside
professionals, telecommunications and other overhead costs, including occupancy
expense. The year ended December 31, 1999 included a charge of $1,812 relating
to option payroll taxes resulting from the exercise of employee stock options.
Excluding this expense, general and administrative expense was 5.3% of sales for
the year ended December 31, 1999. Excluding this charge, general and
administrative expenses increased as a result of increased payroll and overhead
costs associated with the expansion of our product offerings and increases in
our revenue base.
Systems and Business Development
Year Ended
December 31,
($000)
------------------- %
1999 1998 Change
-------- -------- --------
Systems & Business Development................ $14,023 $11,132 26.0%
% of Revenues................................. 2.9% 31.6%
Systems and business development expenses for the year ended December 31,
1999 were comprised primarily of: (1) compensation to our information technology
and product development staff; (2) payments to outside contractors; (3) data
communications and other expenses associated with operating priceline.com's Web
site; and (4) depreciation and amortization on computer hardware and software.
During 1999, systems and business development expenses increased due to
increased payroll costs, increased depreciation and amortization resulting from
increased capital expenditures and
29
<PAGE>
increased development costs associated with the expansion of priceline.com's
product offerings and technological infrastructure. As the Company depends on
its web site and internal systems to operate, it expects to continue to invest
significantly on the systems and business development area.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use." This SOP requires
capitalization of certain costs of computer software developed or obtained for
internal use. Priceline.com adopted this SOP on January 1, 1999 and, during the
year ended December 31, 1999, priceline.com capitalized approximately $13.9
million of computer software developed or obtained for internal use.
Amortization of such costs aggregated approximately $1.1 million during the year
ended December 31, 1999.
Other Income, Net
Year Ended
December 31,
($000)
------------------- %
1999 1998 Change
-------- -------- --------
Other Income (Net)........................... $7,120 $548 1,199%
Other income, net, for the year ended December 31, 1999 was primarily
comprised of interest income. Interest income on cash and marketable securities
increased due to higher cash and cash equivalent balances resulting from our
initial public offering of common stock in April of 1999 and our secondary
public offering of common stock in August of 1999.
Year Ended December 31, 1998
Priceline.com was formed in July 1997, but did not commence operations
until April 1998. Accordingly, comparisons with prior periods are not
meaningful.
Revenues
Total revenues for the year ended December 31, 1998 were $35.2 million.
Since commencement of operations in April 1998, essentially all revenues
consisted of airline ticket sales, hotel room reservations and related adaptive
marketing programs. Priceline.com's automobile sales service, which was launched
on a test basis in the New York metropolitan area in July 1998, did not
contribute materially to revenues during the period.
Product Costs and Gross Profit (Loss)
Cost of revenues for the year ended December 31, 1998 totaled $36.5
million, consisting of product costs of $33.5 million and supplier warrant costs
of $3.0 million. Product costs represent the cost of airline tickets from
priceline.com's suppliers, net of the federal air transportation tax, segment
fees and passenger facility charges imposed in connection with the sale of
airline tickets. Supplier warrant costs represent a non-cash expense related to
the pro-rata amount of the Delta warrant earned prior to December 31, 1998, the
date on which the Delta warrant was amended.
Gross profit (loss), which is comprised of revenues less cost of revenues,
was $(1.3) million for the year ended December 31, 1998. Excluding the effect of
the non-cash supplier warrant costs, priceline.com would have had gross profit
of $1.7 million for the year ended December 31, 1998. In 1998, priceline.com
sold a substantial number of tickets below its cost in order to increase airline
and adaptive marketing revenues, build a record of successful transactions, and
enhance the priceline.com brand. Because the fees generated by adaptive
marketing programs have historically involved no separate costs, adaptive
marketing revenues had a disproportionately positive impact on priceline.com's
total gross margin. The Capital One adaptive marketing program accounted for all
of priceline.com's adaptive marketing revenues in 1998.
30
<PAGE>
Operating Expenses
Warrant Cost, net. Warrant costs, net for the year ended December 31, 1998
totaled $58.0 million, or 164.5% of revenues. Supplier start up warrant costs
consist of a non-cash charge representing the fair value of warrants issued to
certain participating airlines in the priceline.com service in connection with
securing the airline's participation in the priceline.com service.
Sales and Marketing. Sales and marketing expenses for the year ended
December 31, 1998 totaled $24.4 million, or 69.2% of revenues. The expenses were
comprised of: (1) advertising and promotional items; (2) fees payable to a third
party service provider, which operates priceline.com's call center; (3) credit
card processing fees; (4) provisions for customer credit card charge-backs
(based upon a percentage reflecting priceline.com's historical experience); and
(5) compensation for priceline.com's sales and marketing personnel.
General and Administrative. General and administrative expenses for the
year ended December 31, 1998 totaled $18.0 million or 51.1% of revenues. General
and administrative expenses consist primarily of compensation for personnel,
fees for outside professionals, telecommunications and other overhead costs,
including occupancy expense. In July 1998, priceline.com issued 8,125,000 shares
of Common Stock, to the Chairman and Chief Executive Officer that resulted in
the recognition of a charge of $6.5 million with respect to these shares. The
shares were issued as compensation for agreeing to accept the position.
Systems and Business Development. Systems and business development
expenses for the year ended December 31, 1998 totaled $11.1 million, or 31.6% of
revenues. Systems and business development expenses are comprised primarily of
compensation to priceline.com's information technology and product development
staff and payments to outside contractors, data communications and other
expenses associated with operating priceline.com's Web site and, to a lesser
extent, depreciation on computer hardware and licensing fees for computer
software.
Other Income, Net
Other income, net for the year ended December 31, 1998 totaled $548,374,
reflecting approximately $633,000 of interest income earned by priceline.com on
its cash balances, net of interest expense for the period.
Period Ended December 31, 1997
During the period from its formation in July 1997 through December 31,
1997, priceline.com was engaged in start-up activities and incurred $2.5 million
of operating expenses. These operating expenses primarily consisted of
investments in technology and personnel related expenses. No revenues were
earned during the period.
Liquidity and Capital Resources
At December 31, 1999, the Company had approximately $171.9 million in cash
and cash equivalants, and short-term investments.
Net cash used in operating activities was $63.0 million, $40.9 million and
$774,000 for the years ended December 31, 1999 and 1998 and for the period July
18 (inception) through December 31, 1997, respectively. Net cash used in
operating activities was primarily attributable to net losses.
Net cash used in investing activities was $68.2 million, $6.6 million and
$1.3 million for the years ended December 31, 1999 and 1998 and for the period
July 18 (inception) through December 31, 1997, respectively. Net cash used in
investing activities was primarily related to purchases of property and
equipment, and in 1999 for investments in marketable securities.
31
<PAGE>
Priceline.com has certain commitments for capital expenditures as part of
its ongoing business cycle. None of these commitments are material to the
financial statements either individually or in the aggregate. Capital
expenditures, primarily for computer equipment and software, were $27.4 million
for the year ended December 31, 1999. As a result of its rapid growth,
priceline.com expects to increase capital expenditures for purchased computer
hardware, internally developed software, other equipment and leasehold
improvements.
Net cash provided by financing activities was $210.8 million, $101.1
million and $2.1 million for the years ended December 31, 1999 and 1998 and for
the period July 18 (inception) through December 31, 1997, respectively. Net cash
provided by financing activities resulted primarily from the issuance of equity
securities referred to below.
In April 1999, priceline.com completed its initial public offering in
which it sold 10,000,000 shares of its Common Stock at a price of $16.00 per
share. Offering proceeds to priceline.com, net of approximately $11.2 million in
aggregate underwriters' discounts and commissions and $4.5 million in related
expenses, were approximately $144.3 million. In August 1999, priceline.com
completed a public offering in which it sold 1,000,000 shares of its Common
Stock at a price of $67.00 per share. Offering proceeds to priceline.com, net of
approximately $2.5 million in aggregate underwriters' discounts and commissions
and $2.0 million in related expenses, were approximately $62.5 million.
During 1997, priceline.com's initial equity capital of approximately $27.0
million was provided by Mr. Jay S. Walker, other high net worth individuals and
a partnership affiliated with General Atlantic Partners, LLC, a private equity
firm that invests worldwide in software and information technology companies. An
additional $20.0 million was invested by two partnerships affiliated with
General Atlantic in July 1998. In December 1998, priceline.com sold equity
securities in a private offering to a group of corporate and institutional
investors and high net worth individuals for approximately $54.4 million.
Included in that group were two partnerships affiliated with General Atlantic;
Vulcan Ventures, Incorporated; Liberty PL, Inc., a wholly owned subsidiary of
Liberty Media Corporation; Quantum Industrial Partners LDC, a fund managed by
Soros Fund Management, LLC and Allen & Company Incorporated. Allen & Company
Incorporated also has served as priceline.com's financial advisor.
In April 1999, priceline.com made a $3.3 million loan to Mr. Richard S.
Braddock for the payment of taxes related to the issuance to Mr. Braddock of
8,125,000 shares of common stock in August 1998. The loan bears interest at
5.28% per annum. Interest is payable annually and principal is payable in
January 2004.
In July 1999, priceline.com made a $6.0 million loan to an executive of
the Company, pursuant to the terms of his employment agreement dated June 14,
1999. The loan bears interest annually at 5.82% per annum. In the first quarter
of 2000, priceline.com made loans to two executives aggregating $5.0 million,
which bear interest at 6.56%. Subject to certain prepayment obligations and to
forgiveness in the event of certain changes of control, death, or termination
without cause, pursuant to the terms of these loans, accrued interest and
principal are payable after five years, but are forgiven under certain
circumstances if the executive remains employed by the Company at that time.
Upon any forgiveness of the loans, the Company would recognize as compensation
expense an amount up to the amount of principal and interest forgiven.
Priceline.com believes that its existing cash balances and liquid
resources will be sufficient to fund its operating activities, capital
expenditures and other obligations through at least the next twelve months.
However, if during that period or thereafter, priceline.com is not successful in
generating sufficient cash flow from operations or in raising additional capital
when required in sufficient amounts and on terms acceptable to priceline.com,
these failures could have a material adverse effect on priceline.com's business,
results of operations and financial condition. If additional funds were raised
32
<PAGE>
through the issuance of equity securities, the percentage ownership of its
then-current stockholders would be diluted.
Market-related Risks
Priceline.com currently has no floating rate indebtedness, holds no
derivative instruments other than through investments in licensees discussed
above, and does not earn significant foreign-sourced income. Accordingly,
changes in interest rates or currency exchange rates do not generally have a
direct effect on priceline.com's financial position. However, changes in
currency exchange rates may affect the cost of international airline tickets and
international hotel room reservations offered through the priceline.com service,
and so indirectly affect consumer demand for such products and priceline.com's
revenue. In addition, to the extent that changes in interest rates and currency
exchange rates affect general economic conditions, priceline.com would also be
affected by such changes.
Recent Accounting Pronouncements
In July 1999, the FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB
No. 133". The Statement defers for one year the effective date of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
rule now will apply to fiscal quarters of fiscal years beginning after June 15,
2000. In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" was issued. The statement will require the recognition of
all derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined the effect of SFAS
No. 133 will have on the earnings and financial position of the Company.
In 1999, the Company adopted Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." This
standard requires certain direct development costs associated with internal-use
software to be capitalized including external direct costs of material and
services and payroll costs for employees devoting time to the software projects.
These costs are included in software and are amortized over a period not to
exceed three years beginning when the asset is substantially ready for use.
Costs incurred during the preliminary project stage, as well as maintenance and
training costs, are expensed as incurred.
Tax Matters
Federal Air Transportation Tax on Airline Ticket Sales
A Federal transportation tax is imposed upon the sale of airline tickets.
The tax is based on a percentage of the cost of transportation, which was 9% for
periods prior to October 1, 1998, 8% for the period October 1, 1998 through
September 30, 1999 and 7.5% thereafter. The Company has historically interpreted
the tax regulations as requiring that the tax be computed based on the amount
charged by the airline to priceline.com for the airline ticket and the Company's
participating airlines have collected and remitted the tax based on this
amounts. The Company applied for a ruling from the Internal Revenue Service (the
"Service") confirming this interpretation. In December 1999, the Service
indicated to the Company that it was unlikely that a favorable ruling would be
issued. The Company subsequently withdrew its ruling request because of the
uncertainty of the outcome. Because the Company anticipated the possibility of
an adverse ruling on this issue, the Company accrued
33
<PAGE>
approximately $1.9 million relating to the balance of the tax liability for
tickets sold prior to that date. The Company believes this accrual to be
adequate but there can be no assurance as to the final outcome because a formal
ruling has not been issued by the service.
Non-Qualified Stock Options
As of December 31, 1999, we had outstanding non-qualified stock options to
purchase 27,024,740 shares issued to various employees, consultants and
directors pursuant to the 1997 Omnibus Plan and the 1999 Omnibus Plan. The
options entitle holders to purchase common stock at a weighted average exercise
price of approximately $13.93 per share, subject to adjustment in accordance
with the 1997 Omnibus Plan and the 1999 Omnibus Plan.
Year 2000 Readiness Disclosure
The following disclosure may be deemed "Year 2000 Readiness Disclosure"
pursuant to the Year 2000 Information and Readiness Disclosure Act.
Since inception, the Company has dedicated substantial resources to
address the potential issues related to Year 2000 programming and related
concerns. As a result of these efforts, the Company has not experienced to date
any material disruption in its operations in connection with, or following, the
transition of Year 2000.
Since the Company was cognizant of Year 2000 issues during the development
of its systems and products since inception, specific costs related to Year 2000
issues can not be quantified. There were no material additional costs incurred
to make any previously existing product or services Year 2000 compliant.
Information Regarding Forward Looking Statements
See "Special Note Regarding Forward Looking Statements."
- --------
34
<PAGE>
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Priceline.com currently has no floating rate indebtedness, holds no
derivative instruments other than through investments in licensees described in
this Annual Report on Form 10-K and does not earn significant foreign-sourced
income. Accordingly, changes in interest rates or currency exchange rates do not
generally have a direct effect on priceline.com's financial position. However,
changes in currency exchange rates may affect the cost of international airline
tickets and international hotel reservations offered through the priceline.com
service, and so indirectly affect consumer demand for such products and
priceline.com's revenue. In addition, to the extent that changes in interest
rates and currency exchange rates affect general economic conditions,
priceline.com would also be affected by such changes.
Item 8. Financial Statements and Supplementary Data
The following financial statements of the Company and the independent
auditors' report are filed as part of this Annual Report on Form 10-K (See Item
14):
Balance Sheets as of December 31, 1999 and December 31, 1998; Statements
of Operations , Changes in Stockholders' Equity and Cash Flows for the years
ended December 31, 1999, December 31, 1998 and the period July 18, 1997
(inception) to December 31, 1997; Notes to Financial Statements; Independent
Auditors' Report.
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the Company's directors and executive officers and
compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, required by Part III, Item 10, is included in the Company's Proxy
Statement relating to the Company's annual meeting of stockholders to be held on
April 24, 2000, and is incorporated herein by reference.
Item 11. Executive Compensation
Information required by Part III, Item 11, is included in the Company's
Proxy Statement relating to the Company's annual meeting of stockholders to be
held on April 24, 2000, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by Part III, Item 12, is included in the Company's
Proxy Statement relating to the Company's annual meeting of stockholders to be
held on April 24, 2000, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- ----------
35
<PAGE>
Information regarding certain of the Company's relationships and related
transactions is included in the Company's Proxy Statement relating to the
Company's annual meeting of stockholders to be held on April 24, 2000, and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List of Documents Filed as a Part of this Annual Report on Form 10-K:
The following financial statements of the Company and the independent
auditors' report are filed as part of this Annual Report on Form 10-K.
Balance Sheets as of December 31, 1999 and December 31, 1998; and the
related Statements of Operations , Changes in Stockholders' Equity and
Cash Flows for the years ended December 31, 1999, December 31, 1998 and
the period July 18, 1997 (inception) to December 31, 1997; Notes to
Financial Statements; Independent Auditors' Report.
(b) Reports on Form 8-K:
On October 14, 1999, the Company filed a report on Form 8-K announcing
that the Company filed a suit in U.S. District Court against Microsoft
Corporation and its Expedia Inc. subsidiary, claiming that Expedia.com's
hotel service infringes on the Company's U.S. Patent No. 5,794,207. The
suit also charges that Microsoft's conduct is in violation of the
Connecticut Unfair Trade Practices Act.
On November 18, 1999, the Company filed a report on Form 8-K announcing
that United Airlines, American Airlines and US Airways had agreed to
become participating carriers in the priceline.com Name Your Own Price(sm)
airline ticket service.
(c) Exhibits
The exhibits listed below are filed as a part of this Annual Report on
Form 10-K.
Exhibit Number Description
- -------------- -----------
2.1* Agreement of Merger, dated as of July 31, 1998, between
priceline.com LLC and the Registrant.
3.1* Form of Amended and Restated Certificate of Incorporation of
the Registrant.
3.2* Form of By-Laws of the Registrant.
4.1 Reference is hereby made to Exhibits 3.1 and 3.2.
4.2* Specimen Certificate for Registrant's Common Stock.
4.3* Amended and Restated Registration Rights Agreement, dated as
of December 8, 1998, among the Registrant and certain
stockholders of the Registrant.
10.1.1* 1997 Omnibus Plan of the Registrant.
10.1.2* 1999 Omnibus Plan of the Registrant.
10.2* Stock Purchase Agreement, dated July 31, 1998, among the
Registrant and the investors named therein, as amended.
10.3* Stock Purchase Agreement, dated as of December 8, 1998, among
the Registrant and the investors named therein, as amended.
10.4 Reference is hereby made to Exhibit 4.3.
10.5* Purchase and Intercompany Services Agreement, dated April 6,
1998, among the Registrant, Walker Asset Management Limited
Partnership, Walker Digital
36
<PAGE>
Exhibit Number Description
- -------------- -----------
Corporation and Priceline Travel, Inc.
10.6.1* Employment Agreement, dated as of January 1, 1998, between Jay
S. Walker, Walker Digital Corporation, the Registrant and
Jesse M. Fink.
10.6.2* Amendment No. 1 to Employment Agreement, dated November 16,
1998 between the Registrant and Jesse M. Fink.
10.7.1* Employment Agreement, dated as of July 23, 1998, between the
Registrant and Timothy G. Brier.
10.7.2* Amendment No. 1 to Employment Agreement, dated November 16,
1998, between the Registrant and Timothy G. Brier.
10.8* Amended and Restated Employment Agreement, dated as of August
15, 1998, by and between the Registrant and Richard S.
Braddock.
10.9* Airline Participation Agreement, dated April 1998, by and
among the Registrant, Priceline Travel, Inc. and Trans World
Airlines, Inc.
10.10*+ Airline Participation Agreement, dated October 2, 1998, by and
among the Registrant, Priceline Travel, Inc. and Northwest
Airlines, Inc.
10.11.1*+ General Agreement, dated August 31, 1998, by and among the
Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc.
10.11.2*+ Airline Participation Agreement, dated August 31, 1998, by and
among the Registrant, Priceline Travel, Inc. and Delta Air
Lines, Inc.
10.11.3*+ Amendment to the Airline Participation Agreement and the
General Agreement, dated December 31, 1998, between and among
the Registrant, Priceline Travel, Inc. and Delta Air Lines,
Inc.
10.11.4*** Letter Agreement, dated July 16, 1999, between the Registrant
and Delta Air Lines, Inc.
10.11.5 Master Agreement, dated November 17, 1999, between the
Registrant and Delta Air Lines, Inc.
10.11.6 Amendment to the Airline Participation Agreement and the
General Agreement, dated November 17, 1999, by and among the
Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc.
10.11.7+ Participation Warrant Agreement, dated as of November 17,
1999, between the Registrant and Delta Air Lines, Inc.
10.12*+ Airline Participation Agreement, dated December 31, 1998, by
and among the Registrant, Priceline Travel, Inc. and America
West Airlines.
10.13*+ Internet Marketing and Licensing Agreement, as of August 1,
1998, between the Registrant and LendingTree, Inc.
10.14* Systems Access Agreement, dated as of August 4, 1997, between
the Registrant and WORLDPAN, L.P.
10.15* Master Agreement for Outsourcing Call Center Support, dated as
of April 6, 1998, between the Registrant and CALLTECH
Communications, Incorporated.
10.16* Form of Participation Warrant Agreement.
10.17.1*+ Participation Warrant Agreement, dated as of December 31,
1998.
10.17.2*+ Amendment No. 1, dated as of February 4, 1999, to Warrant
Participation Agreement, dated as of December 31, 1999.
10.17.3*+ Amendment No. 2, dated as of March 3, 1999, to Participation
Warrant Agreement, dated as of December 31, 1998, as
previously amended to Amendment No. 1 to Warrant Participation
Agreement, dated as of February 4, 1999.
10.18*** Employment Agreement, dated as of June 14, 1999, between the
Registrant and Daniel H. Schulman.
10.19.1*** Airline Participation Agreement, dated July 16, 1999, between
the Registrant and Continental Airlines, Inc.
10.19.2*** Participation Warrant Agreement, dated July 16, 1999, between
the Registrant and Continental Airlines, Inc.
10.19.3 First Amendment to Participation Warrant Agreement, dated as
of November 17, 1999, by and between the Registrant and
Continental Airlines, Inc.
10.19.4+ Participation Warrant Agreement, dated November 17, 1999,
between the Registrant and Continental Airlines, Inc.
10.20**** License Agreement, dated July 20, 1999 between Walker Digital
Corporation and the Registrant.
10.21 Sublease, dated October 1999, between Oxford Health Plans,
Inc., as Sub-Landlord and the
37
<PAGE>
Exhibit Number Description
- -------------- -----------
Registrant, as Sub-Tenant, and Agreement of Lease, dated June
16, 1993, as amended, between Prudential Insurance Company of
America, as Landlord, and Oxford Health Plans, Inc., as
Tenant.
10.22.1 Securityholders' Agreement, dated as of October 26, 1999,
among the Registrant, Priceline WebHouse Club, Inc., Walker
Digital, LLC and the Investors signatory thereto.
10.22.2+ Intellectual Property License Agreement, dated as of October
26, 1999, between the Registrant and Priceline WebHouse Club,
Inc.
10.22.3+ Marketing and Technical Services Agreement, dated as of
October 26, 1999, between the Registrant and Priceline
WebHouse Club, Inc.
10.22.4+ Warrant Agreement, dated as of October 26, 1999, between the
Registrant and Priceline WebHouse Club, Inc.
10.22.5+ Services Agreement, dated as of October 26, 1999, between the
Registrant and Priceline WebHouse Club, Inc.
10.23.1+ Airline Participation Agreement, dated as of November 15,
1999, by and between the Registrant and United Air Lines, Inc.
10.23.2+ Participation Warrant Agreement, dated as of November 15,
1999, by and between the Registrant and United Air Lines, Inc.
10.24.1+ Airline Participation Agreement, dated as of November 17,
1999, by and between the Registrant and US Airways, Inc.
10.24.2+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and US Airways, Inc.
10.25.1+ Airline Participation Agreement, dated as of November 17,
1999, by and between the Registrant and American Airlines,
Inc.
10.25.2+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and American Airlines,
Inc.
10.26+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and Trans World Airlines,
Inc.
10.27+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and Northwest Airlines,
Inc.
10.28+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and America West Airlines
10.29 Continuing Employment Agreement, dated as of December 16,
1999, between the Registrant and Melissa M. Taub.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
* Previously filed as an exhibit to the Form S-1 (Registration No.
333-69657) filed in connection with priceline.com's initial public
offering and incorporated herein by reference.
** Previously filed as an exhibit to the Form 10-Q filed on May 17, 1999 and
incorporated herein by reference.
*** Previously filed as an exhibit to the Form S-1 (Registration No.
333-83513) filed in connection with priceline.com's secondary public
offering and incorporated herein by reference.
**** Previously filed as an exhibit to the Form 10-Q filed on November 15, 1999
+ Certain portions of this document have been omitted pursuant to a
confidential treatment request.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRICELINE.COM INCORPORATED
Date
----
By: /s/ Richard S. Braddock March 30, 2000
-----------------------
Richard S. Braddock
Chairman of the Board
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Richard S. Braddock March 30, 2000
-----------------------------
Richard S. Braddock
Chairman of the Board
Chief Executive Officer
By: /s/ Thomas P. D'Angelo March 30, 2000
-----------------------------
Thomas P. D'Angelo
Principal Financial Officer
Principal Accounting Officer
By: /s/ Paul A. Allaire March 30, 2000
-----------------------------
Paul A. Allaire
Director
By: /s/ Ralph M. Bahna March 30, 2000
-----------------------------
Ralph M. Bahna
Director
39
<PAGE>
By: /s/ Paul J. Blackney March 30, 2000
-----------------------------
Paul J. Blackney
Director
By: /s/ William E. Ford March 30, 2000
-----------------------------
William E. Ford
Director
By: /s/ Marshall Loeb March 30, 2000
-----------------------------
Marshall Loeb
Director
By: /s/ Nicholas J. Nicholas, Jr. March 30, 2000
-----------------------------
Nicholas J. Nicholas, Jr.
Director
By: /s/ Nancy B. Peretsman March 30, 2000
---------------------- --------
Nancy B. Peretsman
Director
By: /s/Daniel H. Schulman March 30, 2000
--------------------- --------
Daniel H. Schulman
President and Chief Operating Officer
Director
By: /s/Jay S. Walker March 30, 2000
---------------- --------
Jay S. Walker
Vice Chairman, Director
40
<PAGE>
PRICELINE.COM INCORPORATED
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Independent Auditor's Report....................................... 42
Balance Sheets for the fiscal years ended December 31, 1999 and
December 31, 1998............................................. 43
Statements of Operations for the fiscal years ended December 31,
1999 and December 31, 1998 and for the period July 18, 1997
(Inception) to December 31, 1997.............................. 44
Statements of Changes in Stockholders' Equity for the fiscal
years ended December 31, 1999 and December 31, 1998
and for the period July 18, 1997 (Inception) to
December 31, 1997............................................. 45
Statements of Cash Flows for the fiscal years ended December 31,
1999 and December 31, 1998 and for the period July 18, 1997
(Inception) to December 31, 1997.............................. 46
Notes to Financial Statements...................................... 47
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
priceline.com Incorporated
We have audited the accompanying balance sheets of priceline.com
Incorporated (the "Company") as of December 31, 1999 and 1998, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1999 and 1998 and the period July 18, 1997
(inception) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and
1998, and the results of its operations and its cash flows for the years ended
December 31, 1999 and 1998 and the period July 18, 1997 (inception) to December
31, 1997 in conformity with generally accepted accounting principles.
Stamford, Connecticut
January 27, 2000
(March 17, 2000 as to Note 15)
42
<PAGE>
priceline.com Incorporated
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................ $ 133,172 $ 53,593
Short-term investments ............................................................... 38,771
Accounts receivable, net of allowance for doubtful accounts of
$1,961 and $291 .................................................................... 21,289 4,177
Related party receivables ............................................................ 508
Prepaid expenses and other current assets ............................................ 17,999 2,433
----------- -----------
Total current assets ............................................................... 211,739 60,203
Property and equipment, net ............................................................ 28,006 5,927
Related party receivable ............................................................... 8,838
Warrants to purchase common stock of Priceline WebHouse Club, Inc. ..................... 189,000
Other assets ........................................................................... 4,303 442
----------- -----------
Total assets ....................................................................... $ 441,886 $ 66,572
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................................... $ 24,302 $ 5,268
Related party payable ................................................................ 32
Accrued expenses ..................................................................... 13,695 4,259
Other current liabilities ............................................................ 1,253 722
----------- -----------
Total current liabilities .......................................................... 39,250 10,281
Long term obligations .................................................................. 1,015
----------- -----------
Total liabilities .................................................................. 39,250 11,296
----------- -----------
Stockholders' equity:
Common stock, $0.008 par value authorized 1,000,000 and 300,000 shares,
respectively; issued and outstanding, 163,867 and
93,225 shares, respectively .......................................................... 1,311 746
Convertible preferred stock, $0.01 par value; authorized 150,000 shares:
Series A $1.16 liquidation value per share; issued and
outstanding 17,289 shares at December 31, 1998 ....................................... 173
Series B $4.00 liquidation value per share; issued and
outstanding, 13,837 shares at December 31, 1998 ...................................... 138
Additional paid-in capital ............................................................. 1,581,708 171,158
Accumulated deficit .................................................................... (1,180,383) (116,939)
----------- -----------
Total stockholders' equity ............................................................. 402,636 55,276
----------- -----------
Total liabilities and stockholders' equity ......................................... $ 441,886 $ 66,572
=========== ===========
</TABLE>
See notes to financial statements.
43
<PAGE>
priceline.com Incorporated
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
July 18, 1997
Year Ended December 31, (Inception)
---------------------------------- to December 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues ...................................................... $ 482,410 $ 35,237
Cost of revenues:
Product costs ............................................... 423,056 33,496
Supplier warrant costs ...................................... 1,523 3,029
----------- -----------
Total costs of revenues ................................... 424,579 36,525
----------- -----------
Gross profit (loss) ........................................... 57,831 (1,288)
----------- -----------
Operating expenses:
Warrant costs, net .......................................... 998,832 57,979
Sales and marketing ......................................... 79,577 24,388 $ 441
General and administrative (including $1,812 of
option payroll taxes in 1999) ............................. 27,609 18,004 1,012
Systems and business development ............................ 14,023 11,132 1,060
----------- ----------- -----------
Total operating expenses .................................. 1,120,041 111,503 2,513
----------- ----------- -----------
Operating loss ................................................ (1,062,210) (112,791) (2,513)
Interest income ............................................... 7,501 548
Other expense ................................................. (381)
----------- ----------- -----------
Total other income (expense) .............................. 7,120 548
----------- ----------- -----------
Net loss ...................................................... (1,055,090) (112,243) (2,513)
Accretion on preferred stock .................................. (8,354) (2,183)
----------- ----------- -----------
Net loss applicable to common stockholders .................... $(1,063,444) $ (114,426) $ (2,513)
=========== =========== ===========
Net loss applicable to common stockholders per
basic and diluted common share .............................. $ (7.90) $ (1.41) $ (.05)
=========== =========== ===========
Weighted average number of basic and diluted
common shares outstanding ................................... 134,622 81,231 50,834
=========== =========== ===========
</TABLE>
See notes to financial statements.
44
<PAGE>
priceline.com Incorporated
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND FOR THE
PERIOD JULY 18, 1997 (INCEPTION) TO DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------------------- -------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock and
common stock subscriptions ..... 51,670 $ 413 $ 843
Net loss ......................... $ (2,513)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 ....... 51,670 413 843 (2,513)
Issuance of common stock and
common stock subscriptions ..... 41,555 333 32,663
Issuance of Series A convertible
preferred stock ................ 17,289 $ 173 19,827
Issuance of Series B convertible
preferred stock ................ 13,837 138 54,276
Accretion on preferred stock ..... 2,183 (2,183)
Issuance of options to purchase
common stock ................... 245
Issuance of warrants to purchase
common stock ................... 61,121
Net loss ......................... (112,243)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ....... 31,126 $ 311 93,225 $ 746 $ 171,158 $ (116,939)
Conversion of Series A convertible
preferred stock ................ (17,289) (173) 21,611 173
Conversion of Series B convertible
preferred stock ................ (13,837) (138) 17,297 138
Accretion on preferred stock ..... 8,354 (8,354)
Issuance of common stock ......... 11,000 88 208,329
Exercise of warrants to purchase
common stock ................... 19,121 153 1,579
Exercise of options to purchase
common stock ................... 1,613 13 1,654
Issuance of warrants to purchase
common stock ................... 1,190,634
Net loss ......................... (1,055,090)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ....... 163,867 $ 1,311 $ 1,581,708 $(1,180,383)
=========== =========== =========== =========== =========== ===========
<CAPTION>
Total
-----------
<S> <C>
Issuance of common stock and
common stock subscriptions ..... $ 1,256
Net loss ......................... (2,513)
-----------
Balance, December 31, 1997 ....... (1,257)
Issuance of common stock and
common stock subscriptions ..... 32,996
Issuance of Series A convertible
preferred stock ................ 20,000
Issuance of Series B convertible
preferred stock ................ 54,414
Accretion on preferred stock .....
Issuance of options to purchase
common stock ................... 245
Issuance of warrants to purchase
common stock ................... 61,121
Net loss ......................... (112,243)
-----------
Balance, December 31, 1998 ....... $ 55,276
Conversion of Series A convertible
preferred stock ................
Conversion of Series B convertible
preferred stock ................
Accretion on preferred stock .....
Issuance of common stock ......... 208,417
Exercise of warrants to purchase
common stock ................... 1,732
Exercise of options to purchase
common stock ................... 1,667
Issuance of warrants to purchase
common stock ................... 1,190,634
Net loss ......................... (1,055,090)
-----------
Balance, December 31, 1999 ....... $ 402,636
===========
</TABLE>
See notes to financial statements.
45
<PAGE>
priceline.com Incorporated
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
July 18, 1997
Year Ended Year Ended (Inception)
December 31, December 31, to December 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................ $(1,055,090) $ (112,243) $ (2,513)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ..................... 5,348 1,860 212
Provision for uncollectible accounts .............. 3,127 581
Warrant costs, net ................................ 1,189,111
Warrant income .................................... (189,000)
Equity based compensation ......................... 67,866
Changes in assets and liabilities:
Accounts receivable ............................. (29,617) (4,757)
Prepaid expenses and other current assets ....... (12,043) (1,922)
Restricted bank deposit and bank certificate
of deposit .................................... (680)
Accounts payable and accrued expenses ........... 28,470 8,300 1,227
Other ........................................... (3,331) 112 300
----------- ----------- -----------
Net cash used in operating activities ............. (63,025) (40,883) (774)
----------- ----------- -----------
INVESTING ACTIVITIES:
Additions to property and equipment ............... (27,416) (6,607) (1,317)
Minority equity investment ........................ (2,000)
Investment in marketable securities ............... (38,771)
----------- ----------- -----------
Net cash used in investing activities ............. (68,187) (6,607) (1,317)
----------- ----------- -----------
FINANCING ACTIVITIES:
Related party payable ............................. (1,072) 1,104
Issuance of long-term debt ........................ 1,000
Payment of long-term debt ......................... (1,000)
Principal payments under capital lease
obligations ..................................... (25) (22) (2)
Issuance of common stock and subscription units ... 211,816 26,495 1,006
Payment received on stockholder note .............. 250
Issuance of Series A convertible preferred
stock ........................................... 20,000
Issuance of Series B convertible preferred
stock ........................................... 54,415
----------- ----------- -----------
Net cash provided by financing activities ......... 210,791 101,066 2,108
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........... 79,579 53,576 17
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...... 53,593 17
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............ $ 133,172 $ 53,593 $ 17
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest .......... $ 37 $ 61 $ 1
=========== =========== ===========
</TABLE>
See notes to financial statements.
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION
Priceline.com Incorporated ("priceline.com", or the "Company") has
pioneered a unique e-commerce pricing system known as a "demand collection
system" that enables consumers to use the Internet to save money on a wide range
of products and services while enabling sellers to generate incremental revenue.
Using a simple and compelling consumer proposition-Name Your Own
Price(SM)-priceline.com collects consumer demand, in the form of individual
customer offers guaranteed by a credit card, for a particular product or service
at a price set by the customer. The Company then accesses a database of
inventory available to the Company for purchase to determine whether
priceline.com can fulfill the customer's offer. Consumers agree to hold their
offers open for a specified period of time and, once fulfilled, offers generally
cannot be canceled. The Company benefits consumers by enabling them to save
money, while at the same time benefiting sellers by providing them with an
effective revenue management tool capable of identifying and capturing
incremental revenues. By requiring consumers to be flexible with respect to
brands, sellers and product features, priceline.com enables sellers to generate
incremental revenue without disrupting their existing distribution channels or
retail pricing structures.
Walker Digital Corporation ("Walker Digital"), a research and development
company, developed the priceline.com service and the business model and related
intellectual property rights underlying the priceline.com service, the rights
for which were transferred to the Company. Walker Digital had no operations and
no revenues related to the assets transferred to priceline.com. Walker Digital
was founded and is controlled by the founding stockholder and Vice Chairman of
priceline.com. During the years ended December 31, 1999 and 1998, Walker Digital
provided the Company with a variety of services including subleasing office
facilities to the Company. Charges to the Company for such services aggregated
approximately $1,411,000 and $706,000, respectively. In addition, the Company
charged Walker Digital $1,800,000 and $384,831 for the years ended December 31,
1999 and 1998, respectively, for certain services, including legal and
accounting services and IT infrastructure. Such amounts have been offset against
general and administrative expenses in the accompanying statements of
operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The financial statements for all periods presented
include the financial statements of priceline.com and Priceline Travel. On March
24, 1999, priceline.com exercised its call option to purchase Priceline Travel
for nominal consideration and Priceline Travel was merged into priceline.com.
All significant inter-company transactions have been eliminated.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments--The Company's financial instruments,
including cash and cash equivalents, accounts receivable-net and accounts
payable, are carried at cost which approximates their fair value because of the
short-term maturity of these financial instruments. The Company's investment in
Lending Tree, Inc. was valued at cost as there was no market for its securities
at December 31, 1999. The Company recognized income for the warrant to purchase
common stock of Priceline WebHouse Club, Inc. at estimated fair market value, as
determined by an independent valuation firm. The carrying value of the capital
lease obligations and long-term debt approximates fair value because the
interest
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
rates on these obligations are comparable to the interest rates that could have
been obtained at the dates of the respective balance sheets.
Cash and Cash Equivalents, and Short-term Investments--The Company invests
excess cash primarily in money market accounts, certificates of deposits, and
short-term commercial paper. All highly liquid instruments with an original
maturity of three months or less are considered cash equivalents. Marketable
securities are considered "trading securities" and valued at fair value.
Property and Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization of property and equipment is computed on a
straight-line basis, generally over the estimated useful lives of the assets or,
when applicable, the life of the lease, whichever is shorter.
Impairment of Long-Lived Assets--The Company evaluates the recoverability
of its long-lived assets in accordance with Statement of Financial Accounting
Standards "SFAS" No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires recognition
of impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such assets.
Software Capitalization--In 1999, the Company adopted Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This standard requires certain direct development
costs associated with internal-use software to be capitalized including external
direct costs of material and services and payroll costs for employees devoting
time to the software projects. These costs are included in software and are
amortized over a period not to exceed three years beginning when the asset is
substantially ready for use. Costs incurred during the preliminary project
stage, as well as maintenance and training costs, are expensed as incurred.
Revenues and Cost of Revenues--The Company recognizes and records revenues
in a variety of ways depending on the product or service sold. With respect to
airline ticket, hotel room and rental car services, the Company recognizes as
revenue the amount received from the customer, net of taxes, and records as the
cost of revenue the amount that the Company pays the respective airline or
hotel. With respect to its automobile service, the Company earns a fixed fee
from both the customer and the seller after the transaction is consummated. With
respect to its home financing service, during 1999 the Company received a
percentage of the fees earned by third parties in connection with the closing of
mortgage loans. Going forward, the mortgage product will be offered through
National Mortgage Center LLC (doing business as pricelinemortgage (
"pricelinemortgage"), a Company that has been licensed to use the priceline.com
demand collection system. The Company also generates revenues through adaptive
marketing programs with third parties that pay the Company fees for marketing
their customer acquisition programs. Additionally, the Company generates
revenues from third party sources, including a customer processing fee for
airline, hotel and rental car services, and ancillary reservation booking fees
from the Worldspan reservation system for booking of airline flight segments and
hotel reservations through the Worldspan system. Consumer processing fees are
payable to the Company and recognized as revenue only upon completion of
successful transactions.
The manner in which and time at which revenues are recognized differs
depending on the product or service sold through the priceline.com service. With
respect to airline ticket, hotel room and rental car services, revenues are
generated by transactions with customers who make offers to purchase airline
tickets and reserve hotel rooms and rental cars supplied to priceline.com by
participating sellers. Revenues and related costs are recognized if, and when,
the Company accepts and fulfills the
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
customer's offer. Because priceline.com is the merchant of record in these
transactions, revenue for these services includes the offer price paid by the
customer, net of certain taxes and fees. Airline, hotel and rental car revenues
also may include fees from third parties for adaptive marketing programs. With
respect to automobile services, fees or other payments payable by the seller and
/or the customer are recognized as revenue. With respect to home financing
services, the Company receives no fees from consumers. The Company recognizes
revenue from fees paid directly by its strategic partner through the operation
of its home financing services. Because the Company acts as an intermediary
between the customer and the seller in auto and home financing transactions,
revenues for these products and services are recorded at the amount of the fee
received, and not on the value of the underlying transaction, when the
transaction is completed. Automobile and home financing services revenues also
may include fees from third parties for adaptive marketing programs.
Priceline.com expressly permits only credit cards as an acceptable form of
payment from its consumers. On rare occasions, the Company provides refunds and
makes certain customer accommodations to individual customers to satisfy
disputes and complaints. The Company accrues for such expected losses and
classifies the resulting expense as an addition to the allowance for doubtful
accounts. The Company extends customary payment terms to corporate customers
such as automobile dealers and adaptive marketing sponsors.
Sales and Marketing--Sales and marketing expenses are comprised primarily
of costs of radio and newspaper advertising, costs of the third-party
offer-taking call center, credit card processing fees, provisions for customer
accommodations and charge-backs, and compensation for the Company's sales and
marketing personnel. All sales and marketing costs are expensed as incurred.
Systems and Business Development--Systems and business development
expenses are comprised primarily of compensation to the Company's information
systems and product development staff and payments to outside contractors, data
communications and other expenses associated with operating the Company's Web
site, depreciation on computer hardware and licensing fees for computer
software. Such costs are expensed as incurred.
Equity-Based Compensation--The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
complies with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under APB Opinion No. 25, compensation expense is
based on the difference, if any, on the date of grant, between the fair value of
priceline.com's stock and the exercise price of the option.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
of the fair value of the equity instrument issued is the earlier of the date on
which the counterparty's performance is complete or the date on which it is
probable that performance will occur.
Income Taxes--The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax liabilities and assets for the
49
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the temporary difference between the
financial statement and tax basis of assets and liabilities using presently
enacted tax rates in effect. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
During the period that priceline.com operated as an LLC, it was treated
substantially as a partnership for tax purposes and, accordingly, the tax effect
of its activities accrued to its members through July 1998.
Net Loss Per Share--The Company computes basic and diluted earnings per
share in accordance with Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share". SFAS 128 requires the Company to report both
basic earnings per share, which is based on the weighted average number of
common shares outstanding, and diluted earnings per share, which is based on the
weighted average number of common shares outstanding and all dilutive potential
common shares outstanding. Since the Company incurred losses for all periods
presented, the inclusion of options in the calculation of weighted average
common shares is anti-dilutive; and therefore there is no difference between
basic and diluted earnings per share.
Business Risk--Business risks include the following:
Competition--The markets for the products and services offered on the
priceline.com service are intensely competitive. The Company competes with both
traditional distribution channels and online services. The Company currently or
potentially competes with a variety of companies with respect to each product or
services offered. The Company potentially faces competition from a number of
large online services that have expertise in developing online commerce and in
facilitating Internet traffic. Many competitors have significant competitive
advantages. For example, airlines, hotels and other suppliers also sell their
products and services directly to consumers and have established Web sites.
Internet directories, search engines and large traditional retailers have
significantly greater operating histories, customer bases, technical expertise,
brand recognition and/or online commerce experience than the Company. In
addition, certain competitors may be able to devote significantly greater
resources to furthering their business.
Dependence on Airline Industry and Certain Carriers--The Company's near
term, and possibly long term, prospects are significantly dependent upon the
sale of leisure airline tickets. Sales of leisure airline tickets represented
approximately 85% and 86% of total revenues for the years ended December 31,
1999 and 1998, respectively. As a result, currently the Company is substantially
dependent upon the continued participation of the airlines in the priceline.com
service in order to maintain and continue to grow its total revenues.
Significantly reducing the Company's dependence on the airlines is likely to
take a long period of time and there can be no guarantee that the Company will
succeed in reducing that dependence.
Concentration of Credit Risk--Financial instruments, which potentially
subject the Company to concentrations of credit risk, are principally bank
deposits and accounts receivable. Cash and cash equivalents and marketable
securities are deposited with high credit quality financial institutions.
Accounts receivable are derived from the revenues earned from customers in the
U.S. and are denominated in U.S. dollars. The Company maintains an allowance for
uncollectible accounts based upon the expected collectibility of accounts
receivable.
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Barter Transaction--In 1999, the Company entered into one barter
transaction to exchange services for advertising. The transaction was recorded
at the estimated fair value of the services expected to be received. Revenue of
$375,000 from this transaction was recognized in 1999, when the service was
provided and will be expensed during 2000, when the advertising is provided to
priceline.com.
Segment Reporting--The Company operates as a single segment and will
evaluate additional segment disclosure requirements as it expands its
operations. All of the operations and identifiable assets are in the United
States.
Reclassification--Certain amounts in prior years' financial statements
have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
In July 1999, the FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB
No. 133". The Statement defers for one year the effective date of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
rule now will apply to fiscal quarters of fiscal years beginning after June 15,
2000. In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" was issued. The statement will require the recognition of
all derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined the effect of SFAS
No. 133 will have on the earnings and financial position of the Company.
3. SHORT-TERM INVESTMENTS
At December 31, 1999, the Company held short term instruments which were
classified as trading securities; accordingly, they are carried at fair value on
the balance sheet. Net unrealized gains (losses) of $13,000 have been recognized
in the financial statements. Marketable securities at December 31, 1999 include
the following (in thousands):
December 31, 1999
-----------------
Fair
Value
-----------------
Discounted commercial paper............................. $22,578
Asset backed securities................................. 3,443
Municipal bonds and notes............................... 12,750
-------
$38,771
=======
Included in other assets is a $2.0 million equity investment in Lending
Tree, Inc., an internet-based home financing service provider. Since the Company
owns less than 20% of Lending Tree and does not exert significant influence over
the investee, the Company accounts for the investment on the cost basis. In
accordance with SFAS No. 115, the Company deems these securities as available
for sale. Because there was no readily determinable value for shares of Lending
Tree at December 31, 1999, the Company has valued its investment at cost. The
Company's home financing service is offered through a joint marketing
arrangement with Lending Tree.
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
4. ACCOUNTS RECEIVABLE
A summary of the activity in the allowance for uncollectible accounts for
the years ended December 31, 1999 and 1998 is as follows (in thousands):
1999 1998
------ -----
Balance, beginning of year............................... $ 291 $ --
Provision charged to expense............................. 3,127 581
Charge-offs.............................................. (1,457) (290)
------ ----
Balance, end of year..................................... $1,961 $291
====== ====
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consists of the
following (in thousands):
Estimated
Useful Lives
(years) 1999 1998
------------ ------- ------
Computer equipment and software............ 3 $33,242 $7,034
Office equipment, furniture & fixtures and
leasehold improvements................... 3 to 7 2,173 965
------- ------
Total...................................... 35,415 7,999
Less accumulated depreciation and
amortization............................. (7,409) (2,072)
------- ------
Property and equipment, net................ $28,006 $5,927
======= ======
Depreciation and amortization expense was approximately $5,337,000,
$1,860,000 and $212,000 for the years ended December 31, 1999 and 1998, and for
the period July 18, 1997 to December 31, 1997, respectively.
6. LONG TERM DEBT
In April 1998, priceline.com issued a promissory note to an investor for
$1,000,000. The promissory note bore interest at a rate of 6% per annum. In
connection with the promissory note, priceline.com issued detachable warrants to
purchase 62,500 shares of common stock at $0.80 per share. The note was repaid
in 1999.
7. STOCKHOLDERS' EQUITY
In March 1999, the Company effected a 1.25:1 stock split. All share and
per share amounts have been retroactively adjusted to reflect the stock split.
On July 18, 1997, priceline.com issued 42,990,211 shares of Common Stock
for the initial contributed services of the founders. No compensation expense
was recognized for the contributed services as priceline.com was in the earliest
phases of development. Such services included conceiving the priceline.com
business model, developing business strategies and operating plans, initiating
contact with airline suppliers and raising capital. There were no employment
agreements related to the services initially contributed and/or the shares
issued in respect of such shares.
Also, on July 18, 1997, priceline.com issued 6,895,833 shares of Common
Stock to Walker Digital in exchange for the transfer by Walker Digital to
priceline.com of all the rights, title, and interest in certain patents and
patent applications relating to buyer driven commerce.
52
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
7. STOCKHOLDERS' EQUITY (Continued)
In April 1998, priceline.com issued warrants to purchase 125,000 shares of
Common Stock, at a zero exercise price, to a non-employee in exchange for
services rendered to the Company. The estimated fair value of the warrants at
the date of grant of $100,000 was based on the value of the equivalent shares as
of the grant date, that is 125,000 shares at $0.80 per share, and has been
reflected as sales and marketing expense and additional paid-in-capital.
In July 1998, priceline.com issued 8,125,000 shares of Common Stock, to
the Chairman and Chief Executive Officer that resulted in the recognition of a
charge of $6,500,000 with respect to these shares. The shares were issued as
compensation for agreeing to accept the position.
In April 1999, the Company completed an initial public offering in which
it sold 10,000,000 shares of its Common Stock, $0.008 par value. Offering
proceeds to the Company, net of underwriter discounts and commissions and other
related expenses, were approximately $144.3 million. At the time of the
offering, shares of the Series A and Series B Preferred Stock were automatically
converted, subject to anti-dilution adjustment, into an equal number of shares
of Common Stock.
In August 1999, the Company completed a public offering in which it sold
1,000,000 shares of its Common Stock and certain stockholders of the Company
sold 3,500,000 shares of common stock at a price of $67.00 per share. Offering
proceeds to priceline.com, net of underwriters discounts and commissions and
related expenses, were approximately $62.5 million.
8. WARRANTS TO PURCHASE COMMON STOCK
In August 1998, priceline.com entered into a warrant agreement with Delta
Air Lines ("Delta") to purchase up to 18,892,603 shares of Common Stock at an
exercise price of approximately $0.93 per share (the "Delta Warrant") for
agreeing to participate in the priceline.com service. Vesting was contingent
upon achievement of certain predetermined performance thresholds. However, there
was no penalty for failure to provide ticket inventory to satisfy these
performance thresholds. Accordingly, no expense was recorded when the warrant
was issued. On December 31, 1998, the Company amended its agreement with Delta
to eliminate the vesting contingencies and fix the number of shares subject to
the warrant at 18,619,402. The warrants were immediately vested on the date of
grant, in that they are not subject to any forfeiture for any reason. The
amended Delta Warrant was to become exercisable at the earlier of seven years or
over three years upon the achievement of certain performance thresholds. The
agreement does not require Delta to make any performance commitments, is
non-exclusive and allows Delta to participate in other programs similar to the
priceline.com service. Accordingly, the Company recognized approximately $58.7
million of expense based upon the fair value of the warrant on December 31,
1998, of which $3.0 million is included in cost of revenues-supplier warrant
costs and $55.7 million is included in expenses-warrant costs, net in the
accompanying statements of operations.
In November 1999, the Company further amended the Delta warrant to provide
Delta with a cashless exercise right. Upon the exercise of the warrant, Delta
acquired a total of 16,525,834 shares of Common Stock of priceline.com. In
conjunction with that transaction, Delta sold 2,085,767 shares of priceline.com
Common Stock to priceline.com's founder and Vice Chairman Jay S. Walker for an
aggregate purchase price of $125 million. The Company further gave Delta the
right to exchange six million shares of priceline.com common stock for six
million shares of newly issued convertible preferred stock that may be converted
into priceline.com stock on a one-for-one basis. To date, Delta has not elected
to exercise the conversion right.
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
8. WARRANTS TO PURCHASE COMMON STOCK (Continued)
On December 31, 1998, priceline.com issued warrants to purchase 937,500
shares of Common Stock, at an exercise price of $3.20 per share, to three
airlines in recognition of their being among the original participants in the
priceline.com service. Because there are no requirements as to the nature or
length of that participation, and the warrants are not subject to forfeiture for
any reason, the Company recognized approximately $2.3 million of expense based
upon the fair value of the warrants at December 31, 1998. That amount is
included in expenses- warrant costs, net in the accompanying statements of
operations.
On January 29, 1999, priceline.com issued warrants to an airline to
purchase 1,250,000 shares of Common Stock at an exercise price of $6.40 per
share. The warrants become exercisable as follows, 50% on January 29, 2000 and
50% on January 29, 2001. The agreement requires the airline to make available to
priceline.com airline ticket inventory on certain specified terms and conditions
for two years. If the airline does not provide the specified airline ticket
inventory, the unexercised warrants are returnable and a substantial penalty
will be imposed. The fair value of the warrant of $3.1 million at the grant date
was capitalized and will be amortized over the two year period during which
services are expected to be provided to the Company.
During July 1999, priceline.com issued to Continental Airlines a warrant
to purchase common stock that will become exercisable upon the earlier of July
2004 or upon the achievement of certain performance thresholds. However, the
agreement does not require Continental to make any performance commitments.
Accordingly, priceline.com incurred a non-cash charge of approximately $88.4
million during the third quarter of 1999 representing the fair value of the
warrant on the grant date. In November 1999, the Company amended the Continental
warrant to allow the exercise price to fall within the range of the warrants
issued to other airlines discussed below. Priceline.com incurred a non-cash
charge of approximately $3.5 million during the fourth quarter as a result of
the warrant amendment.
In November 1999, the Company entered into separate Participation Warrant
Agreements with each of eight major domestic airlines relating to their
inclusion in the Company's leisure airline ticket service. Under the
Participation Warrant Agreements, the airlines were granted warrants to purchase
a total of 20 million shares of priceline.com Common Stock at exercise prices
ranging from $52.625 to $59.933 per share. All warrants were fully vested on the
date of grant, but generally are not exercisable until November 2005, subject to
acceleration under certain circumstances. Priceline.com incurred additional
warrant costs of approximately $1.1 billion during the fourth quarter of 1999 as
a result of the issuance of these warrants.
9. STOCK OPTION PLANS
In February 1999, the Company adopted the 1999 Omnibus Plan (the "1999
Plan"), which provides for grants of options as incentives and rewards to
encourage employees, officers, consultants and directors in the long term
success of the Company. In addition, the Company had previously adopted the 1997
Omnibus Plan (the "1997 Plan"). The 1999 Plan and 1997 Plan provide for grants
of options to purchase up to 9,375,000 and 23,875,000 shares of Common Stock,
respectively, at a purchase price equal to the fair market value on the date of
grant. Generally, options from both plans vest over three years from the date of
grant. Compensation expense for options granted to non-employees, included in
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
9. STOCK OPTION PLANS (Continued)
general and administrative, aggregated $0 and $245,063, during the years ended
December 31, 1999 and 1998, respectively.
The following summarizes the transactions pursuant to the Plan:
<TABLE>
<CAPTION>
Weighted
Average Option Price
Shares Option Price Range
------------ ------------ ------------
<S> <C> <C> <C>
Granted during 1998........................... 23,449,219 $0.93 $0.80-3.20
Forfeited..................................... (189,374) 0.80 0.80
Cancelled..................................... (815,625) 0.80 0.80
------------ ------ ------------
Balance at December 31, 1998.................. 22,444,220 $0.94 $0.80-3.20
Granted during 1999........................... 6,481,833 55.99 3.20-139.25
Exercised..................................... (1,614,697) 1.02 0.80-8.00
Forfeited..................................... (286,616) 20.74 0.80-139.25
------------ ------ ------------
Balance at December 31, 1999.................. 27,024,740 $13.93 $0.80-139.25
============ ====== ============
Exercisable at December 31, 1999.............. 16,708,585
============
Exercisable at December 31, 1998.............. None
============
Available for grant at December 31, 1999...... 4,610,563
============
Available for grant at December 31, 1998...... 1,430,780
============
</TABLE>
No options were granted during 1997.
The following table summarizes information about stock options outstanding
at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE AS OF REMAINING EXERCISE AS OF EXERCISE
PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE
------------- ---------- --------- -------- ----------- --------
$ .80-$ .93 19,532,282 8.53 $ .81 16,171,502 $0.80
3.20- 13.00 2,835,458 9.12 5.99 537,083 3.42
46.75- 139.25 4,657,000 9.68 73.83 -- --
---------- ---- ------ ---------- -----
$ .80-$139.25 27,024,740 9.07 $13.93 16,708,585 $0.88
========== ==== ====== ========== =====
Had compensation costs been determined based upon the fair value at grant
date, the Company's pro forma net loss and pro forma net loss per share for the
years ended December 31, 1999 and 1998 would have been reported as follows (in
thousands, except per share amounts):
1999: Reported Pro Forma
- ---- ---------- ----------
Net loss........................................... $1,055,090 $1,295,758
Net loss applicable to common shareholders......... 1,063,444 1,304,112
Basic and diluted loss per common share............ 7.90 9.69
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
9. STOCK OPTION PLANS (Continued)
1998: Reported Pro Forma
- ---- ---------- ----------
Net loss........................................... $112,243 $114,613
Net loss applicable to common shareholders......... 114,426 116,797
Basic and diluted loss per common share............ 1.41 1.44
The fair value of options granted during 1999 was determined on the date
of grant using the Black-Scholes method. The weighted average fair value of
options granted during 1999 was estimated to be approximately $52.45, based on
the following assumptions: volatility of 107%, risk free interest rate of 5.9%,
an expected life of 3 years, and no dividends.
The fair value of options granted during 1998 was determined on the date
of grant using the minimum value method. The weighted average fair value of
options granted during 1998 was estimated to be approximately $0.15, based on
the following assumptions: volatility of 0%, risk free interest rate of 6.0%, an
expected life of 3 years, and no dividends.
10. TAXES
Income Taxes Through July 31, 1998, priceline.com operated as a limited
liability company and income taxes (benefits) accrued to the members.
Accordingly, no income taxes (benefits) were reflected in the accompanying
financial statements as of December 31, 1997 and for the period then ended.
Since converting from an LLC to a corporation in July 1998, the Company has
incurred net operating losses of approximately $1.1 billion, and accordingly, no
provision for income taxes is reflected in the accompanying statements of
operations.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets at December 31, 1999 and 1998 are as follows (in
thousands):
1999 1998
--------- ---------
Warrant costs ................................ $ 488,989 $ 25,267
Net operating loss carryforwards ............. 459,455 9,348
Start-up costs ............................... 2,300 2,988
Other ........................................ (2,801) 382
Less valuation allowance ..................... (947,943) (37,985)
--------- ---------
Deferred tax asset, net ...................... $ -- $ --
========= =========
A valuation allowance for the full amount of the net deferred tax asset
was recorded at December 31, 1999 and 1998 and represents the portion of tax
operating loss carryforwards and other items for which it is more likely than
not that the benefit of such items will not be realized. The
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
10. TAXES (Continued)
income tax benefit is different from the amount computed using applicable
statutory federal rates for the following reasons (in thousands):
1999 1998
--------- ---------
Income tax benefit at federal statutory rate ..... $ 369,281 $ 39,285
Adjustment due to:
LLC status through July 31, 1998 ............... (7,090)
State taxes and other .......................... 64,605 5,790
Increase in valuation allowance ................ (433,886) (37,985)
--------- ---------
Income tax benefit ............................... $ -- $ --
========= =========
Federal Air Transportation Tax--A Federal transportation tax is imposed
upon the sale of airline tickets. The tax is based on a percentage of the cost
of transportation, which was 9% for periods prior to October 1, 1998, 8% for the
period October 1, 1998 through September 30, 1999 and 7.5% thereafter. The
Company has historically interpreted the tax regulations as requiring that the
tax be computed based on the amount charged by the airline to priceline.com for
the airline ticket and the Company's participating airlines have collected and
remitted the tax based on this amount. The Company applied for a ruling from the
Internal Revenue Service (the "Service") confirming this interpretation. In
December 1999, the Service indicated to the Company that it was unlikely that a
favorable ruling would be issued. The Company subsequently withdrew its ruling
request because of the uncertainty of the outcome. Because the Company
anticipated the possibility of an adverse ruling on this issue, the Company
accrued approximately $1.9 million relating to the balance of the tax liability
for tickets sold prior to that date. The Company believes this accrual to be
adequate, but there can be no assurance as to the final outcome because a formal
ruling has not been issued by the service.
11. LICENSING, MARKETING and TECHNOLOGY AGREEMENTS
In 1999, priceline.com licensed its name and demand collection system to
Priceline WebHouse Club, Inc. ("WebHouse") and agreed to provide certain
services to WebHouse. WebHouse is an independent company. Under the negotiated
agreements, priceline.com receives a royalty based on a percentage of WebHouse
revenues and payments for services at estimated fair value. The Company realized
$33,777 of royalty revenue in 1999. As an inducement to enter into a
relationship with WebHouse, priceline.com received a warrant to purchase a
majority of the shares of WebHouse common stock. The warrants are
non-forfeitable, fully vested upon grant, exercisable in five years or earlier
upon the occurrence of certain events, and do not require the performance of any
additional services. Upon receipt of the warrant in the fourth quarter,
priceline.com recognized $188.8 million of income representing the amount of the
estimated fair value of the warrants, based on an independent valuation.
Priceline.com is negotiating a similar arrangement with another independent
Licensee, Priceline Perfect Yardsale, Inc. ("Yardsale").
Additionally, priceline.com and WebHouse entered into an Intellectual
Property License Agreement, Marketing and Technical Services Agreement and a
Services Agreement pursuant to which priceline.com provides certain marketing,
technology and other services to WebHouse and receives compensation at fair
value for services rendered. Accordingly, WebHouse paid the Company $1.65
million during 1999 under these agreements.
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
11. LICENSING, MARKETING and TECHNOLOGY AGREEMENTS (Continued)
Priceline.com and Yardsale also entered into a preliminary agreement
pursuant to which priceline.com licenses its name and demand collection system
and provides certain marketing, technology and other services to Yardsale and
receives compensation at fair value for services rendered. The agreements with
Yardsale were not in effect until after January 1, 2000.
12. COMMITMENTS AND CONTINGENCIES
Legal Proceedings On January 6, 1999, priceline.com received notice that a
third party patent applicant and patent attorney, Thomas G. Woolston,
purportedly had filed in December 1998 with the United States Patent and
Trademark Office a request to declare an interference between a patent
application filed by Woolston and priceline.com's U.S. Patent 5,794,207.
Priceline.com currently is awaiting information from the Patent Office regarding
whether it will initiate an interference proceeding.
On January 19, 1999, Marketel International Inc. (Marketel), a California
corporation, filed a lawsuit against priceline.com, among others. On February
22, 1999, Marketel filed an amended and supplemental complaint. The amended
complaint filed by Marketel alleges causes of action for, among other things,
misappropriation of trade secrets, breach of contract, conversion, breach of
confidential relationship, copyright infringement, fraud, unfair competition and
false advertising, and seeks injunctive relief and damages in an unspecified
amount. In its amended complaint, Marketel alleges, among other things, that the
defendants conspired to misappropriate Marketel's business model, which
allegedly was provided in confidence approximately ten years ago. The amended
complaint also alleges that four former Marketel employees are the actual sole
inventors or co-inventors of U.S. Patent 5,794,207, which was issued on August
11, 1998 and has been assigned to priceline.com. Marketel asks that the patent's
inventorship be corrected accordingly.
On February 5, and February 10, 1999, the Company filed their answer and
amended answer, respectively, to the amended complaint, in which they denied the
material allegations of liability in the complaint. Priceline.com strongly
dispute the material legal and factual allegations contained in Marketel's
amended complaint and believes that the amended complaint is without merit.
Priceline.com intends to defend vigorously against the action. Pursuant to the
indemnification obligations contained in the Purchase and Intercompany Services
Agreement with Walker Digital, Walker Digital has agreed to indemnify, defend
and hold harmless priceline.com for damages, liabilities and legal expenses
incurred in connection with the Marketel litigation.
On October 13, 1999, priceline.com filed a complaint in the United States
District Court for the District of Connecticut under the caption Priceline.com
Incorporated v. Microsoft Corporation and Expedia, Inc., No. 399CV1991 (AWT)
alleging that Microsoft Corporation and Expedia, Inc., a subsidiary of Microsoft
Corporation, infringe priceline.com's U.S. Patent 5,794,207 by operating the
defendants' "Hotel Price Matcher" service, and that the defendants' conduct
toward priceline.com violated the Connecticut Unfair Trade Practices Act. On
December 20, 1999 defendants moved the Court to dismiss the complaint for
failure to name a necessary party, Marketel. On March 21, 2000, the presiding
judge stated that he intends to deny defendant's motion to dismiss, and that a
decision will be forthcoming. On December 23, 1999 the Court granted
priceline.com's motion to supplement the complaint to expressly include
defendant's "Flight Price Matcher" service. In the lawsuit, priceline.com is
seeking declaratory relief, permanent injunctive relief and actual and punitive
damages.
From time to time the Company has been and expects to continue to be
subject to legal proceedings and claims in the ordinary course of business, and
including claims of alleged infringement
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
12. COMMITMENTS AND CONTINGENCIES (Continued)
of third party intellectual property rights by the Company. Such claims, even if
not meritorious, could result in the expenditure of significant financial and
managerial resources.
The Company is unable to predict the outcome of the legal proceedings
referred to above.
Airline Alliances and Relationships Priceline.com has entered into Airline
Participation Agreements with twenty-eight airlines for the supply of airline
tickets. The Airline Participation Agreements do not commit the airlines to
provide tickets for any particular routes or at a discount to their retail
prices, but outline the terms and conditions under which tickets may be sold
pursuant to fares, rules and availability that the airlines may provide from
time to time. The Airline Participation Agreements are generally subject to
termination upon 30 days notice by priceline.com or the airline.
Employment Contracts At December 31, 1999, priceline.com had entered into
employment agreements with certain members of senior management that provide for
minimum annual compensation of approximately $2.4 million in the aggregate. The
agreements provide for periods of employment of up to five years. Generally, the
agreements provide for the grant of stock options under the 1999 and 1997
Omnibus Plans.
13. BENEFIT PLAN
Priceline.com adopted a defined contribution 401(k) savings plan (the
Plan) during 1998 covering all employees who are at least 21 years old and have
completed 6 months of service. The Plan allows eligible employees to contribute
up to 20% of their eligible earnings, subject to a statutorily prescribed annual
limit. The Company may make matching contributions on a discretionary basis to
the Plan. All participants are fully vested in their contributions and
investment earnings. During the years ended December 31, 1999 and 1998, the
Company did not make any matching contributions to the Plan.
14. OTHER RELATED PARTY TRANSACTIONS
The Founder and Vice Chairman of priceline.com also serves as
non-executive Chairman of NewSub Services, Inc. ("NewSub"), a direct marketing
company co-founded by him. The Company participates in certain adaptive
marketing programs with NewSub. During the years ended December 31, 1999 and
1998, the Company recognized revenue of $202,322 and $0, respectively, and sales
and marketing expense of $579,338 and $80,799, respectively, related to these
programs.
In June 1998, priceline.com issued a promissory note to a Walker Digital
for $1,000,000. The promissory note bore interest at a rate of 6% per annum and
was due June 30, 1999. The note has been repaid.
In December 1998, priceline.com completed a private placement of Series B
Convertible Preferred Stock with several investors, including GAP and Vulcan
Ventures Incorporated. Fees of $850,000 have been paid to a company, in which a
director a priceline.com is a director and stockholder, in connection with this
transaction.
In April 1999, priceline.com made a $3.3 million loan to Mr. Richard S.
Braddock for the payment of taxes related to the issuance to Mr. Braddock of
8,125,000 shares of common stock in August 1998. The loan bears interest at
5.28% per annum. Interest is payable annually and principal is payable in
January 2004.
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
14. OTHER RELATED PARTY TRANSACTIONS (Continued)
In July 1999, priceline.com made a $6.0 million loan to an executive of
the Company, pursuant to the terms of his employment agreement dated June 14,
1999. The loan bears interest annually at 5.82% per annum. Subject to certain
prepayment obligations and to forgiveness in the event of certain changes of
control, death, or termination without cause, pursuant to the terms of this
loan, accrued interest and principal are payable after five years, but are
forgiven under certain circumstances if the executive remains employed by the
Company at that time. Upon any forgiveness of the loan, the Company would
recognize as compensation expense an amount up to the amount of principal and
interest forgiven.
15. SUBSEQUENT EVENTS
In March 2000, the Company entered into an agreement with Alliance Capital
Partners, pursuant to which Alliance has formed an operating subsidiary,
pricelinemortgage, for the primary purpose of acting as a broker and/or lender
of residential mortgage loans in connection with the priceline.com mortgage
service. Priceline.com has agreed to provide $3.62 million of financing to an
affiliate of Alliance in the form of a convertible secured note and has agreed
to license the "priceline" name and business model for use by pricelinemortgage.
Alliance has agreed to provide management services to pricelinemortgage,
including the procurement of personnel and office space and assistance in
obtaining regulatory approvals.
In February 2000, the Company announced the resignation of Paul Francis,
Executive Vice President and Chief Financial Officer and the hiring of Heidi
Miller as Senior Executive Vice President, Chief Financial Officer, Strategy,
Planning and Administration.
In the first quarter 2000, priceline.com made loans to two executives
aggregating $5.0 million, which bear interest at 6.56%. Subject to certain
prepayment obligations and to forgiveness in the event of certain changes of
control, death, or termination without cause, pursuant to the terms of these
loans, accrued interest and principal are payable after five years, but are
forgiven under certain circumstances if the executive remains employed by the
Company at that time. Upon any forgiveness of the loans, the Company would
recognize as compensation expense an amount up to the amount of principal and
interest forgiven.
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
16. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The follow table sets forth certain key interim financial information for
the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1999:
Revenues ................................................... $ 49,411 $ 111,564 $ 152,222 $ 169,213
Cost of revenue:
Product costs ............................................ 43,659 100,664 133,628 145,104
Supplier warrant costs ................................... 381 381 381 381
--------- --------- --------- ---------
Total cost of revenues ..................................... 44,040 101,045 134,009 145,485
--------- --------- --------- ---------
Gross profit ............................................... 5,371 10,519 18,213 23,728
--------- --------- --------- ---------
Operating expenses:
Warrant costs, net ....................................... 88,389 910,443
Sales and marketing ...................................... 17,138 17,733 21,413 23,293
General and administrative ............................... 3,667 5,503 8,390 10,049
Systems and business development ......................... 2,184 3,469 4,593 3,777
--------- --------- --------- ---------
Total expenses ............................................. 22,989 26,705 122,785 947,562
--------- --------- --------- ---------
Operating loss ............................................. (17,618) (16,186) (104,572) (923,834)
Other income (expense) ..................................... 458 1,929 2,356 2,377
--------- --------- --------- ---------
Net loss ................................................... (17,160) (14,257) (102,216) (921,457)
Accretion on preferred stock ............................... (8,354)
--------- --------- --------- ---------
Net loss applicable to common stockholders ................. $ (25,514) $ (14,257) $(102,216) $(921,457)
========= ========= ========= =========
Net loss per basic and diluted common share ................ $ (0.27) $ (0.10) $ (0.71) $ (5.91)
========= ========= ========= =========
Weighted average common shares outstanding ................. 94,939 142,320 144,501 156,032
========= ========= ========= =========
1998:
Revenues ................................................... $ 7,022 $ 9,222 $ 18,993
Cost of revenue:
Product costs ............................................ 7,943 8,851 16,702
Supplier warrant costs ................................... 3,029
--------- --------- ---------
Total cost of revenues ..................................... 7,943 8,851 19,731
--------- --------- ---------
Gross profit ............................................... (921) 371 (738)
--------- --------- ---------
Operating expenses:
Warrant costs, net ....................................... 57,979
Sales and marketing ...................................... $ 1,130 6,635 8,160 8,463
General and administrative ............................... 1,697 3,102 9,400 3,806
Systems and business development ......................... 1,926 3,442 2,801 2,962
--------- --------- --------- ---------
Total expenses ............................................. 4,753 13,179 20,361 73,210
--------- --------- --------- ---------
Operating loss ............................................. (4,753) (14,100) (19,990) (73,948)
Other income (expense) ..................................... 50 113 142 244
--------- --------- --------- ---------
Net loss ................................................... (4,703) (13,987) (19,848) (73,704)
Accretion on preferred stock ............................... (2,183)
--------- --------- --------- ---------
Net loss applicable to common stockholders ................. $ (4,703) $ (13,987) $ (19,848) $ (75,887)
========= ========= ========= =========
Net loss per basic and diluted common share ................ $ (0.08) $ (0.17) $ (0.19) $ (0.81)
========= ========= ========= =========
Weighted average common shares outstanding ................. 55,487 81,297 105,411 93,168
========= ========= ========= =========
</TABLE>
61
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
2.1* Agreement of Merger, dated as of July 31, 1998, between
priceline.com LLC and the Registrant.
3.1* Form of Amended and Restated Certificate of Incorporation of
the Registrant.
3.2* Form of By-Laws of the Registrant.
4.1 Reference is hereby made to Exhibits 3.1 and 3.2.
4.2* Specimen Certificate for Registrant's Common Stock.
4.3* Amended and Restated Registration Rights Agreement, dated as
of December 8, 1998, among the Registrant and certain
stockholders of the Registrant.
10.1.1* 1997 Omnibus Plan of the Registrant.
10.1.2* 1999 Omnibus Plan of the Registrant.
10.2* Stock Purchase Agreement, dated July 31, 1998, among the
Registrant and the investors named therein, as amended.
10.3* Stock Purchase Agreement, dated as of December 8, 1998, among
the Registrant and the investors named therein, as amended.
10.4 Reference is hereby made to Exhibit 4.3.
10.5* Purchase and Intercompany Services Agreement, dated April 6,
1998, among the Registrant, Walker Asset Management Limited
Partnership, Walker Digital Corporation and Priceline Travel,
Inc.
10.6.1* Employment Agreement, dated as of January 1, 1998, between Jay
S. Walker, Walker Digital Corporation, the Registrant and
Jesse M. Fink.
10.6.2* Amendment No. 1 to Employment Agreement, dated November 16,
1998 between the Registrant and Jesse M. Fink.
10.7.1* Employment Agreement, dated as of July 23, 1998, between the
Registrant and Timothy G. Brier.
10.7.2* Amendment No. 1 to Employment Agreement, dated November 16,
1998, between the Registrant and Timothy G. Brier.
10.8* Amended and Restated Employment Agreement, dated as of August
15, 1998, by and between the Registrant and Richard S.
Braddock.
10.9* Airline Participation Agreement, dated April 1998, by and
among the Registrant, Priceline Travel, Inc. and Trans World
Airlines, Inc.
10.10*+ Airline Participation Agreement, dated October 2, 1998, by and
among the Registrant, Priceline Travel, Inc. and Northwest
Airlines, Inc.
10.11.1*+ General Agreement, dated August 31, 1998, by and among the
Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc.
10.11.2*+ Airline Participation Agreement, dated August 31, 1998, by and
among the Registrant, Priceline Travel, Inc. and Delta Air
Lines, Inc.
10.11.3*+ Amendment to the Airline Participation Agreement and the
General Agreement, dated December 31, 1998, between and among
the Registrant, Priceline Travel, Inc. and Delta Air Lines,
Inc.
10.11.4*** Letter Agreement, dated July 16, 1999, between the Registrant
and Delta Air Lines, Inc.
10.11.5 Master Agreement, dated November 17, 1999, between the
Registrant and Delta Air Lines, Inc.
10.11.6 Amendment to the Airline Participation Agreement and the
General Agreement, dated November 17, 1999, by and among the
Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc.
10.11.7+ Participation Warrant Agreement, dated as of November 17,
1999, between the Registrant and Delta Air Lines, Inc.
10.12*+ Airline Participation Agreement, dated December 31, 1998, by
and among the Registrant, Priceline Travel, Inc. and America
West Airlines.
10.13*+ Internet Marketing and Licensing Agreement, as of August 1,
1998, between the Registrant and LendingTree, Inc.
10.14* Systems Access Agreement, dated as of August 4, 1997, between
the Registrant and WORLDPAN, L.P.
<PAGE>
Exhibit Number Description
- -------------- -----------
10.15* Master Agreement for Outsourcing Call Center Support, dated as
of April 6, 1998, between the Registrant and CALLTECH
Communications, Incorporated.
10.16* Form of Participation Warrant Agreement.
10.17.1*+ Participation Warrant Agreement, dated as of December 31,
1998.
10.17.2*+ Amendment No. 1, dated as of February 4, 1999, to Warrant
Participation Agreement, dated as of December 31, 1999.
10.17.3*+ Amendment No. 2, dated as of March 3, 1999, to Participation
Warrant Agreement, dated as of December 31, 1998, as
previously amended to Amendment No. 1 to Warrant Participation
Agreement, dated as of February 4, 1999.
10.18*** Employment Agreement, dated as of June 14, 1999, between the
Registrant and Daniel H. Schulman.
10.19.1*** Airline Participation Agreement, dated July 16, 1999, between
the Registrant and Continental Airlines, Inc.
10.19.2*** Participation Warrant Agreement, dated July 16, 1999, between
the Registrant and Continental Airlines, Inc.
10.19.3 First Amendment to Participation Warrant Agreement, dated as
of November 17, 1999, by and between the Registrant and
Continental Airlines, Inc.
10.19.4+ Participation Warrant Agreement, dated November 17, 1999,
between the Registrant and Continental Airlines, Inc.
10.20**** License Agreement, dated July 20, 1999 between Walker Digital
Corporation and the Registrant.
10.21 Sublease, dated October 1999, between Oxford Health Plans,
Inc., as Sub-Landlord and the Registrant, as Sub-Tenant, and
Agreement of Lease, dated June 16, 1993, as amended, between
Prudential Insurance Company of America, as Landlord, and
Oxford Health Plans, Inc., as Tenant.
10.22.1 Securityholders' Agreement, dated as of October 26, 1999,
among the Registrant, Priceline WebHouse Club, Inc., Walker
Digital, LLC and the Investors signatory thereto.
10.22.2+ Intellectual Property License Agreement, dated as of October
26, 1999, between the Registrant and Priceline WebHouse Club,
Inc.
10.22.3+ Marketing and Technical Services Agreement, dated as of
October 26, 1999, between the Registrant and Priceline
WebHouse Club, Inc.
10.22.4+ Warrant Agreement, dated as of October 26, 1999, between the
Registrant and Priceline WebHouse Club, Inc.
10.22.5+ Services Agreement, dated as of October 26, 1999, between the
Registrant and Priceline WebHouse Club, Inc.
10.23.1+ Airline Participation Agreement, dated as of November 15,
1999, by and between the Registrant and United Air Lines, Inc.
10.23.2+ Participation Warrant Agreement, dated as of November 15,
1999, by and between the Registrant and United Air Lines, Inc.
10.24.1+ Airline Participation Agreement, dated as of November 17,
1999, by and between the Registrant and US Airways, Inc.
10.24.2+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and US Airways, Inc.
10.25.1+ Airline Participation Agreement, dated as of November 17,
1999, by and between the Registrant and American Airlines,
Inc.
10.25.2+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and American Airlines,
Inc.
10.26+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and Trans World Airlines,
Inc.
10.27+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and Northwest Airlines,
Inc.
10.28+ Participation Warrant Agreement, dated as of November 17,
1999, by and between the Registrant and America West Airlines
10.29 Continuing Employment Agreement, dated as of December 16,
1999, between the Registrant and Melissa M. Taub.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
<PAGE>
* Previously filed as an exhibit to the Form S-1 (Registration No.
333-69657) filed in connection with priceline.com's initial public
offering and incorporated herein by reference.
** Previously filed as an exhibit to the Form 10-Q filed on May 17, 1999 and
incorporated herein by reference.
*** Previously filed as an exhibit to the Form S-1 (Registration No.
333-83513) filed in connection with priceline.com's secondary public
offering and incorporated herein by reference.
**** Previously filed as an exhibit to the Form 10-Q filed on November 15, 1999
+ Certain portions of this document have been omitted pursuant to a
confidential treatment request.
MASTER AGREEMENT
This Master Agreement ("Agreement"), dated the 17th day of November, 1999,
is between Delta Air Lines, Inc. ("Delta") and priceline.com Incorporated
("Priceline").
RECITALS
Delta has agreed to amend the General Agreement, dated August 31, 1998, as
amended (the "GA"), to add United Airlines, American Airlines, US Airways, Japan
Airlines, Alitalia and Aerolineas Argentinas to the list of permitted carriers
and to modify sections of the GA relating to market restrictions, the allocation
methodology, and reporting and audit rights set forth therein. In exchange,
Priceline (a) has agreed to provide financial consideration to Delta by making
possible certain arrangements described herein and (b) has requested the release
by Morgan Stanley of Delta from a lock-up arrangement so that Delta may sell
8,440,067 shares ("Market Sale Shares") of its approximately 14.4 million shares
of Priceline common stock. In addition, Priceline has agreed that the remaining
approximately six million shares of Priceline common stock held by Delta will be
exchanged, at Delta's option, for approximately six million shares of newly
issued Priceline convertible preferred stock, which will bear an eight percent
annual pay-in-kind dividend.
The parties agree to the following:
ARTICLE 1- ACTIONS OF THE PARTIES
1.1 Amendment to General Agreement and Airline Participation Agreement
Delta and Priceline agree to amend the General Agreement and Airline
Participation Agreement, dated August 31, 1998, as amended ("APA"), in
accordance with Exhibit A, attached hereto and incorporated by reference
herein (the "Amendment").
1.2 Release from Lock-up
Priceline will use its best efforts to cause Morgan Stanley & Co.
Incorporated and Morgan Stanley & Co. International Limited (collectively,
Morgan Stanley) to release the Market Sale Shares held by Delta from the
lock-up that
<PAGE>
expires on February 7, 2000 pursuant to that certain Lock-Up Letter from
Delta to Morgan Stanley and several Underwriters dated August 11, 1999
(the "Lock-Up"). In addition, Priceline shall not request, will oppose if
requested, and will use its best efforts to cause Morgan Stanley not to
release any other parties from any existing lock-up agreements relating to
Priceline, until Delta has sold the Market Sale Shares.
1.3 No Amendment of Warrant Agreements
Priceline shall not amend, during the period from the date hereof until
the earlier of February 7, 2000 or Delta having sold the Market Sale
Shares (the "Release Date"), any warrant agreement or warrant certificate
to permit a cashless exercise feature.
1.4 No Sale or Registration of Securities
Priceline shall not initiate, and to the extent it has a contractual right
to do so, Priceline shall not consent to or participate in, a sale of
equity securities of Priceline until after the Release Date.
1.5 Convertible Preferred Stock
At Delta's option, , all of the shares of Priceline Common Stock held by
Delta (other than the Market Sale Shares) will be exchanged for
$359,580,000 aggregate principal amount of a newly issued class of
convertible preferred stock of Priceline bearing an accruing semi-annual
paid-in-kind dividend at a rate of eight percent (8%) per annum, payable
semiannually, in Priceline common shares (the "Convertible Preferred
Stock"), which such exchange to be structured to the extent possible in a
tax-free transaction to Delta pursuant to I.R.C. Section 368 (a)(1)(E).
Any shares of Convertible Preferred Stock held by Delta after the date of
issuance may be converted at Delta's option at any time into shares of
Priceline common stock at a one (1) to one (1) ratio (i.e. a zero percent
premium). The Convertible Preferred Stock will have a final maturity of
ten (10) years from the date of issue and be subject to a mandatory
redemption at the tenth (10th) anniversary for cash at a price per share
of $59.93; provided that Priceline shall have a call right for the
Convertible Preferred Stock after three (3) years from the date of issue
for cash at a price per share of $59.93. To the extent all or a portion of
the Convertible Preferred Stock is called, Priceline will provide Delta
with 30
2
<PAGE>
days' advance written notice so that Delta will first have the right to
convert its Convertible Preferred Stock during such 30 day period. Whether
or not Priceline has exercised its call right, Delta is guaranteed the
first six semiannual dividends. The Convertible Preferred Stock will be
subordinated to any indebtedness of Priceline, will rank pari passau with
any existing or future preferred stock issued by Priceline, and will have
priority over the the common stock of Priceline. Delta will have voting
rights for the Convertible Preferred Stock as if Delta held an equivalent
number of Priceline common shares (i.e., on a one to one ratio). In the
event that Priceline issues a cash dividend to the holders of common
shares, then Delta shall be entitled to demand a cash dividend on the
Convertible Preferred Stock in lieu of the paid-in-kind dividend.
In the event of a change of control of Priceline where cash is a portion
of the consideration paid by the acquiring company, Delta will have the
right to elect to receive the greater of par (cash at a price per share of
$59.93) or the cash value of the transaction. If the transaction is for
stock, the exchange ratio will be adjusted such that Delta receives the
same monetary consideration for its Convertible Preferred Stock.
Priceline hereby confirms that such shares, when converted to Priceline
common stock, shall have demand and piggyback registration rights under
the existing Amended and Restated Registration Rights Agreement dated
December 8, 1998 by and among Delta, Priceline, and other parties or any
successor or substitute registration rights agreement thereto.
The Convertible Preferred Stock will be subordinated to any indebtedness
of Priceline, will rank pari passau with any existing or future preferred
stock issued by Priceline, and will have priority over the the common
stock of Priceline. Delta will have voting rights for the Convertible
Preferred Stock as if Delta held an equivalent number of Priceline common
shares (i.e., on a one to one ratio). In the event that Priceline issues a
cash dividend to the holders of common shares, then Delta shall be
entitled to demand a cash dividend on the Convertible Preferred Stock in
lieu of the paid-in-kind dividend.
1.6 Other Agreements
Priceline and Delta, respectively, shall execute and deliver the
agreements described in Article 6 to which either is a party.
3
<PAGE>
ARTICLE 2- CLOSING
2.1 Closing. The closing (the "Closing") of the transactions contemplated by
this Agreement shall take place immediately, following the satisfaction or
waiver of all of the conditions set forth in Article 6 hereof (the "Closing
Date").
ARTICLE 3- REPRESENTATIONS AND WARRANTIES OF PRICELINE
Representations and Warranties of Priceline. Priceline represents and warrants
to Delta as follows:
3.1 Organization and Qualification. Priceline is a duly organized and validly
existing corporation in good standing under the laws of the State of
Delaware and has the corporate power and authority to own, operate and
lease the properties and assets it now owns, operates or leases and to
conduct its business as it is now being conducted.
3.2 Authority Relative to this Agreement. Priceline has the corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby in accordance with the terms hereof. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Priceline. This Agreement
has been duly and validly executed and delivered by Priceline and is,
assuming due execution and delivery thereof by Delta and that Delta has
full legal power and right to enter into this Agreement, a valid and
binding obligation of Priceline, enforceable against Priceline in
accordance with its terms, except as enforcement thereof may be limited by
the availability of certain equitable remedies or by bankruptcy,
insolvency or similar laws affecting creditors' rights generally.
3.3 Broker. Priceline has not retained or agreed to pay any broker or finder
with respect to this Agreement and the transactions contemplated hereby,
the fees for which Delta may be responsible.
3.4 Shares Held by Delta. Priceline represents that, as of the date of the
Warrant Agreement, after giving effect to the Stock Purchase Agreement of
November 16, 1999, pursuant to which Jay S. Walker purchased from Delta
2,085,767 shares of Priceline common stock at a price of $59.93 per share,
the remain-
4
<PAGE>
ing 14,440,067 shares of Priceline common stock held by Delta represent
approximately eight and eighty five hundredths percent (8.85%) of the
outstanding common stock of Priceline.
ARTICLE 4- REPRESENTATIONS AND WARRANTIES OF DELTA
Representations and Warranties of Delta. Delta represents to Priceline as
follows:
4.1 Organization and Qualification. Delta is a duly incorporated and validly
existing corporation in good standing under the laws of the State of
Delaware and has the corporate power and authority to own, operate and
lease the properties and assets it now owns, operates or leases and to
conduct its business as it is now being conducted.
4.2 Authority Relative to this Agreement. Delta has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby in accordance with the terms hereof. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Delta. This Agreement has
been duly and validly executed and delivered by Delta and is, assuming due
execution and delivery thereof by Priceline and that Priceline has full
legal power and right to enter into this Agreement, a valid and binding
obligation of Delta, enforceable against Delta in accordance with its
terms, except as enforcement thereof may be limited by the availability of
certain equitable remedies or by bankruptcy, insolvency or similar laws
affecting creditors' rights generally.
4.3 Purchase for Investment.
(a) Delta understands that the shares of Convertible Preferred Stock
to be issued to Delta hereunder (the "Shares") have not been registered
under the Securities Act of 1933, as amended (the "Act"), or under
applicable state securities laws, in reliance upon exemptions contained in
the Act and such laws and any applicable regulations promulgated
thereunder or interpretations thereof, and cannot be offered for sale,
sold or otherwise transferred unless all or any portion of the Shares
subsequently are so registered or qualify for exemption from registration
under the Act and such laws and unless such offer, sale or transfer is
made in compliance with the terms of this Agreement
5
<PAGE>
and that the certificate(s) representing the Shares shall bear the
following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW.
THEY MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID ACT."
(b) The Shares are being acquired under this Agreement by Delta in
good faith solely for its own account, for investment and not with a view
toward resale or other distribution within the meaning of the Act; and
such Shares will not be offered for sale, sold or otherwise transferred
without either registration or exemption from registration under the Act.
(c) Delta is an "Accredited Investor" within the meaning of rule 501
of Regulation D under the Act, as presently in effect. Delta has such
knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of its investment in the
Shares; and understands and is able to bear any economic risks associated
with such investment.
(d) Delta understands that the Shares will be considered "restricted
securities" within the meaning of Rule 144 under the Act; that Rule 144
may not be available to exempt from the registration requirements of the
Act sales of such restricted securities; that if Rule 144 is available,
sales may be made in reliance upon Rule 144 only in accordance with the
terms and conditions of Rule 144, which among other things generally
requires that the securities be held for at least one year and that sales
be made in limited amounts (which amounts are subject to certain
exceptions depending upon whether the seller is an "affiliate" within the
meaning of Rule 144 and how long the securities have been held); and that,
if the exemption for such sales is not available, registration of the
Shares under the Act and state securities laws may be required.
4.4 Broker. Delta has not retained or agreed to pay any broker or finder with
respect to this Agreement and the transactions contemplated hereby, the
fees for which Priceline may be responsible.
6
<PAGE>
ARTICLE 5- FURTHER AGREEMENTS OF THE PARTIES
5.1 Governmental Filings. In connection with the consummation of the
transactions contemplated hereby, Priceline and Delta shall promptly file
with the SEC any required materials relating to the transactions
contemplated by this Agreement.
5.2 Reasonable Business Efforts. Upon the terms and subject to the conditions
of this Agreement, Delta and Priceline agree to use reasonable business
efforts to take, or cause to be taken, and to assist and cooperate with
each other in doing, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective, in
the most expeditious manner practicable, the transactions contemplated by
this Agreement.
5.3 Expenses; Payments. Each party hereto agrees to bear its own expenses
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with the negotiation and preparation of this
Agreement and its performance hereunder.
5.4 Warrant. On November 17, 1999, Priceline shall execute and deliver to
Delta a Participation Warrant Agreement in the form of Exhibit D attached
hereto.
ARTICLE 6- CONDITIONS TO OBLIGATIONS OF DELTA
Delta shall not be obligated to consummate the transactions contemplated by this
Agreement, unless the following conditions shall have been satisfied or, if
applicable, waived by Delta prior to or at the Closing.
6.1 Representations and Warranties. The representations and warranties of
Priceline contained herein shall be true, complete and accurate in all
material respects as of the Closing Date.
6.2 Morgan Stanley shall have issued to Delta a letter in the form of Exhibit
B attached hereto in which Morgan Stanley releases the Market Sale Shares
from the Lock-Up that expires on February 7, 2000 (the "Lock-Up").
6.3 Jay S. Walker, Walker Digital, Richard Braddock, Paul Francis and Timothy
Brier each shall have signed a letter agreement with Delta, in the form of
7
<PAGE>
Exhibit C attached hereto, in which each agrees, during the period from
the date hereof until the Release Date, not to sell or transfer, directly
or indirectly, any Priceline securities.
6.4 Priceline shall have executed a Participation Warrant Agreement in the
form of Exhibit D attached hereto.
ARTICLE 7- CONDITIONS TO OBLIGATIONS OF PRICELINE
Priceline shall not be obligated to consummate the transactions contemplated by
this Agreement unless the following conditions shall have been satisfied or, if
applicable, waived by Priceline prior to or at the Closing.
7.1 Representations and Warranties. The representations and warranties of
Delta contained herein shall be true, complete and accurate in all
material respects as of the Closing Date.
7.2 Amendments. Delta shall have executed and delivered the Amendment to the
GA and APA, substantially in the form of Exhibit A attached hereto.
ARTICLE 8- TERMINATION
8.1 Certain Terminations. This Agreement may be terminated at any time prior
to the occurrence of the Closing: (a) by written agreement by Delta and
Priceline; or (b) by the party not in breach in the event of a material
breach by the other which is not cured within fifteen (15) days after
written notice thereof.
8.2 Effect of Termination. In the event of the termination of this Agreement
by either Delta or Priceline, as provided above, this Agreement shall
thereafter become void and of no further force and effect and there shall
be no liability on the part of any party hereto or its directors,
officers, stockholders, employees or agents, except for any liability for
any willful breach of this Agreement causing or permitting such
termination and except that the provisions of Sections 5.3 and this
Section 8.2 shall survive such termination. The representations and
warranties made herein shall survive the Closing.
8
<PAGE>
ARTICLE 9- MISCELLANEOUS
9.1 Further Assurances. From time to time hereafter, each party shall, using
reasonable business efforts, execute and deliver such other instruments of
transfer and assumption and take such further action including providing
access to necessary books and records as the other may reasonably request
to carry out the transfer of the Assets and as otherwise may be reasonably
required in connection with effecting or carrying out the provisions of
this Agreement.
9.2 No Waiver. Except as expressly provided in this Agreement, nothing
contained in this Agreement shall cause the failure of either party to
insist upon strict compliance with any covenant, obligation, condition or
agreement contained herein to operate as a waiver of, or estoppel with
respect to, any such or any other covenant, obligations, condition or
agreement by the party entitled to the benefits thereto.
9.3 Severability. If any provisions hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of
future legislative action, such holding or action shall be strictly
construed and, subject to applicable law, shall not affect the validity or
effect of any other provisions hereof.
9.4 No Third Party Beneficiary. Nothing herein expressed or implied is
intended to or shall be construed to confer upon or give to any person or
corporation other than the parties hereto and their successors any rights
or remedies under or by reason of this Agreement.
9.5 Entire Agreement; Amendments. This Agreement contains and is intended as,
a complete statement of the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersedes all prior
statements, representations, discussions, agreements, draft agreements and
undertakings, whether written or oral, express or implied, of any and
every nature with respect thereto. This Agreement cannot be changed or
terminated orally. This Agreement may only be amended by written agreement
of Priceline and Delta.
9.6 Assignment. This Agreement shall be binding upon the successors and
assigns of the parties hereto, although no party shall be permitted to
assign
9
<PAGE>
any of its rights or delegate any of its duties under this Agreement
without the consent of the other party hereto.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements
made and to be performed in the State of Delaware.
9.8 Notices. All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be delivered personally
(including by courier) or mailed by registered mail, return receipt
requested, or given by facsimile transmission to the parties at the
following addresses (or to such other address as a party may have
specified by notice given to the other pursuant to this provision) and
shall be deemed given when so received:
(a) if to Priceline, to:
priceline.com Incorporated
5 High Ridge Park,
Stamford, Connecticut 06905
Attn: - General Counsel
Facsimile number: (203) 595-8344.
(b) if to Delta, to:
Delta Air Lines, Inc.
1030 Delta Boulevard Atlanta, GA 30320
Attn: Senior Vice President - General Counsel
Facsimile number: (404) 715-2106.
9.9 Headings. The section headings of this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement. All references herein to sections,
unless otherwise identified, are to sections of this Agreement.
9.10 Counterparts; Facsimile Signature. This Agreement may be executed by the
parties hereto in two or more counterparts, by facsimile or otherwise,
each of which shall be deemed to constitute an original, but together
which shall constitute one and the same instrument.
10
<PAGE>
9.11 Indemnity Each party (the "Indemnifying Party") shall indemnify, defend,
compensate, and hold harmless the other, and the other's officers,
directors, employees, and representatives, to the fullest extent permitted
by law, from and against all damages, claims, liabilities, losses and
attorneys' fees, arising out of or relating to any breach of any
representation, warranty, covenant or agreement in this Agreement or any
agreement signed by Delta or Priceline pursuant to Article 6.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first above written.
PRICELINE.COM DELTA AIR LINES, INC.
INCORPORATED
- ------------------------ ---------------------------
By: Paul E. Francis By: M. Michele Burns
Title: Chief Financial Officer Title: Vice President & Treasurer
11
AMENDMENT TO THE AIRLINE PARTICIPATION AGREEMENT AND THE GENERAL AGREEMENT
This Amendment ("Amendment"), dated the 17th day of November, 1999, amends the
Airline Participation Agreement ("APA") and the General Agreement ("GA"), dated
August 31, 1998, as amended, between and among Delta Air Lines, Inc. ("Delta")
and priceline.com Incorporated and PriceLine Travel, Inc. which merged with and
into priceline.com Incorporated on March 24, 1999 ("Priceline"). Unless
otherwise defined herein, capitalized terms shall have the meanings set forth in
the APA and the GA, as applicable.
1. The following provision replaces Section 3.1 of the GA in its entirety:
3.1 Subject to Section 3.5 below, Delta and Priceline agree that, during
the term of the GA and APA:
(a) Delta consents to the participation in Priceline by the U.S.
carriers identified in the attached Schedule 3.1; subject to the
following restrictions:
(i) Priceline shall not issue tickets on Northwest Airlines to or
from ATL, except for the following O&D markets: DTW-ATL,
MSP-ATL, and MEM-ATL;
(ii) Priceline shall not issue tickets on Continental Airlines to
or from ATL, except for the following O&D markets: EWR-ATL,
CLE-ATL, HOU-ATL and IAH-ATL;
(iii) Priceline shall not issue tickets on United Airlines to or
from ATL, except for the following O&D markets: ORD- ATL,
DEN-ATL, SFO-ATL, and IAD-ATL;
(iv) Priceline shall not issue tickets on USAirways to or from ATL,
BOS or LGA except for the following O&D markets: PIT-
ATL/BOS/LGA, PHL-ATL/BOS/LGA, and CLT-ATL/BOS/LGA.
Notwithstanding the above restriction, Priceline may issue
tickets on USAirways to or from BOS or LGA in O&D markets not
served by nonstop flights operated by Delta or a carrier
operating a flight under Delta's two letter "DL" designator
code, provided, that Priceline shall restrict its ticket BOS
or LGA sales on USAirways within thirty (30) days of any new
nonstop BOS or LGA service offered by Delta or a carrier
operating a flight under Delta's two letter "DL" designator
code; and
(v) Priceline shall not issue tickets on American Airlines to or
<PAGE>
from ATL, except for the following O&D markets: ORD-ATL,
DFW-ATL and MIA-ATL. In the event that American Airlines (or
an affiliate of American Airlines), merges with or acquires
substantial assets of USAirways in Boston, then, in addition
to the ATL market restriction, Priceline shall not issue
tickets on American Airlines to or from BOS, except for the
following O&D markets: ORD- BOS, DFW- BOS and MIA- BOS;
provided, that Priceline may issue tickets on American
Airlines to or from BOS in O&D markets not served by nonstop
flights operated by Delta or a carrier operating a flight
under Delta's two letter "DL" designator code subject to;
provided, further, that Priceline shall restrict its BOS
ticket sales on American within thirty (30) days of any new
nonstop BOS service offered by Delta or a carrier operating a
flight under Delta's two letter "DL" designator code. In the
event that American acquires or operates a hub airport in PIT,
PHL or CLT as a result of the acquisition of substantially all
of the assets of USAirways in PIT, PHL or CLT, then Priceline
may issue tickets on American Airlines, respectively, in the
PIT-ATL, PHL-ATL, or CLT-ATL markets, respectively.
(b) Delta consents to the participation in Priceline by the
International Carriers identified in the attached Schedule 3.1;
subject to the following restrictions:
(i) Priceline shall not issue tickets for international travel on
Austrian Airlines, Sabena, Swissair, AeroMexico, Air Jamaica,
Korean Airlines, Air Canada, All Nippon Airways, El Al Israel
Airlines, Qantas, Japan Airlines, Alitalia and Aerolineas
Argentinas to or from ATL or BOS, except for offers
originating from O&D markets not served by Delta or a carrier
operating a flight under Delta's two letter ("DL") designator
code.
(c) Notwithstanding the restrictions set forth in Section 3.1(a) and
3.1(b), Priceline may, in addition to other rights set forth in this
Amendment issue tickets (i) on Turkish Airlines solely in the New
York (JFK) - Tel Aviv O&D market, (ii) on flights operated by
Participating Airlines in O&D markets not served by Delta or a
carrier operating a flight under Delta's two letter designator code,
and (iii) on code share flights operated by third party carriers
(including commuter carriers) where the Participating Carrier's two
letter designator code used to identify its flights (as published
and used in the Official Airline Guide (OAG), computer reservation
systems (CRS's) and internal reservations systems) appears in the
carrier code box of the flight coupon; provided, that the market
restrictions set forth in Section 3.1(a) and 3.1(b) are applicable
to such code share flights.
2
<PAGE>
(d) Priceline shall not issue tickets on carriers that are not listed on
Schedule 3.1. The participation of other domestic and international
carriers in Priceline, and the sale of tickets on such carriers, is
subject to Delta's prior written consent. Delta agrees to meet with
Priceline to discuss objective criteria by which new international
participants could be added.
(e) For purposes of Section 3.1, an O&D market shall be considered to be
served by Delta or a carrier operating a flight under Delta's two
letter designator code at any time scheduled service is offered for
sale by one or more such carriers.
2. The following test is added as Section 7.15 (f) of the GA:
Reporting Audit Rights:
The General Agreement will be amended to state that Priceline will make
available (at no cost to Delta) to all Participating Airlines, on an agreed
production schedule, the following information for all Domestic and
International markets in which such Participating Airlines provide fares and
availability ("Applicable O&D's"):
o Methodology for determination of "Reasonable Demand" where "Reasonable
Demand" denotes offers acceptable to Priceline for possible fulfillment
o Notification of changes to "Reasonable Demand" methodology
o O&D routing, number of passengers, revenue, and average fare data for all
Priceline tickets for each Participating Airline The above data will be
made available to each Participating Airline no later than 30 days
following the end of each calendar month in the case of segment data and
each calendar quarter in the case of data relating to number of
passengers, revenue and average fare data.
o With respect to Delta only
- Weekly frequency distribution of offer price demand by applicable
O&D to include mode, range, minimum/maximum level, mean, median,
standard deviation and bid price trends
- As soon as practical but in any case within six months, make
available to Delta with weekly detail and summary report that
identifies rejected offers and the reasons leading to the rejections
(e.g., "bid was too low by $20, no "L" inventory LGA-ATL Nov 1)
o Priceline will continue to provide to Delta all the data it currently
submits on a regular basis (i.e., Delta Air Lines' Weekly Ticket Report -
Summaries of Ticket Sales by O&D - Domestic and International), including
data routinely submitted in response to Delta ad hoc requests.
Priceline will disclose bookings through Priceline in a format comparable
to the CRS MIDT data on a weekly basis and Priceline shall make available
3
<PAGE>
such data to all Participating Carriers.
Priceline agrees to make available to Delta the audit plan and the report
prepared by priceline's auditors concerning Priceline's compliance with
the Participation Agreement and Delta General Agreement. In addition,
Delta will have the right to audit Priceline for compliance on all
contractual market, product, and other agreements and to receive regular
reports measuring compliance to such contractual terms.
3. The following provision replaces Section 7.11 of the General Agreement in
its entirety:
7.11 All Participating Carriers will be given the first opportunity to
fill a customer ticket request based on a formula which allocates such
requests in proportion to the aggregate domestic or international market
share (as applicable) of each Participating Carrier for each O&D
requested. If a Participating Carrier fails to respond to a ticket request
on its designated first look, then Priceline will allocate the request
through a second round of preferred looks, which will be allocated in
proportion to the aggregate domestic or international market shares (as
applicable) of all remaining Participating Carriers for each O&D requested
(but excluding the Participating Carrier that failed to fulfill the ticket
request on the first look).
4. The following provision replaces Article III of the Airline Participation
Agreement in its entirety:
III. Priceline Ticket Allocation Methodology
All Participating Carriers will be given the first opportunity to
fill a customer ticket request based on a formula which allocates
such requests in proportion to the aggregate domestic or
international market share (as applicable) of each Participating
Carrier for each O&D requested. If a Participating Carrier fails to
respond to a ticket request on its designated first look, then
Priceline will allocate the request through a second round of
preferred looks, which will be allocated in proportion to the
aggregate domestic or international market shares (as applicable) of
all remaining Participating Carriers for each O&D requested (but
excluding the Participating Carrier that failed to fulfill the
ticket request on the first look).
4
<PAGE>
5. Except as provided herein, all other terms and conditions of the APA and
the GA shall remain in full force and effect. In the event any term or
provision of the APA or the GA is contrary to or inconsistent with this
Amendment, the terms of this Amendment shall control.
PRICELINE.COM DELTA AIR LINES, INC.
INCORPORATED
------------------------------- ----------------------------
By: Paul E. Francis By: M. Michele Burns
Title: Chief Financial Officer Title: Vice President &
Treasurer
5
<PAGE>
SCHEDULE 3.1
US CARRIERS
Alaska Airlines
American Airlines
America West Airlines
Continental Airlines
Hawaiian Airlines
Midway Airlines
Northwest Airlines
Sky West
Trans World Airlines
Trans States
USAirways
United Airlines
INTERNATIONAL CARRIERS
Air Jamaica
Aer Lingus
Aerolineas Argentinas
Aeromexico
Air Canada
Air France
Air New Zealand
Alitalia
All Nippon Airways
Austrian Airlines
Cathay Pacific Airways
El Al Israel Airlines
Iberia
Icelandair
Korean Air Lines
Japan Airlines
Lufthansa
Malaysia Airlines
Qantas
SAS (Scandinavian Airlines)
Singapore Airlines
Sabena
South African Airways
Swissair
Varig
Virgin Atlantic
6
Exhibit 10.11.7
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE WARRANT ISSUED PURSUANT TO THIS PARTICIPATION WARRANT AGREEMENT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. IT MAY
NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED TO EFFECTUATE SUCH TRANSACTION.
PARTICIPATION WARRANT AGREEMENT
To Purchase Shares of Common Stock
Dated as of November 17, 1999
PRICELINE.COM INCORPORATED
a Delaware Corporation
Issue Date: November 17, 1999
THIS CERTIFIES THAT, Delta Air Lines, Inc. (the "Warrant Holder"), with a place
of business at 1030 Delta Boulevard, Hartsfield Atlanta International Airport,
Atlanta Georgia 30320, for value received, is entitled, upon the terms and
subject to the conditions of this Participation Warrant Agreement (this "Warrant
Agreement"), to subscribe for and purchase fully-paid and non-assessable shares
of common stock, par value $.008 per share (the "Common Stock"), of
priceline.com Incorporated, a Delaware corporation (the "Company").
1. Issuance of Warrants. On the Issue Date, the Company will issue to the
Warrant Holder warrants (the "Warrants") to acquire Five Million Five Hundred
Thousand (5,500,000) shares of the Common Stock (the "Shares"), subject to
adjustment as hereinafter provided pursuant to Section 10 herein.
2. Exercise Price. The Warrants have an exercise price of $56.625 per
share of Common Stock, as adjusted pursuant to the provisions of Section 10 of
this Warrant Agreement (the "Exercise Price").
3. Term. The Warrants are fully vested on the Issue Date. Except as
otherwise provided herein, the term of the Warrants and the right to purchase
Shares as granted herein shall be exercisable on the fifth (5th) anniversary of
the Issue Date; provided, further, that if any of the Warrants first become
exercisable on the fifth (5th) anniversary of the Issue Date, the Warrant Holder
will have an additional six months thereafter to exercise its purchase rights in
respect of those Warrants (the end of such five year period and additional six
months, if applicable, being referred to herein as the "Termination Date").
4. Exercise Events.
(a) General. Unless otherwise exercisable at an earlier date, in
accordance with this Section 4, all of the Warrants shall be fully exercisable
commencing of the fifth anniversary of the Issue Date. Notwithstanding any
provision of Section 4(b) to the contrary, no Warrants granted hereunder shall
be exercisable prior to March 16, 2000.
(b) Early Exercise Rights.
(i) If, at any point during the period between [**]
and [**] (the "First Measuring
Period"), the Company receives Net Revenue (as defined
in Section 4(c)) of at least $[**] million (the "First
Measuring Period Net Revenue Benchmark") from tickets
sold during the First Measuring Period for travel on the
Warrant Holder,
[**]=Confidential Treatment requested for redacted portion
-1-
<PAGE>
its subsidiaries and/or on the Warrant Holder's code
share partners using Warrant Holder's code
(collectively, "Warrant Holder and its Code Share
Partners"), the Warrant Holder will thereupon and
thereafter have the right to exercise Warrants, subject
to adjustment as provided in Section 10 hereof, equal to
50% of the Shares. In the event that the Company does
not achieve the First Measuring Period Net Revenue
Benchmark during the First Measuring Period, the Warrant
Holder will still be entitled to exercise Warrants,
subject to adjustment as provided in Section 10 hereof,
equal to [**]% of the Shares upon the expiration of the
First Measuring Period and thereafter if, during the
entire term of the First Measuring Period, Warrant
Holder does not voluntarily participate in any
name-your-price airline ticket service other than the
Company's and its affiliates' airline ticket services.
(ii) In addition to Warrant Holder's early exercise rights
under Section 4(b)(i), if during the period between [**]
and [**] (the "Second Measuring Period"), the Company
receives Net Revenue (as defined in Section 4(c)) of at
least $[**] million (the "Second Measuring Period Net
Revenue Benchmark") from tickets sold during the Second
Measuring Period for travel on the Warrant Holder and
its Code Share Partners, the Warrant Holder will on [**]
and thereafter have the right to exercise Warrants,
subject to adjustment as provided in Section 10 hereof,
equal to [**]% of the Shares.
(c) Net Revenue. As used in this Warrant Agreement, the term "Net
Revenue" shall mean the total ticket revenue received by the Company from
tickets sold for travel on the Warrant Holder and its Code Share Partners, net
of federal excise and segment taxes, passenger facility charges and related
fees. The parties acknowledge that credit card processing fees, and any
processing fees or similar fees charged by the Company to the consumer in
connection with the sale of a ticket shall not be included in the calculation of
Net Revenue. Attached hereto as Exhibit D is an example of the calculation of
Net Revenue.
5. Exercise of Purchase Rights.
(a) Subject to the provisions of Section 4 of this Warrant
Agreement, the purchase rights represented by this Warrant Agreement are
exercisable by the Warrant Holder, in whole or in part, at any time, or from
time to time during the period set forth in Section 3 above, by tendering to the
Company at its principal office a duly completed and executed notice of exercise
in the form attached hereto as Exhibit A (the "Notice of Exercise"), the
Warrants and the Exercise Price. Upon receipt of such items, the Company shall
issue to the Warrant Holder a certificate for the number of shares of Common
Stock purchased. The Warrant Holder, upon exercise of the Warrants, shall be
deemed to have become the holder of the Shares represented thereby (and such
Shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which the Warrants are exercised. In the
event of any exercise of the rights represented by the Warrants, certificates
for the Shares so purchased shall be delivered to the Warrant Holder or its
designee as soon as practical and in any event within ten (10) business days
after receipt of such notice and, unless the Warrants have been fully exercised
or expired, new Warrants representing the remaining portion of the Warrants and
the underlying Shares, if any, with respect to which this Warrant Agreement
shall not then have been exercised shall also be issued to the Warrant Holder as
soon as possible and in any event within such ten-day period.
(b) Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising the Warrants for cash, the Warrant Holder may elect to
[**]=Confidential Treatment requested for redacted portion
-2-
<PAGE>
receive shares of Common Stock equal to the value (as determined below) of the
Warrants (or portion thereof being exercised) by surrender of the Participation
Warrant Agreement at the principal office of the Company together with the duly
executed Notice of Exercise in which event the Company shall issue to the
Warrant Holder a number of shares of Common Stock computed using the following
formula: X=Y(A-B)/ A WHERE X= the number of shares of Common Stock to be issued
to the Warrant Holder; Y= the number of shares of the Common Stock purchasable
under the Warrants or, if only a portion of the Warrants is being exercised, the
portion of the Warrants being exercised; A= the fair market value of one share
of the Company's Common Stock (at the date of such calculation); and B= Exercise
Price (at the date of such calculation). For purposes of this Section 5(b), the
calculations contemplated by this Section 5(b) shall be made as of the close of
business on the trading day immediately preceding the date of the delivery of
this Warrant Agreement and the related Notice of Exercise and the fair market
value of one share of the Common Stock shall be equal to the sales price,
regular way, as reported on Nasdaq or if no such reported sale takes place, the
average of the closing bid and asked prices, regular way, as reported on Nasdaq
or if no such bid or ask prices are reported, the average of the bid and ask
prices of a New York Stock Exchange member. The Company shall deliver, or cause
to be delivered, the shares of Common Stock issuable upon a net issue exercise
pursuant this Section 5(b) within two business days of the surrender of this
Warrant Agreement and related Exercise Notice.
6. Reservation of Shares. The Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for the
exercise of the rights to purchase the Shares as provided in this Warrant
Agreement. All of the Shares shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and nonassessable, and free and
clear of all preemptive rights.
7. No Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant Holder's
rights to purchase the Shares.
8. No Rights as Shareholder. This Warrant Agreement does not entitle the
Warrant Holder to any voting rights or other rights as a shareholder of the
Company with respect to the underlying Shares prior to the exercise of the
Warrant Holder's rights to purchase the Shares as provided for herein.
9. Redemption. The Warrants represented by this Warrant Agreement are not
redeemable by the Company.
10. Adjustment Rights. The Exercise Price and the number of shares of
Common Stock purchasable hereunder are subject to adjustment from time to time,
as follows:
(a) Merger. If at any time there shall be a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as part of such merger or consolidation, lawful
provision shall be made so that the holder of the Warrants evidenced hereby
shall thereafter be entitled to immediately exercise the Warrants upon payment
of the aggregate Exercise Price, the number of shares of stock or other
securities or property of the successor corporation resulting from such merger
or consolidation, to which a holder of the stock deliverable upon exercise of
the rights granted in this Warrant Agreement would have been entitled in such
merger or consolidation if such rights had been exercised immediately before
such merger or consolidation. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Warrant Agreement with respect
to the rights and interests of the holder after the merger or consolidation. The
Company will not effect any such merger or consolidation unless, prior to the
consummation thereof, the successor corporation shall assume, by written
instrument reasonably satisfactory in form and substance to the Warrant Holder,
the obligations of the Company under the Warrants and this Warrant Agreement.
(b) Reclassification, Etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities as to which purchase
[**]=Confidential Treatment requested for redacted portion
-3-
<PAGE>
rights under this Warrant Agreement exist into the same or a different number of
securities of any other class or classes, this Warrant Agreement shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such subdivision, combination, reclassification
or other change.
(c) Split, Subdivision or Combination of Shares. If the Company at
any time shall split or subdivide its Common Stock, the Exercise Price shall be
proportionately decreased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately increased. If the Company at any time
shall combine or reverse split its Common Stock, the Exercise Price shall be
proportionately increased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately decreased.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in Common Stock, then the Exercise Price shall be adjusted, from and
after the date of determination of stockholders entitled to receive such
dividend, to that price determined by multiplying the Exercise Price in effect
immediately prior to such date of determination by a fraction (i) the numerator
of which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend and (ii) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after such
dividend. The Warrant Holder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Common
Stock (calculated to the nearest whole share) obtained by multiplying (i) the
Exercise Price in effect immediately prior to such adjustment by (ii) the number
of shares of Common Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Other Changes. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provisions of this
Section 10 are not strictly applicable or if strictly applicable, would not
fairly protect the purchase rights of the Warrant Holder in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number of and class of shares available under the Warrants, the Exercise
Price or the application of such provisions, so as to protect the purchase
rights of the Warrant Holder. The adjustment shall be such as will give the
Warrant Holder upon exercise for the same aggregate Exercise Price the total
number, class and kind of shares or other property as the Warrant Holder would
have owned had the Warrants been exercised prior to the event and had the
Warrant Holder continued to hold such shares until after the event requiring
adjustment.
(f) Notice of Adjustments; Notices. Whenever the Exercise Price or
number of shares purchasable hereunder shall be adjusted pursuant to Section 10
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer or Chief Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the holder of this Warrant. The Company shall give written notice to the Warrant
Holder at least 10 days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions. The Company shall also give written notice to the Warrant Holder
at least 30 business days prior to the date on which a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation shall take place.
(g) No Change of Warrant Necessary. Irrespective of any adjustment
in the Exercise Price or in the number or kind of securities issuable upon
exercise of the Warrant, unless the Warrant Holder otherwise requests, this
Warrant Agreement may continue to express the same price and number and kind of
shares of Common Stock as are stated in this Warrant Agreement as initially
executed.
11. Representations and Warranties of the Warrant Holder.
[**]=Confidential Treatment requested for redacted portion
-4-
<PAGE>
The Warrant Holder hereby represents and warrants to the Company as
follows:
(a) Existence and Power. The Warrant Holder is a (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and (ii) has the corporate power and
authority to execute, deliver and perform its obligations under this Warrant
Agreement.
(b) Authorization; No Contravention. The execution, delivery and
performance by the Warrant Holder of this Warrant Agreement and the transactions
contemplated hereby (i) have been duly authorized by all necessary corporate
action of the Warrant Holder and (ii) do not contravene the terms of the
Certificate of Incorporation or By-laws of the Warrant Holder, each as amended
as of and through the Issue Date.
(c) Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption or authorization of any governmental authority or
agency, or of any other person or entity, is necessary or required in connection
with the execution, delivery or performance by, or enforcement against, the
Warrant Holder of this Warrant Agreement or the transactions contemplated
hereby.
(d) Binding Effect. This Warrant Agreement has been duly executed
and delivered by the Warrant Holder and constitutes the valid and binding
obligations of the Warrant Holder, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(e) Purchase for Own Account. The Warrants issued to the Warrant
Holder pursuant to this Warrant Agreement, and the Shares to be issued upon
vesting and exercise thereof, are being or will be acquired for the Warrant
Holder's own account and with no intention of distributing or reselling such
securities or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state.
(f) Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants, will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act and that reliance of the Company on such
exemption is predicated in part on such Warrant Holder's representations set
forth herein. The Warrant Holder represents that it is experienced in evaluating
companies such as the Company, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment and has the ability to suffer the total loss of the investment. The
Warrant Holder further represents that it has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Warrants, the business of the Company, and to obtain
additional information to such Warrant Holder's satisfaction.
(g) Accredited Investor. The Warrant Holder is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the Securities
Act, as presently in effect.
12. Compliance with Securities Act; Transferability of Warrant or Shares
of Common Stock.
(a) Compliance with Securities Act. The Warrant Holder, by
acceptance hereof, agrees that the Warrants, and the shares of Common Stock to
be issued upon exercise of the Warrants, are being acquired for investment and
that such Warrant Holder will not offer, sell or otherwise dispose of the
Warrants, or any shares of Common Stock to be issued upon exercise of the
Warrants except under
[**]=Confidential Treatment requested for redacted portion
-5-
<PAGE>
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Securities Act"), or any applicable state securities
laws. The Warrants and all shares of Common Stock issued upon exercise of the
Warrants (unless registered under) the Securities Act and any applicable state
securities laws) shall be stamped or imprinted with a legend in substantially
the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW. THEY MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION."
(b) Exchange, Transfer, Assignment. The Warrants cannot be
exchanged, transferred or assigned otherwise than in accordance with applicable
law. Upon compliance with applicable law and surrender of the Warrants to the
Company with the Assignment Form annexed hereto as Exhibit B duly executed, and
funds sufficient to pay any transfer tax, the Company shall, without charge,
execute and deliver a new Warrant Agreement in the name of the heir, devisee or
assignee named in such instrument of assignment and this Warrant Agreement shall
promptly be canceled. Subject to the terms hereof, the Warrants may be assigned
in whole or in part.
13. Registration Rights. Upon the parties' execution of this Warrant
Agreement and the Acknowledgment and Agreement to the Amended and Restated
Registration Rights Agreement attached hereto as Exhibit C, Warrant Holder shall
be made a party to that certain Amended and Restated Registration Rights
Agreement, dated as of December 8, 1998, by and among the Company, the
stockholders of the Company named therein and such other stockholders and
warrant holders of the Company made a party thereto. In addition, within 30 days
of the execution of this Warrant Agreement, the Company agrees to enter into an
agreement with Warrant Holder, in form and substance reasonably satisfactory to
Warrant Holder, which shall grant Warrant Holder the right to transfer its
registration rights pursuant to such Amended and Restated Registration Rights
Agreement dated as of December 8, 1998 to any assignee or assignees of all or
any part of this Warrant or the Shares issuable upon exercise hereof, which
assignees, upon their execution and delivery of an Acknowledgment and Agreement
to the Amended and Restated Registration Rights Agreement substantially in the
form of Exhibit C hereto (with appropriate changes therein) shall each have all
the rights and obligations of a Demand Stockholder (as defined in such
Agreement) under such Agreement; provided that no registration statement with
respect to less than a minimum of 250,000 Shares shall be required to be
effected by the Company thereunder for the benefit of any such assignee.
14. Miscellaneous.
(a) No Consequential Damages. No party hereto shall be entitled to
consequential damages as a result of any breach of a covenant, representation or
warranty contained herein.
(b) Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Company, to:
priceline.com Incorporated
Five High Ridge Park
[**]=Confidential Treatment requested for redacted portion
-6-
<PAGE>
Stamford, CT 06905
Telecopy: (203) 595-8345
Attention: Melissa M. Taub, Esq.
and to:
Skadden, Arps, Slate, Meagher, & Flom, L.L.P.
One Rodney Square
Wilmington, DE 19801
Telecopy: (302) 651-3001
Attention: Patricia Moran Chuff, Esq.
(ii) if to the Warrant Holder, to:
Delta Air Lines, Inc.
1030 Delta Boulevard
Hartfield Atlanta International Airport
Atlanta, GA 30320
Telecopy: (404) 715-2233
Attention: Executive Vice President -
Chief Financial Officer
and to:
Delta Air Lines, Inc.
1030 Delta Boulevard
Hartfield Atlanta International Airport
Telecopy: (404) 715-2233
Attention: Senior Vice President -
General Counsel
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) business days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
(d) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. No person, other than the parties
hereto and their successors and permitted assigns, is intended to be a
beneficiary of this Agreement.
(e) Amendment and Waiver.
(i) No failure or delay on the part of the Company, or the
Warrant Holder in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company and the Warrant Holder at law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or to any
provision of this Warrant Agreement, any waiver of any provision of this Warrant
Agreement, and any consent to any
[**]=Confidential Treatment requested for redacted portion
-7-
<PAGE>
departure by the Company or the Warrant Holder from the terms of any provision
of this Agreement, shall be effective only if it is made or given in writing and
signed by the Company and the Warrant Holder.
(f) Counterparts. This Warrant Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Warrant Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(i) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
(j) Entire Agreement. This Warrant Agreement, together with the
exhibits hereto is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Warrant Agreement, together with the exhibits hereto,
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Publicity. Except as may be required by law, none of the parties
hereto shall issue a publicity release or public announcement or otherwise make
any disclosure concerning this Warrant Agreement or the transactions
contemplated hereby, without prior approval by the other party (which approval
shall not be unreasonably withheld); provided, however, that nothing in this
Warrant Agreement shall restrict the Warrant Holder from disclosing information
(a) that is already publicly available and (b) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with the Warrant Holder's investment or participation in the
Company. If any announcement is required by law to be made by any party hereto
concerning this Warrant Agreement or the transactions contemplated hereby, prior
to making such announcement such party will deliver a draft of such announcement
to the other parties and shall give the other parties an opportunity to comment
thereon.
(l) Charges; Taxes and Expenses. Issuance of certificates for shares
upon the exercise of the Warrants shall be made without charge to the Warrant
Holder for any issue or transfer tax or other incidental expense in respect of
the issuance of such certificates, all of which taxes and expenses shall be paid
by the Company.
(m) Saturdays, Sundays, Holidays, Etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or a legal holiday.
(n) Lost Warrants. The Company covenants to the Warrant Holder that,
upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant Agreement and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation, upon
surrender and
[**]=Confidential Treatment requested for redacted portion
-8-
<PAGE>
cancellation of this Warrant Agreement, the Company will make and deliver a new
Warrant Agreement of like tenor, in lieu of the lost, stolen, destroyed or
mutilated document.
(o) Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any governmental authority or
any other person, and otherwise fulfilling, or causing the fulfillment of, the
various obligations made herein), as may be reasonably required or desirable to
carry out or to perform the provisions of this Warrant Agreement and to
consummate and make effective as promptly as possible the transactions
contemplated by this Warrant Agreement.
[**]=Confidential Treatment requested for redacted portion
-9-
<PAGE>
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and delivered
by the authorized officers of each of the undersigned.
PRICELINE.COM INCORPORATED
By:__________________________________
Name: Paul E. Francis
Title: Chief Financial Officer
DELTA AIR LINES, INC.
By:__________________________________
Name:
Title:
[**]=Confidential Treatment requested for redacted portion
-10-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: priceline.com Incorporated
1. ___ The undersigned hereby elects to purchase __________ shares
of the Common Stock of priceline.com Incorporated pursuant to the terms of the
Participation Warrant Agreement, dated as of _________________, 1999, by and
between priceline.com Incorporated and the undersigned (the "Warrant
Agreement"), and tenders herewith payment of the purchase price of such shares
in full.
___ The undersigned hereby elects to convert ___________
percent (____%) of the value of the Warrants pursuant to the provisions of
Section 5(b) of the Warrant Agreement.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned.
DELTA AIR LINES, INC.
By:________________________________
__________________________________
(Print Name of Signatory)
__________________________________
(Title of Signatory)
Date:_____________________
[**]=Confidential Treatment requested for redacted portion
-11-
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
TO: priceline.com Incorporated
The undersigned hereby assigns and transfers unto _____________________________
of ____________________________________________________________________________
(Please typewrite or print in block letters)
the right to purchase ____________ shares of the common stock of priceline.com
Incorporated subject to the Participation Warrant Agreement, dated as of
________________, 1999, by and between priceline.com Incorporated and the
undersigned (the "Warrant Agreement").
This assignment complies with the provisions of Section 12(b) of the Warrant
Agreement and is accompanied by funds sufficient to pay all applicable transfer
taxes.
DELTA AIR LINES, INC.
By:________________________________
__________________________________
(Print Name of Signatory)
__________________________________
(Title of Signatory)
Date:_____________________
[**]=Confidential Treatment requested for redacted portion
<PAGE>
Exhibit C
ACKNOWLEDGMENT AND AGREEMENT
TO THE AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
WHEREAS, pursuant to a Participation Warrant Agreement, the undersigned
received a warrant to purchase 5,500,000 shares of common stock, par value $.008
per share (the "Shares"), of priceline.com Incorporated, a Delaware corporation
(the "Company"); and
WHEREAS, the undersigned wishes to receive certain registration rights with
respect to such Shares; and
WHEREAS, the undersigned has reviewed a copy of that certain Amended and
Restated Registration Rights Agreement, dated as of December 8, 1998 (the
"Agreement"), among the Company, General Atlantic Partners 48, L.P., GAP
Coinvestment Partners, L.P., General Atlantic Partners 50, L.P. and the
stockholders named therein and has been given a copy of the Agreement and
afforded ample opportunity to read and to have counsel review it, and the
undersigned is thoroughly familiar with its terms.
NOW, THEREFORE, in consideration of the mutual premises contained herein
and in the Agreement and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned hereby
acknowledges and agrees that (i) the undersigned has been given a copy of the
Agreement and afforded ample opportunity to read and to have counsel review it,
and the undersigned is thoroughly familiar with its terms, (ii) the Shares are
subject to terms and conditions set forth in the Agreement, (iii) the
undersigned does hereby agree fully to be bound by the Agreement as a "Demand
Stockholder" (as therein defined), and upon the execution and delivery of this
Acknowledgment and Agreement by the Company, the undersigned shall have all the
rights and obligations under the Agreement as a Demand Stockholder, and (iv) the
undersigned does hereby name _________________to serve as their representative
under the Agreement.
This 17th day of November, 1999.
Acknowledged and agreed:
PRICELINE.COM INCORPORATED DELTA AIR LINES, INC.
By: _____________________________ By:_____________________________
Name: Paul E. Francis Name:
Title: Chief Financial Officer Title:
[**]=Confidential Treatment requested for redacted portion
-2-
First Amendment to Participation Warrant Agreement
This First Amendment to Participation Warrant Agreement dated as of
November 17, 1999 ("First Amendment"), by and between priceline.com Incorporated
(the "Company") and Continental Airlines, Inc. ("Warrant Holder").
WHEREAS, the Company and Warrant Holder are parties to that certain
Participation Warrant Agreement dated as of July 16, 1999 (the "Warrant
Agreement"); and
WHEREAS, the parties desire to amend the Warrant Agreement upon the terms
and conditions herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. Capitalized terms use herein and not otherwise defined
herein shall have the meanings ascribed to them in the Warrant Agreement.
2. Amendment to Warrant Agreement. The Warrant Agreement is amended as
follows:
(A) Section 2 of the Warrant Agreement is amended to read in its
entirety as follows:
"2. Exercise Price. The Warrants have an exercise price of $59.93
per share of Common Stock, as adjusted pursuant to the provisions of
Section 10 of this Warrant Agreement (the "Exercise Price")."
(B) Section 4(b) of the Warrant Agreement is hereby amended to read in
its entirety as follows:
"(b) Early Exercise Rights.
(i) The Warrant Holder will earn the right to exercise
Warrants for the first 500,000 Shares, subject to
adjustment as provided in Section 10 hereof, from and
after the date during any Measuring Period (as
identified in Section 4(c) hereof) that the Company has
sold during such Measuring Period at least $40.66
million (for the first Measuring Period ending August 1,
2000) or $36 million (for any Measuring Period ending
after August 1, 2000) of tickets issued for travel on
the Warrant Holder, its subsidiaries and/or on the
Warrant Holder's code share partners using Warrant
<PAGE>
Holder's code (such amount being measured by the amount
paid by the Company to the Warrant Holder and its code
share partners net of federal excise taxes on such
amount, PFCs and related collections) ("Warrant Holder
Net Fares").
(ii) The Warrant Holder will earn the right to exercise
Warrants for the full amount of the second 500,000
Shares, subject to adjustment as provided in Section 10
hereof, from and after the date during any Measuring
Period (other than the Measuring Period during which
Warrant Holder shall have earned the right to exercise
Warrants for the first 500,000 Shares) that the Company
has sold during such Measuring Period at least $67.0
million of Warrant Holder Net Fares. If, upon completion
of the Measuring Period immediately following the
Measuring Period for which Warrant Holder earned the
right to exercise Warrants for the first 500,000 Shares,
the Company has sold more than $36.0 million but less
than $67.0 million of Warrant Holder Net Fares during
such immediately following Measuring Period, Warrant
Holder will earn (upon completion of such immediately
following Measuring Period) the right to exercise that
number of Warrants for a portion of the second 500,000
Shares, subject to adjustment as provided in Section 10
hereof, equal to the product of (i) 500,000 (subject to
adjustment as provided in Section 10 hereof) multiplied
by (ii) a fraction, the numerator of which shall be the
Warrant Holder Net Fares in excess of $36.0 million sold
by the Company during such immediately following
Measuring Period, and the denominator of which shall be
$31.0 million. Thereafter, subject to the provisions of
Section 4(a), the Warrant Holder will earn the right to
exercise Warrants for any remaining Shares only from and
after the date during any Measuring Period that the
Company has sold during such Measuring Period at least
$67.0 million of Warrant Holder Net Fares.
(iii) Warrant Holder Net Fares will be measured separately,
not cumulatively. For example, if the Company has sold
Warrant Holder Net Fares of $40.66 million during the
first Measuring Period, $61.0 million during the second
Measuring Period, and $64.0 million during the third
Measuring Period, then the Warrant Holder will earn the
right to exercise Warrants for the first
2
<PAGE>
500,000 Shares upon the date the Company has first sold
$40.66 million of Warrant Holder Net Fares during the
first Measuring Period, the right to exercise Warrants
for 403,226 Shares (500,000 x 25/31) upon completion of
the second Measuring Period, and no additional Shares at
any time during or upon completion of the third
Measuring Period. For purposes of this example, it is
assumed that no adjustment pursuant to Section 10 hereof
has occurred. If, for the first Measuring Period ending
August 1, 2000, Warrant Holder Net Fares do not equal or
exceed $40.66 million, Warrant Holder will not with
respect to the first Measuring Period earn the right to
exercise Warrant for the first 500,000 shares, but will
earn the right to exercise Warrants for the first
500,000 Shares in a subsequent Measuring Period if, in
such subsequent Measuring Period, Warrant Holder Net
Fares for such subsequent Measuring Period equals or
exceeds $36 million."
(C) Section 4(c) of the Warrant Agreement is hereby amended to read in
its entirety as follows:
"(c) Measuring Periods. Each Measuring Period shall be a 12 month
period, with the first Measuring Period commencing on August
1, 1999 (the "First Ticket Date") and ending on the first
anniversary of such date. Subsequent Measuring Periods will
expire on the second, third, fourth and fifth anniversary of
the First Ticket Date, respectively; provided that the last
Measuring Period will expire on the fifth anniversary of the
Issue Date."
3. Amendment. All references in the Warrant Agreement (and in the other
agreements, documents and instruments entered into in connection therewith) to
the "Warrant Agreement" shall be deemed for all purposes to refer to the Warrant
Agreement, as amended by this First Amendment.
4. Remaining Provisions of Warrant Agreement. Except as expressly provided
herein, the provision of the Warrant Agreement shall remain in full force and
effect in accordance with their terms and shall be unaffected by this First
Amendment.
5. Counterparts. This First Amendment may be executed in counterparts,
each of which when executed shall be deemed an original and both of which when
executed shall be deemed one and the same instrument.
3
<PAGE>
6. Headings. The headings to this First Amendment are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
7. Governing Law. This First Amendment shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to the
principles of conflicts of law of any jurisdiction.
IN WITNESS WHEREOF, this First Amendment has been duly executed and
delivered by the authorized officers of each of the undersigned as of the date
first above written.
PRICELINE.COM INCORPORATED
By:__________________________________
Name:
Title:
CONTINENTAL AIRLINES, INC.
By:__________________________________
Name:
Title:
4
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE WARRANT ISSUED PURSUANT TO THIS PARTICIPATION WARRANT AGREEMENT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. IT MAY
NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED TO EFFECTUATE SUCH TRANSACTION.
PARTICIPATION WARRANT AGREEMENT
To Purchase Shares of Common Stock
Dated as of November 17, 1999
PRICELINE.COM INCORPORATED
a Delaware Corporation
Issue Date: November 17, 1999
THIS CERTIFIES THAT, Continental Airlines, Inc. (the "Warrant Holder"), with a
place of business at 1600 Smith Street, Houston, Texas 77002, for value
received, is entitled, upon the terms and subject to the conditions of this
Participation Warrant Agreement (this "Warrant Agreement"), to subscribe for and
purchase fully-paid and non-assessable shares of common stock, par value $.008
per share (the "Common Stock"), of priceline.com Incorporated, a Delaware
corporation (the "Company").
1. Issuance of Warrants. On the Issue Date, the Company will issue to the
Warrant Holder warrants (the "Warrants") to acquire Five Hundred Thousand
(500,000) shares of the Common Stock (the "Shares"), subject to adjustment as
hereinafter provided pursuant to Section 10 herein.
2. Exercise Price. The Warrants have an exercise price of $59.93 per share
of Common Stock, as adjusted pursuant to the provisions of Section 10 of this
Warrant Agreement (the "Exercise Price").
3. Term. The Warrants are fully vested on the Issue Date. Except as
otherwise provided herein, the term of the Warrants and the right to purchase
Shares as granted herein shall be exercisable on the fifth (5th) anniversary of
the Issue Date; provided, further, that if any of the Warrants first become
exercisable on the fifth (5th) anniversary of the Issue Date, the Warrant Holder
will have an additional six months thereafter to exercise its purchase rights in
respect of those Warrants (the end of such five year period and additional six
months, if applicable, being referred to herein as the "Termination Date").
4. Exercise Events.
(a) General. Unless otherwise exercisable at an earlier date, in
accordance with this Section 4, all of the Warrants shall be fully exercisable
commencing on the fifth anniversary of the Issue Date.
(b) Early Exercise Rights. Subject to the provisions of Section 4(d)
hereof, Warrant Holder shall have the following early exercise rights:
(i) The Warrant Holder will have the right at any time
during the first Measuring Period (as defined in Section
4(c) below) and at any time thereafter until the
Termination Date, to exercise Warrants equal to
[**]=Confidential Treatment requested for redacted portion
<PAGE>
[**]% or [**]% of the Shares, as applicable, subject to
adjustment as provided in Section 10 hereof, provided
that, except as otherwise provided in Sections 4(b)(iii)
and 4(b)(iv) hereof, (i) the right to exercise Warrants
for [**]% of the Shares shall not accrue unless and
until Warrant Holder has, on an aggregated basis with
respect to the first Measuring Period, achieved at least
$[**] million of Net Revenue (as also defined in Section
4(c) below) from tickets sold by the Company during such
Measuring Period for travel on the Warrant Holder, its
subsidiaries and/or on the Warrant Holder's code share
partners using Warrant Holder's code (collectively,
"Warrant Holder and its Code Share Partners"), and (ii)
the right to exercise Warrants for [**]% of the Shares
shall not accrue unless and until Warrant Holder has, on
an aggregated basis with respect to the first Measuring
Period, achieved at least $[**] million of Net Revenue
from tickets sold by the Company during such Measuring
Period for travel on the Warrant Holder and its Code
Share Partners.
(ii) The Warrant Holder will have the right at any time
during the second Measuring Period and all remaining
Measuring Periods thereafter and at any time after the
applicable Measuring Period until the Termination Date,
to exercise Warrants equal to [**]% or [**]% of the
Shares, as applicable, subject to adjustment as provided
in Section 10 hereof, or such lesser percentage of the
Shares as shall constitute all of the remaining Shares
not then exercisable; provided that (i) the right to
exercise Warrants for [**]% of such Shares shall not
accrue unless and until the Warrant Holder has, on an
aggregated basis with respect to the applicable
Measuring Period, achieved at least $[**] million of Net
Revenue from tickets sold by the Company during such
Measuring Period for travel on the Warrant Holder and
its Code Share Partners, and (ii) the right to exercise
Warrants for [**]% of such Shares shall not accrue
unless and until the Warrant Holder has, on an
aggregated basis with respect to the applicable
Measuring Period, achieved at least $[**] million of Net
Revenue from tickets sold during such Measuring Period
for travel on the Warrant Holder and its Code Share
Partners.
(iii) Notwithstanding the Net Revenue benchmarks specified in
clauses (i) and (ii) of this Section 4(b) for the early
exercisability of Warrants, if, with respect to any
Measuring Period, the Warrant Holder fails to achieve
the minimum Net Revenue from ticket sales by the Company
for travel on Warrant Holder and its Code Share Partners
necessary to enable Warrant Holder to exercise Warrants
for the [**]% or [**]% portion of Shares that would
otherwise become exercisable if such benchmarks were
achieved with respect to such Measuring Period, then,
effective on the last day of such Measuring Period and
thereafter at any time until the Termination Date,
Warrant Holder (i) shall have the right to exercise
Warrants for the [**]% portion of Warrants that would
have otherwise become exercisable upon achieving the
corresponding Net Revenue benchmark for such Measuring
Period, if Warrant Holder and its Code Share Partners'
Net Revenue, expressed
[**]=Confidential Treatment requested for redacted portion
2
<PAGE>
as a percentage of the aggregate of all ticket sale net
revenues (calculated using the same methodology used to
calculate Net Revenue hereunder) achieved by all
airlines participating in the Company's "demand
collection system" (collectively, "participating
airlines") resulting from the Company's sale of airline
tickets for travel on such airlines solely for U.S.
originating O&D's for such Measuring Period, equals or
exceeds [**]% of Warrant Holder's Fair Share (as defined
in Section 4(c) below) (the "[**]% Fair Share
Threshold") with respect to such Measuring Period, and
(ii) shall have the right to exercise Warrants for the
[**]% portion of Warrants that would have otherwise
become exercisable upon achieving the corresponding Net
Revenue benchmark for such Measuring Period, if Warrant
Holder and its Code Share Partners' Net Revenue,
expressed as a percentage of the aggregate of all ticket
sale net revenues (calculated using the same methodology
used to calculate Net Revenue hereunder) achieved by all
participating airlines resulting from the Company's sale
of airline tickets for travel on such airlines solely
for U.S. originating O&D's for such Measuring Period,
equals or exceeds [**]% of Warrant Holder's Fair Share
(the "[**]% Fair Share Threshold") with respect to such
Measuring Period.
(iv) Notwithstanding the foregoing, if the Warrant Holder
does not achieve the $[**] million Net Revenue benchmark
specified in clause (i) of this Section 4(b) and Warrant
Holder does not achieve the [**]% Fair Share Threshold
specified in clause (iii) of this Section 4(b) for the
early exercisability of Warrants for the first Measuring
Period, Warrant Holder shall have the right upon
completion of the first Measuring Period and thereafter
until the Termination Date to exercise Warrants for the
[**]% portion of Shares that would otherwise become
exercisable upon the Company's achieving the $[**]
million Net Revenue benchmark or Warrant Holder's
achieving the [**]% Fair Share Threshold for such
Measuring Period, if, during the entire term of the
first Measuring Period, Warrant Holder does not
voluntarily participate in any "demand collection
system" (as defined in Section 4(b)) for Warrant
Holder's sale of airline tickets over the Internet other
than the Company's and its affiliates' leisure airline
ticket services.
(c) Measuring Periods and Net Revenue.
(i) As used in this Warrant Agreement, the term "Measuring
Period" shall mean a 12-month period, with the first
such Measuring Period commencing on December 1, 1999
(the "First Ticket Date"). Subsequent Measuring Periods
will expire on the second, third, fourth and fifth
anniversary of the First Ticket Date, respectively,
except that the fifth Measuring Period shall end on the
fifth (5th) anniversary of the Issue Date.
(ii) As used in this Warrant Agreement, the term "Net
Revenue" shall mean the total amount paid or payable by
the Company to Warrant Holder for airline tickets sold
by the Company for travel on the War-
[**]=Confidential Treatment requested for redacted portion
3
<PAGE>
rant Holder and its Code Share Partners, net of federal
excise and segment taxes, passenger facility charges and
related fees (this is sometimes referred to herein as
the "Warrant Holder and its Code Share Partners' Net
Revenue"). The parties acknowledge that credit card
processing fees, and any processing fees or similar fees
charged by the Company to the consumer in connection
with the sale of a ticket shall not be included in the
calculation of Net Revenue.
(iii) As used in this Warrant Agreement, the term "Fair Share"
shall mean a fraction, expressed as a percentage, the
numerator of which shall be the domestic revenue
passenger miles of Warrant Holder as set forth in U.S.
DOT Form 41 T-1 Early data (or its successor) with
respect to the applicable Measuring Period, and the
denominator of which shall be the aggregate revenue
passenger miles of all participating airlines (i.e.
airlines which have executed airline participation or
similar supply agreements with the Company) as set forth
in U.S. DOT Form 41 T-1 Early data (or its successor)
with respect to the applicable Measuring Period. The
Chief Executive Officer or Chief Financial Officer of
the Company shall certify in writing to Warrant Holder,
on a quarterly basis (as promptly as practicable after
the end of each quarter contained in a Measuring
Period), or as otherwise reasonably requested by Warrant
Holder (or, if the Warrant Holder has achieved any early
exercise right described in Section 4(b), promptly after
Warrant Holder has achieved such early exercise right),
the calculation of Net Revenue, Fair Share and any other
measurement necessary to determine whether Warrant
Holder has achieved the early exercise rights described
in Section 4(b). Additionally, following the sixth (6th)
month of any Measuring Period, the Company will provide
Warrant Holder with monthly reports of its Measuring
Period year- to-date Net Revenue and Fair Share
measurements.
(d) Warrant Holder's right to early exercise under Section 4(b) is
contingent upon Warrant Holder's participating exclusively in the Company's
leisure airline ticket service as the only "demand collection system" for
Warrant Holder's sale of airline tickets over the Internet. For purposes of this
Section 4(d), "demand collection system" is narrowly defined as an airline
ticket service that (i) enables a consumer to name the price the consumer is
willing to pay for one or more airline tickets (ii) enables the seller to bind
the consumer to the consumer's offer price upon the seller's acceptance of the
consumer's offer, and (iii) does not permit the consumer to specify the exact
airline on which the consumer is willing to fly. In order for Warrant Holder to
be entitled to the early exercise rights specified in Section 4(b), Warrant
Holder must not at any time between the date hereof and the date Warrant Holder
exercises the Warrants pursuant to an early exercise of Warrants in accordance
with Section 4(b), participate in any "demand collection system" other than the
Company's for the sale of airline tickets over the Internet for carriage on one
or more airlines including Warrant Holder and/or any of its subsidiaries. For
example, if in the first Measuring Period, the Company achieves Net Revenue that
would entitle the Warrant Holder to exercise Warrants for 25% of the Shares, the
Warrant Holder will be entitled to exercise such Warrants at all times
thereafter until the Termination Date so long as the Warrant Holder at all times
from the date hereof though the date of such exercise has not participated in
another "demand collection system" for the sale of airline tickets over the
Internet for carriage on one or more airlines including Warrant Holder and/or
any of its subsidiaries. If at any time from the date hereof though to the fifth
5th anniversary of the Issue Date, the Warrant Holder participates in another
"demand collection system" for the sale of airline tickets over the Internet for
carriage on one or more airlines including Warrant Holder and/or any of its
subsidiaries, the Warrant Holder's early exercise rights will terminate
[**]=Confidential Treatment requested for redacted portion
4
<PAGE>
and be of no further force or effect, and such Warrants will become exercisable
on the fifth 5th anniversary of the Issue Date (but no such participation after
an exercise shall invalidate or otherwise have any effect on such exercise, the
Shares issued in connection therewith or any other rights of Warrant Holder
other than early exercise rights).
5. Exercise of Purchase Rights.
(a) Subject to the provisions of Section 4 of this Warrant
Agreement, the purchase rights represented by this Warrant Agreement are
exercisable by the Warrant Holder, in whole or in part, at any time, or from
time to time during the period set forth in Section 3 above, by tendering to the
Company at its principal office a duly completed and executed notice of exercise
in the form attached hereto as Exhibit A (the "Notice of Exercise"), the
Warrants and the Exercise Price. Upon receipt of such items, the Company shall
issue to the Warrant Holder a certificate for the number of shares of Common
Stock purchased. The Warrant Holder, upon exercise of the Warrants, shall be
deemed to have become the holder of the Shares represented thereby (and such
Shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which the Warrants are exercised. In the
event of any exercise of the rights represented by the Warrants, certificates
for the Shares so purchased shall be delivered to the Warrant Holder or its
designee as soon as practical and in any event within ten (10) business days
after receipt of such notice and, unless the Warrants have been fully exercised
or expired, new Warrants representing the remaining portion of the Warrants and
the underlying Shares, if any, with respect to which this Warrant Agreement
shall not then have been exercised shall also be issued to the Warrant Holder as
soon as possible and in any event within such ten-day period.
(b) Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising the Warrants for cash, the Warrant Holder may elect to
receive shares equal to the value (as determined below) of the Warrants (or
portion thereof being canceled) by surrender of the Warrants at the principal
office of the Company together with the duly executed Notice of Exercise in
which event the Company shall issue to the Warrant Holder a number of shares of
Common Stock computed using the following formula: X=Y(A-B)/ A WHERE X= the
number of shares of Common Stock to be issued to the Warrant Holder; Y= the
number of shares of the Common Stock purchasable under the Warrants or, if only
a portion of the Warrants is being exercised, the portion of the Warrants being
canceled (at the date of such calculation); A= the fair market value of one
share of the Company's Common Stock (at the date of such calculation); and B=
Exercise Price (at the date of such calculation). For purposes of the above
calculation, fair market value of one share of the Common Stock shall be equal
to the closing trading price of the Company's Common Stock on the day
immediately prior to the date the Notice of Exercise is tendered to the Company.
6. Reservation of Shares. The Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for the
exercise of the rights to purchase the Shares as provided in this Warrant
Agreement. All of the Shares shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and nonassessable, and free and
clear of all preemptive rights.
7. No Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant Holder's
rights to purchase the Shares.
8. No Rights as Shareholder. This Warrant Agreement does not entitle the
Warrant Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise of the Warrant Holder's rights to purchase the
Shares as provided for herein.
9. Redemption. The Warrants represented by this Warrant Agreement are not
redeemable by the Company.
[**]=Confidential Treatment requested for redacted portion
5
<PAGE>
10. Adjustment Rights. The Exercise Price and the number of shares of
Common Stock purchasable hereunder are subject to adjustment from time to time,
as follows:
(a) Merger. If at any time there shall be a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as part of such merger or consolidation, lawful
provision shall be made so that the holder of the Warrants evidenced hereby
shall thereafter be entitled to receive upon exercise of rights herein granted,
during the period specified herein and upon payment of the aggregate Exercise
Price, the number of shares of stock or other securities or property of the
successor corporation resulting from such merger or consolidation, to which a
holder of the stock deliverable upon exercise of the rights granted in this
Warrant Agreement would have been entitled in such merger or consolidation if
such rights had been exercised immediately before such merger or consolidation.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interests of
the holder after the merger or consolidation. The Company will not effect any
such merger or consolidation unless, prior to the consummation thereof, the
successor corporation shall assume, by written instrument reasonably
satisfactory in form and substance to the Warrant Holder, the obligations of the
Company under the Warrants.
(b) Reclassification, Etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant Agreement
exist into the same or a different number of securities of any other class or
classes, this Warrant Agreement shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to the purchase
rights under this Warrant Agreement immediately prior to such subdivision,
combination, reclassification or other change.
(c) Split, Subdivision or Combination of Shares. If the Company at
any time shall split or subdivide its Common Stock, the Exercise Price shall be
proportionately decreased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately increased. If the Company at any time
shall combine or reverse split its Common Stock, the Exercise Price shall be
proportionately increased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately decreased.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in Common Stock, then the Exercise Price shall be adjusted, from and
after the date of determination of stockholders entitled to receive such
dividend, to that price determined by multiplying the Exercise Price in effect
immediately prior to such date of determination by a fraction (i) the numerator
of which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend and (ii) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after such
dividend. The Warrant Holder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Common
Stock (calculated to the nearest whole share) obtained by multiplying (i) the
Exercise Price in effect immediately prior to such adjustment by (ii) the number
of shares of Common Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Other Changes. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provisions of this
Section 10 are not strictly applicable or if strictly applicable, would not
fairly protect the purchase rights of the Warrant Holder in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number of and class of shares available under the Warrants, the Exercise
Price or the application of such provisions, so as to protect the purchase
rights of the Warrant Holder. The adjustment shall be such as will give the
Warrant Holder upon exercise for the same aggregate Exercise Price the total
number, class and kind of shares or other property as the Warrant Holder would
have owned had the Warrants been exercised prior to the event and had the
Warrant Holder continued to hold such shares until after the event requiring
adjustment.
[**]=Confidential Treatment requested for redacted portion
6
<PAGE>
(f) Notice of Adjustments; Notices. Whenever the Exercise Price or
number of shares purchasable hereunder shall be adjusted pursuant to Section 10
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer or Chief Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the holder of this Warrant. The Company shall give written notice to the Warrant
Holder at least 10 days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions. The Company shall also give written notice to the Warrant Holder
at least 30 business days prior to the date on which a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation shall take place.
(g) No Change of Warrant Necessary. Irrespective of any adjustment
in the Exercise Price or in the number or kind of securities issuable upon
exercise of the Warrant, unless the Warrant Holder otherwise requests, this
Warrant Agreement may continue to express the same price and number and kind of
shares of Common Stock as are stated in this Warrant Agreement as initially
executed.
11. Representations and Warranties of the Warrant Holder.
The Warrant Holder hereby represents and warrants to the Company as
follows:
(a) Existence and Power. The Warrant Holder is a (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and (ii) has the corporate power and
authority to execute, deliver and perform its obligations under this Warrant
Agreement.
(b) Authorization; No Contravention. The execution, delivery and
performance by the Warrant Holder of this Warrant Agreement and the transactions
contemplated hereby (i) have been duly authorized by all necessary corporate
action of the Warrant Holder and (ii) do not contravene the terms of the
Certificate of Incorporation or By-laws of the Warrant Holder, each as amended
as of and through the Issue Date.
(c) Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption or authorization of any governmental authority or
agency, or of any other person or entity, is necessary or required in connection
with the execution, delivery or performance by, or enforcement against, the
Warrant Holder of this Warrant Agreement or the transactions contemplated
hereby.
(d) Binding Effect. This Warrant Agreement has been duly executed
and delivered by the Warrant Holder and constitutes the valid and binding
obligations of the Warrant Holder, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(e) Purchase for Own Account. The Warrants issued to the Warrant
Holder pursuant to this Warrant Agreement, and the Shares to be issued upon
vesting and exercise thereof, are being or will be acquired for the Warrant
Holder's own account and with no intention of distributing or reselling such
securities or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state.
[**]=Confidential Treatment requested for redacted portion
7
<PAGE>
(f) Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants, will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act and that reliance of the Company on such
exemption is predicated in part on such Warrant Holder's representations set
forth herein. The Warrant Holder represents that it is experienced in evaluating
companies such as the Company, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment and has the ability to suffer the total loss of the investment. The
Warrant Holder further represents that it has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Warrants, the business of the Company, and to obtain
additional information to such Warrant Holder's satisfaction.
(g) Accredited Investor. The Warrant Holder is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the Securities
Act, as presently in effect.
12. Compliance with Securities Act; Transferability of Warrant or Shares
of Common Stock.
(a) Compliance with Securities Act. The Warrant Holder, by
acceptance hereof, agrees that the Warrants, and the shares of Common Stock to
be issued upon exercise of the Warrants, are being acquired for investment and
that such Warrant Holder will not offer, sell or otherwise dispose of the
Warrants, or any shares of Common Stock to be issued upon exercise of the
Warrants except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any applicable
state securities laws. The Warrants and all shares of Common Stock issued upon
exercise of the Warrants (unless registered under) the Securities Act and any
applicable state securities laws) shall be stamped or imprinted with a legend in
substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION."
(b) Exchange, Transfer, Assignment. The Warrants cannot be
exchanged, transferred or assigned otherwise than in accordance with applicable
law. Upon compliance with applicable law and surrender of the Warrants to the
Company with the Assignment Form annexed hereto as Exhibit B duly executed, and
funds sufficient to pay any transfer tax, the Company shall, without charge,
execute and deliver a new Warrant Agreement in the name of the heir, devisee or
assignee named in such instrument of assignment and this Warrant Agreement shall
promptly be canceled. Subject to the terms hereof, the Warrants may be assigned
in whole or in part.
13. Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants, will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act based on the representations of the warrant
Holder set forth herein. The Warrant Holder represents that it is experienced in
evaluating companies such as the Company, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to suffer the total loss of the
investment. The Warrant Holder further represents that it has had the
opportunity to ask questions
[**]=Confidential Treatment requested for redacted portion
8
<PAGE>
of and receive answers from the Company concerning the terms and conditions of
the Warrants, the business of the Company, and to obtain additional information
to such Warrant Holder's satisfaction. The Warrant Holder is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the Securities
Act, as presently in effect.
14. Registration Rights. Upon the parties' execution of this Warrant
Agreement and the Acknowledgment and Agreement to the Amended and Restated
Registration Rights Agreement attached hereto as Exhibit C, Warrant Holder shall
be made a party to that certain Amended and Restated Registration Rights
Agreement, dated as of December 8, 1998, by and among the Company, the
stockholders of the Company named therein and such other stockholders and
warrant holders of the Company made a party thereto. In addition, concurrently
with the execution of this Warrant Agreement, the Company agrees to enter into
an agreement with Warrant Holder, in form and substance reasonably satisfactory
to Warrant Holder, which shall grant Warrant Holder the right to transfer its
registration rights pursuant to such Amended and Restated Registration Rights
Agreement dated as of December 8, 1998 to any assignee or assignees of all or
any part of this Warrant or the Shares issuable upon exercise hereof, which
assignees, upon their execution and delivery of an Acknowledgment and Agreement
to the Amended and Restated Registration Rights Agreement substantially in the
form of Exhibit C hereto (with appropriate changes therein) shall each have all
the rights and obligations of a Demand Stockholder (as defined in such
Agreement) under such Agreement; provided that no registration statement with
respect to less than a minimum of 250,000 Shares shall be required to be
effected by the Company thereunder for the benefit of any such assignee.
15. Miscellaneous.
(a) No Consequential Damages. No party hereto shall be entitled to
consequential damages as a result of any breach of a covenant, representation or
warranty contained herein.
(b) Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Company, to:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy: (203) 595-8345
Attention: General Counsel
and to:
Skadden, Arps, Slate, Meagher, & Flom, L.L.P.
One Rodney Square
Wilmington, DE 19801
Telecopy: (302) 651-3001
Attention: Patricia Moran Chuff, Esq.
(ii) if to the Warrant Holder, to:
Continental Airlines, Inc.
1600 Smith Street
Houston, TX 77002
[**]=Confidential Treatment requested for redacted portion
9
<PAGE>
Attention: Jim Compton
Title: Vice President -- Pricing and
Revenue Management
Phone:
Fax: 713-324-2141
and to:
Continental Airlines, Inc.
1600 Smith Street
Dept. HQS-EO
Telephone:
Telecopy: 713-324-2687
Attention: General Counsel
(c) All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) business days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
(d) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. No person, other than the parties
hereto and their successors and permitted assigns, is intended to be a
beneficiary of this Agreement.
(e) Amendment and Waiver.
(i) No failure or delay on the part of the Company, or the
Warrant Holder in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power
or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not
exclusive of any remedies that may be available to the
Company and the Warrant Holder at law, in equity or
otherwise.
(ii) Any amendment, supplement or modification of or to any
provision of this Warrant Agreement, any waiver of any
provision of this Warrant Agreement, and any consent to
any departure by the Company or the Warrant Holder from
the terms of any provision of this Agreement, shall be
effective only if it is made or given in writing and
signed by the Company and the Warrant Holder.
(f) Counterparts. This Warrant Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Warrant Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
[**]=Confidential Treatment requested for redacted portion
10
<PAGE>
(h) GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(i) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
(j) Entire Agreement. This Warrant Agreement, together with the
exhibits hereto is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Warrant Agreement, together with the exhibits hereto,
supersedes all prior agreements and understandings between the parties with
respect to such subject matter. For the avoidance of doubt, this Warrant
Agreement and its Exhibits shall not in any way affect that certain
Participation Warrant Agreement dated July 16, 1999, as amended by First
Amendment to Participation Warrant Agreement dated as of November 17, 1999,
between the Company and Warrant Holder.
(k) Publicity. Except as may be required by law, none of the parties
hereto shall issue a publicity release or public announcement or otherwise make
any disclosure concerning this Warrant Agreement or the transactions
contemplated hereby, without prior approval by the other party (which approval
shall not be unreasonably withheld); provided, however, that nothing in this
Warrant Agreement shall restrict the Warrant Holder from disclosing information
(a) that is already publicly available and (b) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with the Warrant Holder's investment or participation in the
Company. If any announcement is required by law to be made by any party hereto
concerning this Warrant Agreement or the transactions contemplated hereby, prior
to making such announcement such party will deliver a draft of such announcement
to the other parties and shall give the other parties an opportunity to comment
thereon.
(l) Charges; Taxes and Expenses. Issuance of certificates for shares
upon the exercise of the Warrants shall be made without charge to the Warrant
Holder for any issue or transfer tax or other incidental expense in respect of
the issuance of such certificates, all of which taxes and expenses shall be paid
by the Company.
(m) Saturdays, Sundays, Holidays, Etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or a legal holiday.
(n) Lost Warrants. The Company covenants to the Warrant Holder that,
upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant Agreement and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation, upon
surrender and cancellation of this Warrant Agreement, the Company will make and
deliver a new Warrant Agreement of like tenor, in lieu of the lost, stolen,
destroyed or mutilated document.
(o) Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any governmental authority or
any other person, and otherwise
[**]=Confidential Treatment requested for redacted portion
11
<PAGE>
fulfilling, or causing the fulfillment of, the various obligations made herein),
as may be reasonably required or desirable to carry out or to perform the
provisions of this Warrant Agreement and to consummate and make effective as
promptly as possible the transactions contemplated by this Warrant Agreement.
[**]=Confidential Treatment requested for redacted portion
12
<PAGE>
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and delivered
by the authorized officers of each of the undersigned.
PRICELINE.COM INCORPORATED
By: ________________________________
Name:
Title:
CONTINENTAL AIRLINES, INC.
By: ________________________________
Name:
Title:
[**]=Confidential Treatment requested for redacted portion
13
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: priceline.com Incorporated
1. ___ The undersigned hereby elects to purchase __________ shares of
the Common Stock of priceline.com Incorporated pursuant to the terms of the
Participation Warrant Agreement, dated as of __________, 1999, by and between
priceline.com Incorporated and the undersigned (the "Warrant Agreement"), and
tenders herewith payment of the purchase price of such shares in full.
___ The undersigned hereby elects to convert ___________ percent
(____%) of the value of the Warrants pursuant to the provisions
of Section 5(b) of the Warrant Agreement.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned.
CONTINENTAL AIRLINES, INC.
By: _______________________________
___________________________________
(Print Name of Signatory)
___________________________________
(Title of Signatory)
Date: __________________
[**]=Confidential Treatment requested for redacted portion
A-1
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
TO: priceline.com Incorporated
The undersigned hereby assigns and transfers unto ________________________ of
_______________________________________________________________________ (Please
typewrite or print in block letters) the right to purchase ____________ shares
of the common stock of priceline.com Incorporated subject to the Participation
Warrant Agreement, dated as of ________________, 1999, by and between
priceline.com Incorporated and the undersigned (the "Warrant Agreement").
This assignment complies with the provisions of Section 12(b) of the Warrant
Agreement and is accompanied by funds sufficient to pay all applicable transfer
taxes.
CONTINENTAL AIRLINES, INC.
By: _______________________________
___________________________________
(Print Name of Signatory)
___________________________________
(Title of Signatory)
Date: __________________
[**]=Confidential Treatment requested for redacted portion
B-1
<PAGE>
EXHIBIT C
ACKNOWLEDGMENT AND AGREEMENT
TO THE AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
WHEREAS, pursuant to a Participation Warrant Agreement, the undersigned
received a warrant to purchase 500,000 shares of common stock, par value $.008
per share (the "Shares"), of priceline.com Incorporated, a Delaware corporation
(the "Company"); and
WHEREAS, the undersigned wishes to receive certain registration rights with
respect to such Shares; and
WHEREAS, the undersigned has reviewed a copy of that certain Amended and
Restated Registration Rights Agreement, dated as of December 8, 1998 (the
"Agreement"), among the Company, General Atlantic Partners 48, L.P., GAP
Coinvestment Partners, L.P., General Atlantic Partners 50, L.P. and the
stockholders named therein and has been given a copy of the Agreement and
afforded ample opportunity to read and to have counsel review it, and the
undersigned is thoroughly familiar with its terms.
NOW, THEREFORE, in consideration of the mutual premises contained herein
and in the Agreement and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned hereby
acknowledges and agrees that (i) the undersigned has been given a copy of the
Agreement and afforded ample opportunity to read and to have counsel review it,
and the undersigned is thoroughly familiar with its terms, (ii) the Shares are
subject to terms and conditions set forth in the Agreement, (iii) the
undersigned does hereby agree fully to be bound by the Agreement as a "Demand
Stockholder" (as therein defined), and upon the execution and delivery of this
Acknowledgment and Agreement by the Company, the undersigned shall have all the
rights and obligations under the Agreement as a Demand Stockholder, and (iv) the
undersigned does hereby name Jeffery A. Smisek to serve as their representative
under the Agreement.
This 17th day of November, 1999.
Acknowledged and agreed:
PRICELINE.COM INCORPORATED CONTINENTAL AIRLINES, INC.
By: _____________________________ By: ___________________________
Name: Name:
Title: Title:
[**]=Confidential Treatment requested for redacted portion
C-1
AGREEMENT OF LEASE made as of this ____ day of June, 1993, between THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation having an
office at RiverPark, 800 Connecticut Avenue, Norwalk, Connecticut 06905
(hereinafter referred to as "Landlord") and OXFORD HEALTH PLANS, INC., a
Delaware corporation having an address at P.O. Box 4033, Darien, Connecticut
06820 1433 (hereinafter referred to as Tenant").
W I T N E S S E T H
Landlord and Tenant hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, trustees, successors and
assigns, hereby covenant and agree as follows:
ARTICLE 1
PREMISES, TERM AND RENT
1.1. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, subject to any ground leases and/or underlying leases and/or mortgages
as hereinafter provided, and upon and subject to the covenants, agreements,
terms, provisions and conditions of this Lease, in the building (hereinafter
referred to as the "Building") situate on the land (hereinafter referred to as
the "Land") located in the City of Norwalk and Town of Darien, County of
Fairfield, State of Connecticut and as more particularly described in Exhibit A
annexed hereto and made a part hereof, and also commonly known as the RiverPark
Office Project, the following space: a portion of the First (1st) Floor West,
portions of the First (1st) and Second (2nd} Floors North and the entire Second
(2nd), Third (3rd) and Fourth (4th) Floors West and the Fourth (4th) Floor North
(hereinafter referred to as the "demised premises") all as shown hatched on the
plans annexed hereto as Exhibit B; for a term to commence on July 1, 1993
(hereinafter referred to as the "Commencement Date") and end on February 28,
2001 (hereinafter referred to as the "Expiration Date") or until such term shall
sooner cease and terminate as hereinafter provided.
1.2. Tenant shall pay to Landlord a fixed annual rent (hereinafter
referred to as "fixed annual rent") as follows:
(i) $127,635.42 per month during the period commencing on the
Commencement Date and ending on August 31, 1993;
(ii) $2,189,782.50 per annum during the period commencing on
September 1, 1993 and ending on February 29, 1996;
(iii) $2,800,432.50 per annum during the period commencing on March
1, 1996 and ending on February 28, 1999;
<PAGE>
(iv) $2,960,171.50 per annum during the period commencing on March
1, 1999 and ending on February 2000; and
(v) $3,119,910.50 per annum during the period commencing on March 1,
2000 and ending on February 28, 2001.
Each of the amounts provided in clauses (ii) (v) above shall be increased by
$48,164.40 (hereinafter called the "Exercise Facility Rent")
Tenant agrees to pay the fixed annual rent in lawful money of the United
States of America, in equal monthly installments in advance on the first day of
each calendar month during said term, at the office of Landlord or such other
place in the United States of America as Landlord may designate, without any
setoff or deduction whatsoever, except such deduction as may be occasioned by
the occurrence of any event permitting or requiring a deduction from or
abatement of rent as specifically set forth in Articles 13 and 14 hereof. The
first full month installment of fixed annual rent due under this Lease shall be
paid by Tenant upon the execution of this Lease. Should the obligation to pay
fixed annual rent commence on any day other than on the first day of a month,
then the fixed annual rent for such month shall be prorated on a per diem basis
and the balance of the first month's installment of fixed annual rent
theretofore paid shall be credited against the next monthly installment of fixed
annual rent.
1.3. Tenant shall pay the fixed annual rent and additional rent as above
and as hereinafter provided, by good and sufficient check (subject to
collection) drawn on a bank whose checks clear within three (3) Business Days of
deposit by Landlord. All sums other than fixed annual rent payable by Tenant
hereunder shall be deemed additional rent (for default in the payment of which
Landlord shall have the same remedies as for a default in the payment of fixed
annual rent), and shall be payable twenty (20) days after demand, unless other
payment dates are hereinafter provided.
1.4. (a) If Tenant shall fail to pay when due any installment of fixed
annual rent or any payment of additional rent for a period of seven (7) days
after such installment or payment shall have become due, Tenant shall pay
interest thereon at the Interest Rate (as such term is defined in Article 22
hereof), from the date when such installment or payment shall have become due to
the date of the payment thereof and such interest shall be deemed additional
rent.
(b) If Landlord shall fail to pay when due any amount which is
uncontested and due to Tenant hereunder for a period of seven (7)
days after Tenant shall give Landlord a notice thereof, Landlord
shall pay interest thereon at the Interest Rate (as such term is
defined in Article 22 hereof), from the date immediately following
such period to the date of the payment thereof.
2
<PAGE>
1.5. If any of the fixed annual rent or additional rent payable under the
terms and provisions of this Lease shall be or become uncollectible, reduced or
required to be refunded because of any Legal Requirement (as such term is
defined in Article 22 hereof), Tenant shall enter into such agreement(s) and
take such other steps (without additional expense to Tenant) as Landlord may
request and as may be legally permissible to permit Landlord to collect the
maximum rents which from time to time during the continuance of such legal rent
restriction may be legally permissible (and not in excess of the amounts
reserved therefor under this Lease). Upon the termination of such legal rent
restriction, (a) the rents shall become and thereafter be payable in accordance
with the amounts reserved herein for the periods following such termination and
(b) Tenant shall pay to Landlord, to the maximum extent legally permissible, an
amount equal to (i) the rents which would have been paid pursuant to this Lease
but for such legal rent restriction less (ii) the rents paid by Tenant during
the period such legal rent restriction was in effect.
ARTICLE 2
PREPARATION OF THE DEMISED PREMISES
2.1. Tenant shall accept the demised premises as is" on the Commencement
Date and Landlord shall not be required to perform any work, install any
fixtures or equipment or render any services to make the Building or the demised
premises ready or suitable for Tenant's use or occupancy. All other
installations, materials and work which may be undertaken by or for the account
of Tenant to prepare, equip, decorate and furnish the demised premises for
Tenant's occupancy shall be at Tenant's expense.
ARTICLE 3
Tax escalation
3.1. Tenant shall pay to Landlord, as additional rent, tax escalation in
accordance with the provisions of this Article.
3.2. Definitions: For the purpose of this Article, the following
definitions shall apply:
(a) The term "Tax Year" shall mean each period of twelve months,
commencing on the first day of July in which occurs any part of the term
of this Lease or such other period of twelve months occurring during the
term of this Lease as hereafter may be duly adopted as the fiscal year for
real estate tax purposes by the City of Norwalk, Connecticut.
(b) The term "The Building Project" shall mean the parcel of land
set forth in Exhibit A of this Lease, on a portion of which are the
improvements of which the demised premises form a part, with all the
improvements thereon
3
<PAGE>
(including without limitation, the office building and parking areas
erected thereon).
(c) The term "Comparative Year" shall mean the Tax Year commencing
on the July 1st immediately preceding the Commencement Date and each
subsequent Tax Year. If the present use of July 1 to June 30 Tax Year
shall hereafter be changed, then such changed Tax Year shall be used with
appropriate adjustment for the transition.
(d) The term "Taxes" shall mean the total of all real estate and
other taxes and special, general, extraordinary or other assessments,
sewer rents, water charges, occupancy taxes and other taxes or charges of
any kind or nature levied, assessed, imposed or attributable at any time
by the City of Norwalk, the Town of Darien or any other governmental
authority (including without limitation any town, city, district, county,
school district or public transportation authority) upon or against The
Building Project, and also any tax, assessment, or charge, levied,
assessed or imposed at any time by any governmental authority in
connection with the receipt of income or rents from The Building Project
to the extent that same shall be in lieu of all or a portion of any of the
aforesaid taxes, assessments or charges, or additions or increases
thereof. If, due to a future change in the method of taxation or in the
taxing authority, or for any other reason, a franchise, income, transit,
profit or other tax or governmental imposition, however designated, shall
be levied against owners and lessors of real property (as opposed to a tax
or imposition of general application) and the same shall be levied against
Landlord in substitution in whole or in part for the Taxes, then such
franchise, income, transit, profit or other tax or governmental imposition
shall be deemed to be included within the definition of "Taxes" for the
purposes hereof. If, by law, any assessment shall be payable in
installments, then, for the purposes hereof (i) such assessment shall be
deemed to have been payable in the maximum number of installments
permitted by law and (ii) there shall be included in Taxes, for each
Comparative Year in which such installments may be paid, the installments
of such assessment so becoming payable during such Comparative Year
(assuming no installment shall be paid until the latest date the same may
be made without imposition of a penalty), together with interest payable
during such Comparative Year. Except as provided above, there shall be
excluded from Taxes all municipal, state and federal income taxes assessed
against Landlord; corporate franchise taxes imposed against any corporate
owner of The Building Project; any municipal, state or federal estate,
succession, inheritance or wealth transfer taxes of Landlord. Taxes shall
also exclude any interest and/or penalties on delinquent payment of Taxes
by Landlord; any increases in Taxes which can be directly attributed to
improvements made to space in the Building which has been previously
improved for occupancy (including without limitation the demised
premises), by reference to the notes of the applicable tax assessor; any
taxes that are allocable to the construction of additional floors to the
Building or additional structures on the Building Project which increase
the rentable square feet available to Landlord in The Building Project for
leasing.
4
<PAGE>
(e) The term "Tax Base Factor" shall mean an amount equal to the
Taxes for the twelve (12) month period commencing September 1, 1993. To
the extent that the period for which the Tax Base Factor is to be
calculated does not correspond with the fiscal year for real estate taxes
of the jurisdiction to which the same are paid, the Tax Base Factor shall
be calculated using a weighted average of the Taxes for the fiscal years
in which such twelve (12) month period occurs (e.g., if the period upon
which the Tax Base Factor is based includes ten (10) months of one fiscal
year and two (2) months of another fiscal year, the Tax Base Factor shall
include 10/12th of the Taxes of the former and 2/12th of the Taxes of the
latter).
(f) The term "The Percentage," for purposes of computing tax
escalation pursuant to this Article, shall mean 40.83 (4O.83%) percent.
The Percentage has been computed on the basis of a fraction, the numerator
of which is the rentable square foot area of the demised premises and the
denominator of which is the rentable square foot area of the office
building comprising a part of The Building Project. The parties agree that
the rentable square foot area of the demised premises shall be deemed to
be 164,739 square feet and that the total rentable square foot area of the
office building comprising a part of The Building Project shall be deemed
to be 403,437 square feet.
(g) The term "Tax Escalation Statement" shall mean a written
statement (i) setting forth the amount payable by Tenant or Landlord as
the case may be, for a specified Comparative Year pursuant to this
Article, (ii) providing such detail as may be necessary to verify the
basis for the calculation and inclusion of each component of such amount,
and (iii) accompanied by copies of the tax bills from the taxing
authorities with respect to The Building Project for the then applicable
Tax Year(s).
3.3. (a) In the event that the Taxes payable for any Comparative Year
shall exceed the Tax Base Factor, Tenant shall pay tax escalation to Landlord,
as additional rent for such Comparative Year, in an amount equal to The
Percentage of the excess (such amount being sometimes hereinafter called the
"Tax Escalation Payment"), subject to the provisions of Section 3.12 hereof.
Before or after the start of each Comparative Year, Landlord shall furnish to
Tenant a Tax Escalation Statement of the Taxes payable for such Comparative
Year. If 2)> the Taxes payable for such Comparative Year exceed the Tax Base
Factor, additional rent for such Comparative Year in an amount1 equal to The
Percentage of the excess shall be due from Tenant to Landlord in two equal
installments, on June 1 preceding such Comparative Year and December 1 of such
Comparative Year. If during the term of this Lease, Taxes are required to be
paid (either to the appropriate taxing authorities or as tax escrow payments to
a superior mortgagee) in full or in monthly, quarterly, or other installments,
or on any other date or dates than as presently required (Taxes are currently
due on July 1 and January 1 of each Comparative Year), then at Landlord's
option, the Tax Escalation Payments shall be correspondingly accelerated or
revised so that said Tax Escalation Payments are due 30 days prior to the
5
<PAGE>
date payments are due (to the taxing authorities or the superior mortgagee). The
benefit of any discount for any early payment or prepayment of Taxes shall
accrue solely to the benefit of Landlord and such discount shall not be
subtracted from Taxes. If a Tax Escalation Statement is furnished to Tenant
after the commencement of the Comparative Year in respect of which such Tax
Escalation Statement is rendered, Tenant shall, within twenty (20) days
thereafter pay to Landlord an amount equal to those installments of the total
Tax Escalation Payment payable as provided in this subsection 3.03(a) during the
period prior to the first day of the month next succeeding the month in which
the applicable statement has been furnished.
(b) Landlord shall be entitled to estimate the Taxes payable with
respect to any Tax Year in order to make the computation described in
subsection 3.03(a) above. Any excess amount paid by Tenant or any
deficiency owed by Tenant based upon such estimate shall be repaid by
Landlord or paid by Tenant, as the case may be, with interest thereon at
the Interest Rate computed from the date owed to the payment or repayment
thereof.
(c) Tenant shall also pay to Landlord, as additional rent, the
entire amount of increases in Taxes directly allocable to improvements
made to the demised premises after the same has been initially improved
for occupancy to the extent such increases can be attributed by reference
to the notes of the tax assessor to such improvements. Payments by Tenant
under this subsection 3.03(c) shall be made as and when Tenant's Tax
Escalation Payment is due and payable to Landlord under subsection 3.03(a)
hereof.
3.4. If, after Tenant shall have made a payment of additional rent under
this Article, the Taxes payable for any Comparative Year on which such payment
of additional rent shall have been based shall be changed, then the amount
payable for that Comparative Year shall be revised to reflect such change and
appropriate adjustments promptly made between Landlord and Tenant. If, after
Tenant shall have made a payment of additional rent under this Article, Landlord
shall receive a refund of any portion of the Taxes payable for any Comparative
Year on which such payment of additional rent shall have been based, as a result
of a reduction of such Taxes by final determination of legal proceedings,
settlement or otherwise, Landlord shall within forty five (45) days after
receiving the refund pay to Tenant and/or credit against the installment(s) of
fixed annual rent and additional rent becoming due during such forty five (45)
day period The Percentage of the net refund, i.e., the amount of the refund less
the reasonable or customary expenses, including payments to attorneys,
appraisers and other experts, incurred by Landlord in connection with such
refund. Only Landlord shall be eligible to institute tax reduction or other
proceedings to reduce the assessed valuation of the Land and the Building.
3.5. The Tax Escalation Statements to be furnished by Landlord as provided
in this Article shall constitute a final determination as between Landlord and
Tenant of the Tax Escalation Payment for the periods represented thereby unless
Tenant shall, within ninety (90) days after they are furnished, give a notice to
Landlord that it disputes their
6
<PAGE>
accuracy or their appropriateness which notice shall specify the particular
respects in which the Tax Escalation Statement is inaccurate or inappropriate.
Pending the resolution of such dispute, Tenant shall pay additional rent to
Landlord in accordance with the Tax Escalation Statement furnished by Landlord.
Any amounts finally determined in connection with such a dispute to be owed to
Landlord or Tenant as the case may be shall be paid by the applicable party to
the other together with interest thereon at the Interest Rate computed from the
date owed to the payment thereof.
3.6. In no event shall the fixed annual rent under this Lease be reduced
by virtue of this Article.
3.7. If the Commencement Date is not the first day of a Comparative Year,
then the additional rent due hereunder for such Comparative Year shall be a
proportionate share of the additional rent for the entire Comparative Year, said
proportionate share to be based upon the length of time that the term of this
Lease shall have been in existence during such Comparative Year. Upon the date
of any expiration or termination of this Lease, (except termination because of
Tenant's default), whether the same be the date hereinabove set forth for the
expiration of the term or any prior or subsequent date, a proportionate share of
said additional rent for the Comparative Year during which such expiration or
termination occurs shall immediately become due and payable by Tenant to
Landlord, if it was not theretofore already billed and paid. Such proportionate
share shall be based upon the length of time that this Lease shall have been in
existence during such Comparative Year. Prior to or promptly after said
expiration or termination, Landlord shall compute the additional rent due from
Tenant, as aforesaid, and Landlord and Tenant shall thereupon make' appropriate
adjustments of amounts then owing.
3.8. Landlord's and Tenant's obligation to make the adjustments referred
to in Section 3.07 hereof above shall survive any expiration or termination of
this Lease. After the termination of the Lease, the final adjustment for Tax
Escalation pursuant to this Article 3 shall be made as soon as practicable, and
if Landlord retains any moneys of Tenant due to excess payments made by Tenant
hereunder, such excess moneys shall be promptly refunded to Tenant after such
final adjustment has been made with interest thereon if and to the extent that
Section 1.04(b) hereof is applicable thereto.
3.9. Any delay or failure of Landlord to bill any Tax Escalation Payment
as provided in this Article 3 shall not constitute a waiver of or in any way
impair the continuing obligation of Tenant to make such Tax Escalation Payment,
unless such delay or failure shall continue for more than two (2) years after
the end of the Comparative Year in which such Tax Escalation Payment became due
and payable by Tenant, and thereafter Tenant shall have given Landlord a notice
stating that unless Tenant receives such billing from Landlord within thirty
(30) days from the date of such notice (and such billing is not received within
such thirty (30) day period), such additional Tax Escalation Payment shall be
deemed to have been waived.
3.10. Landlord shall advise Tenant by notice (hereinafter called the "Tax
Contest Notice") within sixty (60) days after any new assessment or reassessment
by the
7
<PAGE>
City of Norwalk increasing the assessed value of The Building Project
(hereinafter called the "New Assessed Value") whether Landlord intends to
contest such new assessment or reassessment. If Landlord advises Tenant that
Landlord does not intend to contest such new assessment or reassessment,
Landlord agrees that if Tenant shall, at Tenant's sole cost and expense, obtain
and deliver to Landlord within sixty (60) days after the date of the Tax Contest
Notice, an appraisal of The Building Project by a member of the American
Institute of Real Estate Appraisers (or any successor association or body of
comparable standing if such institute is not then in existence) reasonably
acceptable to Landlord, showing that the New Assessed Value determined by the
taxing authorities is more than twelve (12%) percent in excess of what it should
be, then Landlord shall contest such reassessment or new assessment of the New
Assessed Value.
3.11. (a) Tenant shall pay to Landlord, within twenty (20) days after
Landlord's demand therefor, an amount equal to the reasonable or customary
expenses, including payments to attorneys, appraisers and other experts,
incurred by Landlord in connection with any contest pursuant to Section 3.10
hereof; however, if Landlord shall receive any refund in Taxes as a result of
such contest, Landlord shall, before making any credits or refunds therefrom to
any tenant in the Building, reimburse Tenant (to the extent that such refund or
credit is sufficient therof or) for the expenses paid by Tenant pursuant to this
Section 3.11 and the reasonable expenses incurred by Tenant in obtaining the
appraisal described in Section 3.10 hereof.
(b) If Landlord shall obtain a reduction of Taxes payable upon or
against The Building Project for any Comparative Year before Tenant shall
make Tax Escalation Payments therefor, the Taxes for such Comparative Year
for the purposes of computing Tenant's Tax Escalation Payment shall
include an amount equal to the reasonable and customary expenses,
including payments to attorneys, appraisers and other experts incurred by
Landlord in obtaining such reduction, but in no event shall the aggregate
of such expenses included within Taxes as provided herein exceed the
amount of the reduction obtained thereby.
3.12. (a) For purposes of this Section 3.12, the following terms shall
have the meanings hereinafter set forth:
(i) "The First Floor West and Fourth Floor North Percentage" shall
mean 10.56%;
(ii) "The Remaining Floors Percentage" shall mean 30.27%; and
(iii) "Modified Tax Base Factor" shall mean an amount equal to the
Taxes for the twelve (12) month period commencing on July 1, 1992.
The First Floor West and Fourth Floor North Percentage and the Remaining Floors
Percentage have been computed on the basis of a fraction, the numerator of which
is the rentable square foot area of the First Floor West and Fourth Floor North
portion of the demised premises and the remaining portion of the demised
premises, respectively, and
8
<PAGE>
the denominator of which is the rentable square foot area of the office building
comprising a part of The Building Project. The parties agree that the rentable
square foot area of the First Floor West and Fourth Floor North portion of the
demised premises and the remaining portion of the demised premises shall be
deemed to be 42,609 square feet and 122,130 square feet, respectively, and that
the total rentable square foot area of the office building comprising a part of
The Building Project shall be deemed to be 403,437 square feet.
(b) Notwithstanding anything to the contrary in this Article 3,
during the period commencing on the Commencement Date and ending on
February 29, 1996, the Tax Escalation Payment shall be the sum of:
(i) The First Floor West and Fourth Floor North Percentage of
the excess of the Taxes payable for any Comparative Year over the
Tax Base Factor; and
(ii) The Remaining Floors Percentage of the excess of the
Taxes payable for any Comparative Year over the Modified Tax Base
Factor.
(c) The Tax Escalation Payment for the Comparative Year commencing
on July 1, 1995 (or such other Comparative Year in which March 1, 1996
occurs) shall be equal to the sum of (i) the Tax Escalation Payment,
calculated as provided in this Section 3.12, for the period commencing on
July 1, 1995 and ending on February 29, 1996, and (ii) the Tax Escalation
Payment, calculated as otherwise provided in this Article 3 (and without
reference to the Modified Tax Base Factor), for the balance of such
Comparative Year. The Tax Escalation Payments for the Comparative Year
commencing July 1, 1996 and all Comparative Years thereafter shall be
computed utilizing the Tax Base Factor only and without regard to the
Modified Tax Base Factor.
ARTICLE 4
Expense Escalation
4.1. Tenant shall pay to Landlord, as additional rent, expense escalation
in accordance with this Article.
4.2. Definitions: For the purpose of this Article, the following
definitions shall apply:
(a) The term "Expense Base Factor" shall mean the Expenses for the
twelve (12) month period commencing September 1, 1993. To the extent that
the period for which the Expense Base Factor is to be calculated does not
correspond with the fiscal year that Landlord utilizes to establish
Expenses with respect to
9
<PAGE>
The Building Project, the Expense Base Factor shall be calculated using a
weighted average of the Expenses for the fiscal years in which such twelve
(12) month period occurs (e.g., if the period upon which the Expense Base
Factor is based includes eight (8) months of one fiscal year and four (4)
months of another fiscal year, the Expense Base Factor shall include
8/12th of the Expenses of the former and 4/12th of the Expenses of the
latter).
(b) The term "The Building Project" shall mean the parcel of land
described in Exhibit A of this Lease, on a portion of which are the
improvements of which the demised premises form a part, with all the
improvements thereon (including without limitations, the office building
and parking areas erected thereon).
(c) The term "Comparative Year" shall mean the full calendar year in
which the term of this Lease commences, and each subsequent calendar year.
(d) The term "The Percentage," for purposes of computing expense
escalation, shall mean 40.83 (40.83%) percent. The Percentage has been
computed on the basis of a fraction, the numerator of which is the
rentable square foot area of the demised premises and the denominator of
which is the total rentable square foot area of the office building
comprising a part of The Building Project. The parties agree that the
rentable square foot area of the demised premises shall be deemed to be
164,739 and that the total rentable square foot area of the office
building comprising a part of The Building Project shall be deemed to be
403,437 square feet.
(e) The term "Expense Escalation Statement" shall mean a written
statement setting forth the amount payable by Tenant or Landlord, as the
case may be, for a specified Comparative Year pursuant to this Article.
(f) The term "Expenses" shall mean the total amount of all costs and
expenses incurred or paid by Landlord with respect to and in connection
with the operation, maintenance and/or repair of The Building Project and
the curbs and sidewalks adjoining the same, which costs and expenses shall
be calculated on a consistent basis without duplication, including without
limitation, the cost incurred for air conditioning; mechanical
ventilation; heating, cleaning; rubbish removal; window washing (interior
and exterior, including inside partitions); elevators, escalators; porter
and matron service; electric current (excluding however, the cost of any
electricity allocable to space in The Building Project demised to
tenants); oil, steam or any other fuel consumed at The Building Project;
protection and security; maintenance (including but not limited to regular
painting of non tenanted areas at The Building Project as well as in
"Common Areas" [as such term is hereinafter defined]); lobby decorations
and interior and exterior landscape work and maintenance; fire, extended
coverage, boiler, sprinkler, apparatus, war risk, public liability and
property damage insurance, rental and plate glass insurance and any
insurance required by a mortgagee; supplies,
10
<PAGE>
wages, salaries, disability benefits, pensions, hospitalization,
retirement plans and group insurance respecting service and maintenance of
employees of Landlord or of Landlord's managing agent engaged in the
operation and maintenance of The Building Project; uniforms and working
clothes for such employees and the cleaning thereof; repairs and
replacements of heat pumps; expenses imposed on the Landlord pursuant to
law or to any collective bargaining agreement with respect to such
employees; worker's compensation insurance; payroll, social security,
unemployment and other taxes with respect to such employees; sales, use
and other taxes; water rates and sewer rates; all reasonable charges
incurred by The Building Project superintendent's office in the operation
and maintenance of The Building Project; charges for maintenance and
service contracts for all areas of The Building Project; repairs,
replacements and improvements which are appropriate for the continued
operation of The Building Project as a first class office building project
or which are required to comply with applicable Legal Requirements or
requirements of insurers (except that no such costs which are of a capital
nature shall be included in the Expense Base Factor); all other costs and
expenses of operation and maintenance of The Building Project; auditing
fees necessarily incurred in connection with the maintenance and operation
of The Building Project; accounting fees incurred in connection with the
preparation of the Tax Escalation Statements and Expense Escalation
Statements; The Building Project superintendent, his assistants and any
clerical staff attached to The Building Project superintendent's office
whose duties are connected with the maintenance and operation of The
Building Project; managing agents' fees (provided, however, that if the
managing agent for the Building shall be an affiliate of Landlord, the
amount to be included in Expenses thereof or shall be comparable to fees
charged by managing agents providing similar services in office buildings
comparable to the Building in Fairfield County, Connecticut); the cost for
a bookkeeper and for an accountant; reasonably incurred professional and
consulting fees, including legal and audit fees; and association fees or
dues.
Provided, however, that the following items shall be excluded from
Expenses:
(i) leasing commissions and any other expenses incurred in
connection with the leasing of space in The Building Project;
(ii) expenditures for capital improvements except those which
(i) under generally applied real estate practice are expensed or
regarded as deferred expenses (e.g. elevator cables), (ii) are
required for the continued operation of The Building Project as a
first class office building project or (iii) are required by law or
by insurers, in all of which cases the cost thereof shall be
included in Expenses for the Comparative Year in which the costs are
incurred and subsequent Comparative Years, on a straight line basis,
to the extent that such items are amortized over the shorter of: (x)
the useful life of such improvement or (y) ten (10) years, with an
interest factor equal to the prime rate for 90 days unsecured loans
as
11
<PAGE>
announced from time to time by Chemical Bank of New York at the time
of Landlord's having incurred said expenditure;
(iii) cost of repairs or replacements incurred by reason of
fire or other casualty (to the extent that Landlord is compensated
therefor through proceeds of insurance or should be compensated
therefor if it maintained the insurance coverage it agreed to obtain
pursuant to subsection 9.03(b) of this Lease with deductibles not
exceeding those which a prudent landlord would maintain under the
circumstances), or caused by the exercise of the right of eminent
domain;
(iv) except as provided in clause (ii) hereof, interest on and
amortization of debts;
(v) "Taxes" and legal fees incurred in connection with the
reduction thereof;
(vi) expenses or costs incurred to prepare space for occupancy
by an existing or prospective tenant; and
(vii) advertising and promotional expenses.
(viii) except as the same relates to capital expenditures
which may be included in Expenses as herein provided, depreciation
or amortization of The Building Project or its contents or
components;
(ix) legal expense incurred in connection with disputes with
tenants;
(x) interest amortization or other costs incurred in
connection with any mortgage or other financing of The Building
Project;
(xi) the cost of rendering any service to any other tenant
which is not provided to Tenant hereunder;
(xii) accounting and legal fees relating to the leasing,
financing or sale of The Building Project;
(xiii) interest or penalties incurred on account of late
payment by Landlord of any charge comprising an Expense hereunder;
(xiv) amounts paid to any entity owned by or under common
ownership with Landlord, but only to the extent of the excess paid
to such entity over that which would have been paid in the absence
of such a relationship;
12
<PAGE>
(xv) costs or expenses for which Landlord has been
specifically reimbursed by any tenant, including Tenant, other than
by payment of a portion of Landlord's operating expenses generally
or pursuant to any other escalation or similar provision of such
tenant's lease, or any other party;
(xvi) any penalty or fine incurred for non compliance with
applicable building or fire codes;
(xvii) any ground rent payable with respect to a lease of the
land on which The Building Project is erected;
(xviii) franchise, income or other taxes or assessments,
penalties or fines imposed upon Landlord (excluding taxes payable
with respect to costs and expenses comprising Expenses); and
(xix) the salaries or other compensation of employees of
Landlord above the level of Building manager.
If Landlord shall purchase any item of capital equipment or make any
capital expenditures designed to result in savings or reductions in
Expenses, then the costs for same shall be included in Expenses for the
Comparative Year in which the costs are incurred and subsequent
Comparative Years, on a straight line basis, to the extent that such items
are amortized over such period of time as reasonably can be estimated as
the time in which such savings or reductions in Expenses are expected to
equal Landlord's costs for such capital equipment or capital expenditure,
with an interest factor equal to the Interest Rate at the time of
Landlord's having incurred said costs. If Landlord shall lease any such
item of capital equipment designed to result in savings or reductions in
Expenses, then the rentals and other costs paid pursuant to such leasing
shall be included in expenses for the Comparative Years in which they were
incurred, provided that the charges for any such lease shall be
essentially constant throughout the term thereof and shall not for any
Comparative Year exceed the reasonably anticipated savings to be realized
therefrom.
If during all or part of any Comparative Year, or any calendar year on
which the Expense Base Factor or Modified Expense Base Factor is based,
Landlord shall not furnish any particular item(s) of work or service
(which would constitute an element of Expense hereunder) to portions of
The Building Project due to the fact that such portions are not occupied
or leased, or because such item of work or service is not required or
desired by the tenant of such portion, or such tenant is itself obtaining
and providing such item of work or service, or for other reasons, then,
for the purposes of computing the additional rent payable hereunder, the
amount of the expenses for such item for such period shall be deemed to be
increased by an amount equal to the additional operating and maintenance
expenses which would reasonably have been incurred during such period by
13
<PAGE>
Landlord if it had at its own expense furnished such item of work or
services to ninety five (95%) percent of the rentable area of The Building
Project.
4.3. (a) If the Expenses for any Comparative Year shall be greater than
the Expense Base Factor, Tenant shall pay to Landlord, as additional rent for
such Comparative Year, in the manner hereinafter provided, an amount equal to
The Percentage of the excess of the Expenses for such Comparative Year over the
Expense Base Factor (such amount being hereinafter called the "Expense
Payment"), subject to the provisions of Section 4.08 hereof.
(b) Following the expiration of each Comparative Year, Landlord
shall submit to Tenant an Expense Escalation Statement, certified by
Landlord, setting forth the Expenses for the preceding Comparative Year
and the Expense Payment, if any, due to Landlord from Tenant for such
Comparative Year. The rendition of such Expense Escalation Statement to
Tenant shall constitute prima facie proof of the accuracy thereof and, if
such statement shows an Expense Payment due from Tenant to Landlord with
respect to the preceding Comparative Year then (i) Tenant shall make
payment of any unpaid portion thereof within twenty (20) days after
receipt of such Expense Escalation Statement; and (ii) Tenant shall also
pay to Landlord, as additional rent, within twenty (20) days after receipt
of such Expense Escalation Statement, an amount equal to the product
obtained by multiplying the total Expense Payment for the preceding
Comparative Year by a fraction, the denominator of which shall be 12 and
the numerator of which shall be the number of months of the current
Comparative Year which shall have elapsed prior to the first day of the
month immediately following the rendition of such Expense Escalation
Statement; and (iii) Tenant shall also pay to Landlord, as additional
rent, commencing as of the first day of the month immediately following
the rendition of such Expense Escalation Statement and on the first day of
each month thereafter until a new Expense Escalation Statement is
rendered, 1/12th of the total Expense Payment for the preceding
Comparative Year. The aforesaid monthly payments based on the total
Expense Payment for the preceding Comparative Year shall be adjusted to
reflect, as reasonably estimated and specifically set forth in reasonable
detail in such Expense Escalation Statement by Landlord, increases in
rates and amounts, for the current Comparative Year, applicable to the
categories involved in computing Expenses, whenever such increases become
reasonably known or anticipated prior to or during such current
Comparative Year. The payments required to be made under clauses (ii) and
(iii) of this subsection 4.03(b) shall be credited toward the Expense
Payment due from Tenant for the then current Comparative Year, subject to
adjustment as and when the Expense Escalation Statement for such current
Comparative Year is rendered by Landlord.
(c) The Expense Escalation Statements to be furnished by Landlord
shall constitute a final determination as between Landlord and Tenant of
the Expense Payments for the periods represented thereby, unless Tenant
within one hundred (100) days after they are furnished shall give a notice
to Landlord that it
14
<PAGE>
disputes their accuracy or their appropriateness, which notice shall
specify the particular respects in which the Expense Escalation Statement
is inaccurate. Pending the resolution of such dispute, Tenant shall pay
the additional rent to Landlord in accordance with the Expense Escalation
Statements furnished by Landlord. After payment of said additional rent,
Tenant shall have the right, during reasonable business hours and upon not
less than five (5) business days' prior written notice to Landlord, to
examine Landlord's books and records with respect to the foregoing
provided such examination is commenced within sixty (60) days and
concluded within one hundred twenty five (125) days following the
rendition of the Expense Escalation Statement in question. Any amounts
finally determined in connection with such a dispute to be owed to
Landlord or Tenant, as the case may be, shall be paid by the applicable
party to the other together with interest thereon at the Interest Rate
computed from the date owed to the payment thereof.
4.4. In no event shall the fixed annual rent under this Lease be reduced
by virtue of this Article.
4.5. If the Commencement Date is not the first day of the first
Comparative Year, then the additional rent due hereunder for such first
Comparative Year shall be a proportionate share of said additional rent for the
entire Comparative Year, said proportionate share to be based upon the length of
time that the Lease term shall have been in existence during such first
Comparative Year. Upon the date of any expiration or termination of this Lease
(except termination because of Tenant's default), whether the same be the date
hereinabove set forth for the expiration of the term or any prior or subsequent
date, a proportionate share of said additional rent for the Comparative Year
during which such expiration or termination occurs shall immediately become due
and payable by Tenant to Landlord, if it was not theretofore already billed and
paid. The said proportionate share shall be based upon the length of time that
this Lease shall have been in existence during such Comparative Year. Landlord
shall cause an Expense Escalation Statement for that Comparative Year to be
prepared and furnished to Tenant. Landlord and Tenant shall thereupon make
appropriate adjustments of amounts then owing.
4.6. Landlord's and Tenant's obligation to make the adjustments referred
to in Section 4.05 hereof shall survive any expiration or termination of this
Lease.
4.7. Any delay or failure of Landlord in billing any Expense Payment
hereinabove provided shall not constitute a waiver of or in any way impair the
continuing obligation of Tenant to pay such expense escalation hereunder, unless
such delay or failure shall continue for more than two (2) years after the end
of the Comparative Year in which such Expense Payment became due and payable by
Tenant, and thereafter Tenant shall have given Landlord a notice stating that
unless Tenant receives such billing from Landlord within thirty (30) days from
the date of such notice (and such billing is not received within such thirty
(30) day period), such Expense Payment, to the extent not theretofore paid,
shall be deemed to have been waived.
15
<PAGE>
4.8. (a) For purposes of this Section 4.08, the following terms shall have
the meanings hereinafter set forth:
(i) "The First Floor West and Fourth Floor North Percentage" shall
mean 10.56%;
(ii) "The Remaining Floors Percentage" shall mean 30.27%; and
(iii) "Modified Expense Base Factor" shall mean an amount equal to
the Expenses for the twelve (12) month period commencing on July 1, 1992.
The First Floor West and Fourth Floor North Percentage and the Remaining Floors
Percentage have been computed on the basis of a fraction, the numerator of which
is the rentable square foot area of the First Floor West and Fourth Floor North
portion of the demised premises and the remaining portion of the demised
premises, respectively, and the denominator of which is the rentable square foot
area of the office building comprising a part of The Building Project. The
parties agree that the rentable square foot area of the First Floor West and
Fourth Floor North portion of the demised premises and the remaining portion of
the demised premises shall be deemed to be 42,609 square feet and 122,130 square
feet, respectively, and that the total rentable square foot area of the office
building comprising a part of The Building Project shall be deemed to be 403,437
square feet.
(a) Notwithstanding anything to the contrary in this Article 4,
during the period commencing on the Commencement Date and ending on
February 29, 1996, the Expense Payment shall be the sum of:
(i) The First Floor West and Fourth Floor North Percentage of
the excess of the Expenses payable for any Comparative Year over the
Expense Base Factor; and
(ii) The Remaining Floors Percentage of the excess of the
Expenses for any Comparative Year over the Modified Expense Base
Factor.
4.9. The Expense Payment for the Comparative Year commencing on January 1,
1996 (or such other Comparative Year in which March 1, 1996 occurs) shall be
equal to the sum of (i) the Expense Payment, calculated as provided in this
Section 4.08, for the period commencing on January 1, 1996 and ending on
February 29, 1996, and (ii) the Expense Payment, calculated as otherwise
provided in this Article 4 (and without reference to the Modified Expense Base
Factor), for the balance of such Comparative Year. The Expense Payments for the
Comparative Year commencing January 1, 1997 and all Comparative Years thereafter
shall be computed utilizing the Expense Base Factor only and without regard to
the Modified Expense Base Factor.
ARTICLE 5
16
<PAGE>
USE
5.1. The demised premises shall be used solely as and for executive and
general offices and other business activities customarily incidental thereto in
first class office buildings in Fairfield County, Connecticut and, as an
incident thereto, a portion of the demised premises may be used as an exercise
facility or gym exclusively for Tenant's employees, such use to be limited to a
portion of the demised premises of approximately 5,000 rentable square feet and
located on the First C 1st) Floor West of the Building (hereinafter referred to
as the "Exercise Facility") and for no other purposes.
5.2. Tenant shall not use or permit the use of the demised premises or any
part thereof in any way which would violate any of the covenants, agreements,
terms, provisions and conditions of this Lease or for any unlawful purposes or
in any unlawful manner or in violation of the certificate of occupancy or other
certificate or permit for the demised premises or the Building, and Tenant shall
not suffer or permit the demised premises or any part thereof to be used in any
manner or anything to be done therein or anything to be brought into or kept
therein which, in the reasonable judgment of Landlord, shall in any way impair
the character, reputation or appearance of the Building as a high quality office
building, impair or interfere with any of the Building services or the proper
and economic heating, cleaning, air conditioning or other servicing of the
Building or the demised premises, or impair or interfere with the use of any of
the other areas of the Building by, or occasion discomfort, inconvenience or
annoyance to, any of the other tenants or occupants of the Building. Tenant
shall not install any electrical or other equipment of any kind which, in the
reasonable judgment of Landlord, might cause any impairment or interference with
the operation of electrical equipment installed elsewhere in the Building.
ARTICLE 6
ALTERATIONS AND INSTALLATIONS
6.1. (a) Tenant shall make no alterations, installations, additions or
improvements (such work hereinafter collectively referred to as
"Alterations") in or to the demised premises without Landlord's
prior written consent and then only by contractors or mechanics
first approved by Landlord. Notwithstanding the foregoing,
Landlord's consent shall not be required for non structural
Alterations in the demised premises costing less than the "Threshold
Amount" (as such term is hereinafter defined), provided that (i)
neither the outside appearance, nor the strength of the Building,
nor any of its structural parts shall be affected; (ii) no part of
the Building outside of the demised premises shall be physically
affected, (iii) the proper functioning of any of the mechanical,
electrical, sanitary and other systems of the Building shall not be
adversely affected, and the usage of such systems by Tenant shall
not be increased
17
<PAGE>
except to a de minimis extent, and (iv) prior to commencement of any
such Alterations, Tenant will give Landlord written notice thereof,
together with plans and specifications for the work, and will
otherwise comply with the provisions of this Article. As used in
this Section 6.01, the term "Threshold Amount" shall mean $100,000
effective as of the Commencement Date, which amount shall be
increased effective as of each anniversary of the Commencement Date
by $5,000. All such Alterations, shall be done at Tenant's sole
expense and at such times and in such manner as Landlord may from
time to time reasonably designate. Prior to commencement of
Alterations, other than Alterations performed to prepare the demised
premises for Tenant's initial occupancy or Alterations costing less
than $150,000.00, Tenant shall obtain and deliver to Landlord (i)
written, unconditional waivers of mechanic's or other liens on the
real property in which the demised premises are located, signed by
all architects, engineers, contractors, mechanics and designers to
become involved in such Alterations (ii) a bond or other security
reasonably satisfactory to Landlord covering the cost or (iii) proof
of Tenant's financial responsibility (i.e., financial capacity to
complete the same and pay therefor) reasonably satisfactory to
Landlord.
(b) Tenant's Alterations shall be effected solely in accordance with
plans and specifications delivered to Landlord or if the Alterations are
of such a nature that plans and specifications are not customary then upon
prior notice to Landlord. Tenant shall reimburse Landlord promptly upon
demand for any reasonable out of pocket costs and expenses incurred by
Landlord in connection with Landlord's review of such Tenant's plans and
specifications. As to Alterations for which Landlord's approval is
required, (i) Landlord will not unreasonably withhold or delay its consent
for nonstructural Alterations (provided they will not affect the outside
of the Building or adversely affect the Building's structure, electrical,
HVAC, plumbing or mechanical systems) and (ii) all such Alterations shall
be solely effected in accordance with plans and specifications approved by
Landlord (except that de minimis variations therefrom shall not de deemed
a violation hereof). Landlord hereby approves Tenant's installation of
operating windows in the area of the demised premises indicated in the
plans annexed hereto as Exhibit J provided same is performed in accordance
with the provisions hereof and such windows are, in Landlord's reasonable
judgment, consistent in appearance and quality with the adjacent windows
of the Building.
(c) Any such approved Alterations shall be performed in accordance
with the foregoing and the following provisions of this Article 6:
(1) All Alterations shall be done in a good and workmanlike
manner.
18
<PAGE>
(2) (A) In the event Tenant shall employ any contractor to do
in the demised premises any Alterations permitted by this Lease,
such contractor and any subcontractor shall agree to employ only
such labor as will not result in jurisdictional disputes or strikes
or result in causing disharmony with other workers employed at the
Building. Tenant will inform Landlord in writing of the names of any
contractor or subcontractor Tenant proposes to use in the demised
premises at least ten (10) days prior to the beginning of work by
such contractor or subcontractor, but such information given to
Landlord shall in no way constitute Landlord's approval of such
contractor or subcontractor.
(B) Tenant covenants and agrees to pay to the contractors, as
the work progresses, the entire cost of supplying the materials and
performing the work shown on Tenant's approved plans and
specifications except with respect to such portion of any
contractor's work which is being contested by Tenant in good faith.
(3) All such Alterations shall be effected in compliance with all
applicable laws, ordinances, rules and regulations of governmental
bodies having or asserting jurisdiction in the demised premises.
Tenant shall also be responsible for obtaining all Building Department
sign-offs, inspection certificates and any permits required to be
issued by any governmental entity having jurisdiction thereover. As
and when required by law, Landlord shall reasonably cooperate with
Tenant in obtaining such sign-offs, inspection certificates and
permits provided Landlord shall not incur any liability or expense
thereby.
(4) Tenant shall keep the Building and the demised premises free
and clear of all liens for any work or material claimed to have been
furnished to Tenant or to the demised premises on Tenant's behalf, and
all work to be performed by Tenant shall be done in a manner which
will not unreasonably interfere with or disturb other tenants or
occupants of the Building.
(5) During the progress of the work to be done by Tenant, said
work shall be subject to inspection by representatives of Landlord
which shall be permitted access and the opportunity to inspect, at all
reasonable times, but this provision shall not in any way whatsoever
create any obligation on Landlord to conduct such an inspection or
create any obligations or liability (or relieve Tenant of any
obligations under this Lease) in the event Landlord does conduct such
an inspection.
(6) Prior to commencement of any work, Tenant shall furnish to
Landlord certificates evidencing the existence of:
19
<PAGE>
(i) worker's compensation insurance covering all persons
employed for such work; and
(ii) reasonable comprehensive general liability and property
damage insurance naming Landlord, its designees and Tenant as
insureds, with coverage of at least $3,000,000 combined single
limit.
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach to or
affect the reversion or other estate or interest of Landlord in and to the
demised premises.
6.2. Any mechanic's lien, filed against the demised premises or the
Building for work claimed to have been done for or materials claimed to have
been furnished to Tenant shall be discharged by Tenant at its expense within
thirty C30) days after notice of such filing, by payment, filing of the bond
required by law or otherwise.
6.3. All Alterations made and installed by Landlord shall be the property
of Landlord and shall remain upon and be surrendered with the demised premises
as a part thereof at the end of the term of this Lease.
6.4. All Alterations, including, without limitation, any interior
staircases, elevators or operable windows, made and installed by Tenant, or at
Tenant's expense, upon or in the demised premises which are of a permanent
nature and which cannot be removed without damage to the demised premises or
Building shall become and be the property of Landlord, and shall remain upon and
be surrendered with the demised premises as a part thereof at the end of the
term of this Lease, except that Landlord shall have the right 'and privilege at
any time up to six (6) months prior to the expiration of the term of the Lease
to serve notice upon Tenant that any of such Alterations which is of a non
building standard nature (hereinafter called a "Non Standard Alteration"),
including operable windows, stairways, lifts or elevators, vaults, raised floors
or other structural supports and other installations which are unusually
difficult or costly to remove, shall be removed and, in the event of service of
such notice, Tenant will, at Tenant's cost and expense not to exceed
$150,000.00, remove the same in accordance with such request, and restore the
affected portion(s) of the demised premises to their original condition,
ordinary wear and tear and casualty excepted. Notwithstanding the foregoing,
Landlord may not require Tenant to remove any Non Standard Alteration if (i)
Tenant's request for Landlord's consent to such Non Standard Alteration (x)
makes specific reference to the provisions set forth in this sentence and (y)
requests Landlord to advise Tenant whether Landlord wishes to reserve its right
to require Tenant to remove the same and (ii) Landlord's right to such removal
is not expressly reserved in Landlord's consent to said Non--Standard
Alteration.
6.5. Where furnished by or at the expense of Tenant all furniture,
furnishings and trade fixtures, including without limitation, murals, business
machines and equip-
20
<PAGE>
ment, counters, screens, grille work, special paneled doors, cages, partitions,
metal railings, closets, paneling, lighting fixtures and equipment, drinking
fountains, refrigeration and air handling equipment, and any other movable
property shall remain the property of Tenant which may at its option remove all
or any part thereof at any time prior to the expiration of the term of this
Lease. In case Tenant shall decide not to remove any part of such property,
Tenant shall notify Landlord in writing not less than three C3) months prior to
the expiration of the term of this Lease, specifying the items of property which
it has decided not to remove. If, within thirty C30) days after the service of
such notice, Landlord shall request Tenant to remove any of the said property,
Tenant shall at its expense remove the same in accordance with such request. As
to such property which Landlord does not request Tenant to remove, the same
shall be, if left by Tenant, deemed abandoned by Tenant and thereupon the same
shall become the property of Landlord.
6.6. If any Alterations or other property which Tenant shall have the
right to remove or be requested by Landlord to remove as provided in Sections
6.04 and 6.05 hereof (herein in this Section 6.06 called the "Property") are not
removed on or prior to the expiration of the term of this Lease, Landlord shall
have the right to remove the Property and to dispose of the same without
accountability to Tenant and at the sole cost and expense of Tenant. In case of
any damage to the demised premises or the Building resulting from the removal of
the Property, Tenant shall repair such damage or, in default thereof, shall
reimburse Landlord for Landlord's cost in repairing such damage. This obligation
shall survive any termination of this Lease.
6.7. Tenant shall keep records of Tenant's Alterations, costing in excess
of $5,000, and of the cost thereof. Tenant shall, within 45 days after demand by
Landlord, furnish to Landlord copies of such records and cost if Landlord shall
require same in connection with any proceeding to reduce the assessed valuation
of the Building or any other tax or charge, or in connection with any proceeding
instituted pursuant to Article 13 hereof.
ARTICLE 7
REPAIRS
7.1. Tenant shall, at its sole cost and expense, make such repairs to the
demised premises and the fixtures and appurtenances therein as are necessitated
by the act, omission, occupancy or negligence of Tenant or by normal wear and
tear or by the use of the demised premises in a manner contrary to the purposes
for which same are leased to Tenant or the performance of Alterations by or for
Tenant, as and when needed to preserve them in good working order and condition.
Except as otherwise provided in Section 9.04 hereof, all damage or injury to the
demised premises and to its fixtures, appurtenances and equipment or to the
Building or to its fixtures, appurtenances and equipment caused by Tenant moving
property in or out of the Building or by installation or removal of furniture,
fixtures or other property, shall be repaired, restored or replaced promptly by
Tenant at its sole cost and expense, which repairs, restorations and
replacements shall be in quality and class equal to the original work or
installations but Tenant
21
<PAGE>
shall not be responsible and Landlord shall be responsible for any such repairs,
restorations or replacements as are required by Landlord's negligence or willful
misconduct except to the extent that Tenant shall be compensated therefor by the
proceeds of insurance or would be compensated thereof or if it had obtained the
insurance coverage required under Article 9 hereof. If Tenant fails to make such
repairs, restoration or replacements for which Tenant is responsible hereunder,
then, upon ten (10) days prior notice (except that no such notice shall be
required in case of an emergency), same may be made by Landlord at the expense
of Tenant and such expense shall be collectible as additional rent and shall be
paid by Tenant within 20 days after rendition of a bill therefor.
The exterior walls of the Building, the portions of any window sills outside the
windows, and the windows are not part of the premises demised by this Lease and
Landlord reserves all rights to such parts of the Building.
7.2. Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which such floor was designed to
carry (i.e. 100 pounds per square foot live load on the ground floor and 50
pounds per square foot live load and 20 pounds per square foot dead load on all
other floors) and which is allowed by law, and if Tenant shall desire a floor
load in excess of such floor load, Landlord agrees (provided Landlord's
architects, in their sole discretion, find that the work necessary to increase
such floor load does not adversely affect the structure of the Building, and
further provided that such work will not interfere with the amount or
availability of any space adjoining alongside, above or below the demised
premises, or interfere with the occupancy of other tenants in the Building), to
strengthen and reinforce the same so as to give the live load desired, provided
Tenant shall submit to Landlord the plans showing the locations of and the
desired floor live load for the areas in question and provided further that
Tenant shall agree to pay for or reimburse Landlord on demand for the cost of
such strengthening and reinforcement as well as any other costs to and expenses
of Landlord occasioned by or resulting from such strengthening or reinforcement.
7.3. Business machines and mechanical equipment used by Tenant which cause
vibration, noise, cold or heat that may be transmitted to the Building structure
or to any leased space to such a degree as to be objectionable to Landlord or to
any other tenant in the Building shall be placed and maintained by Tenant at its
expense in settings of cork, rubber or spring type vibration eliminators
sufficient to absorb and prevent such vibration or noise, or prevent
transmission of such cold or heat. The parties hereto recognize that the
operation of elevators, air conditioning and heating equipment may cause some
vibration, noise, heat or cold which may be transmitted to other parts of the
Building and demised premises. Landlord shall be under no obligation to endeavor
to reduce such vibration, noise, heat or cold beyond what is customary in
current good building practice for buildings of the same type as the Building.
7.4. Except as otherwise specifically provided in this Lease, there shall
be no allowance to Tenant for a diminution of rental value and no liability on
the part of
22
<PAGE>
Landlord by reason of inconvenience, annoyance or injury to business arising
from the making of any repairs, alterations, additions or improvements in or to
any portion of the Building or the demised premises or in or to fixtures,
appurtenances or equipment thereof. Landlord shall exercise reasonable diligence
(which shall include consultation with Tenant) in making any such repairs,
alterations, additions or improvements so as to minimize any interference with
Tenant's business operations, but shall not be required to perform the same on
an overtime or premium pay basis.
7.5. Landlord shall, at its expense (subject to reimbursement pursuant to
the provisions of Article 4 hereof) keep and maintain the Building Project,
including the landscaping of the Land and its fixtures, appurtenances and
facilities serving the demised premises, including but not limited to, the
parking areas utilized by Tenant, the roof of the demised premises and the
atrium portion of the Building and the structure immediately adjacent or
contiguous to the demised premises, the electrical, heating, ventilation, air
conditioning, plumbing and mechanical systems (including heat pumps) directly
serving the demised premises to the main distribution duct serving the demised
premises (i.e., those portions of such systems that service parts of the
Building other than or in addition to the demised premises), and the windows of
the demised premises, in good condition and repair in accordance with the
standards appropriate to a first class office building in Fairfield County,
Connecticut, and make all repairs, restorations and replacements, structural and
otherwise, interior and exterior, as and when needed in or about the demised
premises, except for those repairs for which Tenant is responsible pursuant to
the provisions of this Lease.
7.6. Except in case of emergency, Landlord shall give Tenant at least
seven (7) days prior notice of any entry, repair, alteration, addition or
improvement by Landlord under this Article 7 or Article 10 or 15 hereof, which
is reasonably expected to materially interfere with the conduct of Tenant's
business in the demised premises.
ARTICLE 8
REQUIREMENTS OF LAW
8.1. Tenant shall, at Tenant's sole cost and expense, comply with all
laws, orders and regulations of federal, state, county and municipal
authorities, and with any direction of any public officer or officers, pursuant
to law, which shall impose any violation, order or duty upon Landlord or Tenant
with respect to the demised premises, or the use or occupation thereof. Nothing
contained in this Section 8.01 shall require Tenant to perform structural
alterations in or to the demised premises the requirement for which does not
arise from Tenant's use or manner of use of the demised premises. Such
structural alterations for which Tenant is not responsible hereunder shall be
the responsibility of Landlord.
8.2. Notwithstanding the provisions of Section 8.01 hereof, Tenant, at its
own cost and expense, in its name and/or (whenever necessary) Landlord's name,
may contest, in any manner permitted by law (including appeals to a court, or
governmental depart-
23
<PAGE>
ment or authority having jurisdiction in the matter), the validity or the
enforcement of any governmental act, regulation or directive with which Tenant
is required to comply pursuant to this Lease, and may defer compliance therewith
provided that:
(a) such non compliance shall not subject Landlord to criminal
prosecution or subject the Land and/or Building to lien or sale;
(b) such non compliance shall not be in violation of any fee
mortgage, or of any ground or underlying lease or any mortgage thereon;
(c) Tenant shall first deliver to Landlord a surety bond issued by a
surety company of recognized responsibility, or other security
satisfactory to Landlord, indemnifying and protecting Landlord against any
loss or injury by reason of such non--compliance; and
(d) Tenant shall promptly and diligently prosecute such contest.
Landlord, without expense or liability to it, shall cooperate with
Tenant and execute any documents or pleadings required for such purpose,
provided that Landlord shall reasonably be satisfied that the facts set
forth in any such documents or pleadings are accurate.
8.3. Landlord has delivered to Tenant a copy of the asbestos inspection
report it has obtained with regard to the demised premises. Notwithstanding
anything contained herein to the contrary, in the event at any time during the
term of this Lease asbestos is discovered in the demised premises which is
required by applicable law to be removed or encapsulated, then, unless the same
has been introduced into the demised premises by Tenant or its agents,
contractors or employees, Landlord shall remove or encapsulate same as required
by applicable law at Landlord's sole cost and expense.
8.4. Landlord represents that, as of the date hereof, Landlord has
received no notices of violations of any Legal Requirements affecting The
Building Project which (i) would materially and adversely affect Tenant's use of
the demised premises and (ii) have not been cured.
ARTICLE 9
INSURANCE, LOSS, REIMBURSEMENT, LIABILITY
9.1. Tenant shall not violate, or permit the violation of, any condition
imposed by any insurance policy then issued in respect to The Building Project
and/or the property therein and shall not do, or permit anything to be done, or
keep or permit anything to be kept in the demised premises which would subject
Landlord to any liability or responsibility for bodily injury or death or
property damage, or which would increase any insurance rate in respect to The
Building Project or the property therein over the rate
24
<PAGE>
which would otherwise then be in effect or which would result in insurance
companies of good standing refusing to insure The Building Project or the
property therein in amounts reasonably satisfactory to Landlord, or which would
result in the cancellation of or the assertion of any defense by the insurer in
whole or in part to claims under any policy of insurance in respect of The
Building Project or the property therein.
9.2. If, by reason of any failure of Tenant to comply with the provisions
of Section 8.01 or Section 9.01, the premiums on Landlord's insurance on The
Building Project and/or equipment or property therein shall be higher than they
otherwise would be for normal general and executive office use, Tenant shall
reimburse Landlord, within forty five (45) days after Landlord's demand
therefor, for that part of such premiums attributable to such failure on the
part of Tenant. A schedule or "make up" of rates for The Building Project or the
demised premises, as the case may be, issued by the applicable fire insurance
rating organization or other similar body making rates for insurance for The
Building Project or the demised premises, as the case may be, shall be
conclusive evidence of the facts therein stated and of the several items and
charges in the insurance rate then applicable to The Building Project or the
demised premises, as the case may be.
9.3. (a) Tenant, at its expense, shall maintain at all times during the
term of this Lease (i) "all risk" property insurance covering Tenant's property
and improvements and betterments to a limit of not less than 80% of the
replacement cost thereof and (ii) comprehensive general liability insurance,
including contractual liability, in respect of the demised premises and the
conduct or operation of business therein, with Landlord and its managing agent,
if any, and any lessor of any ground or underlying lease or the holder of any
mortgage (as the case may be) whose name and address shall have been furnished
to Tenant, as additional insureds, with limits of not less than $3,000,000
combined single limit bodily injury and property damage liability. The limits of
such insurance shall not limit the liability of Tenant hereunder. Tenant shall
deliver to Landlord and any additional insureds such fully paid for policies or
certificates of insurance in form satisfactory to Landlord issued by the
insurance company or its authorized agent, at least ten (10) days before the
Commencement Date. Tenant shall procure and pay for renewals of such insurance
from time to time before the expiration thereof, and Tenant shall deliver to
Landlord and any additional insured such renewal policy at least thirty (30)
days before the expiration of any existing policy. All such policies shall be
issued by companies licensed to do business in Connecticut and rated by Best's
Insurance Reports or any successor publication of comparable standing, and
carrying a rating of A XII or better or the then equivalent of such rating.
(b) Landlord shall maintain at all times during the term of this
Lease, "all risk" property insurance (subject to reasonable deductible
amounts) covering The Building Project and Landlord's property therein, in
such amounts as may be required for the repair or restoration thereof
without co insurance. The foregoing requirement shall not apply to the
Landlord named herein (nor any successor landlord hereunder) so long as
its securities are rated as "investment grade" by Moody's, Standard &
Poor's or another national rating agency and which shall maintain one or
more separate funds and reserves as and for insurance of its
25
<PAGE>
property generally (and including The Building Project) in reasonably
appropriate amounts taking into account usually covered risks.
9.4. Each party agrees to have included in each of its insurance policies
(insuring The Building Project and Landlord's property therein in the case of
Landlord, and insuring Tenant's property and improvements and betterments in the
demised premises and business interruption, in the case of Tenant, against loss,
damage or destruction by fire or other casualty) a waiver of the insurer's right
of subrogation against the other party during the term of this Lease or, if such
waiver should be unobtainable or unenforceable, (i) an express agreement that
such policy shall not be invalidated if the assured waives the right of recovery
against any party responsible for a casualty covered by the policy before the
casualty, or (ii) any other form of permission for the release of the other
party. If such waiver, agreement or permission shall not be, or shall cease to
be, obtainable from either party's then current insurance company, the insured
party shall so notify the other party promptly after learning thereof, and shall
use its best efforts to obtain the same from another insurance company described
in Section 9.03 hereof. Each party hereby releases the other party, with respect
to any claim (including a claim for negligence) which it might otherwise have
against the other party, for loss, damage or destruction with respect to its
property and, in the case of Tenant, loss of business, occurring during the term
of this Lease to the extent to which it is insured under a policy or policies
containing a waiver of subrogation or permission to release liability, as
provided in the preceding subdivisions of this section. If, notwithstanding the
recovery of insurance proceeds by either party for loss, damage or destruction
of its property, the other party is liable to the first party with respect
thereto or is obligated under this Lease to make replacement, repair or
restoration or payments then, provided the first party's right of full recovery
under its insurance policies is not thereby prejudiced or otherwise adversely
affected, the amount of the net proceeds of the first party's insurance against
such loss, damage or destruction shall be offset against the second party's
liability to the first party therefor, or shall be made available to the second
party to pay for replacement, repair or restoration, as the case may be. Nothing
contained in this section shall be deemed to relieve either party of any duty
imposed elsewhere in this Lease to repair, replace, restore or rebuild provided
for elsewhere in this Lease.
9.5. Landlord may from time to time, but not more frequently than once
every three years, in the exercise of its reasonable judgment, require that the
amount of comprehensive general liability insurance to be maintained by Tenant
under Section 9.03 be increased, so that the amount thereof adequately protects
Landlord's interest, using industry standards for comparable office space in
Fairfield County, Connecticut.
9.6. Landlord or its agents shall not be liable for any injury or damage
to persons or property resulting from fire, explosion, falling plaster, steam,
gas, electricity, water, rain or snow or leaks from any part of the Building, or
from the pipes, appliances or plumbing works or from the roof, street or
subsurface or from any other place or by dampness or by any other cause of
whatsoever nature, unless any of the foregoing shall be caused by or due to the
negligence of Landlord, its agents or employees.
26
<PAGE>
9.7. Landlord or its agents shall not be liable for any damage which
Tenant may sustain, if at any time any window of the demised premises is broken,
or temporarily closed, darkened or bricked up for any reason whatsoever, or
permanently closed, darkened or bricked up pursuant to a Legal Requirement (as
defined in Article 22 hereof), and Tenant shall not be entitled to any
compensation therefor or abatement of rent or to any release from any of
Tenant's obligations under this Lease, nor shall the same constitute an
eviction.
9.8. Tenant shall reimburse Landlord for all expenses, damages or fines
incurred or suffered by Landlord, by reason of any breach, violation or non
performance by Tenant, or its agents, servants or employees, of any covenant or
provision of this Lease, or by reason of damage to persons or property caused by
moving property of or for Tenant in or out of the Building, or by the
installation or removal of furniture or other property of or for Tenant except
as provided in Section 6.05 of this Lease, or by reason of or arising out of the
carelessness, negligence or improper conduct of Tenant, or its agents, servants
or employees, in the use or occupancy of the demised premises. Subject to the
provisions of Section 8.02 hereof, where applicable, Tenant shall have the
right, at Tenant's own cost and expense, to participate in the defense of any
action or proceeding brought against Landlord, and in negotiations for
settlement thereof if, pursuant to this Section 9.08, Tenant would be obligated
to reimburse Landlord for expenses, damages or fines incurred or suffered by
Landlord.
9.9. Tenant shall give Landlord notice in case of fire or accidents in the
demised premises promptly after Tenant is aware of such event.
9.10. Tenant agrees to look solely to Landlord's estate and interest in
the Building, or the lease of the Building, or of The Building Project (as such
term is defined in subsection 3.02(b) hereof) and the demised premises, for the
satisfaction of any right or remedy of Tenant for the collection of a judgment
(or other judicial process) requiring the payment of money by Landlord, in the
event of any liability by Landlord, and no other property or assets of Landlord
shall be subject to levy, execution, attachment, or other enforcement procedure
for the satisfaction of Tenants remedies under or with respect to this Lease,
the relationship of Landlord and Tenant hereunder, or Tenant's use and occupancy
of the demised premises, or any other liability of Landlord to Tenant.
ARTICLE 10
ADJACENT EXCAVATION -- SHORING
10.1. If an excavation or other substructure work shall be made upon land
adjacent to the Building, or shall be authorized to be made, Tenant shall afford
to the person causing or authorized to cause such excavation, license to enter
upon the demised premises for the purpose of doing such work as shall be
necessary to preserve the wall of or the Building of which the demised premises
form a part from injury or damage and to support the same by proper foundations
without any claim for damages or indemnity against Landlord, or diminution or
abatement of rent unless due to Landlord's gross
27
<PAGE>
negligence. Landlord shall use its reasonable efforts to minimize any
inconvenience to Tenant or any interruption of Tenant's business caused by any
such entry provided, however, that in no event shall Landlord be required to
incur overtime or premium pay charges in connection therewith. The provisions of
Section 7.06 hereof shall apply to Landlord's entry hereunder.
ARTICLE 11
ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.
11.1. (a) Tenant shall not (1) assign or otherwise transfer this
Lease or the term and estate hereby granted, (2) sublet the
demised premises or any part thereof or allow the same to be
used or occupied by others or in violation of Article 5
hereof, (3) mortgage, pledge or encumber this Lease or the
demised premises or any part thereof in any manner by reason
of any act or omission on the part of Tenant, or (4)
advertise, or authorize a broker to advertise, for a subtenant
or an assignee, without, in each instance, obtaining the prior
consent of Landlord, except as otherwise expressly provided in
this Article 11. Landlord agrees that it will not unreasonably
withhold its consent to Tenant's advertisement or Tenant's
authorization of a broker's advertisement for a subtenant or
assignee provided Tenant shall have complied with the
provisions of Section 11.05 hereof and Landlord shall not have
exercised any of the rights granted therein. For purposes of
this Article 11, (i) the transfer of a majority of the issued
and outstanding capital stock of any corporate tenant, or of a
corporate subtenant, or the transfer of a majority of the
total interest in any partnership tenant or subtenant, however
accomplished, whether in a single transaction or in a series
of related or unrelated transactions, shall be deemed an
assignment of this Lease, or of such sublease, as the case may
be, except that the transfer of the outstanding capital stock
of any corporate tenant, or subtenant, shall be deemed not to
include the sale of such stock by persons or parties, through
the "over the counter market" or through any recognized stock
exchange, (ii) any agreement whereby a third party takes over
the obligations of Tenant under the Lease shall be deemed an
assignment of this Lease, (iii) any person or legal
representative of Tenant, to whom Tenant's interest under this
Lease passes by operation of law, or otherwise, shall be bound
by the provisions of this Article 11, and (iv) a modification,
amendment or extension of a sublease shall be deemed a
sublease.
(b) If Tenant intends to assign this Lease or sublease the demised
premises or any portion thereof (other than by an assignment or sublease
contemplated by Section 11.02 hereof), Tenant shall first comply with the
provisions of Section 11.05 hereof and Landlord shall have the rights
described therein. If
28
<PAGE>
Landlord does not exercise any of its rights under Section 11.05 hereof
then, provided Tenant shall have complied with the provisions of this
Article 11, Landlord shall not unreasonably withhold or delay its consent
to an assignment of this Lease or a sublease of the demised premises as
more specifically set forth in Section 11.07 hereof. The provisions of
this subsection 11.01(b) are meant to be a summary only of the provisions
of this Article 11 and this subsection 11.01(b) in no way shall limit the
scope of this Article 11 nor the intent or application of any provision
hereof. In the event of any conflict between the provisions of this
subsection 11.01(b) and the other provisions of this Article 11, such
other provisions shall prevail.
11.2. The provisions of Section 11.01 hereof shall not apply to
transactions with a corporation into or with which Tenant is merged or
consolidated or with an entity to which substantially all of Tenant's assets or
all or a majority of Tenant's stock are transferred (provided such merger or
transfer of stock or assets is for a good business purpose and not principally
for the purpose of transferring the leasehold estate created hereby, and
provided further, that the assignee has a net worth at least equal to or in
excess of the net worth of Tenant immediately prior to such merger or transfer,
such net worth to be calculated in accordance with generally accepted accounting
principles consistently applied) or, if Tenant is a partnership, with a
successor partnership, nor shall the provisions of clauses (l) and (2) of
Section 11.01 apply to transactions with any person, corporation, partnership,
joint venture or other entity which, directly or indirectly controls, is
controlled by or is under common control with the Tenant named herein (each
named hereinafter referred to as an "Affiliate of Tenant"). For the purposes of
the foregoing, "control" shall mean ownership of a majority of the legal and
beneficial interest in such corporation, together with the ability to direct the
management, affairs and operations thereof. Any transfer or cessation of control
over any Affiliate to which this Lease is assigned shall constitute an
assignment of this Lease to which all of the provisions of this Article 11,
other than the provisions of this Section 11.02, shall apply.
11.3. Any assignment or transfer made hereunder, shall be made only if, and
shall not be effective until, the assignee shall execute, acknowledge and
deliver to Landlord a recordable agreement, in form and substance reasonably
satisfactory to Landlord, whereby the assignee shall assume the obligations and
performance of this Lease and agree to be personally bound by and upon all of
the covenants, agreements, terms, provisions and conditions hereof on the part
of Tenant to be performed or observed and whereby the assignee shall agree that
the provisions of this Article 11 shall, notwithstanding such an assignment or
transfer, continue to be binding upon it in the future. Tenant covenants that,
notwithstanding any assignment or transfer of this Lease, whether or not in
violation of the provisions of this Lease, and notwithstanding the acceptance of
fixed annual rent by Landlord from an assignee or transferee or any other party,
Tenant shall remain fully and primarily liable for the payment of the fixed
annual rent and additional rent due and to become due under this Lease and for
the performance of all of the covenants, agreements, terms, provisions and
conditions of this Lease on the part of Tenant to be performed or observed.
29
<PAGE>
11.4. The liability of Tenant, and the due performance by Tenant of the
obligations on its part to be performed under this Lease, shall not be
discharged, released or impaired in any respect by an agreement or stipulation
made by Landlord or any grantee or assignee of Landlord by way of mortgage, or
otherwise, extending the time of, or modifying any of the obligations contained
in this Lease, or by any waiver or failure of Landlord to enforce any of the
obligations on Tenant's part to be performed under this Lease, and Tenant shall
continue liable hereunder. If any such agreement or modification operates to
increase the obligations of a tenant under this Lease, the liability under this
Section 11.04 of the tenant named in the Lease or any of its successors in
interest, (unless such party shall have expressly consented in writing to such
agreement or modification) shall continue to be no greater than if such
agreement or modification had not been made. To charge Tenant named in this
Lease and its successors in interest, no demand or notice of any default shall
be required. Tenant and each of its successors in interest hereby expressly
waive any such demand or notice.
11.5. (a) If Tenant shall have a bona fide intention to (i) assign this
Lease, other than by an assignment contemplated by Section
11.02 hereof, or (ii) sublet all or substantially all (as such
term is hereinafter defined) of the demised premises other
than by a sublease contemplated by Section 11.02 hereof, then
Tenant shall first give notice to Landlord of such fact and of
the effective date of the proposed assignment or of the
commencement of the term of the proposed sublease and if
applicable, the area of the demised premises proposed to be
sublet, and Landlord shall then have the right to elect, by
notifying Tenant within forty five (45) days of receipt of
such notice, to (i) terminate this Lease, as of the intended
effective date of such proposed assignment or the commencement
of the term of the proposed sublease, as the case may be, (ii)
accept an assignment of this Lease from Tenant to Landlord,
and Tenant shall then promptly execute and deliver to
Landlord, in form reasonably satisfactory to Landlord's
counsel (which shall provide in part that no merger of
leasehold interests shall occur), an assignment which shall be
effective as of the effective date of such assignment as
aforesaid, or (iii) accept a sublet of the demised premises in
accordance with the provisions of subsection 11.05(c) of this
Lease. For the purposes of this Article 11, a sublease of
substantially all of the demised premises shall be a sublease
which results in Tenant and Affiliates of Tenant occupying
less than one (l) full floor of a Wing of the Building.
(b) If Tenant shall have a bona fide intention to sublet less than
substantially all of the demised premises, other than by a sublease
contemplated by Section 11.02 hereof, Tenant shall first give notice to
Landlord of such fact and of the area it proposes to sublet and for what
term. Such notice shall be deemed an offer by Tenant whereby Landlord may
elect within thirty (30) days of such notice with respect to a sublease of
less than 30,000 rentable square feet, and otherwise
30
<PAGE>
within forty-five (45) days of such notice, to (i) accept a sublease from
Tenant with respect to the portion of the demised premises proposed to be
sublet (hereinafter sometimes called the "Leaseback Area") for the term
specified in Tenant's notice, or (ii) with respect to a subletting of
Leaseback Areas for the remainder of the term or substantially all of the
remainder of the term of this Lease, terminate the Lease with respect to
such Leaseback Area.
(c) If Landlord should elect to have Tenant execute and deliver a
sublease pursuant to any of the provisions of this Section 11.05, said
sublease shall be in a form reasonably satisfactory to Landlord's counsel
and on all the terms contained in this Lease, except that:
(l) it shall permit Landlord to make further subleases of all
or any part of the demised premises or the Leaseback Area as the
case may be and (at no cost or expense to Tenant) to make and
authorize any and all changes, alterations, installations and
improvements in such space as Landlord may deem necessary for such
subletting, at Landlord's expense provided, however, that in the
event Landlord shall desire to alter the Leaseback Area for purposes
other than general office purposes Landlord shall first be required
to obtain Tenant's consent to such alterations which consent, Tenant
agrees, (i) shall not be unreasonably withheld or delayed and (ii)
shall be deemed given in the event Tenant does not respond to a
request therefor within thirty (30) days after such request is made;
(2) it shall provide that Tenant will at all times permit
reasonably appropriate means of ingress to and egress from the
Leaseback Area;
(3) such sublease shall expressly negate any intention that
the estate created under such sublease be merged with any other
estate held by either of the parties;
(4) the sublease shall not provide for any work to be done for
the subtenant or for any initial rent concessions or contain
provisions inapplicable to a sublease;
(5) it shall provide that at the expiration of the term of
such sublease Tenant will accept the Leaseback Area in its then
existing condition, subject to the obligation of Landlord to make
such repairs thereto as may be necessary to preserve the Leaseback
Area in good order and condition, ordinary wear and tear excepted in
accordance with Tenant's obligations to repair the demised premises
as set forth in Article 7 hereof provided, however, that in the
event Landlord shall have altered the Leaseback Area so that the
same is not suitable for general office purposes Landlord shall, at
Landlord's expense, restore the Leaseback Area to general office
space;
31
<PAGE>
(6) it shall provide that any consent required of Tenant, as
lessor under that sublease, shall be deemed granted if consent with
respect thereto is granted by Landlord except the consent required
under clause (1) above;
(7) there shall be no limitation as to the use of the sublet
premises by the subtenant thereunder except (a) as set forth in
Article 37 and Article 5 hereof, and (b) Landlord shall not permit
use of the sublet premises by any of "Tenant's Competitors" (as that
term is defined in Section 11.11 hereof);
(8) any failure of the subtenant thereunder to comply with the
provisions of said sublease, other than with respect to the payment
of rent to Tenant or the willful misconduct of such subtenant which
causes damage to Tenant, shall not constitute a default thereunder
if Landlord has consented to such noncompliance;
(9) Tenant shall be released from all obligations under this
Lease as to the Leaseback Area during the period of time it is
sublet to Landlord, other than from Tenant's obligations to pay
fixed annual rent and additional rent therefor and any default under
any such sublease shall not give rise to default under a similar
obligation contained in this Lease, nor shall Tenant be liable for
any default under this Lease or deemed to be in default hereinunder
if such default is occasioned by or arises from any act or omission
of the subtenant under such sublease or is occasioned by or arises
from any act or omission of any occupant holding under or pursuant
to any such sublease; and
(10) the rental terms shall be the rental terms contained in
this Lease on a per rentable square foot basis.
If pursuant to the exercise of any of Landlord's options pursuant to this
Section 11.05 this Lease is terminated as to only a portion of the demised
premises, then the fixed annual rent payable hereunder and the additional
rent payable pursuant to Articles 3 and 4 hereof shall be adjusted in
proportion to the portion of the demised premises affected by such
termination.
11.6. (a) If Landlord shall exercise any of its options under Section
11.05 hereof and shall thereafter enter into one or more leases or underleases
with respect to all or any portion of the demised premises as to which Landlord
shall have exercised such option, Landlord shall pay to Tenant after deduction
of "Permitted Expenses" (as such term is hereinafter defined) fifty percent
(50%) of any rents, additional charges or other consideration paid under such
lease or underlease or otherwise by the tenant or undertenant, as the case may
be, during the then balance of the term of this Lease which are in excess of the
fixed annual rent or additional rent (if such excess in fact exists) payable by
Tenant hereunder (or which would be payable by Tenant hereunder if the Lease
were in
32
<PAGE>
effect) commencing upon the effective date of such option and for the balance of
the term of this Lease with respect to such space Con a proportionate rentable
area basis). Amounts received by Landlord or any Affiliate of Landlord for
performing any services for any tenant or undertenant shall not be considered
consideration received by Landlord for purposes of this Section 11.06. As used
herein the term "Permitted Expenses" shall mean the aggregate of (i) usual
broker commissions and reasonable legal fees incurred by Landlord in connection
with any such lease or underlease, (ii) the costs, if any, incurred by Landlord
in separating the space from the balance of the demised premises, (iii)
reasonable advertising expenses incurred by Landlord, (iv) reasonable costs
incurred by Landlord in preparing the space for occupancy, including cash
allowances in lieu thereof, and (v) the amount of any lost rent resulting from
rent concession or abatement periods not exceeding six months. "Permitted
Expenses" shall be reduced by the aggregate of expenses in the nature of those
listed in subdivisions (i) through (v) hereof incurred by Tenant in connection
with the procurement of such tenant or undertenant.
(b) If Landlord shall exercise any of its options under Section
11.05 hereof, then the number of parking spaces of which Tenant shall have
free use pursuant to Section 17.03 hereof shall be reduced as provided in
Section 17.03 hereof.
11.7. In the event that Landlord does not exercise any of the options
available to it pursuant to Section 11.05 hereof, Landlord shall not
unreasonably withhold or delay its consent to an assignment of this Lease or a
subletting of the whole or a part of the demised premises provided:
(a) Tenant shall furnish Landlord with the name and business address
of the proposed subtenant or assignee, information with respect to the
nature and character of the proposed subtenant's or assignee's business,
or activities, an executed counterpart of the sublease or assignment
agreement and with respect to a proposed subletting of 30,000 or more
rentable square feet of the demised premises (any such subletting is
herein called a "Material Sublease") such references and current financial
information with respect to net worth, credit and financial responsibility
as are reasonably satisfactory to Landlord;
(b) The nature and character of the proposed subtenant or assignee,
its business or activities and intended use of the demised premises, is
not in violation of Articles 5 or 37 hereof;
(c) The proposed subtenant or assignee is not then an occupant of
any part of the Building or a party who dealt with Landlord or Landlord's
agent (directly or through a broker) with respect to space in the Building
during the three (3) months immediately preceding Tenant's request for
Landlord's consent;
(d) All costs incurred with respect to providing reasonably
appropriate means of ingress and egress from the sublet space or to
separate the sublet space from the remainder of the demised premises
shall, subject to the provisions of
33
<PAGE>
Article 6 hereof with respect to alterations, installations, additions or
improvements be borne by Tenant;
(e) Each sublease or assignment shall specifically state that (i) it
is subject to all of the terms, covenants, agreements, provisions, and
conditions of this Lease, including the waiver, agreement and permission
requirements set forth in Section 9.04 hereof as applied to the subtenant
or assignee, (ii) the subtenant or assignee, as the case may be, will not
have the right to a further assignment thereof or sublease or assignment
thereunder, or to allow the demised premises to be used by others, without
the consent of Landlord in each instance, provided, however, Landlord
agrees that it will not unreasonably withhold its consent or approval with
respect to an initial assignment or subletting by (l) the permitted
assignee of the Lease or (2) subtenant of a Material Sublease of the named
Tenant herein, (iii) a consent by Landlord thereto shall not be deemed or
construed to modify, amend or affect the terms and provisions of this
Lease, or Tenant's obligations hereunder, which shall continue to apply to
the premises involved, and the occupants thereof, as if the sublease or
assignment had not been made.
(f) Tenant shall together with requesting Landlord's consent
hereunder, have paid Landlord any costs incurred by Landlord to review the
requested consent including any reasonable attorneys fees incurred by
Landlord;
(g) The proposed subtenant or assignee is not an entity set forth in
Article 37 hereof;
(h) In the case of a subletting of a portion of the demised
premises, the portion so sublet shall be at least 2,500 rentable square
feet and regular in shape and such subletting will not result in more than
four occupants (including Tenant) occupying any floor of the demised
premises.
(i) Tenant shall not publicly advertise the demised premises at a
rental rate less than the rental rates then being charged under leases
being entered into by Landlord for comparable space in the Building and
for a comparable term.
11.8. In the event that (a) Landlord fails to exercise any of its options
under Section 11.05 hereof and Tenant fails to execute and deliver an assignment
or sublease within 180 days after the giving of Tenant's notice of its intention
with respect thereto, then, Tenant shall again comply with all of the provisions
and conditions of Section 11.05 before assigning this lease or subletting the
demised premises, provided however if Tenant shall within thirty (30) days after
the expiration of said 180 day period agree to assign the Lease or sublease the
demised premises and shall submit the same to Landlord as described in Section
11.05 hereof, Landlord shall have twenty (20) days to make the elections set
forth in Section 11.05 with respect to such assignment or sublease.
11.9. (a) If Landlord shall fail to respond to Tenant's request for
Landlord's consent to a proposed subletting or assignment within thirty (30)
days after Tenant's
34
<PAGE>
submission thereof, then provided Tenant shall have fully complied with the
provisions of this Article 11 with respect to such assignment or subletting,
Landlord shall be deemed to have consented thereto.
(b) If the Landlord shall give or be deemed to have given its
consent to any assignment of this Lease or to any sublease, Tenant shall
in consideration therefor, pay to Landlord, as additional rent:
(i) in the case of an assignment, an amount equal to fifty
(50%) percent of all sums and other considerations (hereinafter
collectively called the "Assignment Consideration") paid to Tenant
by the assignee for or by reason of such assignment or otherwise
(including, but not limited to, sums paid for the sale of Tenant's
fixtures, leasehold improvements, equipment, furniture, furnishings
or other personal property, less, in the case of a sale of Tenant's
personal property, the higher of: (A) the then net unamortized or
undepreciated cost thereof determined on the basis of Tenant's
federal income tax returns or (B) the then fair market value thereof
but excluding from the Assignment Consideration all reimbursements
by an assignee to Tenant for amounts actually expended by Tenant in
providing services for such assignee); and
(ii) in the case of a sublease, an amount equal to fifty (50%)
percent of any rents, additional charge or other consideration
payable under the sublease or otherwise to Tenant by the subtenant
which is in excess (hereinafter called the "Excess Amount") of the
fixed annual rent and additional rent accruing during the term of
the sublease in respect of the subleased space Cat the rate per
square foot payable by Tenant hereunder) pursuant to the terms
hereof (including, but not limited to, sums paid for the sale or
rental of Tenant's fixtures, leasehold improvements, equipment,
furniture or other personal property, less, in the case of the sale
of Tenant's personal property, the higher of: (A) the then net
unamortized or undepreciated cost thereof determined on the basis of
Tenant's federal income tax returns or (B) the then fair market
value thereof).
In determining the Excess Amount and the Assignment Consideration there shall be
deducted therefrom the amount of any Permitted Expenses. As used in the next
preceding sentence the term "Permitted Expenses" shall have the same meaning as
set forth in subsection 11.06(a) hereof except that for the purposes of this
Section 11.09, Permitted Expenses shall be expenses incurred by Tenant in
connection with any subletting or assignment pursuant to this Section 11.09.
The sums payable under this Section 11.09 shall be paid to Landlord as and when
paid by the subtenant or assignee, as the case may be, to Tenant.
Tenant shall advise Landlord in the event of a sale of personal property in
connection with an assignment or subletting of the value allocated thereto and,
upon Landlord's
35
<PAGE>
request, the undepreciated cost thereof determined on the basis of Tenant's
federal income tax returns. In the event that such allocated value exceeds such
undepreciated cost, Landlord may, at its election, dispute such valuation within
thirty (30) days after the submission thereof, in which event Landlord shall
name an appraiser reasonably satisfactory to Tenant (or if the parties are
unable to agree, an appraiser selected at the initiative of either party by the
American Arbitration Association) to conclusively establish the fair market
value of such property.
11.10. If Tenant defaults in the payment of any rent, Landlord is
authorized to collect any rents due or accruing from any assignee, subtenant or
other occupant of the demised premises and to apply the net amounts collected to
the fixed annual rent and additional rent reserved herein. The receipt by
Landlord of any amounts from an assignee or subtenant, or other occupant of any
part of the demised premises shall not be deemed or construed as releasing
Tenant from Tenant's obligations hereunder or the acceptance of that party as a
direct tenant.
11.11. For the purposes of Subsection ll.05(c)C7) hereof, the term
"Tenant's Competitors" shall mean an entity whose principal business shall be
that of a health insurer, health care provider or health maintenance
organization (which may include a division or subsidiary of Landlord) but
nothing in this Section 11.11 shall prohibit Landlord from leasing any portion
of the Building to a tenant having a division or subsidiary engaged in such
business, provided such division or subsidiary shall not occupy such portion of
the Building. Notwithstanding any language to the contrary contained in this
Section 11.11, Tenant agrees that the existing tenants of The Building Project
and any affiliates or successors thereto shall not be deemed a Tenant's
Competitor.
11.12. Notwithstanding any language to the contrary contained in Section
11.05(c) hereof, in the event that Tenant should agree subject to the provisions
of this Lease to sublet (such sublease is hereinafter called a "Partial Term
Sublease") a portion of the demised premises for a term which is less than
substantially all of the balance of the then term of this Lease, then provided
(i) Tenant shall have entered into three or more subleases of the space
(hereinafter called the "Partial Term Sublease Space") proposed to be sublet by
the Partial Term Sublease during the six (6) year period prior to the date
Tenant shall deliver such Partial Term Sublease to Landlord pursuant to
subsection 11.05(c) hereof, and (ii) the sum of (a) the rentable area demised
under the Partial Term Sublease Space, and (b) the rentable area of the demised
premises currently being subleased by Tenant shall be 50,000 rentable square
feet or more, Landlord shall have the right to terminate the Lease with respect
to such Partial Term Sublease Space as of the proposed effective date of such
Partial Term Sublease.
11.13. At the request of Tenant, Landlord shall enter into an agreement
with any subtenant of Tenant which has been approved by Landlord pursuant to the
provisions of Section 11.07 hereof providing that, if Landlord shall succeed to
the interest of Tenant under Tenant's sublease agreement (hereinafter called an
"Approved Sublease") with such subtenant as a result of the default of Tenant
under this Lease, Landlord shall be
36
<PAGE>
bound by the provisions of such Approved Sublease and shall not terminate such
Approved Sublease so long as the subtenant shall not be in default thereunder,
provided that: (a) the fixed rent and additional rent payable under the Approved
Sublease are not less than the fixed rent and additional rent payable under this
Lease from time to time on a pro rata basis; (b) the Approved Sublease covers
not less than 50,000 rentable square feet; (c) the subleased space does not
destroy the contiguity of the balance of the demised premises; and (d) the
subtenant is a reputable party whose financial net worth, credit and financial
responsibility is, considering the rental payable under the Approved Sublease,
reasonably satisfactory to Landlord.
11.14. In the event that this Lease shall be assigned to Landlord or
Landlord's designee or if the demised premises shall be sublet to Landlord or
Landlord's designee pursuant to Section 11.05, the provisions of any such
sublease or assignment and the obligations of Landlord and the rights of Tenant
with respect thereto shall not be binding upon or otherwise affect the rights of
any holder of a superior mortgage or of a lessor under a superior lease unless
such holder or lessor shall elect by written notice to Tenant to succeed to the
position of Landlord or its designee, as the case may be, thereunder.
ARTICLE 12
ELECTRICITY
12.1. (a) Landlord shall furnish to Tenant the electric energy which
Tenant requires in the demised premises on a "rent inclusion"
basis, through the presently installed electrical facilities
for Tenant's reasonable use in the demised premises of the
heating, ventilating and air conditioning equipment in the
demised premises and for lighting, light office and mechanical
equipment that does not require in excess of a 110 volt line.
Subject to the following provisions of this Section 12.01,
there shall be no charge to Tenant therefor by way of
measuring the same on any meter or otherwise, electric current
being included as an additional service in the fixed annual
rent payable hereunder.
(b) Tenant acknowledges and agrees (i) that the fixed annual
rent hereinabove set forth in this Lease includes an Electricity
Rent Inclusion Factor (as hereinafter defined), of $247,108.50 to
compensate Landlord for the electrical wiring and other
installations necessary for, and for its obtaining and
redistribution of, electric current as an additional service to the
demised premises; and (ii) that said Electricity Rent Inclusion
Factor (hereinafter called "ERIF") has been partially based upon
Tenant's estimated connected electrical load and hours of use
thereof for ordinary lighting, heating, ventilating, air
conditioning and light office equipment, during ordinary business
hours in the demised premises. If Tenant requires a greater or
lesser amount of electric energy than estimated, including electric
energy to be supplied to the demised premises for heating,
ventilating, air conditioning, lighting and light office equipment
and equipment other than
37
<PAGE>
ordinary lighting and office equipment, then the ERIF shall not be
adjusted, but Tenant shall pay, as additional rent, or Landlord
shall credit Tenant the "Adjustment" (as hereinafter defined). The
"Adjustment" shall mean the amount remaining (whether a positive or
negative number) after subtracting the ERIF from the amount
determined by applying the connected electrical load and usage and
demand (hereinafter called "Tenant's Actual Electrical Usage")
thereof in the demised premises (as determined by the electrical
consultant as hereinafter provided) to the rate charged for such
load and usage in the service classification in effect on the date
of this Lease pursuant to which Landlord then purchased electric
current for the entire Building from the public utility corporation.
If the cost to Landlord of electricity shall have been, or shall be,
increased or decreased subsequent to the date of this Lease (whether
such increase or decrease occurs prior to or during the term of this
Lease), by change in Landlord's electric rates, charges, fuel
adjustment, or service classifications, or by taxes or charges of
any kind imposed thereon, or for any other such reason, then the
same shall be taken into account in computing the Adjustment. The
Adjustment shall be calculated monthly, in arrears, by Landlord's
consultant as provided in paragraph (d) hereof.
(c) Any such increase or decrease in Landlord's cost due to
change in Landlord's electric rates, charges, etc., shall be
computed by the application of the average consumption (energy and
demand) of electricity for the entire Building for the twelve (12)
months immediately prior to the rate change, other change in cost,
or any changed methods of or rules on billing for same, on a
consistent basis to the new rate and/or service classifications and
to the immediately prior existing rate and/or service
classifications. The parties acknowledge that they understand that
it is anticipated that existing electric rates, charges, etc. may be
changed by virtue of time of day rates or other methods of billing,
and that the foregoing reference to changes in methods of or rules
on billing is intended to include any such change. The parties agree
that a reputable, independent electrical consultant, selected by
Landlord ("Landlord's electrical consultant") shall determine the
Adjustment based on changes in Landlord's electric rates, charges,
etc.
(d) Tenant's Actual Electrical Usage shall be calculated on a
monthly basis by Landlord's electrical consultant using the check
meters located in the demised premises and making such adjustments
to the measurements thereof as may be deemed necessary by such
consultant. If any meters or other equipment must be installed to
check electric service to the demised premises, the same shall be
installed by Landlord at Landlord's expense, not to exceed in the
aggregate $20,000.00, and Tenant shall reimburse Landlord for the
cost thereof in excess of $20,000.00 in such equal monthly amounts
commencing after Landlord's completion of the installation thereof
as shall amortize such cost over the number of full months then
remaining in the term of this Lease without regard to any
unexercised rights of renewal or extension hereunder, and such
monthly amounts shall be paid by Tenant to Landlord as additional
rent hereunder.
38
<PAGE>
(e) The determination of Landlord's consultant shall be
binding and conclusive on Landlord and on Tenant from and after the
delivery of copies of such determination to Landlord and Tenant,
unless within ninety (90) days after the delivery of such copies,
Tenant disputes such determination. If Tenant disputes the
determination, it shall, at its own expense, obtain from a
reputable, independent electrical consultant its own survey of
Tenant's Actual Electrical Usage in the demised premises in
accordance with the provisions of this Article 12. Tenant's
consultant and Landlord's consultant then shall seek to agree on a
finding of such determination of Tenant's Actual Electrical Usage.
If they cannot agree, they shall choose a third reputable electrical
consultant whose cost shall be shared equally by Landlord and
Tenant, to make a similar survey, and the determination of such
third electrical consultant shall be controlling. (If they cannot
agree on such third consultant, within ten (10) days, then either
party may apply to the Superior Court Judicial District of Stamford!
Norwalk at Norwalk Housing Session, State of Connecticut for the
appointment of such third consultant.) However, pending such
determination, Tenant shall pay to Landlord the amount of the ERIF
and the Adjustment as determined by Landlord's electrical
consultant, then Landlord and Tenant shall make adjustment for any
deficiency owed by Tenant or overage paid by Tenant pursuant to the
decision of Landlord's electrical consultant together with interest
on such adjustment at the Interest Rate from the date owed, in the
case of a deficiency, or from the date paid, in the case of an
overage.
12.2. Landlord reserves the right to discontinue furnishing electric
energy to Tenant at any time upon one hundred eighty (180) days' written notice
to Tenant provided Landlord shall have previously or contemporaneously therewith
discontinued furnishing electricity to at least seventy-five (75%) percent of
the rentable area in the Building (including the demised premises). From and
after the effective date of such termination, Landlord shall no longer be
obligated to furnish Tenant with electric energy, provided, however, that such
termination date shall be extended for a time reasonably necessary for Tenant to
make arrangements to obtain electric service directly from the public utility
company servicing the Building. If Landlord exercises such right of termination,
this Lease shall remain unaffected thereby and shall continue in full force and
effect; and thereafter Tenant shall diligently arrange to obtain electric
service directly from the public utility company servicing the Building, and may
utilize the then existing electric feeders, risers and wiring serving the
demised premises to the extent available and safely capable of being used for
such purpose and only to the extent of Tenant's then authorized connected load.
Landlord shall be obligated to pay the reasonable cost required for Tenant to
obtain direct electric service unless Landlord discontinued furnishing
electricity to Tenant by reason of Legal Requirements or the rules and
regulations of the public utility furnishing electricity to the Building, in
which case Landlord and Tenant shall share equally such costs. Commencing with
the date when Tenant receives such direct service, and as long as Tenant shall
continue to receive such service, the ERIF amount and Adjustments shall not be
payable and Tenant shall obtain electric service direct from the utility
furnishing such power to the Building and shall pay all charges therefor to such
utility.
39
<PAGE>
12.3. Tenant agrees not to connect any additional electrical equipment of
any type to the Building electric distribution system, other than lamps,
typewriters and other small office machines which consume comparable amounts of
electricity, without Landlord's prior written consent, which consent shall not
be unreasonably withheld. To facilitate Tenant's increasing automation of its
operations, any additional risers, feeders, or other equipment proper or
necessary to supply Tenant's electrical requirements may be installed by Tenant,
at the sole cost and expense of Tenant and in accordance with the provisions of
Article 6 hereof, if, the same are necessary and will not cause permanent damage
or injury to the Building or the demised premises, or cause or create a
dangerous or hazardous condition or entail excessive or unreasonable
alterations, repair or expense or unreasonably interfere with or disturb other
tenants or occupants and provided same does not adversely affect Landlord's
reasonable estimates of the electrical capacity required for the needs of
existing and future tenants of the Building and for the proper maintenance and
operation of the Building. In applying the provisions of Article 6 to any work
permitted hereunder, any consent required under Article 6 to be obtained from
Landlord shall not be unreasonably withheld or delayed. Landlord shall not in
anywise be liable or responsible to Tenant for any loss or damage or expense
which Tenant may sustain or incur if either the quantity or character of
electric service is changed or is no longer available or suitable for Tenant's
requirements. Nothing contained in the preceding sentence shall be deemed to
exculpate Landlord its agents, servants or designees from liability for its
negligent or wilfull acts.
ARTICLE 13
DAMAGE BY FIRE OR OTHER CAUSE
13.1. If the Building or the demised premises shall be partially or
totally damaged or destroyed by fire or other cause, then whether or not the
damage or destruction shall have resulted from the fault or neglect of Tenant,
or its employees, agents or visitors (and if this Lease shall not have been
terminated as in this Article 13 hereinafter provided), Landlord shall repair
the damage and restore and rebuild the Building and/or the demised premises, at
its expense (without limiting the rights of Landlord under any other provisions
of this Lease), with reasonable dispatch after notice to it of the damage or
destruction; provided, however, that Landlord shall not be required to repair or
replace any of Tenant's property.
13.2. If the Building or the demised premises shall be partially damaged
or partially destroyed by fire or other cause, the fixed annual rent and
additional rent payable hereunder shall be abated to the extent that the demised
premises shall have been rendered untenantable for the period from the date of
such damage or destruction to the date the damage shall be repaired or restored.
If fifty (50%) percent or more of the area of the demised premises shall be
totally (which shall be deemed to include substantially totally) damaged or
destroyed or rendered completely (which shall be deemed to include substantially
completely) untenantable on account of fire or other cause, the fixed annual
40
<PAGE>
rent and additional rent shall abate as of the date of the damage or destruction
and until Landlord shall repair, restore and rebuild the Building and the
demised premises, provided, however, that should Tenant reoccupy a portion of
the demised premises during the period the restoration work is taking place and
prior to the date that the same are made completely tenantable, rents allocable
to such portion shall be payable by Tenant from the date of such occupancy.
13.3. (a) If the Building shall be totally damaged or destroyed by fire
or other cause, or if the Building shall be so damaged or
destroyed by fire or other cause (whether or not the demised
premises are damaged or destroyed) as to require a reasonably
estimated expenditure of more than forty (40%) percent of the
full insurable value of the Building immediately prior to the
casualty, then, in either such case, Landlord may terminate
this Lease by giving Tenant notice to such effect within sixty
(60) days after the date of the casualty. In case of any
damage or destruction mentioned in this Article 13 and
Landlord shall decide to restore the Building, Landlord shall
give Tenant a notice of Landlord's estimate of the reasonable
expected date of restoration (as evidenced by a certificate of
Landlord's architect) within sixty (60) days after the date of
the casualty. If such estimated restoration date shall be
later than 18 months after the date of such damage or
destruction, then Tenant may terminate this Lease by giving
Landlord notice to such effect within ten (10) days after the
date of Landlord's notice. Thereafter, Tenant may terminate
this Lease upon ten (10) days notice to Landlord, if Landlord
has not substantially completed the making of the required
repairs and restored and rebuilt the Building within
Landlord's estimated restoration period or within such period
thereafter (not to exceed one (l) month) as shall equal the
aggregate period Landlord may have been delayed in doing so by
adjustment of insurance, labor trouble, governmental controls,
act of god, or any other cause beyond Landlord's reasonable
control.
(b) If any damage or destruction described in this Section 13.03
shall occur at any time during the last two (2) years of the term of this
Lease, Tenant may terminate this Lease by notice given to Landlord within
twenty (20) days after the date of such casualty, if the demised premises
cannot reasonably (as evidenced by a certificate from Landlord's
architect) be restored within three (3) months from the date of such
damage or destruction or if Landlord has not substantially completed the
making of the required repairs and restored and rebuilt the Building and
the demised premises within three (3) months from the date of such damage
or destruction.
(c) In the event of any damage by fire or other casualty to the
Building or the demised premises which results in a termination of this
Lease by Landlord, Tenant shall be permitted to remain in occupancy after
the casualty of any portion
41
<PAGE>
of the demised premises which shall not have been rendered untenantable by
such casualty for a period following the casualty not to exceed six (6)
months upon all the terms and conditions of this Lease, provided such
continued occupancy shall not (i) be prohibited by Legal Requirements,
(ii) in Landlord's reasonable judgment be hazardous or create a hazardous
condition, (iii) interfere with Landlord's restoration of the Building or
the demised premises, or (iv) prevent Landlord from demolishing the
Building or any portion thereof pursuant to a Legal Requirement, and if
Tenant shall so continue in occupancy, Tenant shall remain responsible for
a pro rata portion of the fixed annual rent and additional rent payable by
Tenant hereunder, based upon the portion of the demised premises occupied
by Tenant during such period.
(d) In the event Landlord shall restore the demised premises or the
Building as described in this Section 13.03, Tenant's obligations to pay
fixed annual rent and additional rent hereunder shall resume upon the
earlier to occur of (i) the date Tenant shall occupy the demised premises
for the conduct of its business or (ii) the later of (x) the date provided
by Landlord in its notice as the expected date of restoration or (y) such
date as the repair and restoration of the demised premises shall have been
substantially completed.
(e) The repair and restoration provided in this Section 13.03 shall
be deemed substantially complete (i) notwithstanding the fact that minor
or insubstantial details of construction, mechanical adjustment, or
decoration remain to be performed, the non completion of which do not
materially interfere with Tenant's use of the demised premises and (ii) if
such repair and restoration has been substantially completed except for
portions thereof which under good construction scheduling practice should
be done after still incompleted Tenant's finish work.
(f) If the occurrence of the conditions set forth in subsection (e)
hereof and thereby the substantial completion of the repair and
restoration shall be delayed due to any act or omission of Tenant or any
of its employees, agents or contractors or any failure to plan or to
execute Tenant's finish work diligently and expeditiously, the repair and
restoration shall be deemed substantially complete on the date when they
would have been substantially complete but for such delay.
13.4. No damages, compensation or claim shall be payable by Landlord for
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the demised premises or of the Building pursuant
to this Article 13.
13.5. Notwithstanding any of the foregoing provisions of this Article 13,
if Landlord or the lessor of any superior lease or the holder of any superior
mortgage shall be unable to collect all of the insurance proceeds (including
rent insurance proceeds) applicable to damage or destruction of the demised
premises or the Building by fire or other cause, by reason of Tenant's failure
or refusal to cooperate with Landlord in making a claim for such proceeds, then,
without prejudice to any other remedies which may be
42
<PAGE>
available against Tenant, there shall be no abatement of Tenant's rents, but the
total amount of such rents not abated (which would otherwise have been abated)
shall not exceed the amount of uncollected insurance proceeds.
13.6. Landlord will not carry separate insurance of any kind on Tenant's
property, and, except as provided by law or by reason of its breach of any of
its obligations hereunder, shall not be obligated to repair any damage thereto
or replace the same. Tenant shall maintain insurance on Tenant's property, and
Landlord shall not be obligated to repair any damage thereto or replace the
same.
13.7. The provisions of this Article 13 shall be considered an express
agreement governing any cause of damage or destruction of the demised premises
by fire or other casualty, and, to the extent permitted under applicable law, no
statute, rule, law or regulation of the State of Connecticut or any of its
political subdivisions now or hereafter in force and providing for such a
contingency in the absence of an express agreement, shall have application in
such case.
ARTICLE 14
CONDEMNATION
14.1. In the event that the whole of the demised premises shall be
lawfully condemned or taken in any manner for any public or quasi public use,
this Lease and the term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title. In the event that only a part of
the demised premises shall be so condemned or taken, then, effective as of the
date of vesting of title, the fixed annual rent under Article 1 hereunder and
additional rents under Articles 3 and 4 hereunder shall be abated in an amount
thereof apportioned according to the area of the demised premises so condemned
or taken. In the event that only a part of The Building Project (as such term is
defined in subsection 3.02(b) hereof) shall be so condemned or taken, then (a)
Landlord (whether or not the demised premises be affected) may, at Landlord's
option, terminate this Lease and the term and estate hereby granted as of the
date of such vesting of title by notifying Tenant in writing of such termination
within 60 days following the date on which Landlord shall have received notice
of vesting of title, or (b) if such condemnation or taking shall be of a
substantial part (i.e., forty (40%) or more of (i) the rentable area of the
demised premises or (ii) the aggregate number of parking spaces available for
Tenant's use, provided Landlord shall be permitted to make substitutions
thereof) of the demised premises or of a substantial part of the means of access
thereto, Tenant may, at Tenant's option, by delivery of notice in writing to
Landlord within 60 days following the date on which Tenant shall have received
notice of vesting of title, terminate this Lease and the term and estate hereby
granted as of the date of vesting of title, or (c) if neither Landlord nor
Tenant elects to terminate this Lease, as aforesaid, this Lease shall be and
remain unaffected by such condemnation or taking, except that the fixed annual
rent payable under Article 1 and additional rents payable under Articles 3 and 4
shall be abated to the extent hereinbefore provided in this Section 14.01.
43
<PAGE>
14.2. In the event of its termination in any of the cases hereinbefore
provided, this Lease and the term and estate hereby granted shall expire as of
the date of such termination with the same effect as if that were the Expiration
Date, and the fixed annual rent and additional rents payable hereunder shall be
apportioned as of such date.
14.3. In the event of any condemnation or taking hereinbefore mentioned of
all or a part of the Building, Landlord shall be entitled to receive the entire
award in the condemnation proceeding, including any award made for the value of
the estate vested by this Lease in Tenant, and Tenant hereby expressly assigns
to Landlord any and all right, title and interest of Tenant now or hereafter
arising in or to any such award or any part thereof, and Tenant shall be
entitled to receive no part of such award, except Tenant shall be entitled to
make a separate claim with the condemning authority for the value of any
Tenant's property so taken and for Tenant's moving expenses.
14.4. It is expressly understood and agreed that the provisions of this
Article 14 shall not be applicable to any condemnation or taking for
governmental occupancy for a limited period.
14.5. In the event of any taking of less than the whole of the Building or
the demised premises which does not result in a termination of this Lease, or in
the event of a taking for a temporary use or occupancy of all or any part of the
demised premises which does not result in a termination of this Lease, Landlord,
at its expense, and whether or not any award or awards shall be sufficient for
the purpose, shall proceed with reasonable diligence to repair, alter and
restore the remaining parts of the Building and the demised premises to
substantially their former condition to the extent that the same may be feasible
and so as to constitute a complete and tenantable Building and demised premises.
14.6. In the event any part of the demised premises be taken to effect
compliance with any law or requirement of public authority other than in the
manner hereinabove provided in this Article 14, then, (i) if such compliance is
the obligation of Tenant under this Lease, Tenant shall not be entitled to any
diminution or abatement of rent or other compensation from Landlord therefor,
but (ii) if such compliance is the obligation of Landlord under this Lease, the
fixed annual rent hereunder shall be reduced and additional rents under Articles
3 and 4 shall be adjusted in the same manner as is provided in Section 14.01
according to the reduction in rentable area of the demised premises resulting
from such taking.
ARTICLE 15
ACCESS TO DEMISED PREMISES; CHANGES
15.1. Tenant shall permit Landlord to erect, use and maintain pipes, ducts
and conduits in and through the demised premises, provided the same are
installed adjacent to or concealed behind walls and ceilings of the demised
premises. Landlord shall to the
44
<PAGE>
extent practicable install such pipes, ducts and conduits by such methods and at
such locations as will not materially interfere with or impair Tenant's layout
or use of the demised premises. Landlord or its agents or designees shall have
the right to enter the demised premises, at reasonable times during business
hours and except in case of emergency, upon reasonable notice (which need not be
in writing), for the making of such repairs or alterations as Landlord may deem
necessary for the Building or which Landlord shall be required to or shall have
the right to make by the provisions of this Lease or any other lease in the
Building and, subject to the foregoing, shall also have the right to enter the
demised premises for the purpose of inspecting them or exhibiting them to
prospective purchasers or lessees of the entire Building or to prospective
mortgagees of the fee or of the Landlord's interest in the property of which the
demised premises are a part or to prospective assignees of any such mortgages or
to the holder of any mortgage on the Landlord's interest in the property, its
agents or designees. Landlord shall be allowed to take all material into and
upon the demised premises that may be required for the repairs or alterations
above mentioned as the same is required for such purpose, without the same
constituting an eviction of Tenant in whole or in part, and the rent reserved
shall in no wise abate while said repairs or alterations are being made by
reason of loss or interruption of the business of Tenant because of the
prosecution of any such work. Nothing contained in this Section 15.01 shall
exculpate Landlord for the negligence of Landlord, its agents, servants or
others for whom as a matter of law it is liable. 'The reservation contained in
the preceding sentence shall, however, be subject to the provisions of Section
9.04 hereof. Landlord shall exercise reasonable diligence (including
consultation with Tenant) so as to minimize the disturbance but nothing
contained herein shall be deemed to require Landlord to perform the same on an
overtime or premium pay basis. The provisions of Section 7.06 hereof shall apply
to any entry by Landlord hereunder.
15.2. Landlord reserves the right, without the same constituting an
eviction and without incurring liability to Tenant therefor, to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairways, toilets and other public parts of the Building;
provided, however, that access to the Building shall not be cut off and that
there shall be no unreasonable obstruction of access to the demised premises or
unreasonable interference with the use or enjoyment thereof.
15.3. Landlord may, during the twelve (12) months prior to expiration of
the term of this Lease, exhibit the demised premises to prospective tenants.
15.4. If Tenant shall not be personally present to open and permit an
entry into the demised premises at any time when for any reason an entry therein
shall be urgently necessary by reason of fire or other emergency, Landlord or
Landlord's agents may forcibly enter the same without rendering Landlord or such
agents liable therefor (if during such entry Landlord or Landlord's agents shall
accord reasonable care to Tenant's property including, except in the case of
emergency, the use of any keys to the demised premises that shall have
previously been furnished to Landlord) and without in any manner affecting the
obligations and covenants of this Lease.
45
<PAGE>
ARTICLE 16
DEFAULT
16.1. If Tenant shall make an assignment of the property of Tenant for the
benefit of creditors, or shall file a voluntary petition under any bankruptcy or
insolvency law or any involuntary petition alleging an act of bankruptcy or
insolvency shall be filed against Tenant under any bankruptcy or insolvency law,
or whenever a petition shall be filed by or against Tenant under the
reorganization provisions of the United States Bankruptcy Act or under the
provisions of any law of like import, or whenever a petition shall be filed by
Tenant under the arrangement provisions of the United States Bankruptcy Act or
under the provisions of any law of like import, or whenever a permanent receiver
of Tenant or for the property of Tenant shall be appointed, then, Landlord may,
(a) at any time after receipt of notice of the occurrence of any such event, or
(b) if such event occurs without the acquiescence of Tenant, at any time after
the event continues for ninety (90) days, give Tenant a notice of intention to
end the term of this Lease at the expiration of five (5) days from the date of
service of such notice of intention, and upon the expiration of said five (5)
day period this Lease and the term and estate hereby granted, whether or not the
term shall theretofore have commenced, shall terminate with the same effect as
if that day were the Expiration Date, but Tenant shall remain liable for damages
provided in Section 16.03 hereof.
16.2. If:
(a) Tenant shall default in the payment of any installment of fixed
annual rent, or in the payment of any additional rent or any other charge
payable by Tenant to Landlord, on any day upon which the same ought to be
paid, and such default shall continue for fifteen (15) days after Landlord
shall have given Tenant a notice specifying such default; or
(b) Tenant shall do or permit anything to be done, whether by action
or inaction, contrary to any of Tenant's obligations hereunder, and if
such situation shall continue and shall not be remedied by Tenant within
twenty (20) days after Landlord shall have given to Tenant a notice
specifying the same, or, in the case of a happening or default which
cannot with due diligence be cured within a period of twenty (20) days and
the continuance of which for the period required for cure will not subject
Landlord to the risk of criminal liability as more particularly described
in Article 8 hereof) or termination of any superior lease or foreclosure
of any superior mortgage, if Tenant shall not, (i) within said twenty (20)
day period advise Landlord of Tenant's intention to duly institute all
steps necessary to remedy such situation, (ii) duly institute within said
twenty (20) day period, and thereafter diligently prosecute to completion
all steps necessary to remedy the same and (iii) complete such remedy
within such time after the date of the giving of said notice of Landlord
as shall reasonably be necessary; or
46
<PAGE>
(c) any event shall occur or any contingency shall arise whereby
this Lease or the estate hereby granted or the unexpired balance of the
term hereof would, by operation of law or otherwise, devolve upon or pass
to any person, firm or corporation other than Tenant, except as expressly
permitted by Article 11 hereof; or
(d) Tenant shall abandon the demised premises (unless as a result of
a casualty); or
(e) in case any other lease held by Tenant from Landlord in the
Building shall expire and terminate (whether or not the term thereof shall
then have commenced) as a result of the default of Tenant thereunder or of
the occurrence of an event as therein provided (other than by expiration
of the fixed term thereof or pursuant to a cancellation or termination
option therein contained); or
(f) Tenant shall default in the due keeping, observing or
performance of any covenant, agreement, provision or condition of Article
5 hereof on the part of Tenant to be kept, observed or performed and if
such default shall continue and shall not be remedied by Tenant within
four (4) days after Landlord shall have given to Tenant a notice
specifying the same, then in any of said cases set forth in the foregoing
subsections 16.02 (a), (b), (c), (d), (e) and (f) hereof Landlord may (in
addition to any and all rights at law or in equity) re enter and remove
all persons and property from the demised premises and such property may
be removed and stored in a public warehouse or elsewhere at the cost of,
and for the account of Tenant, all without service of notice or resort to
legal process and without being deemed guilty of trespass, or becoming
liable for any loss or damage which may be occasioned thereby.
16.3. Should Landlord elect to re enter, as herein provided, or should it
take possession pursuant to legal proceedings or pursuant to any notice provided
for by law, Landlord may either terminate this Lease, make such alterations and
repairs as may be necessary in order to relet the demised premises, and relet
the demised premises or any part thereof for such term or terms (which may be
for a term extending beyond the term of this Lease) and at such rental or
rentals and upon such other terms and conditions as Landlord in its discretion
may deem advisable; upon each such reletting all rentals received by Landlord
from such reletting shall be applied first, to the payment of any indebtedness
other than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs and expenses of such reletting, including brokerage fees and
attorneys' fees and of costs of such alterations and repairs; third, to the
payment of rent due and unpaid hereunder, and the residue, if any, shall be held
by Landlord and applied in payment of future rent as the same may become due and
payable hereunder and if such residue shall exceed such future rental, Landlord
may retain such excess for its own account and Tenant shall have no interest
therein. If such rentals received from such reletting during any month be less
than that to be paid during that month by Tenant hereunder, Tenant shall pay any
deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No
such re entry or taking possession of the demised
47
<PAGE>
premises by Landlord shall be construed as an election on its part to terminate
this Lease unless a written notice of such intention be given to Tenant or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this Lease for such previous breach. Should
Landlord at any time terminate this Lease for any breach, in addition to any
other remedies it may have, it may recover from Tenant all damages it may incur,
by reason of such breach, including the cost of recovering the demised premises,
reasonable attorneys' fees, and including the worth at the time of such
termination of the excess, if any, of the amount of rent and charges equivalent
to rent reserved in this Lease for the remainder of the stated term over the
then reasonable rental value of the demised premises for the remainder of the
stated term, all of which amounts shall be immediately due and payable from
Tenant to Landlord. In determining the rent which would be payable by Tenant
hereunder, subsequent to default, the annual rent for each year of the unexpired
term shall be equal to the average fixed annual rent and additional rent paid by
Tenant from the Commencement Date to the time of default.
16.4. In case Landlord shall retain an attorney to enforce the provisions
of this Lease or if suit shall be brought for recovery of possession of the
demised premises, for the recovery of rent or any other amount due under the
provisions of this Lease, or because of the breach of any other covenant herein
contained on the part of Tenant to be kept or performed, Tenant shall pay to
Landlord all expenses incurred by Landlord in connection therewith, including a
reasonable attorneys' fee.
16.5. (a) In the event of a breach or threatened breach by Tenant of
any of its obligations under this Lease, Landlord shall also
have the right of injunction. The special remedies to which
Landlord may resort hereunder are cumulative and are not
intended to be exclusive of any other remedies or means of
redress to which Landlord may lawfully be entitled at any
time, and, except as provided in Article 30 hereof, Landlord
may invoke any remedy allowed at law or in equity as if
specific remedies were not provided for herein.
(b) In the event of a breach or threatened breach by Landlord of any
of its obligations under this Lease, Tenant shall also have the right of
injunction. Any remedies to which Tenant may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies or
means of redress to which Tenant may lawfully be entitled at any time,
and, except as provided in Article 30 hereof, Tenant may invoke any remedy
allowed at law or in equity as if specific remedies were not provided for
herein.
16.6. If this Lease shall terminate under the provisions of this Article
16, or if Landlord shall re enter the demised premises under the provisions of
this Article 16, or in the event of the termination of this Lease, or of re
entry, by or under any summary process or other proceeding or action or any
provision of law by reason of default hereunder on the part of Tenant, Landlord
shall be entitled to retain all moneys, if any, paid by Tenant to Landlord,
whether as advance rent, security or otherwise, but such
48
<PAGE>
moneys shall be credited by Landlord against any fixed annual rent or additional
rent due from Tenant at the time of such termination or re entry or, at
Landlord's option, against any damages payable by Tenant under this Article 16
or pursuant to law.
ARTICLE 17
COMMON AREAS AND PARKING
17.1. Landlord shall provide and shall make available from time to time
within the boundaries of the Land such parking facilities, driveways, entrances
and exits thereto, landscape and planted areas, and other improvements and
facilities, as Landlord shall at any time and from time to time deem appropriate
(all the foregoing being collectively referred to in this Lease as "Common
Areas"). Tenant and its officers, employees, agents, customers and invitees
shall have a nonexclusive right, in common with Landlord and all others to whom
Landlord has granted or may hereafter grant rights, to use the Common Areas. The
Common Areas shall at all times be subject to the exclusive control and
management of Landlord, and Landlord shall have the right from time to time to
establish, modify and enforce reasonable rules and regulations with respect to
the Common Areas, and Tenant agrees, after notice thereof, to abide by such
rules and regulations and to cause its officers, employees, agents, customers
and invitees to conform thereto. Landlord shall construct, operate, manage,
equip, repair, landscape, and maintain the Common Areas for their intended
purposes in such manner as Landlord shall, in Landlord's sole discretion, from
time to time determine. Landlord's rights respecting the Common Areas shall
include (but shall not be limited to) the following:
(i) to construct, maintain and operate lighting facilities
serving the Common Areas;
(ii) from time to time to change the area, level, location and
arrangement of parking areas and other Common Area facilities, to
make installations therein and to move or remove such installations,
and to change the location of, or permanently diminish or
discontinue the use of, any portion of the Common Areas;
(iii) to restrict parking by tenants, their officers, agents,
employees, customers and invitees, to designated areas;
(iv) to discontinue, or restrict the use of, any portion of
the Common Areas to such extent, and for such period of time, as may
in the opinion of Landlord's counsel be necessary to prevent a
dedication thereof or the accrual of any rights to any person or the
public therein;
(v) to temporarily suspend the use of all, or any portion of,
the Common Areas; and
49
<PAGE>
(vi) to take any other action with respect to the Common
Areas, as Landlord, in his sole discretion, shall determine to be
advisable.
17.2. Tenant's right to use the Common Areas shall be deemed to be a
license conterminous with this Lease, and Landlord shall not be subject to any
liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent by reason of Landlord's exercise of any right or rights
respecting Common Areas reserved pursuant to Section 17.01 hereof, nor shall the
exercise of any such right be deemed a constructive or actual eviction.
17.3. Tenant shall be entitled to free use of(591 parking spaces during
the term of this Lease provided that of such parking spaces shall be located
within the covered parking garage within the Common Areas. Notwithstanding the
foregoing, in the event Tenant shall give a notice to Landlord that Tenant
requires the free use of additional parking spaces, not to exceed 48 parking
spaces, Landlord shall make such spaces available within a reasonable period;
such additional parking spaces may be located within or outside of the Common
Areas. In the event that any of the foregoing parking spaces shall be designated
by Landlord, Tenant agrees that it or its employees and invitees shall only use
such designated parking spaces. Nothing contained in Section 17.01 hereof shall
be deemed to permit Landlord to reduce, except on a temporary basis, the number
of parking spaces to be made available to Tenant pursuant to this Section 17.03.
If at any time during the term of this Lease the rentable area of the demised
premises shall be reduced, the number of spaces allocated to Tenant pursuant to
this Section 17.03 shall be reduced in proportion to such reduction in rentable
area. Such reduction shall be made as follows: (A) to the extent that the number
of Tenant's parking spaces exceed the product of (i) the quotient of (x) the
rentable area of the demised premises (as reduced) divided by (y) 1,000,
multiplied by (ii) 3, such reduction shall begin with the parking spaces that
are located inside the Common Areas (but only to the extent required so that the
number of Tenant's parking spaces inside the Common Areas shall equal such
product); (B) any further reductions shall be made to Tenant's parking spaces
which are located outside the Common Areas (until, if necessary, all of Tenant's
parking spaces outside of the Common Areas shall have been eliminated); and (C)
the balance of any reduction shall be made to those parking spaces located
inside the Common Areas.
17.4. With respect to the parking of vehicles at The Building Project
(whether inside or outside the Common Areas):
(a) If Landlord elects to designate a specific parking area for
Tenant's use, Tenant shall require its personnel and visitors to park
their vehicles only in parking spaces designated by Landlord for Tenant's
use for its personnel and in parking spaces designated by Landlord for
visitors, respectively, on a "first come, first served" basis. Landlord
reserves the right at all times to redesignate such parking spaces.
Tenant, its personnel and visitors shall not at any time park any trucks
or delivery vehicles in any of the parking areas. Tenant shall be
permitted to post signage (the design and installation of which shall be
subject to Landlord's
50
<PAGE>
consent, not to be unreasonably withheld) designating fifteen (15) of the
parking spaces allocated to Tenant for the sole use of Tenant' s officers.
(b) All parking spaces and any other parking areas used by Tenant,
its personnel and visitors will be at their own risk, and Landlord shall
not be liable for any injury to person or property, or for loss or damage
to any automobile or its contents, resulting from theft, collision,
vandalism or any other cause whatsoever other than Landlord's willful
misconduct or negligence (subject to the provisions of Section 9.04
hereof).
(c) There shall be no overnight parking, and Tenant shall, and shall
cause its personnel and visitors to, remove their automobiles from the
parking area at the end of the working day. If any automobile owned by
Tenant or by its personnel or visitors remains in the parking area
overnight and the same interferes with the cleaning or maintenance of said
area (snow or otherwise), any costs or liabilities incurred by Landlord in
removing said automobile to effectuate cleaning or maintenance, or any
damages resulting to said automobile or to Landlord's equipment or
equipment owned by others by reason of the presence of or removal of said
automobile during such cleaning or maintenance shall be paid by Tenant to
Landlord, as additional rent on the rent payment date next following the
submission of a bill therefor. Notwithstanding the foregoing, upon
reasonable prior notice to Landlord, Tenant's employees shall be permitted
to park automobiles overnight, subject to Landlord's consent which shall
not be unreasonably withheld.
ARTICLE 18
PRE-JUDGMENT, REMEDY, REDEMPTION
18.1. Tenant, for itself and for all persons claiming through or under it,
hereby acknowledges that this Lease constitutes a commercial transaction as such
term is used and defined in Public Act No. 431 of the Connecticut General
Statutes, Revisions of 1973, and, to the extent permitted by applicable law,
hereby expressly waives any and all rights which are or may be conferred upon
Tenant by said Act to any notice or hearing prior to a prejudgment remedy.
Tenant further expressly waives any and all rights which are or may be conferred
upon the Tenant by any present or future law to redeem the demised premises, or
to any new trial in any action of ejection under any provision of law, after re
entry thereupon, or upon any part thereof, by Landlord or after any warrant to
dispossess or judgment in ejection. If Landlord shall acquire possession without
judicial proceedings, it shall be deemed a re entry within the meaning of that
word as used in this Lease.
51
<PAGE>
ARTICLE 19
LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
19.1. If Tenant shall default in the observance or performance of any term
or covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any Article of this Lease, (a) Landlord may
remedy such default for the account of Tenant, immediately and without notice in
case of emergency, or in any other case only provided that Tenant shall fail to
remedy such default with all reasonable dispatch after Landlord shall have
notified Tenant in writing of such default and the applicable grace period for
curing such default shall have expired; and (b) if Landlord makes any
expenditures or incurs any obligations for the payment of money in connection
with such default including, but not limited to, reasonable attorneys' fees in
instituting, prosecuting or defending any action or proceeding, such sums paid
or obligations incurred, with interest at the Interest Rate, shall be deemed to
be additional rent hereunder and shall be paid by Tenant to Landlord upon
rendition of a bill to Tenant therefor.
ARTICLE 20
QUIET ENJOYMENT
20.1. Landlord covenants and agrees that subject to the terms and
provisions of this Lease, if, and so long as, Tenant keeps and performs each and
every covenant, agreement, term, provision and condition herein contained on the
part or on behalf of Tenant to be kept or performed, then Tenant's rights under
this Lease shall not be cut off or ended before the expiration of the term of
this Lease, subject however, to: (i) the obligations of this Lease, and (ii) as
provided in Article 25 hereof with respect to ground and underlying leases and
mortgages which affect this Lease.
ARTICLE 21
SERVICES AND EQUIPMENT
21.1. So long as Tenant is not in default under any of the covenants of
this Lease, Landlord shall, at its cost and expense:
(a) Provide necessary elevator facilities on Business Days (as such
term is defined in Article 22 hereof) from 8:00 A.M. to 6:00 P.M. and on
Saturdays from 8:00 A.M. to 1:00 P.M. and shall have at least one elevator
subject to call at all other times. At Landlord's option, the elevators
shall be operated by automatic control or by manual control, or by a
combination of both of such methods. In the event that Tenant shall
require elevator facilities at such times as
52
<PAGE>
same are not furnished by Landlord, Tenant shall give Landlord reasonable
advance notice of such requirement and, if same is furnished by Landlord,
Tenant agrees to pay the Landlord's charges therefor. Landlord's current
charge therof or is $50.00 per hour per elevator. Such charges may be
increased in the future in proportion to increases in Landlord's cost of
rendering such service.
(b) Maintain and keep in repair the Building system air
conditioning, heating and ventilating system installed by Landlord. The
aforesaid systems will function when seasonably required on Business Days,
from 7:00 A.M. to 7:45 P.M. and on Saturdays from 8:00 A.M. to 6:00 P.M.
Landlord shall have no responsibility or liability for the ventilating
conditions and/or temperature of the demised premises during the hours or
days Landlord is not required to furnish heat, ventilation or air
conditioning pursuant to this subsection. Landlord has informed Tenant
that the windows of the demised premises and the Building are sealed, and
that the demised premises may become uninhabitable during the hours or
days when Landlord is not required pursuant to this subsection to furnish
heat, ventilation or air conditioning. Any use or occupancy of the demised
premises during the hours or days Landlord is not so required to furnish
heat, ventilation or air conditioning to the demised premises shall be at
the sole risk, responsibility and hazard of Tenant. Such condition of the
demised premises shall not constitute nor be deemed to be a breach or a
violation of this Lease or of any provision thereof, nor shall it be
deemed an eviction nor shall Tenant claim or be entitled to claim any
abatement of rent nor make any claim for any damages or compensation by
reason of such condition of the demised premises. Tenant shall in any
event cause all of the windows in the demised premises to be kept closed
and shall cause and keep entirely unobstructed all the vents, intakes,
outlets and grilles, at all times and shall comply with and observe all
regulations and requirements prescribed by Landlord for the proper
functioning of the heating, ventilating and air conditioning systems
including without limitation, the lowering and closing of venetian blinds
in the demised premises during daylight hours. Tenant hereby acknowledges
that it is responsible for part of the cost of the electric energy
required to operate the heating, ventilating and air conditioning systems
serving the demised premises. In the event that Tenant shall require air
conditioning, heating or ventilation at such times as same are not
furnished by Landlord, Tenant shall give Landlord reasonable advance
notice of such requirement and, if same is furnished by Landlord, Tenant
agrees to pay the Landlord's charges therefor. Landlord's current charge
therefor is as follows: (i) $61.50 per hour for the first floor of the
demised premises or part thereof and (ii) $23.58 per hour for each
additional floor of the demised premises or part thereof. Such charges may
be increased in the future in proportion to increases in Landlord's cost
of rendering such service. In addition to the foregoing charges, Tenant
shall pay an additional charge of $.s0 per annum per rentable square foot
of the zone(s) as to which Tenant shall request 24 hour air--conditioning
service.
(c) Provide cleaning and janitorial services on Business Days as set
forth on Exhibit E hereof to all areas of the demised premises, other than
the
53
<PAGE>
Exercise Facility, provided however, Tenant shall pay to Landlord on
demand the costs incurred by Landlord for (a) extra cleaning work in the
demised premises required because of (i) misuse or neglect on the part of
Tenant or its employees or visitors, (ii) use of portions of the demised
premises for preparation, serving or consumption of food or beverages,
data processing or reproducing operations, private lavatories or toilets
or other special purposes requiring greater or more difficult cleaning
work than office areas, (iii) unusual quantity of interior glass surfaces,
(iv) non building standard materials or finishes installed by Tenant or at
its request, and (b) removal from the demised premises and the Building of
so much of any refuse and rubbish of Tenant as shall exceed that
ordinarily accumulated daily in the routine of business office occupancy.
Landlord, its cleaning contractor and their employees shall have access
outside of Business Hours to the demised premises and the use Cat Tenant's
expense) of light, power and water in the demised premises as reasonably
required for the purpose of cleaning the demised premises in accordance
with Landlord's obligations hereunder.
(d) Furnish hot and cold water for lavatory and office cleaning
purposes and cold water for drinking purposes. If Tenant requires, uses or
consumes water for any other purposes, Tenant agrees to Landlord
installing a meter or meters or other means to measure Tenant's water
consumption, and Tenant further agrees to reimburse Landlord for the cost
of the meter or meters and the installation thereof, and to pay for the
maintenance of said meter equipment and/or to pay Landlord's cost of other
means of measuring such water consumption by Tenant. Tenant shall
reimburse Landlord for the cost of all water consumed, as measured by said
meter or meters or as otherwise measured, including without limitation,
sewer rents.
(e) Tenant shall have 24 hour access to the ii demised premises.
21.2. Landlord reserves the right without any liability whatsoever, or
(except as provided in Article 34 hereof) abatement of fixed annual rent, or
additional rent, to stop the heating, air conditioning, elevator, plumbing,
electric and other systems when necessary by reason of accident or emergency or
for repairs, alterations, replacements or improvements, provided that except in
case of emergency, Landlord will notify Tenant in advance, if possible, of any
such stoppage and, if ascertainable, its estimated duration, and will proceed
diligently with the work necessary to resume such service as promptly as
possible and in a manner so as to minimize interference with the Tenant's use
and enjoyment of the demised premises but nothing herein shall be deemed to
require Landlord to perform the same on an overtime or premium pay basis.
21.3. Tenant shall reimburse Landlord for the cost to Landlord of removal
from the demised premises and the Building of so much of any refuse and rubbish
of Tenant as shall exceed that ordinarily accumulated daily in the routine of
business office occupancy.
54
<PAGE>
21.4. It is expressly agreed that only persons, firms or corporations
approved in writing by Landlord will be permitted to furnish laundry, linen
towels, drinking water, ice, food or beverages and other similar supplies and
services to tenants and licensees in the Building which approval shall not be
unreasonably withheld. Landlord may fix, at any time and from time to time, the
hours during which and the regulations under which such supplies and services
are to be furnished as may be required in Landlord's reasonable judgment for the
security of the Building and its occupants. It is understood, however, that
Tenant or regular office employees of Tenant who are not employed by any
supplier of such food or beverages or by any person, firm or corporation engaged
in the business of purveying such food or beverages, may personally bring food
or beverages into the Building for consumption within the demised premises by
employees of Tenant, but not for resale to or for consumption by any other
tenant.
21.5. Tenant agrees to employ such office maintenance contractor as
Landlord may from time to time designate, for all waxing, polishing, lamp
replacement, cleaning (other than those cleaning services Landlord is obligated
to furnish) and the maintenance work in the demised premises, provided that the
quality thereof and the charges therefor are reasonably comparable to that of
other contractors. Tenant shall not employ any other such contractor without
Landlord's prior written consent.
21.6. Landlord will not be required to furnish any other services, except
as otherwise provided in this Lease.
21.7. Subject to Landlord's approval, Tenant shall be permitted, with
respect to those portions of the lobby of the Building which provide access only
to the demised premises and not to the premises of any other tenant or occupant,
to install, maintain and operate, at Tenant's expense, a security desk to screen
or restrict access to or from the demised premises. The size, color, location
and design of any such installation as well as the materials used in connection
therewith and the appearance of the personnel utilized to operate the same,
shall be subject to Landlord's approval. If at any time Landlord shall
disapprove of the comportment or behavior of personnel assigned to operate any
such installation or the condition of such installation, Tenant shall take
measures to remove and replace such personnel or remedy such condition. Nothing
contained in this Section 21.07 shall be deemed to inhibit Landlord's right of
access to the demised premises pursuant to Article 15 hereof or any other
applicable provision of this Lease.
21.8. With respect to any elevators providing access exclusively to the
demised premises (i.e., elevators which are not utilized by other tenants or
occupants for access to premises occupied by or demised to them), Tenant shall,
in accordance with Article 6 hereof and any other applicable provision of this
Lease and subject to Legal Requirements, be permitted to install, operate and
maintain a card key or other security system designed to restrict access only to
authorized persons. The type of system utilized as well as the manner of
installation thereof shall be subject to Landlord's prior approval, which shall
not be unreasonably withheld.
55
<PAGE>
21.9. With respect to any facilities or equipment of the type contemplated
by Section 21.07 or Section 21.08, if at any time hereafter the size of the
demised premises shall be reduced such that elevators or other means of access
which were previously utilized exclusively by Tenant are no longer exclusively
utilized by Tenant (i.e., are required for access by other tenants or
occupants), the permission granted pursuant to Sections 21.07 and/or 21.08 may
be revoked, and in any such event Tenant shall remove the same and restore the
affected portions of the lobby and/or elevators to their condition existing
prior to such installation reasonable wear and tear excepted. The foregoing
removal and restoration may also be required by Landlord as to any such
facilities up to ninety (90) days before the expiration of the term of this
Lease by notice from Landlord to Tenant given at any time up to sixty (60) days
before the Expiration Date.
ARTICLE 22
DEFINITIONS
22.1. The term "Landlord" as used in this Lease means only the owner, or
the mortgagee in possession, for the time being of the Land and Building or The
Building Project (or the owner of a lease of The Building Project or the
Building or of the Land and Building), so that in the event of any transfer of
title to The Building Project or said Land and Building or said lease, or in the
event of a lease of The Building Project or the Building, or of the Land and
Building, upon notification to Tenant of such transfer or lease the said
transferor Landlord shall be and hereby is entirely freed and relieved of all
future covenants, obligations and liabilities of Landlord hereunder, and it
shall be deemed and construed as a covenant running with the land without
further agreement between the parties or their successors in interest, or
between the parties and the transferee of title to The Building Project or said
Land and Building or said lease, or the said lessee of The Building Project or
the Building, or of the Land and Building, that the transferee or the lessee has
assumed and agreed to carry out any and all such covenants, obligations and
liabilities of Landlord hereunder.
22.2. The term "Business Days" as used in this K7Y Lease shall exclude
Saturdays, Sundays and all days observed by ' the Federal, State or local
government as legal holidays as well as all other days recognized as holidays
under applicable union contracts.
22.3. "Interest Rate" shall mean a rate per annum equal to the lesser of
(a) 2% above the commercial lending rate announced from time to time by Chemical
Bank of New York, as its prime rate for 90 day unsecured loans to its most
favored customers, or (b) the maximum applicable legal rate, if any.
22.4. "Legal Requirements" shall mean laws, statutes and ordinances C
including building codes and zoning regulations and ordinances) and the orders,
rules, regulations, directives and requirements of all federal, state, county,
city and borough departments, bureaus, boards, agencies, offices, commissions
and other subdivisions
56
<PAGE>
thereof, or of any official thereof, or of any other governmental public or
quasi public authority, whether now or hereafter in force, which may be
applicable to The Building Project, the Land or Building or the demised premises
or any part thereof, or the sidewalks, curbs or areas adjacent thereto
(including without limitation the Common Areas) and all requirements,
obligations and conditions of all instruments of record on the date of this
Lease.
22.5. "Business Hours" shall mean 8:00 A.M. to 6:00 P.M. on Business Days.
ARTICLE 23
INVALIDITY OF ANY PROVISION
23.1. If any term, covenant, condition or provision of this Lease or the
application thereof to any circumstance or to any person, firm or corporation
shall be invalid or unenforceable to any extent, the remaining terms, covenants,
conditions and provisions of this Lease or the application thereof to any
circumstances or to any person, firm or corporation other than those as to which
any term, covenant, condition or provision is held invalid or unenforceable,
shall not be affected thereby, and each remaining term, covenant, condition and
provision of this Lease shall be valid and shall be enforceable to the fullest
extent permitted by law.
ARTICLE 24
BROKERAGE
24.1. (a) Tenant covenants, represents and warrants that Tenant has had no
dealings or communications with any broker, or agent other than Jones Lang
Wootton (which is representing Landlord) Alliance Partners, William Pitt and
Carson Crane Incorporated in connection with the consummation of this Lease, and
Tenant covenants and agrees to pay, hold harmless and indemnify Landlord from
and against any and all cost, expense (including reasonable attorneys' fees) or
liability for any compensation, commissions or charges claimed by any broker or
agent, other than the brokers set forth in this Section 24.01, with respect to
this Lease or the negotiation thereof.
(b) Landlord represents and warrants to Tenant that Landlord has had
no dealings or negotiations in connection with the consummation of this
Lease with any broker purporting to represent Tenant other than the
brokers set forth in the preceding paragraph, and Landlord covenants and
agrees to pay, hold harmless and indemnify Tenant from and against any and
all cost, expense or liability that Tenant shall incur as a result of a
breach by Landlord of the foregoing representation.
57
<PAGE>
(c) Landlord shall be responsible for any commission due to the
brokers hereinabove set forth pursuant to separate agreements with such
brokers.
(d) Tenant covenants and agrees to pay, hold harmless and indemnify
Landlord from and against any and all cost, expense (including reasonable
attorneys' fees) or liability, to the extent of any payment made to Tenant
under the Broker's Agreement executed between Landlord and Alliance
Partners and Carson Crane Incorporated in connection with this Lease, for
any compensation, commissions or charges claimed by Alliance Partners or
Carson Crane Incorporated with respect to this Lease or the negotiation
thereof.
ARTICLE 25
SUBORDINATION
25.1. This Lease is and shall be subject and subordinate to all ground or
underlying leases which may now or subject to Section 25.05 hereof hereafter
affect the real property of which the demised premises form a part and to all
mortgages which may now or hereafter affect such leases or such real property,
and to all renewals, modifications, replacements and extensions thereof. The
provisions of this Section 25.01 shall be self operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute and deliver at its own cost and
expense any instrument, in recordable form if required, that Landlord, the
lessor of the ground or underlying lease or the holder of any such mortgage or
any of their respective successors in interest may request to evidence such
subordination, and Tenant hereby constitutes and appoints Landlord or its
successors in interest to be Tenant's attorney-in-fact, irrevocably and coupled
with an interest, to execute and deliver any such instrument for and on behalf
of Tenant in the event Tenant refuses or fails to deliver promptly such
instrument after demand by Landlord.
25.2. In the event of a termination of any ground or underlying lease, or
if the interests of Landlord under this Lease are transferred by reason of, or
assigned in lieu of, foreclosure or other proceedings for enforcement of any
mortgage, or if the holder of any mortgage acquires a lease in substitution
therefor, then Tenant under this Lease will, at the option to be exercised in
writing by the lessor under such ground or underlying lease or such mortgagee or
purchaser, assignee or lessee, as the case may be, either (i) attorn to it and
will perform for its benefit all the terms, covenants and conditions of this
Lease on Tenant's part to be performed with the same force and effect as if said
lessor, such mortgagee or purchaser, assignee or lessee, were the landlord
originally named in this Lease, or (ii) enter into a new lease with said lessor
or such mortgagee or purchaser, assignee or lessee, as landlord, for the
remaining term of this Lease and otherwise on the same terms and conditions and
with the same options, if any, then remaining. The foregoing provisions of
clause (i) of this Section 25.02 shall inure to the benefit of such lessor,
mortgagee, purchaser, assignee or lessee, shall be self operative upon the
exercise of such option, and no further instrument shall be required to give
effect to said provisions. Tenant, however, upon demand of any such lessor,
mortgagee, purchaser,
58
<PAGE>
assignee or lessee agrees to execute, from time to time, instruments in
confirmation of the foregoing provisions of this Section 25.02, satisfactory to
any such lessor, mortgagee, purchaser, assignee or lessee, acknowledging such
attornment and setting forth the terms and conditions of its tenancy. Tenant
hereby constitutes and appoints Landlord or its successors in interest to be the
Tenant's attorney in f act, irrevocably and coupled with an interest, to execute
and deliver such instrument of attornment, or such new lease, if Tenant refuses
or fails to do so promptly upon request.
25.3. Anything herein contained to the contrary notwithstanding, under no
circumstances shall the aforedescribed lessor under the ground lease or
mortgagee or purchaser, assignee or lessee, as the case may be, whether or not
it shall have succeeded to the interests of the landlord under this Lease, be
(a) liable for any act, omission or default of any prior landlord;
or
(b) subject to any offsets, claims or defenses which the Tenant
might have against any prior landlord; or
(c) bound by any rent or additional rent which Tenant might have
paid to any prior landlord for more than one month in advance or for more
than three months in advance where such rent payments are payable at
intervals of more than one month; or
(d) bound by any modification, amendment or abridgment of the Lease,
or any cancellation or surrender of the same, made without its prior
written approval provided Tenant shall have been previously advised of the
existence of a ground lease or mortgage affecting the Building.
25.4. If, in connection with the financing of the Building, the holder of
any mortgage shall request reasonable modifications in this Lease as a condition
of approval thereof, Tenant will not unreasonably withhold, delay or defer
making such modifications provided they do not increase Tenant's obligations
hereunder, decrease Landlord's obligations hereunder or adversely affect
Tenant's use and occupancy of the demised premises or The Building Project
except in each instance to a de minimis extent.
25.5. (a) Landlord represents that there is currently no mortgage,
underlying lease or ground lease affecting the real property
of which the demised premises form a part. The subordination
of this Lease to any future mortgage shall be conditioned upon
the holder thereof executing and delivering to Tenant a non
disturbance agreement providing in substance that so long as
no event of default hereunder exists and is continuing beyond
notice and the expiration of any cure period, then (i) Tenant
shall not be joined as a party defendant to any foreclosure or
other action or proceeding (unless otherwise required by law)
which may be instituted or taken by such lessor or the holder
of such mortgage, or their successors or
59
<PAGE>
assigns, (ii) Tenant's leasehold estate hereunder and possession of
the demised premises shall not be terminated or disturbed nor shall
any of Tenant's rights under this Lease be affected in any way by
reason of any default under any such lease or mortgage, and (iii)
subject to the provisions of this Article 25, such lessor or the
holder of such mortgage and their successors or assigns shall
recognize the terms and provisions of this Lease, and Tenant's
rights herein.
(b) Tenant hereby covenants and agrees that the form of non
disturbance agreement annexed hereto as Exhibit G is satisfactory. to
Tenant, and further acknowledges that Exhibit G is for form purposes only,
and that Tenant may be requested to execute a non disturbance agreement
that may be in form different from Exhibit G provided same does not
materially diminish Tenant's rights as set forth in Section 25.05(a)
hereof.
25.6. Tenant shall, without charge, at any time and from time to time,
within ten (10) days after request by Landlord, deliver a written instrument to
Landlord or any other person, firm or corporation specified by Landlord, duly
executed and acknowledged, certifying:
(a) that, to the best of Tenant's knowledge, this Lease is
unmodified and in full force and effect or, if there has been any
modification, that the same is in full force and effect as modified and
stating any such modification, whether there is any existing basis to
cancel or terminate this Lease, and whether to the best of Tenant's
knowledge Landlord is in default thereunder;
(b) whether the term of this Lease has commenced and rent has become
payable thereunder, and whether Tenant is in possession of all of the
demised premises except for such portions of the demised premises which
have been sublet or are being held for sublet pursuant to the provisions
of this Lease;
(c) whether or not there are then existing any defenses or offsets
which are not claims under subsection 26.01(e) against the enforcement of
any of the agreements, terms, covenants, or conditions of this Lease and
any modification thereof upon the part of Tenant to be performed or
complied with, and, if so, specifying the same;
(d) the amount of the fixed annual rent payable under this Lease and
the dates to which the fixed annual rent and additional rent and other
charges hereunder, have been paid; and
(e) whether or not Tenant has made any claim against Landlord under
this Lease and if so the nature thereof and the dollar amount, if any, of
such claim.
60
<PAGE>
25.7. Tenant agrees that it will pay no rent under this Lease more than
thirty (30) days in advance of its due date, if so restricted by any existing or
future ground lease or mortgage to which this Lease is subordinated or by an
assignment of this Lease to the ground lessor or the holder of such mortgage,
and, in the event of any act or omission by Landlord, Tenant will not exercise
any right to terminate this Lease or to remedy the default and deduct the cost
thereof from rent due hereunder until Tenant shall have given written notice of
such act or omission to the ground lessor and to the holder of any mortgage on
the fee or the ground lease who shall have furnished such lessor's or holder's
last address to Tenant, and until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notices and following
the time when such lessor or holder shall have become entitled under such
mortgage or ground lease, as the case may be, to remedy the same, during which
time such lessor or holder shall have the right, but shall not be obligated, to
remedy or cause to be remedied such act or omission. Tenant shall not exercise
any right pursuant to this Section 26.02 if the holder of any mortgage or such
aforesaid lessor commences to cure such aforesaid act or omission within a
reasonable time and diligently prosecutes such cure thereafter.
25.8. Landlord shall, within 30 days of Tenant's request therefor, deliver
a written agreement to Tenant, or any other firm, person or corporation
designated by Tenant, duly executed by Landlord, certifying to the best of
Landlord's knowledge that (i) this Lease is unmodified, or if there has been any
modification, that the same is in full force and effect as modified and stating
such modification, (ii) whether Tenant is in default beyond any applicable grace
period, and (iii) the amount of fixed annual rent payable under this Lease, and
the date to which the fixed annual rent, additional rent and other charges
hereunder, have been paid.
ARTICLE 26
LEGAL PROCEEDINGS WAIVER OF JURY TRIAL
26.1. Landlord and Tenant do hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
demised premises, and/or any other claims (except claims for personal injury or
property damage), and any emergency statutory or any other statutory remedy. It
is further mutually agreed that in the event Landlord commences any summary
proceeding for non payment of rent, Tenant will not interpose and does hereby
waive the right to interpose any counterclaim of whatever nature or description
in any such proceeding unless the failure to interpose such counterclaim shall
result in its waiver.
ARTICLE 27
SURRENDER OF PREMISES
61
<PAGE>
27.1. Upon the expiration or other termination of the term of this Lease,
(i) Tenant shall quit and surrender to Landlord the demised premises, broom
clean, in good order and condition, ordinary wear and tear (the provisions of
Section 7.01 hereof notwithstanding, i.e., to the extent that the demised
premises show signs of ordinary wear and tear upon such expiration or
termination, Tenant is not expected to restore or improve the same to eliminate
such signs) and damage by fire, the elements or other casualty excepted, and
shall remove all of its property as herein provided and (ii) with respect to
estimated payments or overpayments as to which Tenant may, pursuant to Article 3
hereof, be entitled to a refund, Landlord shall, within periods consistent with
Article 3, (A) determine the amounts, if. any, held by Landlord and owed to
Tenant and (B) pay such amounts to Tenant. Landlord's and Tenant's obligations
to observe or perform this covenant shall survive the expiration or other
termination of the term of this Lease.
ARTICLE 28
RULES AND REGULATIONS
28.1. Tenant and Tenant's servants, employees and agents shall observe
faithfully and comply strictly with the Rules and Regulations set forth in
Exhibit D attached hereto and made part hereof entitled "Rules and Regulations"
and such other and further reasonable Rules and Regulations as Landlord or
Landlord's agents may from time to time adopt provided, however, that in case of
any conflict or inconsistency between the provisions of this Lease and of any of
the Rules and Regulations as originally or as hereafter adopted, the provisions
of this Lease shall control. Reasonable written notice of any additional Rules
and Regulations shall be given to Tenant.
Nothing in this Lease contained shall be construed to impose upon Landlord any
duty or obligation to enforce the Rules and Regulations or the terms, covenants
or conditions in any other lease, against any other tenant of the Building, and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, agents, visitors or licensees. Landlord shall
not enforce the Rules and Regulations against Tenant so that the Rules and
Regulations are applied against Tenant in an unreasonably discriminatory manner.
ARTICLE 29
CONSENTS AND APPROVALS
29.1. (a) Wherever in this Lease Landlord's consent or approval is
required, if Landlord shall delay or refuse such consent or
approval, Tenant in no event shall be entitled to make, nor
shall Tenant make, any claim, and Tenant hereby waives any
claim, for money damages (nor shall Tenant claim any money
damages by way of set-off, counterclaim or defense) based upon
any claim or assertion by
62
<PAGE>
Tenant that Landlord unreasonably withheld or unreasonably
delayed its consent or approval. Tenant's sole remedy shall be
an action or proceeding to enforce any such provision, for
specific performance, injunction or declaratory judgment
provided, however, that Tenant shall not be deemed to have
waived a claim for damages if there is a final judicial
determination from which time for appeal has been exhausted
that Landlord acted maliciously or in bad faith in exercising
its judgement or withholding its consent or approval despite
its agreement to act reasonably, in which case Tenant shall
have the right to make a claim for the actual money damages
incurred by Tenant, but in no event shall Landlord be liable
for consequential or indirect damages.
(b) Wherever in this Lease Tenant's consent or approval is required,
if Tenant shall delay or refuse such consent or approval, Landlord in no
event shall be entitled to make, nor shall Landlord make, any claim, and
Landlord hereby waives any claim, for money damages (nor shall Landlord
claim any money damages by way of set-off, counterclaim or defense) based
upon any claim or assertion by Landlord that Tenant unreasonably withheld
or unreasonably delayed its consent or approval. Landlord's sole remedy
shall be an action or proceeding to enforce any such provision, for
specific performance, injunction or declaratory judgment provided,
however, that Landlord shall not be deemed to have waived a claim for
damages if Tenant shall, in denying the consent, be found by a court of
final jurisdiction to have acted in bad faith or with malice but in no
event shall Tenant be liable for consequential or indirect damages.
ARTICLE 30
NOTICES
30.1. Any notice or demand, consent, approval or disapproval, or statement
required to be given by the terms and provisions of this Lease, or by any law or
governmental regulation, either by Landlord to Tenant or by Tenant to Landlord,
shall be in writing. Unless otherwise required by such law or regulation, such
notice or demand shall be given, and shall be deemed to have been served and
given (x) two (2) Business Days after such notice or demand is mailed by
registered or certified mail deposited enclosed in a securely closed post paid
wrapper, in a United States Government general or branch post office, or
official depository with the exclusive care and custody thereof, (y) one
Business Day after such notice or demand is sent by a nationally recognized
overnight courier, or (z) on the Business Day such notice or demand is
telecopied and a copy thereof mailed or sent as provided in clause (x) or (y)
hereof, addressed to Landlord at Prudential Realty Group, RiverPark, 800
Connecticut Avenue, Norwalk, Connecticut, Attention: Managing Agent, with copies
to (i) The Prudential Insurance Company of America, 10 Rockefeller Plaza, 10th
Floor, New York, New York 10021, Attention: Division Counsel and (ii) The
Prudential Insurance Company of America, 3 Gateway Center, 100 Mulberry Street,
13th Floor, Newark, New Jersey 07102, Attention: Vice
63
<PAGE>
President Equity Investments and addressed to Tenant at the Building, with a
copy to Robinson & Cole, 695 East Main Street, P.O. Box 10305, Stamford,
Connecticut 06904 2305, Attention: Brian R. Smith, Esq. Either party may, by
notice as aforesaid, designate a different address or addresses for notices,
demands, consents, approvals or disapprovals.
30.2. In addition to the foregoing, either Landlord or Tenant may, from
time to time, request in writing that the other party serve a copy of any notice
or demand, consent, approval or disapproval, or statement, on one other person
or entity designated in such request, such service to be effected as provided in
Section 31.01 hereof.
ARTICLE 31
NO WAIVER
31.1. No agreement to accept a surrender of this Lease shall be valid
unless in writing signed by Landlord. No employee of Landlord or of Landlord's
agents shall have any power to accept the keys of the demised premises prior to
the termination of this Lease. The delivery of keys to any employee of Landlord
or of Landlord's agent shall not operate as a termination of this Lease or a
surrender of the demised premises. In the event of Tenant at any time desiring
to have Landlord sublet the premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive said keys for such purpose without
releasing Tenant from any of the obligations under this Lease. The failure of
Landlord to seek redress for violation of, or to insist upon the strict
performance of, any covenant or condition of this Lease or any of the Rules and
Regulations set forth herein, or hereafter adopted by Landlord, shall not
prevent a subsequent act, which would have originally constituted a violation,
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this Lease
shall not be deemed a waiver of such breach. The failure of Landlord to enforce
any of the Rules and Regulations set forth herein, or hereafter adopted, against
Tenant and/or any other tenant in the Building shall not be deemed a waiver of
any such Rules and Regulations. No provision of this Lease shall be deemed to
have been waived by Landlord, unless such waiver be in writing signed by
Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on the
account of the earliest stipulated rent, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment of rent be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy in this Lease provided.
31.2. This Lease contains the entire agreement between the parties, and
any executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of it in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
64
<PAGE>
ARTICLE 32
CAPTIONS; PARTNERSHIP TENANTS
32.1. The captions are inserted only as a matter of convenience and for
reference, and in no way define, limit or describe the scope of this Lease nor
the intent of any provision thereof.
32.2. If Tenant is a partnership (or is comprised of two (2) or more
persons, individually and as co-partners of a partnership) or if Tenant's
interest in this Lease shall be assigned to a partnership (or to two (2) or more
persons, individually and as co-partners of a partnership) pursuant to Article
11 hereof (any such partnership and such persons are referred to in this Section
33.02 as "Partnership Tenant"), the following provisions of this Section 33.02
shall apply to such Partnership Tenant:
(a) the liability of each of the parties comprising Partnership
Tenant shall be joint and several, and
(b) each of the parties comprising Partnership Tenant hereby
consents in advance to, and agrees to be bound by, any written instrument
which may hereafter be executed, changing, modifying or discharging this
Lease, in whole or in part, or surrendering all or any part of the demised
premises to Landlord, and by notices, demands, requests or other
communications which may hereafter be given, by Partnership Tenant or any
of the parties comprising Partnership Tenant, and
(c) any bills, statements, notices, demands, requests or other
communications given or rendered to Partnership Tenant or to any of the
parties comprising Partnership Tenant shall be deemed given or rendered to
Partnership Tenant and to all such parties and shall be binding upon
Partnership Tenant and all such parties, and
(d) if Partnership Tenant shall admit new partners, all of such new
partners shall by their admission to Partnership Tenant, be deemed to have
assumed performance of all of the terms, covenants and conditions of this
Lease on Tenant's part to be observed and performed, and
(e) Partnership Tenant shall give prompt notice to Landlord of the
admission of any such new partners, and upon demand of Landlord, shall
cause each such new partner to execute and deliver to Landlord an
agreement in form satisfactory to Landlord, wherein each such new partner
shall assume performance of all of the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed (but neither
Landlord's failure to request any such agreement nor the failure of any
such new partner to execute or deliver any such
65
<PAGE>
agreement to Landlord shall vitiate the provisions of subdivision (d) of
this Section).
ARTICLE 33
INABILITY TO PERFORM
33.1. If, by reason of (l) strike, (2) labor troubles, (3) governmental
preemption in connection with a national emergency, (4) any rule, order or
regulation of any governmental agency, (5) conditions of supply or demand which
are affected by war or other national, state or municipal emergency, or any
other cause or (6) any cause beyond Landlord's reasonable control, Landlord
shall be unable to fulfill its obligations under this Lease or shall be unable
to supply any service which Landlord is obligated to supply, Landlord shall not
be deemed in default hereunder and this Lease and Tenant's obligation to pay
rent hereunder shall, except as provided in Section 34.03 hereof, in no wise be
affected, impaired or excused.
33.2. If by reason of the circumstances contemplated by clauses (1)
through (5) of Section 34.01 hereof, Tenant shall be unable to fulfill any of
its obligation under this Lease other than the obligations to make any payment
of rent, additional rent or other charges, Tenant shall not be deemed in default
hereunder for so long as such circumstances continue to prevent Tenant from
fulfilling such obligations.
33.3. If as a consequence of a circumstance or event contemplated by
Section 34.01 hereof or the performance by Landlord of any repair, alteration,
addition or improvement, the demised premises become untenantable and Tenant
actually discontinues the use thereof for a period in excess of ten (10)
Business Days, then, commencing on the eleventh (11th) Business Day of such
untenantability and continuing thereafter until the earlier of the date that (i)
the tenantability of the demised premises is restored, or (ii) Tenant resumes
occupancy of all or any portion of the demised premises for the conduct of its
business, the fixed annual rent and additional rent payable pursuant to Articles
3 and 4 hereof, shall be abated.
ARTICLE 34
NO REPRESENTATIONS BY LANDLORD
34.1. Landlord or Landlord's agents have made no representations or
promises with respect to the Building or demised premises except as herein
expressly set forth.
ARTICLE 35
NAME OF BUILDING
66
<PAGE>
35.1. Landlord shall have the full right at any time to name and change
the name of the Building and to change the designated address of the Building.
The Building may be named after any person, firm, or otherwise, whether or not
such name is, or resembles, the name of a tenant of the Building provided that
during any portion of the term of this Lease during which Tenant occupies at
least 85,000 rentable square feet in the Building, Landlord shall not name the
Building after the Landlord named herein or an entity primarily engaged in the
business of providing health care services.
ARTICLE 36
RESTRICTIONS UPON USE
36.1. It is expressly understood that no portion of the demised premises
shall be used as, by or for (i) a bank, trust company, savings bank, industrial
bank, savings and loan association or personal loan bank (or any branch office
or public accommodation office of any of the foregoing), or (ii) a public
stenographer or typist, barber shop, beauty shop, beauty parlor or shop,
telephone or telegraph agency, telephone or secretarial service, messenger
service, travel or tourist agency, employment agency, public restaurant or bar,
commercial document reproduction or offset printing service, public vending
machines, retail, wholesale or discount shop for sale of merchandise, retail
service shop, labor union, school or classroom, governmental or quasi
governmental bureau, department or agency, including an autonomous governmental
corporation, an advertising agency, a firm whose principal business is real
estate brokerage, a company engaged in the business of renting office or desk
space or a medical, dental or other treatment facility (other than for the
exclusive use of Tenant's employees).
ARTICLE 37
INTENTIONALLY OMITTED
ARTICLE 38
INDEMNITY
38.1. (a) Subject to any waiver provided pursuant to Section 9.04 hereof,
Tenant shall indemnify, defend and save Landlord harmless from and against any
liability or expense arising from (i) the use or occupation of the demised
premises by Tenant or anyone in the demised premises with Tenant's permission or
(ii) the negligence or willful act of Tenant or Tenant's employees or agents.
(b) Subject to any waiver provided pursuant to Section 9.04 hereof,
Landlord shall indemnify, defend, and save Tenant harmless from and against
any
67
<PAGE>
liability or expense arising from the negligence of Landlord, its agents
or employees or the willful misconduct of Landlord provided that in no
event shall Landlord be deemed hereby to assume liability for
consequential damages incurred by Tenant.
(c) The indemnified party hereunder shall provide prompt notice to
the indemnifying party of any event described in this Article 39 and the
indemnifying party shall be given the opportunity to defend against same
by counsel approved by the indemnified party provided that counsel
appointed by the insurer against such event shall be deemed so approved.
ARTICLE 39
MEMORANDUM OF LEASE
39.1. Tenant shall, at the request of Landlord execute and deliver a
statutory form of memorandum of this Lease for the purpose of recording, but
said memorandum of this Lease shall not in any circumstances be deemed to modify
or to change any of the provisions of this Lease.
ARTICLE 40
MISCELLANEOUS
40.1. Irrespective of the place of execution or performance, this Lease
shall be governed and construed in accordance with the laws of the State of
Connecticut.
40.2. This Lease shall be construed without regard to any presumption or
other rule requiring construction against the party causing this Lease to be
drafted.
40.3. Except as otherwise expressly provided in this Lease, each covenant,
agreement, obligation or other provision of this Lease on Tenant's part to be
performed shall be deemed and construed as a separate and independent covenant
of Tenant, not dependent on any other provision of this Lease.
40.4. All terms and words used in this Lease, regardless of the number or
gender in which they are used, shall be deemed to include any other number and
any other gender as the context may require.
40.5. Time shall be of the essence with respect to the exercise of any
option granted under this Lease.
40.6. Except as otherwise provided herein whenever payment of interest is
required by the terms hereof it shall be at the Interest Rate.
68
<PAGE>
40.7. (a) If the demised premises or any additional space to be included
within the demised premises shall not be available for occupancy by Tenant on
the specific date hereinbefore designated for the commencement of the term of
this Lease or for the inclusion of such space for any reason whatsoever, then
this Lease shall not be affected thereby but, in such case, said specific date
shall be deemed to be postponed until the date when the demised premises or such
additional space shall be available for occupancy by Tenant, and Tenant shall
not be entitled to possession of the demised premises or such additional space
until the same are available for occupancy by Tenant, provided, however, that
Tenant shall have no claim against Landlord, and Landlord shall have no
liability to Tenant by reason of any such postponement of said specific date,
and the parties hereto further agree that any failure to have the demised
premises or such additional space available for occupancy by Tenant on said
specific date or on the Commencement Date shall in no wise affect the
obligations of Tenant hereunder nor shall the same be construed in any wise to
extend the term of this Lease.
(b) Notwithstanding anything to the contrary contained in this
Lease, the demised premises shall be deemed available for occupancy by
Tenant on the Commencement Date notwithstanding that a portion of the
Second (2nd) Floor West of the Building shall be occupied by Continental
Plastic Containers, Inc. (hereinafter called "Plastic"). Tenant
acknowledges that actual occupancy of such portion by Tenant shall be a
matter to be agreed or resolved by Tenant and Plastic, and Landlord shall
have no responsibility therefor. Nor shall the rent payable hereunder be
affected thereby.
40.8. In the event that Tenant is in arrears in payment of fixed annual
rent or additional rent hereunder, Tenant waives Tenant's right, if any, to
designate the items against which any payments made by Tenant are to be
credited, and Tenant agrees that Landlord may apply any payments made by Tenant
to any items it sees fit, irrespective of and notwithstanding any designation or
request by Tenant as to the items against which any such payments shall be
credited.
40.9. Landlord and Tenant each represent that it has full corporate
authority to enter into this Lease and perform its obligations hereunder.
40.10. Tenant acknowledges that it has been furnished by Landlord with the
copies of leases of certain other tenants in the Building and agrees that it
shall not disclose the terms of such leases to any third parties.
40.11. This Lease shall not be binding upon either party until it has been
executed by Landlord and Tenant and a fully executed copy thereof has been
delivered to Tenant.
ARTICLE 41
BUILDING DIRECTORY, SIGNAGE
69
<PAGE>
41.1. Tenant shall be permitted The Percentage of listings on any lobby
building directory maintained by Landlord for itself, its executive employees
and other permitted occupants. No such listing shall be deemed to confer upon
the person listed the status of tenant or imply consent or approval to any
subletting, assignment or occupancy. Tenant shall pay Landlord's reasonable
charges for such changes thereof as Tenant may from time to time request.
41.2. Tenant shall be permitted to install and maintain: (i) two signs on
the parapets of the West Wing of the Building, (ii) one sign on the area above
the interior atrium entrance to the West Wing and (iii) one sign on the monument
(in the second position and in common with the other tenants in the Building)
outside the main entrance to the Building, as such signs are described in the
plans and specifications annexed hereto as Exhibit H and as such signs have been
approved by Landlord. Landlord shall not unreasonably withhold its consent to
any replacement sign(s) the Tenant named in this Lease wishes to install in lieu
of the initial sign(s) described herein provided such replacement sign(s) is
(are) substantially similar in size, location and material to the initial
sign(s) and contain(s) colors that are not inconsistent in Landlord's judgment
with the decor of the Building.
ARTICLE 42
WORK CREDIT
42.1. Landlord shall allow Tenant an allowance in the amount of up to One
Hundred Sixty Thousand and 00/100 ($160,000.00) Dollars (hereinafter called the
"Work Credit"), which Work Credit shall be applied solely against the cost and
expense of any meters or other equipment installed by Landlord pursuant to
Section 12.01(d) hereof, not to exceed in the aggregate $20,000.00, and the
actual construction work performed by Tenant in connection with the installation
of (i) an elevator between the First (1st) Floor North portion of the demised
premises and the basement parking area of the Building and (ii) such insulated
walls as may be necessary to enclose the Exercise Facility (hereinafter referred
to as "Tenant's Special Work") as indicated in the plans annexed hereto as
Exhibit K and subject to Landlord's selection, which shall be made by notice to
Tenant within a reasonable period after the date hereof, of location option A or
B for such elevator. In the event that the cost and expense of Tenant's Special
Work shall exceed the amount of the Work Credit, Tenant shall be entirely
responsible for such excess. If Tenant does not use all or any part of the Work
Credit for Tenant's Special Work, then the Work Credit shall be reduced
accordingly.
42.2. Landlord shall have the right to withhold all or any portion of the
Work Credit as shall equal the cost of correcting any portions of Tenant's
Special Work which shall not have been performed in a manner reasonably
satisfactory to Landlord provided Landlord shall give notice of such failure to
Tenant within ten (10) days after Landlord's inspection of such work.
70
<PAGE>
42.3. The Work Credit shall be payable to Tenant upon the completion of
Tenant's Special Work and upon delivery by Tenant to Landlord of (i) a
certificate signed by Tenant's architect and Tenant certifying that Tenant's
Special Work has been satisfactorily completed in accordance with the final
plan, (ii) all Building Department sign-offs, inspection certificates and any
permits required to be issued by any governmental entities having jurisdiction
thereover, (iii) lien waivers and a general release from all contractors and
subcontractors performing Tenant's Special Work releasing Landlord and Tenant
from all liability for any Tenant's Special Work and (iv) paid invoices from
contractors.
ARTICLE 43
OPTION TO EXCLUDE SPACE
43.1. Tenant may elect at Tenant's option, exercisable by nine (9) months
prior written notice to Landlord (hereinafter called an "Exclusion Notice") and
the payment of the Termination Payment (as hereinafter defined) to exclude from
the demised premises a portion of the demised premises listed in Section
44.02(b) hereof (herein referred to as the "Excluded Space") effective as of
September 1, 1998 and/or September 1, 1999 (each hereinafter called an
"Exclusion Date") provided that (i) the rentable area of the demised premises
prior to any such exclusion shall exceed 85,000 rentable square feet, (ii) such
exclusion does not reduce the rentable area of the demised premises below 85,000
rentable square feet, (iii) the Excluded Space, in the aggregate, does not
exceed thirty (30%) percent of the then rentable area of the demised premises
(before excluding the then to be Excluded Space therefrom), (iv) Tenant shall
only be permitted to exclude a full floor of the Building listed in Section
44.02(b) hereof and/or to exclude fifty (50%) percent of the rentable area of
one of such floors and (v) any half floor included in the Excluded Space shall
be reasonably satisfactory to Landlord in shape, location, means of ingress and
egress and suitability for leasing for general and executive office use.
Notwithstanding the foregoing, in the event that James River Paper Company, Inc.
exercises its option contained in an amended and restated lease between it and
Landlord, dated May 5, 1989, as subsequently amended, with respect to certain
premises in The Building Project to extend the term of such lease beyond
September 1, 1998 and Tenant requires additional space and has a bona fide
intention to lease such space elsewhere, then Tenant shall be permitted to
exclude two full floors of the Building comprising the demised premises (whether
or not same exceeds thirty (30%) percent of the then rentable area of the
demised premises) provided that the remaining rentable area of the demised
premises is at least 85,000 square feet. Time shall be of the essence with
respect to the giving of the Exclusion Notice.
43.2. Effective as of the Exclusion Date:
(a) the Excluded Space shall be deemed excluded and subtracted from
the demised premises;
71
<PAGE>
(b) the fixed annual rent provided for each period in Section 1.02
hereof shall be reduced by the percentage that the rentable square footage
of the Excluded Space bears to the rentable square footage of the demised
premises (before excluding the Excluded Space therefrom) and for the
purposes hereof each of the floors initially comprising the demised
premises shall be deemed to have a rentable square foot area as follows:
2nd Floor West 35,055
3rd Floor West 34,827
4th Floor West 35,516
4th Floor North 27,038
For purposes of this Article 44 and the areas listed above, the 535 rentable
square foot portion of the Second (2nd) Floor North (adjacent to the Second
(2nd) Floor West) and a 689 rentable square foot portion of the Fourth (4th)
Floor North (which is adjacent to the Fourth (4th) Floor West and in addition to
the 27,038 rentable square foot portion listed above) initially demised
hereunder shall be deemed a part of the Second (2nd) and Fourth (4th) Floors
West, respectively;
(c) The Percentage, as defined in Sections 3.02(f) and 4.02(d)
hereof, shall be reduced by subtracting therefrom the percentage obtained
by dividing (i) the rentable square footage of the Excluded Space by (ii)
403,437; and
(d) the number of parking spaces to be provided by Landlord pursuant
to Section 17.03 hereof shall be reduced by the percentage that the
rentable square footage of the Excluded Space bears to the rentable square
footage of the demised premises (before excluding the Excluded Space
herefrom).
43.3. In the event Tenant does not timely send the Exclusion Notice in
accordance with Section 44.01 or pay the Termination Payment as set forth in
Section 44.04, this Article 44 shall be deemed null and void and deleted from
this Lease.
43.4. As used in this Article 44, the "Termination Payment" shall mean the
payment by Tenant to Landlord of an amount equal to the unamortized brokerage
commissions paid by Landlord in connection with this Lease with respect to the
Excluded Space attributable to the period commencing on the Exclusion Date and
for the balance of the term of this Lease. Such amount shall be payable by
Tenant to Landlord within twenty (20) days after Landlord shall give Tenant a
bill therefor.
ARTICLE 44
RIGHT OF FIRST OFFERING
44.1. For purposes of this Lease, the term "First Offering Space" shall
mean each rentable portion of the Building other than the demised premises.
72
<PAGE>
44.2. Provided Tenant is not in default under the terms and conditions of
this Lease either as of the date of the giving of "Tenant's Acceptance Notice"
or the "First Offering Space Inclusion Date" (as such terms are hereinafter
defined), if at any time during the term of this Lease a First Offering Space
shall become available for leasing to anyone other than a "Current Tenant" (as
hereinafter defined), then Landlord, before offering such First Offering Space
to anyone other than the Current Tenant, shall offer to Tenant, subject to the
provisions of this Article 45, the right to include such entire First Offering
Space within the demised premises upon all the terms and conditions of this
Lease (including the provisions of Articles 3 and 4 hereof with the base factors
(as opposed to Modified Base Factors) specified therein, but excluding Article
43 hereof), except that:
(i) the fixed annual rent (including the ERIF) with respect to the
First Offering Space (hereinafter called the "First Offering Space
Escalated Rent") shall be at the rate of the product obtained by
multiplying (A)(l) $17.50, during the period commencing on the
Commencement Date and ending on February 28, 1999; (2) $18.50, during the
period commencing on March 1, 1999 and ending on February 29, 2000; (3)
$19.50, during the period commencing on March 1, 2000 and ending on
February 28, 2001; and (4) during any other period occurring during the
term hereof, the product of (x) the monthly amount of fixed annual rent
(determined on a rentable square foot basis and excluding for such
purposes the 5,000 square foot rentable area of the Exercise Facility and
the Exercise Facility Rent) for the last full calendar month prior to the
First Offering Space Inclusion Date (as hereinafter defined) without
giving effect to any abatement, credit or offset in effect, and (y) 12, by
(B) the amount of rentable square feet included within such First Offering
Space
(ii) Effective as of the First Offering Space Inclusion Date, for
purposes of calculating the additional rent payable pursuant to Articles 3
and 4 allocable to the First Offering Space, The Percentage attributable
to such First Offering Space shall be deemed to be the fraction, expressed
as a percentage, the numerator of which shall be the number of rentable
square feet included within the First Offering Space, and the denominator
of which shall be 403,437; and
(iii) The number of parking spaces of which Tenant shall have free
use pursuant to Section 17.03 hereof shall be increased by the product of
(i) the quotient (ignoring all amounts which are less than a whole number)
obtained by dividing (x) the rentable square feet of the First Offering
Space by (y) 1,000, multiplied by (ii) 3, and such additional parking
spaces shall be allocated among the parking areas of The Building Project
inside and outside the Common Areas and the covered parking garage inside
the Common Areas in the same proportion as the parking spaces designated
for Tenant's use pursuant to Article 17 hereof were so allocated.
73
<PAGE>
44.3. Landlord's offer shall be made to Tenant in a written notice
(hereinafter called the "First Offer Notice") which notice shall specify the
fixed annual rent payable with respect to such First Offering Space, determined
in accordance with the provisions of Section 45.02 hereof.
44.4. Tenant may accept the offer set forth in the First Offer Notice by
delivering to Landlord an unconditional acceptance (herein called "Tenant's
Acceptance Notice") of such offer within twenty (20) days after delivery by
Landlord of the First Offer Notice to Tenant. Such First Offering Space shall be
added to and included in the demised premises on the later to occur (herein
called the "First Offering Space Inclusion Date") of (i) the day that Tenant
exercises its option as aforesaid, or (ii) the date such First Offering Space
shall become available for Tenant's possession. Time shall be of the essence
with respect to the giving of Tenant's Acceptance Notice.
44.5. Tenant shall have the option to include either all of an Offering
Space or any portion thereof which is a full floor of a Wing of the Building
into the demised premises or none at all; Tenant shall have no right to include
a portion of any Offering Space which is less than a full floor unless such
portion is all of the First Offering Space located on such floor.
44.6. If Tenant does not accept an offer made by Landlord pursuant to the
provisions of this Article 45 with respect to an Offering Space, Landlord shall
be under no further obligation to Tenant with respect to such Offering Space and
Tenant shall have forever waived and relinquished its right to such Offering
Space, and Landlord shall at any and all times thereafter be entitled to lease
such Offering Space to others at such rental and upon such terms and conditions
as Landlord in its sole discretion may desire whether such rental terms,
provisions and conditions are the same as those offered to Tenant or more or
less favorable.
44.7. Tenant agrees to accept each First Offering Space in its condition
and state of repair existing as of the First Offering Space Inclusion Date and
understands and agrees that Landlord shall not be required to perform any work,
supply any materials or incur any expense to prepare such space for Tenant ' s
occupancy.
44.8. The fixed annual rent for each First Offering Space as determined
pursuant to this Article 45 shall be subject to periodic increases for any
period during the term of this Lease for which such fixed annual rent would
otherwise be less Con a per rentable square foot basis and excluding for these
purposes the 5,000 rentable square feet of the Exercise Facility and the
Exercise Facility Rent) than the fixed annual rent payable pursuant to Section
1.02, 46.02, 47.02 or 48.02 hereof Con the aforesaid per rentable square foot
basis) for such period, so that the fixed annual rent payable during such
periods with respect to such First Offering Space shall be equal Con the
aforesaid per rentable square foot basis) to the fixed annual rent payable with
respect to the demised premises pursuant to Section 1.02, 46.02, 47.02 or 48.02
hereof during such periods.
74
<PAGE>
44.9. The termination of this Lease shall also terminate and render void
all of Tenant's options or elections under this Article 45 whether or not the
same shall have been exercised; and nothing contained in this Article 45 shall
prevent Landlord from exercising any right or action granted to or reserved by
Landlord in this Lease to terminate this Lease. None of Tenant's options or
elections set forth in this Article 45 may be severed from the Lease or
separately sold, assigned or transferred.
44.10. Notwithstanding any language to the contrary contained in this
Article 45, the rights granted to Tenant hereunder shall be at all times subject
to (i) the election of the current tenant, or any subsidiary, affiliate,
assignor or subtenant thereof (each herein referred to as a "Current Tenant") of
an Offering Space to extend the term of its lease with respect thereto,
regardless of whether such election is made pursuant to any provision included
within said lease or by agreement with Landlord and (ii) any rights granted
prior to the date hereof to H. Muehlstein & Co. Inc. to lease such Offering
Space which have not been released or waived as to Landlord.
44.11. The fixed annual rent payable by Tenant with respect to each First
Offering Space shall be abated until the earlier of (i) the expiration of the
forty five (45) day period commencing on the First Offering Space Inclusion Date
or (ii) the date that Tenant or anyone acting under or through Tenant first
occupies the First Offering Space for the conduct of business.
ARTICLE 45
FIRST OPTION TO EXTEND
45.1. Subject to the provisions of Section 46.03 hereof, Tenant shall have
the right to extend the term of this Lease for an additional term of three (3)
years commencing on March 1, 2001 (hereinafter referred to as the "Commencement
Date of the First Extension Term') and ending on February 29, 2004 (such
additional term is hereinafter called the "First Extension Term") provided that:
(i) Tenant shall give Landlord notice (hereinafter called the
"First Extension Notice") of its election to extend the term of this
Lease on or before February 29, 2000. Time shall be of the essence
with respect to the giving of the First Extension Notice; and
(ii) Tenant is not in default under the Lease as of the time
of the giving of the First Extension Notice and as of the
Commencement Date of the First Extension Term.
45.2. (a) Except as provided in subsections (b) and (c) hereof, Tenant's
occupancy of the demised premises during the Extension Term shall be on the same
terms and conditions as are in effect immediately prior to the expiration of the
initial term of this Lease, provided, however, Tenant shall only have two
further rights to extend the term of this Lease pursuant to Articles 47 and 48
hereof.
75
<PAGE>
(b) During the First Extension Term Article 43 hereof shall apply to
Tenant's work to refurbish the demised premises, except that (i) the "Work
Credit" shall mean an amount up to the product of (A) the then rentable
square foot area of the demised premises less 5,000 and (B) $7.00, and
(ii) such Work Credit shall be available only with respect to any actual
construction performed by Tenant in the demised premises during the one
(1) year period commencing on December 1, 2000.
(c) The fixed annual rent payable by Tenant during the First
Extension Term shall be equal to the sum of (i) the product of (A) $20.00
(which amount includes an ERIF amount equal to $1.50 per rentable square
foot) and (B) the number of rentable square feet in the demised premises
(including any First Offering Space included therein) less 5,000 rentable
square feet and (ii) the Exercise Facility Rent.
45.3. If Tenant does not send the First Extension Notice pursuant to
provisions of Section 46.01 hereof, this Article 46 and Articles 47 and 48
hereof shall have no force or effect and shall be deemed deleted from this
Lease.
45.4. If this Lease is renewed for the First Extension Term, then Landlord
or Tenant can request the other party hereto to execute an instrument in form
for recording setting forth the exercise of Tenant's right to extend the term of
this Lease and the last day of the First Extension Term.
45.5. If Tenant exercises its right to extend the term of this Lease for
the First Extension Term pursuant to this Article, the phrases "the term of this
Lease" or "the term hereof" as used in this Lease, shall be construed to
include, when practicable, the First Extension Term.
ARTICLE 46
SECOND OPTION TO EXTEND
46.1. Subject to the provisions of Section 47.11 hereof, Tenant shall have
the right to extend the term of this Lease for an additional term of three (3)
years commencing on March 1, 2004 (hereinafter referred to as the "Commencement
Date of the Second Extension Term") and ending on February 28, 2007 (such
additional term is hereinafter called the "Second Extension Term") provided
that:
(i) Tenant shall give Landlord notice (hereinafter called the
"Second Extension Notice") of its election to extend the term of
this Lease on or before February 28, 2003. Time shall be of the
essence with respect to the giving of the Second Extension Notice;
and
76
<PAGE>
(ii) Tenant is not in default under the Lease as of the time
of the giving of the Second Extension Notice and as of the
Commencement Date of the Second Extension Term.
46.2. The fixed annual rent payable by Tenant to Landlord during the
Second Extension Term shall be the higher of:
(i) the fair market rent for the demised premises (including
any First Offering Space included therein) after adjustment for the
additional rent then payable under Articles 3 and 4 hereof (so that
the aggregate of (x) the fixed annual rent, as determined under this
clause (i), and (y) such additional rent shall be equal to the fair
market rent for the demised premises), determined as of the date
occurring six (6) months prior to the Commencement Date of the
Second Extension Term (such date is hereinafter called the "Second
Determination Date") and which determination shall be made within
thirty (30) days after the occurrence of the Second Determination
Date pursuant to the provisions of Section 47.04 hereof, or
(ii) the fixed annual rent payable by Tenant to Landlord for
the last month of the First Extension Term of this Lease on an
annualized basis with respect to the demised premises (without
giving effect to any abatements, setoffs or concessions then in
effect).
46.3. During the Second Extension Term, the Tax Base Factor and the
Expense Base Factor shall be the same as are in effect on the expiration date of
the First Extension Term.
46.4. Landlord and Tenant shall endeavor to agree as to the amount of the
fair market rent for the demised premises pursuant to the provisions of clause
(i) of Section 47.02 hereof, during the thirty (30) day period following the
Second Determination Date. In the event that Landlord and Tenant cannot agree as
to the amount of the fair market rent within such thirty (30) day period
following the Second Determination Date, then Landlord or Tenant may initiate
the arbitration process provided for herein by giving notice to that effect to
the other, and the party so initiating the appraisal process (such party
hereinafter referred to as the "Initiating Party") shall specify in such notice
the name and address of the person designated to act as an arbitrator on its
behalf. Within thirty (30) days after the designation of such arbitrator, the
other party (hereinafter referred to as the "Other Party") shall give notice to
the Initiating Party specifying the name and address of the person designated to
act as an arbitrator on its behalf. If the Other Party fails to notify the
Initiating Party of the appointment of its arbitrator within the time above
specified, then the appointment of the second arbitrator shall be made in the
same manner as hereinafter provided for the appointment of a third arbitrator in
a case where the two arbitrators appointed hereunder and the parties are unable
to agree upon such appointment. The two arbitrators so chosen shall meet within
ten (10) days after the second arbitrator is appointed and if, within sixty (60)
days after the second arbitrator is appointed, the two arbitrators shall not
agree, they shall together appoint a third arbitrator.
77
<PAGE>
In the event of their being unable to agree upon such appointment within eighty
(80) days after the appointment of the second arbitrator, the third arbitrator
shall be selected by the parties themselves if they can agree thereon within a
further period of fifteen (15) days. If the parties do not so agree, then either
party, on behalf of both and on notice to the other, may request such
appointment by the American Arbitration Association (or organization successor
thereto) in accordance with its rules then prevailing or if the American
Arbitration Association (or such successor organization) shall fail to appoint
said third arbitrator within fifteen (15) days after such request is made, then
either party may apply on notice to the other, to the Superior Court Judicial
District of Stamford/Norwalk at Norwalk Housing Session, Connecticut (or any
other court having jurisdiction and exercising functions similar to those now
exercised by said Court) for the appointment of such third arbitrator.
46.5. Each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party, and the fees and expenses
of the third arbitrator and all other expenses (not including the attorneys
fees, witness fees and similar expenses of the parties which shall be borne
separately by each of the parties) of the arbitration shall be borne by the
parties equally.
46.6. The majority of the arbitrators shall determine the fair market rent
of the demised premises and render a written certified report of their
determination to both Landlord and Tenant within sixty (60) days of the
appointment of the first two arbitrators or sixty (60) days from the appointment
of the third arbitrator if such third arbitrator is appointed pursuant to
Section 47.04, and the fair market rent, so determined, shall be applied to
determine as above provided, whether the fixed annual rent shall be increased
pursuant to clause (i) of Section 47.02 hereof for the Second Extension Term. In
determining the fair market rent under this Article 47, the arbitrators shall
make the assumption that the length of the extension term hereunder (whether or
not the same is the case) is for a term length for which Landlord would, under
the then market conditions, be able to obtain the maximum rental amount.
46.7. Each of the arbitrators selected as herein provided shall have at
least ten (l0) years experience in the leasing and renting of office space on
behalf of landlords in first class office buildings in Fairfield County,
Connecticut.
46.8. If Landlord notifies Tenant that the fixed annual rent for the
Second Extension Term shall be equal to the amount set forth in clause (ii) of
Section 47.02 hereof, then the provisions of Section 47.04 hereof shall be
inapplicable and have no force or effect.
46.9. In the event Landlord or Tenant initiates the appraisal process
pursuant to Section 47.04 hereof and as of the Commencement Date of the Second
Extension Term the amount of the fair market rent has not been determined,
Tenant shall pay the amount set forth in clause (ii) of Section 47.02 hereof and
when such determination has been made, an appropriate retroactive adjustment
shall be made as of the Commencement Date of the Second Extension Term.
78
<PAGE>
46.10. Except as provided in Section 47.02 hereof, Tenant's occupancy of
the demised premises during the Second Extension Term shall be on the same terms
and conditions as are in effect immediately prior to the expiration of the First
Extension Term of this Lease, provided, however, (i) Article 43 shall be deemed
deleted from this Lease and (ii) Tenant shall have only one further right to
extend the term of this Lease pursuant to Article 48.
46.11. If Tenant does not send the Second Extension Notice pursuant to
provisions of Section 47.01 hereof, this Article 47 and Article 48 shall have no
force or effect and shall be deemed deleted from this Lease.
46.12. If this Lease is renewed for the Second Extension Term, then
Landlord or Tenant can request the other party hereto to execute an instrument
in form for recording setting forth the exercise of Tenant's right to extend the
term of this Lease and the last day of the Second Extension Term.
46.13. If Tenant exercises its right to extend the term of this Lease for
the Second Extension Term pursuant to this Article, the phrases "the term of
this Lease" or "the term hereof" as used in this Lease, shall be construed to
include, when practicable, the Second Extension Term.
ARTICLE 47
THIRD OPTION TO EXTEND
47.1. Subject to the provisions of Section 48.08 hereof, Tenant shall have
the right to extend the term of this Lease for an additional term of three (3)
years commencing on March 1, 2007 (hereinafter referred to as the "Commencement
Date of the Third Extension Term") and ending on February 28, 2010 (such
additional term is hereinafter called the "Third Extension Term") provided that:
(i) Tenant shall give Landlord notice (hereinafter called the
"Third Extension Notice") of its election to extend the term of this
Lease on or before February 28, 2006. Time shall be of the essence
with respect to the giving of the Third Extension Notice; and
(ii) Tenant is not in default under the Lease as of the time
of the giving of the Third Extension Notice and as of the
Commencement Date of the Third Extension Term.
47.2. The fixed annual rent payable by Tenant to Landlord during the Third
Extension Term shall be the higher of:
(i) the fair market rent for the demised premises (including
any First Offering Space included therein) after adjustment for the
additional
79
<PAGE>
rent then payable under Articles 3 and 4 hereof (so that the
aggregate of (x) the fixed annual rent, as determined under this
clause (i), (w and (y) such additional rent shall be equal to the
fair market rent for the demised premises), determined as of the
date occurring six (6) months prior to the Commencement Date of the
Third Extension Term (such date is hereinafter called the "Third
Determination Date") and which determination shall be made within
thirty (30) days after the occurrence of the Third Determination
Date pursuant to the provisions of Section 48.04 hereof, or
(ii) the fixed annual rent payable by Tenant to Landlord for
the last month of the Second Extension Term of this Lease on an
annualized basis with respect to the demised premises (without
giving effect to any abatements, setoffs or concessions then in
effect).
47.3. During the Third Extension Term, the Tax Base Factor and the Expense
Base Factor shall be the same as are in effect on the expiration date of the
Second Extension Term.
47.4. Landlord and Tenant shall endeavor to agree as to the amount of the
fair market rent for the demised premises pursuant to the provisions of clause
(i) of Section 48.02 hereof, during the thirty (30) day period following the
Third Determination Date. In the event that Landlord and Tenant cannot agree as
to the amount of the fair market rent within such thirty (30) day period
following the Third Determination Date, then Landlord or Tenant may initiate and
engage in the arbitration process with respect to the Third Extension Term
provided for in Article 47 with respect to the Second Extension Term as though
set forth herein.
47.5. If Landlord notifies Tenant that the fixed annual rent for the
Extension Term shall be equal to the amount set forth in clause (ii) of Section
48.02 hereof, then the provisions of Section 48.04 hereof shall be inapplicable
and have no force or effect.
47.6. In the event Landlord or Tenant initiates the appraisal process
pursuant to Section 48.04 hereof and as of the Commencement Date of the Third
Extension Term the amount of the fair market rent has not been determined,
Tenant shall pay the amount set forth in clause (ii) of Section 48.02 hereof and
when such determination has been made, an appropriate retroactive adjustment
shall be made as of the Commencement Date of the Third Extension Term.
47.7. Except as provided in Section 48.02 hereof, Tenant's occupancy of
the demised premises during the Third Extension Term shall be on the same terms
and conditions as are in effect immediately prior to the expiration of the
Second Extension Term of this Lease provided, however, Tenant shall have no
further right to extend the term of this Lease.
80
<PAGE>
47.8. If Tenant does not send the Third Extension Notice pursuant to
provisions of Section 48.01 hereof, this Article 48 shall have no force or
effect and shall be deemed deleted from this Lease.
47.9. If this Lease is renewed for the Third Extension Term, then Landlord
or Tenant can request the other party hereto to execute an instrument in form
for recording setting forth the exercise of Tenant's right to extend the term of
this Lease and the last day of the Third Extension Term.
47.10. If Tenant exercises its right to extend the term of this Lease for
the Third Extension Term pursuant to this Article, the phrases "the term of this
Lease" or "the term hereof" as used in this Lease, shall be construed to
include, when practicable, the Third Extension Term.
ARTICLE 48
SALE OF THE BUILDING PROJECT
48.1. Landlord agrees that if at any time during the term of this Lease,
Landlord has determined to attempt to sell The Building Project to anyone other
than an affiliate of Landlord, Landlord shall give Tenant notice of such
determination and shall defer the commencement of discussions or negotiations
with potential purchasers of The Building Project for a period of sixty (60)
days from the giving of such] notice to Tenant. If requested by Tenant, Landlord
shall, during such sixty (60) day period, make itself available to and discuss
with Tenant the terms and conditions of any offer which Tenant might choose to
make to purchase The Building Project. Upon the expiration of such sixty (60)
day period the provisions of this Section 49.01 shall cease and terminate and at
any time thereafter, Landlord shall have the unqualified and unrestricted right
to negotiate with potential purchasers and to effect a sale of The Building
Project, or any interest therein, on such terms and conditions as Landlord may
elect, whether similar or dissimilar to any terms and conditions which may have
been proposed by Tenant. As used herein the term "affiliate" shall mean an
entity controlling, controlled by or under common control with Landlord.
48.2. The provisions of Section 49.01 shall not be binding upon any
successor Landlord or with respect to discussions or negotiations with the
holder of any mortgage or ground lease affecting The Building Project or any
existing tenant with prior rights as to a sale or transfer of The Building
Project.
ARTICLE 49
ANTENNA
81
<PAGE>
49.1. Landlord agrees that, subject to applicable Legal Requirements and
the conditions and limitations hereinafter stipulated, during the term of this
Lease, Tenant, at Tenant's sole cost and expense, upon thirty (30) days prior
notice ("Tenant's Antenna Notice"), may install on a portion of the rooftop of
the Building and thereafter maintain, repair, and operate one communications
antenna or microwave dish (hereinafter referred to as the "antenna"), provided
and on condition that: (i) the size and other characteristics of the antenna
shall not, in Landlord's reasonable judgment, impede Landlord's ability to avail
itself of similar rights or give similar rights to other tenants; (ii) the size
and dimensions of the antenna and any reasonably required support structures as
well as the location of the portion of the rooftop for such installation shall
be subject to Landlord's prior reasonable consent; (iii) the installation of any
electrical or communications lines ("Wiring") and related equipment in
connection with the installation and operation of the antenna, as well as the
manner and location (i.e., routing) of all Wiring and related equipment in
connection therewith shall (A) be at Tenant's sole cost and expense, (B) be
subject to Landlord's prior reasonable consent, and (C) comply with Legal
Requirements; and (iv) the antenna, reasonably required support structures,
Wiring and related equipment shall be maintained and kept in repair by Tenant,
at Tenant's sole cost and expense. The parties agree that Tenant's use of the
rooftop of the Building is a nonexclusive use and Landlord may permit the use of
any other portion of the roof to any other person, firm or corporation for any
use including the installation of other antennas and support equipment.
49.2. For the purpose of installing, servicing or repairing the antenna
and related equipment, Tenant shall have access to the rooftop of the Building
upon prior reasonable request of Landlord. All access by Tenant to the roof of
the Building shall be subject to the supervision and control of Landlord and to
Landlord's reasonable safeguards for the security and protection of the
Building, the Building equipment and installations and equipment of other
tenants of the Building as may be located on the roof of the Building. Landlord
shall have the right to assign a Building representative to be present during
the duration of Tenant's access to the rooftop and Tenant shall reimburse
Landlord for Landlord's costs in connection therewith (including any costs
relating to personnel for security and standby) as additional rent hereunder.
49.3. Tenant, at Tenant's sole cost and expense, agrees to promptly and
faithfully obey, observe and comply with all Legal Requirements in any manner
affecting or relating to Tenant's use of said roof as to the installation,
repair, maintenance and operation of any support structures and antenna and
related equipment erected or installed by Tenant pursuant to the provisions of
this Article. Tenant, at Tenant's sole cost and expense, shall secure and
thereafter maintain all permits and licenses required for the installation and
operation of the antenna and any support structures and related equipment
erected or installed by Tenant pursuant to the provisions of this Article,
including, without limitation, any approval, license or permit required from the
Federal Communications Commission.
49.4. Tenant, agrees that Tenant will pay for the risers and other
electrical equipment and for all electrical service required for Tenant's. use
of the antenna and any
82
<PAGE>
related equipment erected or installed by Tenant pursuant to the provisions of
this Article and in accordance with Article 12 of this Lease and Tenant further
agrees that such electric service shall feed off the supply of electrical energy
furnished to the Later Demised Premises as provided in Article 12 of this Lease.
49.5. The antenna, support structures and related equipment installed by
Tenant, pursuant to the provisions of this Article shall be Tenant's personal
property, and, upon the expiration of the term of this Lease, or upon its
earlier termination in any manner, shall be removed by Tenant at Tenant's sole
cost and expense. All wiring and related electrical equipment installed by
Tenant in connection with the installation and operation of the antenna shall be
Tenant's personal property. Upon the expiration of the term of this Lease or
upon its earlier termination in any manner, if Landlord so directs by written
notice to Tenant, Tenant shall promptly remove the Wiring and electrical
equipment as designated in such notice, at Tenant's sole cost and expense.
Tenant, at Tenant's sole cost and expense, shall promptly repair any and all
damage to the rooftop of the Building and to any other part of the Building
caused by or resulting from the installation, maintenance and repair, operation
or removal of the antenna, support structures, Wiring and related equipment
erected or installed by Tenant pursuant to the provisions of this Article and
restore said affected areas to their condition as existed prior to the
installation of the antenna and related equipment, reasonable wear and tear
excepted.
49.6. Tenant agrees that Landlord shall not be required to provide any
services whatsoever to the rooftop of the Building. Nothing contained in this
Article 50 shall relieve Landlord of its obligations elsewhere in this Lease to
repair, restore and replace the rooftop as necessary.
49.7. Tenant covenants and agrees that all installations made by Tenant on
the rooftop of the Building or in any other part of the Building pursuant to the
provisions of this Article shall be at the sole risk of Tenant, and neither
Landlord nor Landlord's agent or employees shall be liable for any damage or
injury thereto caused in any manner, unless the same shall proximately result
from the negligence or misconduct of Landlord, its agents and employees.
49.8. Tenant will, and does hereby, indemnify and save harmless Landlord
from and against: (i) any and all claims, reasonable counsel fees, demands,
damages, expenses or losses by reason of any liens, orders, claims or charges
resulting from any work done, or materials or supplies furnished, in connection
with the fabrication, erection, installation, maintenance and operation of the
antenna, support structures, Wiring and any related equipment installed by
Tenant pursuant to the provisions of this Article; and (ii) any and all claims,
costs, demands, expenses, fees or suits arising out of accidents, damage, injury
or loss to any and all persons and property, or either, whomsoever or whatsoever
resulting from or arising in connection with the erection, installation,
maintenance and operation and repair of the antenna, support structures, Wiring
and related equipment installed by Tenant pursuant to the provisions of this
Article; except to the extent caused by the negligence or misconduct of
Landlord, or its agents or employees. Tenant shall obtain and thereafter
maintain during the term of this Lease insurance
83
<PAGE>
coverage for the benefit of Landlord in such amount and of such type as Landlord
may reasonably require. If any installations referred to in this Article should
revoke, negate or in any manner impair or limit any roof warranty or guaranty
obtained by Landlord, then Tenant shall reimburse Landlord for any loss or
damage sustained or actual costs or expenses incurred by Landlord as a result
thereof provided that (i) such installation shall have been performed pursuant
to plans approved by Landlord and (ii) Landlord shall have advised Tenant of
such effect on the roof guaranty or warranty in its consent to Tenant's plans.
49.9. All plans and specifications of Tenant's Work and installations to
be done and made by Tenant pursuant to the provisions of this Article shall be
subject to the prior approval of Landlord which approval shall not be
unreasonably withheld or delayed and shall be further subject to inspection and
reasonable supervision by Landlord.
49.10. Tenant covenants and agrees that the antenna, support structures,
Wiring and related electrical equipment to be installed by Tenant shall not
interfere with or adversely affect any equipment, installations, lines or
machinery of the Building or any other tenant of the Building, including,
without limitation, any other communications equipment in, on top of or
otherwise outside the Building, or access thereto for maintenance, repair or
removal.
49.11. Tenant acknowledges being advised by Landlord that Landlord has,
and shall be, granting to third parties, various rights and licenses to utilize
various portions of the Building and rooftop thereof for the installation of
microwave dishes, satellite communications equipment, whip antennae and other
communications equipment and related equipment (hereinafter all of the foregoing
are collectively referred to as "Other Communications Equipment") and that,
inasmuch as Landlord's ability to facilitate the installation and operation of
such Other Communications Equipment will be of paramount importance to Landlord,
Landlord shall have the right, provided Landlord shall have attempted to
accomplish same through the relocation of roof installations of other tenants in
the Building, at any time and from time to time, during the term of this Lease,
upon thirty (30) days' prior written notice to Tenant, to relocate the Tenant's
antenna, support structures and related equipment to other areas of the Building
and rooftop thereof, as Landlord in its reasonable discretion may determine so
as to accommodate such Other Communications Equipment on the roof of the
Building and so as to eliminate, or not to create, problems of interference with
respect to or between Other Communications Equipment now, or in the future,
installed on the roof or other areas of the Building; provided, in any such
instance, that Tenant's antenna following such relocation shall continue to be
functional for its intended purpose. Such relocation shall, to the extent
practicable, be performed (i) following consultation with Tenant to minimize
disruption of Tenant's normal business activities, (ii) in accordance with the
provisions of Section 7.06 hereof, (iii) during hours other than Tenant's
regular business hours so as to minimize any disruption of Tenant's normal
business activities and (iv) in a manner so that, except for such downtime, such
relocation shall not prevent Tenant from using its antenna for its original
intended purpose. Tenant shall cooperate with Landlord to effectuate the
relocation of Tenant's antenna, support structures and related equipment, as
84
<PAGE>
shall be required by Landlord. All costs involved in such relocation shall be
borne by Landlord and Landlord agrees to reimburse Tenant on demand for any
costs incurred by Tenant in connection with such relocation of Tenant's antenna,
support structures and related equipment.
49.12. Tenant shall not be permitted to assign or transfer all or any
portion of the rights granted to Tenant pursuant to this Article 50 unless
Tenant assigns this Lease to the party to whom such rights are assigned or
transferred.
ARTICLE 50
RENT CREDIT
50.1. Notwithstanding anything contained herein to the contrary, provided
Tenant is not at the time that any installment of the Rent Credit (as
hereinafter defined) shall accrue, in default with respect to any of the
provisions hereunder beyond applicable grace and notice periods, the fixed
annual rent payable by Tenant during the period commencing on March 1, 1996 and
ending on September 30, 1996 shall be partially abated so that the fixed annual
rent payable during such period shall be reduced by an aggregate of
$1,200,000.00 (hereinafter called the "Rent Credit"), subject to adjustment as
hereinafter provided, in seven (7) equal monthly installments.
50.2. Tenant hereby acknowledges that Tenant, as tenant, is currently a
party to that certain lease between Darien Green Associates, as landlord, and
Georgia Pacific Corporation, as tenant, dated October, 1978, for the building
known as 320 Post Road, Darien, Connecticut (the "Old Premises") pursuant to a
certain assignment and assumption of lease between Georgia Pacific Corporation,
as tenant assignor, Oxford Health Plans, Inc., as assignee, and Darien Green
Associates, as landlord, dated March 8, 1989 (such lease and assignment and
assumption are hereinafter collectively called the "Old Lease"). Tenant
represents that (i) a true, correct and complete copy of the Old Lease has been
initialed by Tenant and furnished to Landlord and that the Old Lease is the sole
agreement in effect between Tenant and the landlord under the Old Lease with
respect to the Old Premises, (ii) there are no modifications of or amendments to
the Old Lease currently in effect, (iii) Tenant is not in default of any of the
terms and conditions of the Old Lease and (iv) copies of rent bills previously
delivered by Tenant to Landlord and initialed by the parties are true and
correct copies of bills previously furnished to Tenant by the Old Landlord and
have not been subsequently corrected or revised.
50.3. Tenant shall use reasonable efforts to reduce its obligations under
the Old Lease. Within ten (10) days after receiving any abatement, reduction,
refund or credit of any fixed rent or additional rent that is payable by Tenant
under the Old Lease for the balance of the term (including, without limitation,
by sublease rentals or rental obligations assumed by an assignee), Tenant shall
give notice thereof to Landlord and the Rent Credit shall be reduced by fifty
(50%) percent of the amount of such abatement, reduction, refund or credit.
85
<PAGE>
50.4. Within ten (10) days after any assignment of the Old Lease or a
subletting of the Old Premises, Tenant shall give notice thereof to Landlord and
the Rent Credit shall be reduced (in addition to the reduction effected by
Section 51.03 hereof) by fifty (50%) percent of the "Assignment Consideration"
or the "Excess Amount," as such terms are defined in Article 11 hereof but
applied, for purposes of this Section 51.02, as if the Old Lease were this Lease
and the Old Premises were the demised premises.
50.5. (a) In the event that Tenant shall occupy any portion of the Old
Premises after the earlier to occur of (i) November 1, 1993 or (ii) the date
that Tenant or anyone \H1 acting under or through Tenant occupies any portion of
the demised premises for the conduct of business, the Rent Credit shall be
reduced by fifty (50%) percent of the fixed annual rent and additional rent
payable under the Old Lease after such date that any portion of the Old Premises
is occupied by Tenant.
50.6. Commencing on the date hereof, Tenant shall keep a copy of all bills
and notices received under the Old Lease and all payments made with respect
thereto and shall provide a copy thereof to Landlord at Landlord's request.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as
of the day and year first above written.
86
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease made as of the day of May, 1995 by and
between STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM, a unit of the
State and Consumer Services Agency of the State of California, ("Landlord") and
OXFORD HEALTH PLANS, INC. a Delaware corporation having a mailing address at 800
Connecticut Avenue, Norwalk, Connecticut, 06854 ("Tenant").
WHEREAS, the Prudential Insurance Company of America ("Prudential")
entered into a certain Lease dated June 16, 1993 (the "Lease") with respect to
Tenant's present premises, containing 164,739 square feet at Riverpark, 800
Connecticut Avenue, Norwalk, Connecticut (the "Original Demised Premises");
WHEREAS, on or about June 28, 1994 Landlord succeeded to the rights
and duties of Prudential under the Lease; and
WHEREAS, the Landlord and Tenant desire to increase the square foot
area of the Original Demised Premises so as to include a portion of the premises
located in the west wing of the first floor of the office building in which the
Original Demised Premises are located and more particularly described in Exhibit
A attached hereto (the "Expansion Premises") and to amend certain of the terms
of the Lease to conform the lease provisions so as to take into account the
additional square footage, resulting in an aggregate of 169,366 square feet,
more or less (the "New Demised Premises") and to amend certain of the other
terms and conditions of said Lease;
NOW THEREFORE, for valuable consideration, the receipt and
sufficiency of which the parties hereby acknowledge, the Landlord and Tenant
agree, as follows:
A. Effective as of May 1995 (the "EFFECTIVE DATE") the Lease is
hereby amended as follows:
1. The Lease is hereby amended to delete page B-3 of Exhibit "B" to
the Lease and to add in place thereof Exhibit "B" attached to this First
Amendment to Lease.
2. Section 1 .02(u) is hereby amended to delete the amount
"$2,189,782.50" and to add in place thereof the amount "$2,270,755.00".
<PAGE>
3. Section 1 .02(iii) is amended to delete the amount
"$2,800,432.50" and to add in place thereof the amount "$2,881,405.00".
4. Section 1 .02(iv) is amended to delete the amount "2,960,171.50"
and to add in place thereof the amount "$3,045,771.00".
5. Section 1.02(v) is amended to delete the amount "$3,119,910.50"
and to add in place thereof the amount "$3,210,137.00".
6. Section 3.02(f) is hereby amended to delete the percentage "40.83
(40.83%)" and to add in place thereof the percentage "41.98 (41.98%)".
7. Section 3.02(f) is hereby amended to delete the number "164,739"
and to add in place thereof the number "169,366".
8. Section 3. 12(a)(i) is hereby amended to delete the percentage
"10.56%" and to add in place thereof the percentage "11.71 %".
9. Section 3. 12(a)(iii) is hereby amended to delete the number
"42,609" and add in place thereof the number "47,236".
10. Section 4.02(d) is hereby amended to delete the percentage
"40.83 (40.83%)" and add in place thereof the percentage "41.98 (41.98%)".
11. Section 4.02(d) is hereby amended to delete the number "164,739"
and add in place thereof the number "169,366".
12. Section 4.08(a)(i) is hereby amended to delete the percentage
"10.56% and add in place thereof the percentage "11.71 %".
13. Section 4.08(a)(iii) is hereby amended to delete the number
"42,609" and add in place thereof the number "47,236".
14. Section 12.01(b) is hereby amended to delete the number
"247,108.50" and add in place thereof the number "254,049.00".
15. Section 17.03 is hereby amended to delete the numbers "591" and
"236" and to add in place thereof the numbers "604" and "241" respectively.
B. In additional to the foregoing, the Landlord and Tenant further
agree as follows:
2
<PAGE>
1. Except as otherwise expressly amended or modified in this First
Amendment to Lease, all terms and provisions of the Lease are hereby
republished, ratified and confirmed and continue in full force and effect.
Except and only to the extent expressly defined herein, defined terms set forth
in this First Amendment to Lease shall have the same meaning as is ascribed to
the respective term in the Lease.
2. It is expressly understood and agreed that the terms and
conditions of this First Amendment to Lease shall only be effective on and after
the Effective Date, and the lease, existing prior thereto, shall remain in
effect as to all matters pertaining to the Landlord and Tenant under the Lease
arising or occurring prior to the Effective Date.
3. The Fixed Annual Rent attributable or allocable to the Expansion
Premises shall only be payable with respect thereto on and after the Effective
Date, provided however that such Fixed Annual Rent attributable or allocable to
the Expansion Premises shall be abated until the earlier of (i) the expiration
of the forty-five (45) day period commencing on the Effective Date, or (ii) the
date that Tenant or anyone acting under or through Tenant first occupies the
Expansion Premises for the conduct of business.
4. The terms and conditions contained in Article 43 of the Lease
shall not apply to the Expansion Premises which is being added to the Original
Demised Premises.
5. Landlord warrants and represents that it has been represented by
Jones Lang Wootton USA in this transaction relating to the Expansion Premises.
6. Tenant warrants and represents that it has been represented by
Carson Crane Incorporation ("CCI") and Alliance Partners, Inc. ("API") with
respect to this transaction relating to the Expansion Premises and that no other
broker was instrumental in consummating this transaction involving the Expansion
Premises. Further, Tenant agrees to hold harmless and indemnify Landlord with
respect to any breach of this representation.
7. Landlord acknowledges and agrees that it is obligated to pay or
credit certain commissions to Tenant pursuant to that certain Commission
Assignment and Release Agreement between CCI, API, Prudential and Tenant and
dated June 24, 1993.
3
<PAGE>
8. Submission of this instrument for examination or signature is
without prejudice and does not constitute a reservation or option and is not
effective until execution and delivery by both Landlord and Tenant.
9. This document contains all of the agreements of the parties with
respect to the subject matter hereof and supersedes all prior dealings between
them with respect to such subject matters.
4
<PAGE>
SECOND AMENDMENT TO AGREEMENT OF LEASE
THIS SECOND AMENDMENT TO AGREEMENT OF LEASE (this "Amendment") is
effective as of April 18, 1997, by and between STATE OF CALIFORNIA PUBLIC
EMPLOYEES' RETIREMENT SYSTEM, an Agency of the State of California ("Landlord"),
and OXFORD HEALTH PLANS, INC., a Delaware corporation ("Tenant"), with reference
to the following facts:
A. Landlord's predecessor in interest, THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey Corporation ("Prudential"), as landlord, and Tenant, as
tenant, entered into that certain Agreement of Lease, dated as of June 16, 1993
(the "Original Lease"), as amended by that certain First Amendment to Lease,
dated as of May 26, 1995 (the "First Amendment," and together with the Original
Lease, the "Lease"). Each capitalized term used in this Amendment, but not
defined herein, shall have the meaning ascribed to it in the Lease.
B. The demised premises under the Lease as of the date of this Amendment
consist of approximately 169,366 rentable square feet ("RSF") located in the
Building (the "Original Demised Premises").
C. Landlord and Tenant desire to enter into this Amendment to expand the
demised premises by adding approximately 24,405 RSF located on the second floor
of the north wing of the Building (the "Expansion Space," and together with the
Original Demised Premises, the "Demised Premises" or "demised premises"), and to
make other related changes to the Lease, all as more particularly set forth in
this Amendment.
THEREFORE, Landlord and Tenant agree that the Lease shall be amended as
follows:
1. Premises.
(a) Section 1.01 of the Lease shall be amended by expanding the Original
Demised Premises to include the Expansion Space, which Expansion Space is more
particularly depicted on Exhibit A attached hereto and incorporated herein.
Landlord and Tenant hereby agree that Landlord shall deliver exclusive
possession of the Expansion Space to Tenant, vacant and broom clean. Tenant
agrees to accept the Expansion Space "as is," and Tenant agrees that Landlord
has no obligation to demolish or construct any improvements in the Expansion
Space.
(b) All references in the Lease to any number of square feet as the deemed
"rentable square foot area of the demised premises" (including, without
limitation, those references in Section 3.02(f) and Section 4.02(d)) shall be
deleted and replaced with "193,771 square feet."
-1-
<PAGE>
(c) Tenant is permitted to occupy the Expansion Space upon execution of
this Amendment by both parties, which occupancy shall be on all of the terms and
conditions of the Lease as amended by this Amendment; provided, however,
notwithstanding anything contained herein or in the Lease to the contrary,
Tenant shall not be obligated to pay any fixed annual rent with respect to the
Expansion Space prior to May 8, 1997.
2. Term. Section 1.01 of the Lease shall be further amended by deleting
the last clause of that section (commencing with the words, "; for a term to
commence") and replacing it with the following:
"; the term for the Original Demised Premises (as defined in that
certain Second Amendment to Agreement of Lease (the "Second Amendment")
dated as of April 18, 1997 between Landlord and Tenant) shall commence on
July 1, 1993 (hereinafter referred to as the "Commencement Date") and
shall expire on February 28, 2001 (hereinafter referred to as the
"Expiration Date") or until such term shall sooner cease or terminate or
be extended as hereinafter provided. The term for the Expansion Space (as
defined in the Second Amendment) shall commence on April 18, 1997 and
expire on February 28, 2010 (the "Expansion Space Expiration Date");
provided, however, the term for the Expansion Space shall automatically
terminate prior to the Expansion Space Expiration Date and coterminously
with the expiration or earlier termination of this Lease with respect to
the Original Demised Premises if this Lease terminates pursuant to the
terms of this Lease with respect to the Original Demised Premises or in
the event that this Lease expires prior to the Expansion Space Expiration
Date due to Tenant's failure to exercise timely any option to extend the
term for the Original Demised Premises."
3. Rent.
(a) The following new section shall be added to Article 1 of the Lease:
"1.06. In addition to the fixed annual rent that Tenant must
pay to Landlord pursuant to Section 1.02 of this Lease, Tenant shall
also pay to Landlord fixed annual rent for the Expansion Space in
the following amounts:
"(a) during the period commencing on May 8, 1997 and ending on
February 28, 2001, $40,878.38 per month (which monthly amount shall
be prorated for the month of May, 1997);
"(b) during the period commencing on March 1, 2001 and ending
on February 29, 2004, the higher of:
-2-
<PAGE>
"(i) the fair market rent (determined in accordance with
Sections 47.04 through 47.09 of this Lease, except that references
therein to "demised premises" or "Original Demised Premises,"
"clause (i) of Section 47.02," "Second Extension Term" and "Second
Determination Date" shall be replaced with "Expansion Space,"
"Section 1.06," "the period from March 1, 2001 to February 29, 2004"
and "September 1, 2000," respectively) for the Expansion Space after
adjustment for the additional rent then payable under Articles 3 and
4 of this Lease with respect to the Expansion Space (so that the
aggregate of (A) the fixed annual rent with respect to the Expansion
Space, as determined under this clause (i), which shall include the
ERIF (as defined in Article 12 of this Lease); and (B) such
additional rent for the Expansion Space shall be equal to the fair
market rent for the Expansion Space), determined as of September 1,
2000 and which determination shall be made within thirty (30) days
after that date; and
"(ii) the fixed annual rent with respect to the Expansion
Space payable by Tenant to Landlord for the month of February, 2001
on an annualized basis (without giving effect to any abatements,
setoffs or concessions then in effect);
"(c) during the period commencing on March 1, 2004 and ending on
February 28, 2007, the higher of:
"(i) the fair market rent (determined in accordance with
Sections 47.04 through 47.09 of this Lease, except that references
therein to "demised premises" or "Original Demised Premises,"
"clause (i) of Section 47.02," "Second Extension Term" and "Second
Determination Date" shall be replaced with "Expansion Space,"
"Section 1.06," "the period from March 1, 2004 to February 28, 2007"
and "September 1, 2003," respectively) for the Expansion Space after
adjustment for the additional rent then payable under Articles 3 and
4 of this Lease with respect to the Expansion Space (so that the
aggregate of (A) the fixed annual rent with respect to the Expansion
Space, as determined under this clause (i), which shall include the
ERIF (as defined in Article 12 of this Lease); and (B) such
additional rent for the Expansion Space shall be equal to the fair
market rent for the Expansion Space), determined as of September 1,
2003 and which determination shall be made within thirty (30) days
after that date; and
-3-
<PAGE>
"(ii) the fixed annual rent with respect to the Expansion
Space payable by Tenant to Landlord for the month of February, 2004
on an annualized basis (without giving effect to any abatements,
setoffs or concessions then in effect); and
"(d) from the period commencing on March 1, 2007 and ending on
February 28, 2010, the higher of:
"(i) the fair market rent (determined in accordance with
Sections 47.04 through 47.09 of this Lease, except that references
therein to "demised premises" or "Original Demised Premises,"
"clause (i) of Section 47.02," "Second Extension Term" and "Second
Determination Date" shall be replaced with "Expansion Space,"
"Section 1.06," "the period from March 1, 2007 to February 28, 2010"
and "September 1, 2006," respectively) for the Expansion Space after
adjustment for the additional rent then payable under Articles 3 and
4 of this Lease with respect to the Expansion Space (so that the
aggregate of (A) the fixed annual rent with respect to the Expansion
Space, as determined under this clause (i), which shall include the
ERIF (as defined in Article 12 of this Lease); and (B) such
additional rent for the Expansion Space shall be equal to the fair
market rent for the Expansion Space), determined as of September 1,
2006 and which determination shall be made within thirty (30) days
after that date; and
"(ii) the fixed annual rent with respect to the Expansion
Space payable by Tenant to Landlord for the month of February, 2007
on an annualized basis (without giving effect to any abatements,
setoffs or concessions then in effect).
"The fixed annual rent with respect to the Expansion Space shall be paid
by Tenant to Landlord in accordance with the last paragraph of Section
1.02 of this Lease."
4. Tax and Expense Escalation Payment. Articles 3 and 4 of the Lease shall
be amended as follows:
(a) Sections 3.02(f) and 4.02(d) shall be amended by deleting the
references to "41.98%" as The Percentage and replacing them with "48.03%."
(b) Sections 3.12 and 4.08 shall be deleted in their entirety.
5. Electricity. All references in the Lease (including,
-4-
<PAGE>
without limitation, those references in Section 12.01(b)) to "$254,049.00" as
the Electricity Rent Inclusion Factor or the ERIF shall be deleted and replaced
with "$290,656.50."
6. Parking. Section 17.03(a) of the Lease shall be amended by deleting the
reference to "604 parking spaces" and replacing it with "677 parking spaces."
7. Option to Exclude Space. Article 44 "shall be amended by deleting the
references to "the demised premises" and replacing them with "the Original
Demised Premises (as such term is defined in the Second Amendment)."
8. Options to Extend.
(a) Section 46.02(b) of the Lease shall be deleted in its entirety and
replaced with the following:
"(b) During the First Extension Term, Article 43 hereof shall apply
to Tenant's work to refurbish the demised premises, except that the "Work
Credit" shall mean the amount equal to the actual costs Tenant incurs in
the refurbishment of the demised premises during the period from December
1, 2000 to November 30, 2001, but in no event shall the amount of the Work
Credit exceed an amount equal to the product of (A) the then rentable
square foot area of the Original Demised Premises less 5,000 and (B)
$7.00."
(b) Articles 46, 47 and 48 of the Lease shall be amended by deleting any
reference to the "demised premises" and replacing it with the "Original Demised
Premises."
(c) The following subsection shall be added to the end of Section 46.02 of
the Lease:
"(d) During the First Extension Term, the Tax Base Factor and the
Expense Base Factor shall be the same as are in effect on the expiration
of the initial term of this Lease."
(d) Section 47.02(i) and 48.02(i) shall be amended to delete the clause
that reads "(x) the fixed annual rent, as determined under this clause (i)," and
replace it with the following clause:
"(x) the fixed annual rent, as determined under this clause (i),
which shall include the ERIF (as defined in Article 12 of this Lease;"
(e) The following sentence shall be added to the end of Section 47.04 of
the Lease:
"If the first two arbitrators agree, pursuant to a written certified
report delivered to Landlord and Tenant, upon the
-5-
<PAGE>
determination of the fair market rent within sixty (60) days after the
second arbitrator is appointed, then the fair market rent shall be equal
to the amount so agreed upon in such written certified report."
(f) Section 47.06 of the Lease shall be amended by deleting the first
sentence of that Section and replacing it with the following sentences:
"In the event a third arbitrator is appointed because the first two
arbitrators cannot agree on the fair market rent pursuant to Section
47.04, each of the three arbitrators shall determine the fair market rent
of the Original Demised Premises and render a written certified report of
their respective determinations to both Landlord and Tenant within sixty
(60) days from the appointment of the third arbitrator. In such a case,
the fair market rent shall be equal to the average of the two fair market
rent determinations that are the closest in value, and the third
determination shall be ignored."
9. Storage. The following Article 52 shall be added to the end of the
Lease:
"ARTICLE 52
"STORAGE
"52.01. Landlord hereby grants Tenant an irrevocable license,
throughout the term of this Lease as the same may be extended, to use
approximately one hundred (100) usable square feet of space for storage
use, such space to be located on the lower level of the Building (the
"Storage Space"), which Storage Space is more particularly depicted on
Exhibit B attached hereto and incorporated herein. Tenant shall use the
Storage Space only for "dead" storage of files, documents, furniture,
trade fixtures and similar items, and any other use, including without
limitation using the Storage Space as a work space or for operating
equipment, is prohibited. Landlord has the right to relocate the Storage
Space to another comparable storage space in the Building that has at
least fifty (50) usable square feet, in a location that is reasonably
satisfactory to Tenant, at any time upon twenty (20) business days prior
written notice to Tenant, at Landlord's sole reasonable cost and expense.
"52.02. Tenant's use of the Storage Space shall be on all of the
terms and conditions of this Lease as amended by the Second Amendment;
provided, however, Tenant shall not be obligated to pay any rent or
additional rent with respect to its use of the Storage Space, and provided
that Landlord shall have no obligations under Articles 12 or 21 of this
Lease with respect to the Storage Space. Notwithstanding the foregoing,
(1) Tenant shall have access
-6-
<PAGE>
to the storage space on a 24-hour day, seven-day per week basis and (2)
Landlord shall not remove or alter any existing electrical lights, outlets
or other electrical equipment existing in the Storage Space. Tenant shall
not alter or add to any such electrical equipment without Landlord's prior
written consent, which shall not be unreasonably withheld (based upon
Landlord's reasonable determination of electrical equipment typically
provided for comparable storage spaces). If Landlord consents thereto,
then Landlord shall install such additional electrical equipment at
Tenant's sole cost and expense, which cost and expense shall not be
unreasonable.
"52.03. Tenant's license to use the Storage Space pursuant to this
Article shall automatically terminate upon the termination of this Lease,
and Tenant shall vacate the Storage Space and surrender the Storage Space
to Landlord clean and free of debris and in good state of repair, ordinary
wear and tear and damage by fire or other casualty excepted. Ordinary wear
and tear shall not include any damage or deterioration that would have
been prevented by good maintenance practice by Tenant."
10. Brokers. Tenant represents and warrants to Landlord that Tenant has
not incurred any liability for any commission or fee to any investment advisor,
real estate broker or finder, including, without limitation, Carson Crane
Incorporated ("CCI") or Alliance Partners, Inc. ("API"), in connection with this
Amendment. In the event any investment advisor, real estate broker or finder
makes any claim for any such commission or fee, Tenant shall indemnify, defend
and hold Landlord harmless from all claims, liabilities, losses, damages, costs
and expenses (including, without limitation, reasonable attorneys' fees) arising
from or based on any obligation or alleged obligation of Tenant to pay any such
commission or fee in connection with this Amendment. Tenant also represents and
warrants to Landlord that (1) no commissions or fees are due to Tenant (or any
broker or finder) with respect to this Amendment in connection with or arising
out of that certain Commission Assignment and Release Agreement (the "Commission
Agreement") dated June 24, 1993, entered into among CCI, API, Prudential and
Tenant, and (2) notwithstanding the provisions of the Commission Agreement
regarding payment of a Renewal Commission or an Expansion Commission (as those
terms are defined in the Commission Agreement), no commissions or fees will be
due to Tenant (or any broker or finder) in connection with or arising out of the
Commission Agreement with respect to the Expansion Space in the event Tenant
exercises a right under the Lease to extend or renew the term of the Lease with
respect to the Original Demised Premises. Furthermore, in the event CCI or API,
or any successors in interest thereto, makes any claim for any commission or fee
pursuant to the Commission Agreement (i) in connection with this Amendment, or
(ii) in connection with any Renewal Commission or Expansion Commission to the
extent that
-7-
<PAGE>
such claim pertains or relates to the Expansion Space, Tenant shall indemnify,
defend and hold Landlord harmless from all claims, liabilities, losses, damages,
costs and expenses (including, without limitation, reasonable attorneys' fees)
arising from or based on any obligation or alleged obligation of Tenant or
Landlord to pay any such commission or fee.
Notwithstanding the foregoing, the obligations of the parties under the
Commission Agreement with respect to any Renewal Commission or Expansion
Commission relating to the Original Demised Premises shall not be modified
hereby.
Landlord represents and warrants to Tenant that Landlord has not incurred
any liability for any commission or fee to any investment advisor, real estate
broker or finder in connection with this Amendment, other than to Jones Lang
Wootton ("JLW"). Any commission or fee that Landlord owes to JLW shall be paid
in accordance with the terms of a separate agreement between Landlord and JLW.
This Article 10 shall survive the expiration or earlier termination of the
Lease and this Amendment.
11. Heating, Ventilating and Air-Conditioning Overtime Services. Landlord
acknowledges and agrees that Landlord's charges for overtime heating,
ventilating and air-conditioning services are specifically set forth in Article
21.01(b) of the Lease and, pursuant to such Article, Landlord covenants and
agrees that (i) it shall only increase such charges in proportion to increases
in Landlord's actual cost of rendering such services and (ii) in the event that
it shall be increasing the same it shall notify Tenant thereof in writing prior
to doing so.
12. No Third Party Beneficiaries. Nothing contained in this Amendment
shall confer any rights or benefits upon any third parties.
13. Notices. Article 31.01 of the Lease shall be amended by deleting the
language "Prudential Realty Group, RiverPark, 800 Connecticut Avenue...Attention
Brian R. Smith, Esq." and replacing it with the following language:
"IBEX/BetaWest
1050 17th Street
Suite 1000
Denver, CO 80265
Attention: Ms. Laura Hahn
Vice President Portfolio Operations,
with copies to:
IBEX
2333 Ponte De Leon Boulevard
-8-
<PAGE>
Suite 650
Coral Gables, FL 33134
Attention: Jose Rosado
Chief Executive Officer,
and
Jones Lang Wootton
800 Connecticut Avenue
Norwalk, Connecticut 06854
Attention: Director/Property Management Services;
and addressed to Tenant at the Building, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
NY, NY 10022
Attention: Jeffrey D. Zukerman, Esq."
14. Entire Agreement. The Lease as amended by this Amendment constitutes
the entire and integrated agreement between Tenant and Landlord relating to the
Original Demised Premises and the Expansion Space, and supersedes all prior
agreements, understandings, offers and negotiations, oral or written, with
respect to the Original Demised Premises and the Expansion Space.
15. No Other Amendment; Conflict. Except as set forth in this Amendment,
the provisions of the Lease shall remain in full force. If the provisions of
this Amendment conflict with the provisions of the Lease, then the provisions of
this Amendment shall prevail.
16. Counterparts. This Amendment may be signed in multiple counterparts
which, when signed by all parties, shall constitute a binding agreement.
LANDLORD: STATE OF CALIFORNIA PUBLIC
EMPLOYEES' RETIREMENT SYSTEM, an Agency of
the State of California
By: ______________________________
Its: ________________________
TENANT: OXFORD HEALTH PLANS, INC., a
Delaware corporation
-9-
<PAGE>
By: ______________________________
Its: ________________________
-10-
<PAGE>
EXHIBIT A
[Depiction of Expansion Space]
-11-
<PAGE>
EXHIBIT B
[Depiction of Storage Space]
-12-
Exhibit 10.22.1
SECURITYHOLDERS' AGREEMENT
This SECURITYHOLDERS' AGREEMENT, dated as of October 26, 1999, among
PRICELINE WEBHOUSE CLUB, INC., a Delaware corporation (the "Company"),
PRICELINE.COM INCORPORATED, a Delaware corporation ("Priceline"), WALKER
DIGITAL, LLC, a Delaware limited liability company ("Walker Digital"), and the
Persons listed on the signature pages hereto and each subsequent investor in the
Company's Common Stock (or derivatives thereof) who shall hereafter become
signatory hereto (each an "Investor" and, together with Walker Digital,
collectively the "Investors"),
W I T N E S S E T H:
WHEREAS, Priceline is an internet-based company with significant
name recognition of its trademarked "priceline" name and patented "demand
collection system" for selling products over the Internet;
WHEREAS, Walker Digital is a research and development company
containing certain trade secrets, know-how and other intellectual property;
WHEREAS, in connection with the establishment of the Company's
business of the sale of retail products in a "name your price" format over the
Internet, Walker Digital is (A) contributing certain know-how, and other assets
and liabilities used in or incurred during the initial development of the
Company's business, pursuant to an asset contribution agreement dated as of the
date hereof between Walker Digital and the Company (the "Asset Contribution
Agreement") and (B) licensing certain intellectual property pursuant to a
license agreement between Walker Digital and Priceline dated as of the date
hereof, which intellectual property shall in turn be sublicensed by Priceline to
the Company (the "Walker Digital License Agreement"), (ii) Walker Digital
Corporation, a research and development company, is contributing certain
employees to the Company under the Asset Contribution Agreement, and (iii)
Priceline is (A) licensing and sublicensing, as applicable, the use of the
"priceline" name, certain patent rights and other intellectual property rights
for use in connection with the Company's business, pursuant to an intellectual
property license agreement between Priceline and the Company dated as of the
date hereof (the "Priceline License Agreement"), (B) providing certain
accounting, legal and other services to the Company pursuant to a services
agreement between Priceline and the Company dated as of the date hereof (the
"Services Agreement"), and (C) providing certain marketing and technical
services to the Company pursuant to a marketing and technical services agreement
between Priceline and the Company dated as of the date hereof (the "Marketing
Agreement");
<PAGE>
WHEREAS, in consideration for cash and the assets it has contributed
pursuant to the Asset Contribution Agreement, Walker Digital is receiving a
promissory note in the amount of $14,592,185.60, payable on April 26, 2000 (the
"Walker Digital Note");
WHEREAS, in consideration of their cash contributions, Walker
Digital and certain other investors (the "Investors") are receiving a total of
23,500,000 shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), pursuant to the subscription agreement (the "Subscription
Agreement") dated as of the date hereof between the Company and the Investors;
WHEREAS, in consideration for its execution and deliveries pursuant
to the Priceline License Agreement, Priceline is receiving a warrant to purchase
under certain circumstances up to 137.5 million shares of Common Stock pursuant
to an agreement between Priceline and the Company dated as of the date hereof
(the "Priceline Warrant") and desires to have certain rights to participate in
the Company's corporate governance;
WHEREAS, in connection with the establishment of the Company,
Priceline is agreeing, pursuant to the Services Agreement and the Marketing
Agreement, to provide services to and to coordinate marketing activities with
the Company in exchange for arm's-length consideration;
WHEREAS, the parties hereto believe it is in their mutual best
interest to enter into certain agreements concerning the composition of the
Company's Board of Directors, corporate governance, transfer restrictions on the
Common Stock and registration rights, as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Accepting Party" has the meaning specified in Section 5.04(b)(iii).
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, such specified
Person.
<PAGE>
"Agreement" means this Securityholders' Agreement, dated as of
October 26, 1999, and all amendments made hereto in accordance with the
provisions hereof.
"Ancillary Agreements" means the License Agreement, the Asset
Contribution Agreement, the Marketing Agreement, the Priceline Warrant and the
Services Agreement.
"Arista Capital" has the meaning specified in Section 4.03.
"Asset Contribution Agreement" has the meaning specified in the
Preamble.
"Beneficial Owner" or "Beneficially Own" has the meaning given such
term in Rule 13d-3 under the Exchange Act, provided that Beneficial Ownership
under Rule 13d-3(1)(i) shall be determined based on whether a Person has a right
to acquire Beneficial Ownership irrespective of whether such right is
exercisable within 60 days of the time of determination.
"Board" means the board of directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Capital Stock" means, with respect to any Person at any time, any
and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of capital stock, partnership
interests (whether general or limited), limited liability company interests or
equivalent ownership interests in such Person.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the time
of acquisition, having the highest rating obtainable from any of Standard &
Poor's Ratings Services, Moody's Investors Service, Inc. or Duff & Phelps Credit
Rating Co. or (c) commercial paper maturing not more than one year from the date
of issuance thereof and, at the time of acquisition, having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.
"Closing" means the date of the closing of the Subscription
Agreement.
"Commission" means the Securities and Exchange Commission.
3
<PAGE>
"Common Stock" has the meaning specified in the Preamble.
"Company" has the meaning specified in the Preamble.
"Company Indemnitee" has the meaning specified in Section 8.01(b).
"Control" (including the terms "Controlled by" and "under common
Control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, as trustee or executor, by
contract or otherwise, including, without limitation, the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of
directors or similar body governing the affairs of such Person.
"Encumbrance" means any security interest, pledge, mortgage, lien,
charge, adverse claim of ownership or use, or other encumbrance of any kind.
"Escrow Agreement" has the meaning specified in the Preamble.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"Goldman Sachs" means The Goldman Sachs Group, Inc., a Delaware
corporation.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Party" has the meaning specified in Section 8.01(c).
"Indemnifying Party" has the meaning specified in Section 8.01(c).
"Independent Directors" has the meaning specified in Section 4.03(a)
"Initial Offer Period" has the meaning specified in Section
5.04(b)(i).
"Initial Public Offering" means the first underwritten public
offering of the Common Stock resulting in aggregate net proceeds (after expenses
and underwriting commissions and discounts) to the Company and any selling
stockholders of at least $50,000,000; provided that, following such offering the
Common Stock is listed on a United States or foreign national securities
exchange or quoted on any United States or foreign automated securities
quotation system.
4
<PAGE>
"Initial Shares" has the meaning specified in Section 6.03(d).
"Insolvency Event" means, in respect of the Company, that time when
the sum of the Company's debts exceeds the sum of its assets, valued at fair
market value; or that the Company shall not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by it or against it seeking to adjudicate it a bankrupt or insolvent,
or seeking liquidation, winding-up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it)
that is being diligently contested by it in good faith, either such proceeding
shall remain undismissed or unstayed for a period of 30 days or any of the
actions sought in such proceeding (including, without limitation, the entry of
an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of its
property) shall occur; or the Company shall take any corporate action to
authorize any of the actions set forth above.
"Investors" has the meaning specified in the Preamble.
"License Agreement" has the meaning specified in the Preamble.
"Losses" has the meaning specified in Section 8.01(a).
"Majority Directors" has the meaning specified in Section 4.03(b).
"Marketable Securities" means securities that are (a) (i) securities
of or other interests in any Person that are traded on a United States national
securities exchange or reported on by the National Association of Securities
Dealers Automated Quotation System or (ii) debt securities on market terms of an
issuer that has debt or equity securities that are so traded or so reported on
and in which Marketable Securities a nationally recognized securities firm has
agreed to make a market, and (b) not subject to restrictions on transfer as a
result of any applicable contractual provisions or the provisions of the
Securities Act or, if subject to such restrictions under the Securities Act, are
also subject to registration rights reasonably acceptable to the Person
receiving such Marketable Securities as consideration in a transaction pursuant
to Article V hereof.
"Marketing Agreement" has the meaning specified in the Preamble.
"Material Adverse Effect" means any event, condition, change or
effect that (a) materially and adversely affects the assets, liabilities,
business, financial condition or results
5
<PAGE>
of operations of the Company, taken as a whole, or (b) prevents or materially
delays the consummation of the transactions contemplated by this Agreement or
the Ancillary Agreements.
"New Securities" means any Capital Stock of the Company, whether now
authorized or not, and rights, options or warrants to purchase such Capital
Stock, and securities of any type whatsoever that are, or may become,
convertible into or exchangeable or exercisable for Capital Stock of the
Company; provided that the term "New Securities" does not include (i) securities
of the Company issued to its employees, consultants, officers or directors of
the Company, or which have been reserved for issuance, pursuant to any employee
stock option, stock purchase, stock bonus plan, or other similar stock agreement
or arrangement approved by the Board of Directors, (ii) securities of the
Company issued in connection with any stock split, stock dividend or
recapitalization of the Company, (iii) securities of the Company issued in an
Initial Public Offering, (iv) securities of the Company issued upon the
conversion or exchange of convertible or exchangeable securities of the Company
that are outstanding as of the date of this Agreement, (v) Warrant Shares or
(vi) any right, option or warrant to acquire any security convertible into or
exchangeable or exercisable for the securities excluded from the definition of
New Securities pursuant to subclause (i) above if issued pursuant to any
employee stock option, stock purchase, stock bonus plan or other similar stock
agreement or arrangement approved by the Board of Directors.
"Non-Company Indemnitees" has the meaning specified in Section
8.01(a).
"Notice of Election" has the meaning specified in Section
5.04(b)(i).
"Notice of Issuance" shall have the meaning assigned in Section
7.02(b).
"Offer" has the meaning specified in Section 5.04(a)(i).
"Offer Notice" has the meaning specified in Section 5.04(a)(i).
"Offer Price" has the meaning specified in Section 5.04(a)(i).
"Offered Shares" has the meaning specified in Section 5.04(a)(i).
"Option Shares" has the meaning specified in Section 6.03(d).
"Other Securityholder" has the meaning specified in Section
5.04(a)(i).
"Permits" has the meaning specified in Section 2.05(b)(i).
"Permitted Transferee" means, with respect to a specified Person,
(i) any Affiliate of such Person, provided such Person is not a competitor of
the Company, as reasonably
6
<PAGE>
determined by the Board, (ii) a donee of Shares who is a member of the family of
such Person or any trust for the benefit of any such family member and (iii) a
transferee of Shares who receives such Shares by will or the laws of descent and
distribution. For purposes of this definition, the word "family" shall include
any spouse, lineal ancestor or descendant, brother or sister; and any Affiliate
of Goldman Sachs that is primarily engaged in brokerage, investment advisory,
financial advisory, anti-raid advisory, merger advisory, financing, asset
management, trading, market making, arbitrage, and other similar activities
shall not be deemed to be a competitor of the Company.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended.
"Price Determination Date" means in connection with any Sale of
Shares to the Company or an Other Securityholder pursuant to Section 5.04
hereof, the date on which the Prospective Seller receives a Notice of Election
indicating such Other Securityholder's interest in purchasing such Shares.
"Priceline" has the meaning specified in the Preamble.
"Priceline Warrant" has the meaning specified in the Preamble.
"Prospective Seller" has the meaning specified in Section
5.04(a)(i).
"Prospective Transferee" has the meaning specified in Section 5.05.
"Recapitalization" means any stock split, dividend or combination,
or any recapitalization, merger, consolidation, exchange or other similar
reorganization.
"Registrable Securities" means (i) shares of Common Stock held by
Securityholders, (ii) any Common Stock which may be issued or distributed in
respect thereof by way of any Recapitalization and (iii) shares of Common Stock
issuable upon exercise or conversion of any then exercisable options, warrants
or other derivative securities. All Registrable Securities shall cease to be
Registrable Securities when they (a) are registered, (b) are sold pursuant to
Rule 144 or (c) are eligible to be sold without volume restrictions under Rule
144.
"Registration Expenses" means all expenses incurred by the Company
in its performance of or compliance with Article VI, including, without
limitation, all registration and filing fees (including filing fees with respect
to the National Association of Securities Dealers, Inc.), all fees and expenses
of complying with state securities or "blue sky" laws (including reasonable fees
and disbursements of underwriters' counsel in connection with the preparation of
7
<PAGE>
any "blue sky" memorandum or survey), all printing and distribution expenses,
all listing fees, all registrars' and transfer agents' fees, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including, without limitation, the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, but excluding underwriting discounts and commissions and applicable
transfer taxes, if any, which shall be borne by the sellers of the Registrable
Securities being registered in all cases.
"Remainder Notice" has the meaning specified in Section 5.04(b)(ii).
"Restricted Period" shall mean the period commencing on the third
anniversary of the Closing and ending upon the closing of an Initial Public
Offering by the Company.
"Restricted Shares" means all Shares other than (a) Shares that have
been registered under a registration statement pursuant to the Securities Act,
(b) Shares with respect to which a Sale has been made in reliance on and in
accordance with Rule 144 or (c) Shares with respect to which the holder thereof
shall have delivered to the Company either (i) an opinion, in form and substance
reasonably satisfactory to the Company, of counsel, who shall be reasonably
satisfactory to the Company, or (ii) a "no action" letter from the staff of the
Commission, to the effect that subsequent transfers of such Shares may be
effected without registration under the Securities Act or compliance with Rule
144.
"Rule 144" means Rule 144 (or any successor provision) under the
Securities Act.
"Sale" means any sale, assignment, transfer, distribution or other
disposition of Shares or of a participation therein, whether voluntarily or by
operation of law.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Securityholder" means each holder or Beneficial Owner of Common
Stock or any security convertible into, or exchangeable for, Common Stock
(including the Priceline Warrant) who is or hereafter becomes a party to this
Agreement or the rightful and permitted assign or successor of such a party.
"Services Agreement" has the meaning specified in the Preamble.
"Share" means any share of Common Stock.
"Subscription Agreement" has the meaning specified in the Preamble.
8
<PAGE>
"Subsidiary" means any and all corporations, partnerships, joint
ventures, associations and other entities Controlled by the Company directly or
indirectly through one or more intermediaries.
"Third Party" means, with respect to any Securityholder, any other
Person (other than a Permitted Transferee of such Securityholder).
"Third Party Claim" has the meaning specified in Section 8.01(c).
"unexercised", with respect to the Priceline Warranty, means that
Priceline has acquired none of the Warrant Shares it is entitled to pursuant to
the Priceline Warrant.
"Voting Interest" of the Company means one Share of Common Stock and
any other share or unit of Capital Stock issued by the Company, the holders of
which are ordinarily, in the absence of contingencies, entitled to one vote in
the election of the Company's directors (or Persons performing similar
functions), or the approval of its management and policies, even if the right to
vote has been suspended by the occurrence of a contingency.
"Vulcan" has the meaning specified in the Preamble.
"Walker Digital" has the meaning specified in the Preamble.
"Warrant Shares" means the Shares for which the Priceline Warrant is
exercisable, as adjusted in accordance with the Warrant Agreement.
9
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Securityholders as
follows:
SECTION 2.01. Due Organization and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and authority to enter into
this Agreement, to carry out its obligations hereunder and to perform the
actions contemplated hereby. The Company is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary, except to the extent that the failure to be so licensed
or qualified would not materially and adversely affect the Company's assets,
liabilities or results of operations or prevent or materially hinder the
performance of the actions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company, the performance by the Company of its
obligations hereunder and the performance by the Company of the actions
contemplated hereby have been duly authorized by all requisite action on the
part of the Company. This Agreement has been duly executed and delivered by the
Company, and (assuming due authorization, execution and delivery by the other
parties thereto) this Agreement constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
SECTION 2.02. Capital Stock of Company. The Common Stock to be
issued by the Company pursuant to this Agreement has been duly authorized and,
when issued and delivered in accordance with the terms of this Agreement, will
have been validly issued and will be fully paid and nonassessable, and will be
free from restrictions on transfer other than restrictions on transfer under
this Agreement or the Securityholders' Agreement and under applicable state and
federal securities laws. No Person has any preemptive or similar rights with
respect to the Common Stock, and neither the parties hereto nor subsequent
holders in due course of such Common Stock will be entitled to any such
preemptive or similar rights other than as set forth in this Agreement. The
authorized capital stock of the Company consists of 300,000,000 shares of Common
Stock, of which 23,500,000 shares will be issued and outstanding following the
Closing, and 50,000,000 shares of preferred stock, of which none has been
designated or issued by the Company. The Company has reserved Common Stock for
issuance in the amounts and for the purposes that follow:
(i) 137.5 million shares of Common Stock have been reserved for
issuance upon exercise of the Priceline Warrant; and
(ii) 666,667 shares of Common Stock have been reserved for issuance
upon exercise of the warrant held by BDS Business Center, Inc.;
10
<PAGE>
(iii) 65,000 shares of Common Stock have been reserved for issuance
upon exercise of the warrant held by William Shatner; and
(iv) 17,333,333 shares of Common Stock have been reserved for
issuance upon the exercise of certain employee options to be granted
pursuant to the Company's Omnibus Employee Equity Plan, of which
12,911,749 shares relate to options that have been granted as of the date
thereof.
Except as set forth above, (i) no shares of Capital Stock of the
Company have been reserved for issuance for any reason; (ii) no subscription,
warrant, option, convertible security, or other right (contingent or other) to
purchase or otherwise acquire Capital Stock of the Company is authorized or
outstanding; and (iii) the Company has made no commitment to issue shares,
subscription, warrants, options, convertible securities, or other such rights or
to distribute to holders of any of its Capital Stock any evidence of
indebtedness or asset.
SECTION 2.03. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 2.04 have been obtained,
the execution, delivery and performance of this Agreement by the Company do not
and will not (a) violate, conflict with or result in the breach of any provision
of its Certificate of Incorporation or By-laws, (b) conflict with or violate any
law, governmental regulation or governmental order applicable to it or any of
its assets, properties or businesses or (c) conflict with, result in any breach
of, constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Company's assets or properties pursuant to, any note, bond, mortgage
or indenture, contract, agreement, lease, sublease, license, permit, franchise
or other instrument or arrangement to which the Company is a party or by which
any of its assets or properties is bound or affected; except to the extent that
any conflict under (b) or (c) above would not have a Material Adverse Effect.
SECTION 2.04. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by the Company do not and will not
require any consent, approval, authorization or other order of, action by,
filing with or notification to, any governmental authority, except such as may
be required by the HSR Act, if applicable.
SECTION 2.05. Compliance with Laws. (a) The Company is in compliance
with all requirements of applicable law and all orders issued by any court or
governmental authority against the Company in all respects, except to the extent
that the failure to comply with such requirements of law or orders would not
have a Material Adverse Effect.
(b) (i) The Company has all material licenses, permits and approvals
of any governmental authority (collectively, "Permits") that are necessary for
the conduct of the business
11
<PAGE>
of the Company; (ii) such Permits are in full force and effect; and (iii) no
violations are or have been recorded in respect of any Permit, except where the
failure of any of the foregoing would not have a Material Adverse Effect.
(c) No expenditure is presently required by the Company to comply
with any existing requirement of law or order, except where such expenditure
would not have a Material Adverse Effect.
SECTION 2.06. Investment Company Status. The Company is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SECURITYHOLDERS
Each Securityholder severally, but not jointly, represents and
warrants to the Company and each other Securityholder as follows:
SECTION 3.01. Organization and Authority. To the extent such
Securityholder is not a natural person, it is a corporation, limited liability
company or partnership duly incorporated or organized, validly existing and in
good standing under the laws of the state of its incorporation or organization
and has all necessary power and authority to enter into this Agreement, to carry
out its obligations hereunder and to perform the actions contemplated hereby.
Such Securityholder is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business makes such licensing or qualification necessary,
except to the extent that the failure to be so licensed or qualified would not
prevent or materially hinder the performance of the actions contemplated by this
Agreement. The execution and delivery of this Agreement by such Securityholder,
the performance by it of its obligations hereunder and the performance by it of
the actions contemplated hereby have been duly authorized by all requisite
action on its part. This Agreement has been duly executed and delivered by such
Securityholder, and (assuming due authorization, execution and delivery by the
other Persons signatory thereto) this Agreement constitutes a legal, valid and
binding obligation of such Securityholder enforceable against it in accordance
with its terms.
SECTION 3.02. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 3.03 have been obtained,
the execution, delivery and performance of this Agreement by such Securityholder
do not and will not (a) violate, conflict with or result in the breach of any
provision of its Charter or By-laws (or similar organizational documents), to
the extent it has such, (b) conflict with or violate any law,
12
<PAGE>
governmental regulation or governmental order applicable to such party or any of
its assets, properties or businesses or (c) conflict with, result in any breach
of, constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, require any consent under, or give
to others any rights pursuant to, any contract, agreement or arrangement by
which such party is bound; except to the extent that any conflict under (b) or
(c) above would not prevent or materially hinder the performance of the actions
contemplated by this Agreement.
SECTION 3.03. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by such party do not and will not
require any consent, approval, authorization or other order of, action by,
filing with or notification to, any governmental authority, except such as may
be required by the HSR Act, applicable.
ARTICLE IV
CORPORATE GOVERNANCE
SECTION 4.01. Agreement to Vote. The Securityholders agree to vote
their shares, and the Company agrees to take all necessary measures, in order to
carry out the agreements set forth in this Article IV, and to prevent any action
by the Company's Securityholders that is inconsistent with such agreements,
until the Priceline Warrant expires unexercised. Thereafter, the Agreements
contained in this Article IV shall be of no further effect.
SECTION 4.02. Size of Board. Initially, the Board shall consist of
seven (7) directors. If Priceline shall exercise the Priceline Warrant for not
less than 75% of the Warrant Shares, and as a result shall hold a majority of
the then outstanding Shares, the number of directors on the Board shall be
increased to nine (9). The number of directors shall not exceed nine (9), unless
the Board of Directors shall vote to increase the number in accordance with
Section 4.06.
SECTION 4.03. Composition of Board. (a) Initially, Priceline shall
be represented by one (1) director, Walker Digital shall be represented by one
(1) director, Jonathan Otto shall be represented by one (1) director, Vulcan
shall be represented by one (1) director and Goldman Sachs shall be represented
by one (1) director. In addition, there shall be two independent directors (the
"Independent Directors"), elected by Goldman Sachs, Arista Capital Partners, LP
("Arista Capital"), Michael Loeb and Jonathan Otto, voting on an equal basis
without reference to proportionate Shares ownership. Both such directors shall
qualify as "independent directors" pursuant to the definition set forth in Rule
4200(a)(14) of the National Association of Securities Dealers, substituting the
word "affiliate" for "subsidiaries" therein.
13
<PAGE>
(b) If and when the Board is expanded to nine (9) members, as
provided in Section 4.02, Priceline shall be represented by five (5) directors,
Walker Digital by one (1) director and Vulcan by one (1) director. The remaining
two (2) directors (the "Majority Directors") shall be elected by all the
Securityholders (excluding Priceline), voting cumulatively in proportion to
Share ownership. A representative of each of Goldman Sachs, Jonathan Otto and
Arista Capital may attend meetings of the Board in a nonvoting capacity and at
their own expense; provided that (i) no such representative shall serve in a
similar capacity or as a director or employee for any other company that is in a
business similar to that of the Company or that could be considered a competitor
of the Company and (ii) such representative shall keep all business of the Board
in the strictest confidence and, or requested by the Company, enter into a
confidentiality agreement.
SECTION 4.04. Nomination and Election of Directors. The
Securityholders' initial nominees for the Board shall be as set forth in
Schedule III hereto. If not already named by the Company's existing Board, the
Securityholders shall act to elect such nominees as directors as soon as
practicable by unanimous written consent or at a shareholders' meeting to be
held hereafter. Hereafter, the Securityholders shall make the nominations to
which they are entitled hereunder not later than 30 days prior to each annual
meeting of the Company's shareholders, and the Board shall be elected at such
meeting or by unanimous written consent in accordance herewith.
SECTION 4.05. Vacancies. If, as a result of death, disability,
retirement, resignation, removal (with or without cause) or otherwise, there
shall exist or occur any vacancy in the Board:
(a) if the departed director was nominated by Priceline, then
Priceline,
(b) if the departed director was nominated by Walker Digital, then
Walker Digital,
(c) if the departed director was nominated by Jonathan Otto, then
Jonathan Otto,
(d) if the departed director was nominated by Goldman Sachs, then
Goldman Sachs,
(e) if the departed director was nominated by Vulcan, then Vulcan,
and
(f) if the departed director was an independent director nominated
by Goldman Sachs, Arista Capital, Michael Loeb and Jonathan Otto, then
Goldman Sachs, Arista Capital, Michael Loeb and Jonathan Otto,
collectively,
14
<PAGE>
shall be entitled to designate in writing one nominee for election to fill such
vacancy. The Securityholders shall as soon as practicable after such nomination
is made act to elect such nominee to the Board. Any director elected pursuant to
this Section 4.05 shall serve until the next annual election of directors.
SECTION 4.06. Voting. The Company's By-Laws shall provide that,
prior to the expiration unexercised of the Priceline Warrant, the affirmative
vote of the director or directors nominated by Priceline is required to approve
any of the following actions:
(a) prior to the third anniversary of the Closing, any
Recapitalization, business combination or sale of all or substantially all
of the assets of the Company in which more than 50% of Company's Voting
Interests are transferred;
(b) any amendment, supplement or modification of any kind whatsoever
to the Company's Certificate of Incorporation or By-laws, including any
increase in the number of directors on the Board;
(c) prior to the third anniversary of the Closing, the filing of a
registration statement under the Securities Act or the making of any other
public disclosure in connection with the commencement of an Initial Public
Offering (excluding, for purposes of this paragraph only, the requirement
that proceeds therefrom exceed $50 million); provided that such vote shall
not be required in connection with an Initial Public Offering pursuant to
Section 6.02(a);
(d) any transactions with an Affiliate of the Company other than at
fair market value in the ordinary course of business;
(e) the dissolution and winding up of the Company; and
(f) the voluntary initiation of an Insolvency Event in respect of
the Company.
The Securityholders shall vote their Shares in accordance with
Priceline's request on the above issues at any meeting of the Securityholders
where any of the above items are voted upon. Moreover, the Securityholders
hereby agree not to vote their shares in favor of any change to the By-laws of
the Company inconsistent with this Section 4.06.
SECTION 4.07. Audit Committee. The Company shall establish and
maintain an Audit Committee, which shall consist of three members of the Board,
including the director nominated by Vulcan, the director nominated by Walker
Digital and, prior to an increase in the size of the Board pursuant to Section
4.03, one Independent Director, or, following an increase in the size of the
Board pursuant to Section 4.03, one Majority Director.
15
<PAGE>
SECTION 4.08. Compensation Committee. The Company shall establish
and maintain a Compensation Committee of the Board. The Compensation Committee
shall make recommendations to the full Board for such matters as management
compensation, Company benefit plans, and matters relating to the Company's
option plans, if any. The Compensation Committee shall consist of three members
of the Board, including the director nominated by Vulcan, the director nominated
by Walker Digital and, prior to an increase in the size of the Board pursuant to
Section 4.03, one Independent Director, or, following an increase in the size of
Board pursuant to Section 4.03, one Majority Director.
ARTICLE V
TRANSFER OF SHARES
SECTION 5.01. General Restriction. No Securityholder shall, directly
or indirectly, make or solicit any Sale of, or create, incur, solicit or assume
any Encumbrance with respect to, any Share, except in compliance with the
Securities Act and this Agreement.
SECTION 5.02. Legends. (a) The Company shall affix to each
certificate evidencing Shares issued to Securityholders a legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR AN EXEMPTION THEREFROM
AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A SECURITYHOLDERS_
AGREEMENT DATED AS OF _______, 1999, AS IT MAY BE AMENDED FROM TIME
TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF THESE SHARES
WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH
RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH."
16
<PAGE>
(b) Any Securityholder with Shares issued prior to the date hereof
has delivered to the Company its certificates representing such Shares in
exchange for certificates representing such Shares bearing the legend set forth
in Section 5.02(a).
(c) In the event that any Shares shall cease to be Restricted
Shares, the Company shall, upon the written request of the holder thereof, issue
to such holder a new certificate evidencing such Shares without the first
paragraph of the legend required by Section 5.02(a) endorsed thereon. In the
event that the Shares shall cease to be subject to the restrictions on transfer
set forth in this Agreement, the Company shall, upon the written request of the
holder thereof, issue to such holder a new certificate evidencing such Shares
without the legend required by the second paragraph of Section 5.02(a). Before
issuing a new certificate omitting part or all of the legend set forth in
Section 5.02(a), the Company may request an opinion of counsel reasonably
satisfactory to it to the effect that the restrictions discussed in the legend
to be omitted no longer apply to the Shares represented by such certificate.
SECTION 5.03. Certain Restrictions on Transfer. (a) No
Securityholder shall, directly or indirectly (through the transfer of capital
stock of any Person that holds, or controls any Person that holds, such Shares)
make or solicit any Sale of, or create, incur or assume any Encumbrance with
respect to, any Share of Common Stock Beneficially Owned by such Securityholder,
other than
(i) any Sale to a Permitted Transferee,
(ii) during the Restricted Period, any Sale of Common Stock that is
made in compliance with the procedures, and subject to the limitations,
set forth in Sections 5.04 and 5.05,
(iii) subject to compliance with Section 6.03(b), any Sale of Common
Stock subsequent to the date that is 180 days after closing of the
Company's Initial Public Offering,
(iv) any Sale in connection with a merger of the Company or a Sale
of all or substantially all of its assets or other similar business
combination that has been approved by the Company's Board of Directors,
(v) any Sale in connection with the merger of Priceline or a Sale of
all or substantially all of its assets or other similar business
combination that has been approved by Priceline's Board of Directors, or
(vi) any Sale in connection with a public offering of equity
securities of any Securityholder.
17
<PAGE>
Notwithstanding the foregoing, except as otherwise expressly
provided in this Agreement, all Sales permitted by the foregoing clauses (i)
through (iv) shall be subject to, and shall not be made other than in compliance
with, the provisions of Sections 5.01, 5.02, 5.03(b), 5.06 and 5.07.
(b) No Sale of Shares to a Permitted Transferee shall be effective
if a purpose or effect of such transfer shall have been to circumvent the
provisions of this Section 5.03, Section 5.04 or Section 5.05. Each
Securityholder shall remain responsible for the performance of this Agreement by
each Permitted Transferee of such Securityholder to which Shares are
transferred, except if such Permitted Transferee received such Shares by will or
the laws of descent and distribution or if such Permitted Transferee is a
natural Person. If any Permitted Transferee to which Shares are transferred
pursuant to clause (i) of Section 5.03(a) is not a natural Person and ceases to
be a Permitted Transferee of the Securityholder from which or whom it acquired
such Shares pursuant to such provision, such Person shall reconvey such Shares
to such transferring Securityholder immediately before such Person ceases to be
a Permitted Transferee of such transferring Securityholder so long as such
Person knows of its upcoming change of status immediately prior thereto. If such
change of status is not known until after its occurrence, the former Permitted
Transferee shall make such transfer to such transferring Securityholder as soon
as practicable after the former Permitted Transferee receives notice thereof.
(c) All restrictions on transfers of Shares imposed by this Article
V shall terminate 180 days after the closing of the Company's Initial Public
Offering or, if earlier, upon the expiration unexercised of the Priceline
Warrant.
SECTION 5.04. Rights of First Refusal. (a) (i) If at any time during
the Restricted Period any Securityholder receives from or otherwise negotiates
with a Third Party a bona fide offer (an "Offer") to purchase for cash, Cash
Equivalents or Marketable Securities any of the Shares of Common Stock
Beneficially Owned or held by such Securityholder, and such Securityholder
intends to sell such Shares to such Third Party, such Securityholder (the
"Prospective Seller") shall provide the Company and each Securityholder other
than the Prospective Seller (each, an "Other Securityholder") with written
notice of such Offer (an "Offer Notice"). The Offer Notice shall identify the
Third Party making the Offer, the number of Shares covered by the Offer (the
"Offered Shares"), the price per Share at which a Sale is proposed to be made
(the "Offer Price"), the form of consideration proposed to be paid and all other
material terms and conditions of the Offer.
(ii) If the Offer Price includes
(A) any Marketable Securities, the value of such securities shall be
determined by calculating a volume-weighted average of the closing prices
of such securities over the ten trading-day period ending on the Price
Determination Date on the market with the largest trading volume in such
securities; or
18
<PAGE>
(B) any Cash Equivalents, the value of such Cash Equivalents shall
be determined by reference to the closing price thereof on the market with
the largest trading volume in such securities on the Price Determination
Date.
(b) (i) The receipt of an Offer Notice by the Company from a
Prospective Seller shall constitute an exclusive offer by such Prospective
Seller to sell to the Company any or all of the Offered Shares at the Offer
Price. Such offer shall remain open and irrevocable until expiration of thirty
days after receipt of such Offer Notice by the Company and the Other
Securityholders (the "Offer Period"). At any time prior to expiration of the
Offer Period, the Company shall have the right to accept the Prospective
Seller's offer as to any or all of the Offered Shares by giving a written notice
of election (the "Notice of Election") to the Prospective Seller with a copy to
the Other Securityholders.
(ii) The receipt of an Offer Notice by the Other Securityholders
(excluding Priceline, whose rights are governed by subparagraph (b)(iii) below)
from a Prospective Seller shall constitute an offer by such Prospective Seller
to sell to such other Securityholders any or all of the Offered Shares not
purchased by the Company pursuant to subparagraph (b)(i) above at the Offer
Price pro rata, in accordance with the following formula. Each such Other
Securityholder shall be entitled to purchase, upon the terms specified in the
Offer Notice, a number of Shares equal to (x) the number of Offered Shares plus
the number of Shares being sold pursuant to Section 5.05 hereof, if any, less
the number of Shares the Company purchases pursuant to subparagraph (b)(i) above
multiplied by (y) a fraction, the numerator of which is the number of Voting
Interests Beneficially Owned by such Other Securityholder and the denominator of
which is the number of Voting Interests Beneficially Owned by all Other
Securityholders (excluding Priceline) who wish to purchase Offered Shares. If
any Other Securityholder wishes to purchase less than all the Shares such Other
Securityholder is entitled to purchase in accordance with the preceding
sentence, the Shares such Other Securityholder declines to purchase shall be
allocated among the Other Securityholders who wish to purchase such additional
Shares according to the same formula, mutatis mutandis. Each Other
Securityholder who wishes may accept the offer by sending a Notice of Election
to the Prospective Seller and the Company with a copy to the Other
Securityholders prior to expiration of the Offer Period. The Notice of Election
shall specify the maximum number of Shares an Other Securityholder is willing to
buy pursuant to this Section 5.04, if any, the number of Shares it wishes and is
entitled to sell pursuant to Section 5.05, if any, and any other terms and
conditions not inconsistent with this Agreement.
(iii) The receipt of an Offer Notice by Priceline from a Prospective
Seller shall constitute an offer by such Prospective Seller to sell to Priceline
any or all of the Offered Shares at the Offer Price, to the extent such Shares
shall not have been purchased by the Company or the Other Securityholders
pursuant to subparagraphs (b)(i) and (b)(ii) above. Priceline may accept the
Prospective Seller's offer at any time prior to expiration of the Offer Period
by sending a
19
<PAGE>
Notice of Election to the Prospective Seller and the Company, with a copy to the
Other Securityholders.
(iv) If the Company or any Other Securityholder accepts the
Prospective Seller's offer in accordance with this Section 5.04(b) (an
"Accepting Party"), such Accepting Party shall purchase from the Prospective
Seller, and the Prospective Seller shall sell to such Accepting Party, such
number of Offered Shares as to which such Accepting Party shall have accepted
the Prospective Seller's offer pursuant to subparagraph (b)(i), (ii) or (iii)
above. The price per Share to be paid by such Accepting Party shall be the Offer
Price specified in the Offer Notice, payable in accordance with the terms of the
Offer; provided that the Accepting Party may pay the Offer Price with any
combination of cash, Cash Equivalents and Marketable Securities, to be valued as
provided in subparagraph (a)(ii) above.
(c) The Prospective Seller and each Accepting Party shall select,
for consummation of the Sale of Offered Shares to such Accepting Party, a date
not later than 30 days (or longer, if the HSR Act so requires) after expiration
of the Offer Period. At the consummation of such Sale, the Prospective Seller
shall, against delivery by the relevant Accepting Party of the Offer Price
multiplied by the number of Shares being purchased by such Accepting Party, (i)
deliver to the Accepting Party certificates evidencing the Offered Shares being
sold plus the Shares being sold pursuant to Section 5.05, if any, duly endorsed
in blank or accompanied by written instruments of transfer in form satisfactory
to such Accepting Party duly executed by the Prospective Seller (or the selling
Other Securityholder, as the case may be) free and clear of any and all
Encumbrances (other than this Agreement), and (ii) assign all its rights under
this Agreement with respect to the Offered Shares being sold pursuant to an
instrument of assignment reasonably satisfactory to such Accepting Party.
(d) In the event that (i) each Other Securityholder and the Company
shall have received an Offer Notice from a Prospective Seller but the
Prospective Seller shall not have received Notices of Acceptance indicating a
desire to purchase, in the aggregate, all the Offered Shares prior to expiration
of the Offer Period or (ii) an Accepting Party shall have given a Notice of
Election to the Prospective Seller but shall have failed to consummate, other
than as a result of the fault of the Prospective Seller, a purchase of the
Offered Shares he elected to purchase in such Notice of Election within the time
frame specified in paragraph (c) above (and neither the Company nor any Other
Securityholder shall have indicated an interest upon any such failure to buy
such Shares within ten Business Days of their receipt of a notice of such
failure from the Prospective Seller), then nothing in this Section 5.04 shall
limit the right of the Prospective Seller to make thereafter a Sale of, or
create an Encumbrance on, all Offered Shares not accepted for purchase by the
Company or the Other Securityholders pursuant to a Notice of Election; provided
that
20
<PAGE>
(A) the total number of Shares sold to the Company, the Other
Securityholders and the Third Party who made the Offer shall be not less
than the number of Offered Shares specified in the Offer Notice;
(B) the total number of Shares sold by the Prospective Seller for
his own account (i.e., not including Shares Beneficially Owned by Other
Securityholders) to the Third Party who made the Offer shall be not more
than the number of Offered Shares specified in the Offer Notice; and
(C) all the Shares that are sold or otherwise disposed of by the
Prospective Seller are sold (1) within 30 days (or longer, if the HSR Act
so requires) after expiration of the Offer Period, (2) at an amount not
less than the Offer Price included in such Offer Notice, (3) on the terms
specified in the Offer Notice and (4) to the Third Party that made the
Offer.
(e) In the event that each Other Securityholder and the Company
shall have received an Offer Notice from a Prospective Seller, the Prospective
Seller shall not have received Notices of Acceptance indicating a desire to buy
all the Offered Shares prior to the expiration of the Offer Period and such
Prospective Seller shall not have sold the remaining Offered Shares before the
expiration of the period specified in subclause (d)(ii)(C)(1) above, then such
Prospective Seller shall not give another Offer Notice for a period of one year
from the day the Offer Notice was delivered.
(f) Anything in this Section 5.04 or in Section 5.03 to the contrary
notwithstanding, the provisions of this Section 5.04 shall not be applicable to
any Sale or Encumbrance described in clause (i), (iii) or (iv) of Section
5.03(a).
SECTION 5.05. Right to Participate in Certain Dispositions. (a) (i)
If, at any time during the Restricted Period, a Prospective Seller shall receive
an Offer from a Third Party or Parties, and shall propose to sell Common Stock
representing 25% or more of the Company's then outstanding Voting Interests, the
Prospective Seller shall provide the Offer Notice defined in Section 5.04 to the
Company and each of the Other Securityholders. Each of the Other Securityholders
shall have the right and option, for a period of 30 days concurrent with the
Offer Period specified in Section 5.04, to sell, pursuant to the Offer, up to
the same percentage of Voting Interests held or Beneficially Owned by it as the
Prospective Seller proposes to sell; provided that such right shall vest only
(i) if less than all the Offered Shares are sold to the Company, Other
Securityholders and Priceline pursuant to Section 5.04 and the Prospective
Seller consummates a Sale to the Third Party who made the Offer or an Affiliate
thereof or (ii) the Prospective Seller receives Notices of Election which, in
the aggregate, represent offers to buy all the Offered Shares and all the Shares
tendered by Other Securityholders pursuant to this Section 5.05. Each Other
Securityholder desiring to exercise such right shall, prior to the expiration of
the Offer Period, provide the Prospective Seller with a Notice of Election
21
<PAGE>
specifying the number of Shares which such Other Securityholder has an interest
in selling pursuant to the Offer, and shall deliver to the Prospective Seller
(A) the certificate or certificates evidencing the Shares to be sold or
otherwise disposed of pursuant to such Offer by such Other Securityholder duly
endorsed in blank or accompanied by written instruments of transfer in form
satisfactory to the Prospective Seller executed by such Other Securityholder and
(B) an instrument of assignment reasonably satisfactory to the Prospective
Seller assigning, as of the consummation of the sale or other disposition to the
Third Party, all such Other Securityholder's rights under this Agreement with
respect to the Shares to be sold, and the instrument of assignment shall
constitute an irrevocable election by such Other Securityholder to authorize and
permit the Prospective Seller to sell such Shares, on behalf of such Other
Securityholder, pursuant to the Offer and in accordance herewith.
(ii) If the Third Party making the Offer is unwilling to buy all the
Offered Shares plus all the Shares tendered by Other Securityholders in their
Notices of Election, then the Prospective Seller and each Other Securityholder
who wishes to sell shall be entitled to sell a number of Shares equal to (x) the
number of Shares the Third Party offeror is willing to buy (which shall not be
less than the number of Offered Shares), multiplied by (y) a fraction, the
numerator of which is the number of Voting Interests Beneficially Owned by such
Other Securityholder and the denominator of which is the total number of Voting
Interests Beneficially Owned by all Other Securityholders who wish to sell
Shares pursuant to the Offer. If any Other Securityholder wishes to sell less
than all the Shares he is entitled to sell in accordance with the preceding
sentence, the Shares he declines to sell shall be allocated among the
Prospective Seller and the Other Securityholders who wish to sell additional
Shares according to the same formula, mutatis mutandis. The Prospective Seller
shall not effect the Sale of any Shares pursuant to the Offer unless all the
Offered Shares and all of the Shares tendered to the Prospective Seller and
entitled to be sold pursuant to this Section 5.05 are simultaneously sold.
(iii) As promptly as practicable after the consummation of any Sale
or other disposition of Shares to the Third Party pursuant to this Section 5.05,
the Prospective Seller shall remit to each of the Other Securityholders the
total sales price of the Shares of such Other Securityholders sold pursuant
thereto and return all certificates evidencing the unsold Shares that such Other
Securityholders delivered for Sale pursuant to this Section 5.05 and such Other
Securityholders' related instruments of assignment.
(iv) If at the end of the Offer Period any Other Securityholder
shall not have given a Notice of Election indicating an interest in selling all
of the Shares such Other Securityholder would have been entitled to sell in
accordance with subparagraphs (a)(i) and (a)(ii) above (and delivered all other
required documents with respect thereto), such Other Securityholder shall be
deemed to have waived all its rights under this Section 5.05 with respect to the
Sale pursuant to the Offer of such Shares.
22
<PAGE>
(v) If at any time the Prospective Seller abandons the proposed Sale
pursuant to the Offer, or the Prospective Seller has not completed the Sale
pursuant to this Section 5.05 of the Offered Shares and the Shares which Other
Securityholders shall have tendered for Sale pursuant to this Section 5.05
within 30 days following expiration of the Offer Period, the Prospective Seller
shall promptly return to such Other Securityholders all certificates evidencing
the unsold Shares that such Other Securityholders delivered for Sale and such
Other Securityholders' related instruments of assignment.
(vi) Except as expressly provided in this Section 5.05, no
Prospective Seller shall have any obligation to any Other Securityholder with
respect to the Sale or other disposition of any Shares owned by such Other
Securityholder in connection with this Section 5.05. Anything herein to the
contrary notwithstanding and irrespective of whether any Notice of Election
shall have been given, no Prospective Seller shall have any obligation to any
Other Securityholder to sell or otherwise dispose of any Offered Shares pursuant
to this Section 5.05 as a result of any decision by such Prospective Seller not
to accept or consummate any Offer or Sale or other disposition with respect to
the Offered Shares (it being understood that any and all such decisions shall be
made by such Prospective Seller in its sole discretion). No Other Securityholder
shall be entitled to sell or otherwise dispose of Shares directly to any Third
Party pursuant to an Offer (it being understood that all such Sales and other
dispositions shall be made only on the terms and pursuant to the procedures set
forth in this Article V).
(b) Anything in this Section 5.05 or in Section 5.03 to the contrary
notwithstanding, the provisions of this Section 5.05 shall not be applicable to
any transfer described in clause (i), (iii) or (iv) of Section 5.03(a). Nothing
in this Section 5.05 shall affect any of the rights or obligations of any of the
Securityholders under any other provision of this Agreement.
SECTION 5.06. Transferees to Execute Agreement. Each Securityholder
agrees that it will not, during the Restricted Period, directly or indirectly,
make any Sale of, or create, incur or assume any Encumbrance with respect to,
any Shares Beneficially Owned by such Securityholder unless prior to the
consummation of any such Sale or the creation, incurrence or assumption of such
Encumbrance, the Person to whom such Sale is proposed to be made or the Person
in whose favor such Encumbrance is proposed to be created, incurred or assumed
(a "Prospective Transferee") (i) executes and delivers this Agreement to the
Company and each Securityholder, and (ii) unless such Prospective Transferee is
a recognized institutional investor, delivers to the Company an opinion of
counsel, satisfactory in form and substance to the Company, to the effect that
the execution of this Agreement by such Prospective Transferee makes this
Agreement a legal, valid and binding obligation of such Prospective Transferee
enforceable against such Prospective Transferee in accordance with its terms.
Upon the execution and delivery by such Prospective Transferee of this Agreement
and, if required, the delivery of the opinion of counsel referred to in clause
(ii) of the preceding sentence, such Prospective Transferee shall be deemed a
"Securityholder" for purposes of this Agreement and
23
<PAGE>
shall have the rights and be subject to the obligations of a Securityholder
under this Agreement, in each case with respect to the Shares Beneficially Owned
by such Prospective Transferee or in respect of which such Encumbrance shall
have been created, incurred or assumed.
SECTION 5.07. Improper Sale or Encumbrance. Any attempt not in
compliance with this Agreement to make any Sale of, or create, incur or assume
any Encumbrance with respect to, any Shares shall be null and void and of no
force and effect, the purported transferee shall have no rights or privileges in
or with respect to the Company, and the Company shall not give any effect in the
Company's stock records to such attempted Sale or Encumbrance.
ARTICLE VI
REGISTRATION RIGHTS
SECTION 6.01. Incidental Registration. (a) If the Company at any
time proposes to register any Shares under the Securities Act for Sale in a
public offering, whether or not for its own account, on a form and in a manner
that would permit registration of Registrable Securities under the Securities
Act for Sale in such public offering, it shall each such time give prompt
written notice to all holders of Registrable Securities of its intention to do
so, specifying the form and manner and the other relevant facts involved in such
proposed registration (including, without limitation, the identity of the
managing underwriter, if applicable). Upon the written request of any such
holder of Registrable Securities delivered to the Company within 30 days after
such notice shall have been given to such holder (which request shall specify
the Registrable Securities intended to be disposed of by such holder and the
intended method of disposition thereof), the Company shall use its reasonable
best efforts to include in the registration statement relating to such public
offering all Registrable Securities that the Company has been so requested to
register by the holders of Registrable Securities, to the extent requisite to
permit the Sale of the Registrable Securities to be so registered in such public
offering; provided that:
(i) no holder of Registrable Securities shall be entitled to
register or sell Shares in the Company's Initial Public Offering;
(ii) if, at any time after giving such written notice of its
intention to register any of such Shares proposed to be registered by the
Company and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine
for any reason not to register such Shares, the Company may, at its
election, give written notice of such determination to each holder of
Registrable Securities that has requested to register Registrable
Securities and thereupon the Company shall be relieved of its obligation
to register any Registrable Securities in
24
<PAGE>
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith to the extent provided in
Section 6.01(b));
(iii) if the proposed registration relates to an underwritten public
offering and the managing underwriter or underwriters of such public
offering shall advise the Company that, in its judgment, the number of
Shares proposed to be included in such public offering should be limited
because the inclusion of Registrable Securities is likely to materially
and adversely affect the success of such public offering, then the Company
shall promptly advise each such holder of Registrable Securities thereof
and may require, by written notice to each such holder accompanying such
advice, that, to the extent necessary to meet such limitation, all holders
of Registrable Securities proposing to sell Shares in such public offering
shall share pro rata in the number of Shares to be excluded from such
offering, such sharing to be based on the respective numbers of
Registrable Securities as to which registration has been requested by such
holders; provided that all Registrable Securities that Priceline proposes
to sell shall be excluded from such public offering before the Registrable
Securities of any other party hereto; and provided further that the
Company shall in no event be required to exclude Shares that it proposes
to sell in such public offering; and
(iv) the Company shall not be obligated to effect any registration
of Registrable Securities under this Section 6.01 that is incidental to
the registration of any of its Shares or other securities in connection
with any merger, acquisition, exchange offer, dividend reinvestment plan
or stock option or other employee benefit plan.
(b) The Company shall pay all Registration Expenses in connection
with each registration of Registrable Securities effected by it pursuant to this
Section 6.01.
SECTION 6.02. Registration on Request. (a) After the third
anniversary of the Closing, upon the written request of a Securityholder or
group of Securityholders (not including Priceline or Walker Digital) holding not
less than 25% of the then outstanding Shares (excluding any Warrant Shares
outstanding, whether held by Priceline or any transferee of Priceline),
requesting the Company to make an Initial Public Offering pursuant to a firm
commitment underwriting with a nationally recognized investment bank as lead
underwriter, the Company shall promptly give written notice of such request to
all Securityholders, and thereupon shall, as expeditiously as possible, use its
reasonable best efforts to register its Shares of Common Stock under the
Securities Act or, if so requested, register such Shares for listing on a
foreign securities exchange, and, in both cases, take such other actions as
shall be necessary to complete the Company's Initial Public Offering in
accordance with such request; provided that:
(i) no holder of Registrable Securities shall be entitled to
register or sell Shares in the Initial Public Offering;
25
<PAGE>
(ii) if, with respect to such Initial Public Offering, the managing
underwriter, the Commission, the Securities Act or the rules and
regulations thereunder, any other applicable laws, domestic or foreign, or
the form on which any registration statement or similar document is to be
filed, would require the conduct of an audit other than the regular audit
conducted by the Company at the end of its fiscal year, the filing may be
delayed until the completion of such regular audit (unless the party or
parties requesting the Initial Public Offering agree to pay the expenses
of the Company in connection with such an audit other than the regular
audit); and
(iii) if the Company, in its sole discretion, determines that the
filing of a registration statement or commencement of an Initial Public
Offering in the near future pursuant to this paragraph (a) would interfere
with any financing, acquisition, corporate reorganization or other similar
transaction involving the Company or any Subsidiary or that such
registration or Initial Public Offering would require disclosure of
non-public information that the Company deems advisable not to disclose,
then the Company's obligation to file a registration statement or commence
an Initial Public Offering shall be deferred for a period not to exceed 90
days; provided that the Company shall not obtain such a deferral more than
once in any twelve-month period.
(b) If the Company has any class of securities registered under
Section 12 or 15(d) of the Exchange Act, upon the written request of Priceline,
or of a Securityholder or group of Securityholders holding not less than 25% of
the then outstanding Shares (excluding any Warrant Shares outstanding, whether
held by Priceline or any transferee of Priceline), requesting that the Company
effect the registration under the Securities Act of all or part of the
Registrable Securities held by such Securityholder or group of Securityholders
and specifying the intended method of disposition thereof, the Company shall
promptly give written notice of such requested registration to all other holders
of Registrable Securities, and thereupon shall, as expeditiously as possible,
use its reasonable best efforts to effect the registration under the Securities
Act of:
(i) the Registrable Securities which the Company has been so
requested to register by such Securityholder or Securityholders; and
(ii) all other Registrable Securities that the Company has been
requested to register by the holders of Registrable Securities by written
request delivered to the Company within 30 days after the giving of such
written notice by the Company (which request shall specify the intended
method of disposition of such Registrable Securities);
provided that:
(A) the Company shall be obligated to fulfill only two such
registration requests by Priceline and one such registration request by
each other holder of Registrable Securities (and for purposes of this
clause (A), each holder of Registrable Securities
26
<PAGE>
whose Registrable Securities form part of a block as to which registration
has been requested pursuant to this subsection (b) shall be deemed to have
used its right to one registration request);
(B) the Company shall not be obligated to file a registration
statement relating to any registration request under this Section 6.02(b)
within a period of nine months after the effective date of any other
registration statement relating to any registration request under this
Section 6.02(b) which was not effected on Form S-3 (or any successor or
similar short-form registration statement) or relating to any registration
effected under Section 6.01;
(C) if, with respect to such registration statement, the managing
underwriter, the Commission, the Securities Act or the rules and
regulations thereunder, or the form on which the registration statement is
to be filed, would require the conduct of an audit other than the regular
audit conducted by the Company at the end of its fiscal year, the filing
may be delayed until the completion of such regular audit (unless the
holders of the Registrable Securities to be registered agree to pay the
reasonable expenses of the Company in connection with such an audit other
than the regular audit); and
(D) if the Company, in its sole discretion, determines that the
filing of a registration statement in the near future pursuant to this
paragraph (b) would interfere with any financing, acquisition, corporate
reorganization or other similar transaction involving the Company or any
Subsidiary or that such registration would require disclosure of
non-public information that the Company deems advisable not to disclose,
then the Company's obligation to file a registration statement shall be
deferred for a period not to exceed 90 days; provided that the Company
shall not obtain such a deferral more than once in any twelve-month
period.
(c) If any registration requested pursuant to paragraph (b) which is
proposed by the Company to be effected by the filing of a registration statement
on Form S-3 (or any successor or similar short-form registration statement)
shall be in connection with an underwritten public offering, and if the managing
underwriter or underwriters shall advise the Company in writing that, in its
opinion, the use of another form of registration statement is of material
importance to the success of such proposed offering, then such registration
shall be effected on such other form.
(d) An Initial Public Offering requested pursuant to paragraph (a)
shall be deemed to have been fulfilled when sufficient Shares have been sold to
meet the definition of Initial Public Offering hereunder and the Company's
Common Stock is trading on a major domestic or foreign securities exchange or
automated securities quotation system. A registration requested pursuant to
paragraph (b) shall be deemed to have been effected when the registration
statement pertaining thereto has become effective; provided that if, prior to
the earlier of the
27
<PAGE>
completion of the distribution thereunder and 90 days after it has become
effective, the offering of Registrable Securities pursuant to such registration
is interfered with by any stop order, injunction or other order or requirement
of the Commission or other governmental agency or court, such registration will
be deemed not to have been effected, unless such order or requirement is
subsequently lifted and either the distribution is completed or 90 days from the
date of initial effectiveness (not counting the period during which such order
or requirement was in effect and interfered with the offering) expire.
(e) If a requested Initial Public Offering or registration pursuant
to paragraph (b) involves an underwritten offering, the Company shall have the
right to select in good faith the investment banker or bankers and managers to
administer the offering, provided that such investment banker or bankers and
managers shall be satisfactory to (i) holders of a majority of the Shares, in
the case of paragraph (a) above, or (ii) holders of a majority of the
Registrable Securities which the Company has been requested to register, in the
case of paragraph (b) above.
(f) If a requested registration pursuant to paragraph (b) involves
an underwritten offering and the managing underwriter or underwriters advise the
Company that, in their opinion, the number of securities requested to be
included in such registration (including securities of the Company which are not
Registrable Securities) exceeds the number which can be sold in such offering,
the Company shall include in such registration only the Registrable Securities
requested to be included in such registration pursuant to such paragraph (b). In
the event that the number of Registrable Securities requested to be included in
such registration exceeds the number which, in the opinion of such managing
underwriter or underwriters, can be sold, the number of such Registrable
Securities to be included in such registration shall be allocated pro rata among
the holders requesting registration pursuant to such paragraph (b) on the basis
of the relative number of Registrable Securities then requested for registration
by each such holder; provided that all Registrable Securities that Priceline
proposes to sell shall be excluded from such public offering before the
Registrable Securities of any other party hereto; and provided further that the
Company shall in no event be required to exclude Shares that it proposes to sell
in such public offering.
SECTION 6.03. Registration Procedures. (a) If and whenever the
Company is required to use its reasonable best efforts to effect the
registration of any Registrable Securities under the Securities Act for Sale in
a public offering as provided in Section 6.01 or 6.02(b), the Company shall as
expeditiously as is reasonably practicable:
(i) prepare and file with the Commission on any appropriate form a
registration statement with respect to such Registrable Securities and use
its reasonable best efforts to cause such registration statement to become
effective;
28
<PAGE>
(ii) prepare and file with the Commission such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities and other securities covered by such registration
statement until the earlier of (A) such time as all such Registrable
Securities and other securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof set
forth in such registration statement and (B) the expiration of 90 days
from the date such registration statement first becomes effective;
(iii) furnish to each seller of such Registrable Securities such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary
prospectus), in conformity with the requirements of the Securities Act,
such documents incorporated by reference in such registration statement or
prospectus, and such other documents, as such seller may reasonably
request in order to facilitate the sale or disposition of such Registrable
Securities;
(iv) use its reasonable best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or "blue sky" laws of such
jurisdictions as each seller shall reasonably request, and do any and all
other acts and things that may be necessary to enable such seller to
consummate the disposition in such jurisdictions of its Registrable
Securities covered by such registration statement, 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, or to subject itself to taxation in respect of doing business
in any such jurisdiction, or to consent to general service of process in
any such jurisdiction;
(v) enter into such customary agreements (including an underwriting
agreement in customary form), which may include indemnification provisions
in favor of underwriters and other Persons in addition to, or in
substitution for the provisions of Section 6.05 hereof, and take such
other actions as sellers of a majority of shares of such Registrable
Securities or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a copy of (A)
any opinion of counsel for the Company, dated the date of the closing
under the underwriting agreement with respect to such Public Offering, in
customary form and in form and scope reasonably satisfactory to the
underwriter and its counsel, and (B) a "cold comfort" letter signed by the
independent public accountants in customary form and covering matters of
29
<PAGE>
the type customarily covered by "cold comfort" letters and otherwise in
such form and scope as the seller of such Registrable Securities shall
reasonably request (provided that Registrable Securities constitute at
least 25% of the securities covered by such registration statement, unless
such a "cold comfort" letter or letters are provided to the Company or
other selling holders or any underwriter in connection with such
registration);
(vii) immediately notify each seller of Registrable Securities
covered by such registration statement 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 the light of the circumstances then existing or if it is
necessary to amend or supplement such prospectus to comply with law, and
at the request of any such seller prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities or other securities, 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 the light of the
circumstances then existing and shall otherwise comply in all material
respects with law;
(viii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement which shall satisfy the provisions of Section 11(a) of the
Securities Act and the rules and regulations thereunder;
(ix) use its reasonable best efforts to list such Shares on each
securities exchange or quotation system on which Shares are then listed or
quoted, if such Shares are not already so listed or quoted and if such
listing is then permitted under the rules of such exchange or quotation
system, and provide a transfer agent and registrar for such Registrable
Securities not later than the effective date of such registration
statement;
(x) cooperate with the holders of Registrable Securities covered by
the registration statement and the managing underwriter or agent, if any,
to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing securities to be sold under
the registration statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
agent, if any, or such holders may request;
(xi) notify counsel for the holders of Registrable Securities
included in such registration statement and the managing underwriter or
agent, immediately, and confirm
30
<PAGE>
the notice in writing (A) when the registration statement, or any
post-effective amendment to the registration statement, shall have become
effective, or any supplement to the prospectus or any amendment prospectus
shall have been filed, (B) of the receipt of any comments from the
Commission, (C) of any request of the Commission to amend the registration
statement or amend or supplement the prospectus or for additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the registration statement for offering
or sale in any jurisdiction, or of the institution or threatening of any
proceedings for any of such purposes;
(xii) use its reasonable best efforts to prevent the issuance of any
stop order suspending the effectiveness of the registration statement or
of any order preventing or suspending the use of any preliminary
prospectus and, if any such order is issued, to obtain the withdrawal of
any such order at the earliest possible moment;
(xiii) if requested by the managing underwriter or underwriters,
promptly incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or underwriters or
agent or such holder reasonably requests to be included therein,
including, without limitation, with respect to the number of Registrable
Securities being sold by such holder to such underwriter or underwriters
or agent, the purchase price being paid therefor by such underwriter or
underwriters or agent and with respect to any other terms of the
underwritten offering of the Registrable Securities to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after being notified of
the matters incorporated in such prospectus supplement or post-effective
amendment;
(xiv) cooperate with each seller of Registrable Securities and each
underwriter or agent participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings
required to be made with the National Association of Securities Dealers,
Inc.; and
(xv) issue to any underwriter to which any holder of Registrable
Securities may sell such Registrable Securities in connection with any
such registration (and to any direct or indirect transferee of any such
underwriter) certificates evidencing Shares without the legends described
in Section 5.02(a).
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company with such information
regarding such seller and the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing and as shall be
required by law or by the Commission in connection therewith.
31
<PAGE>
(b) Each holder of Registrable Securities agrees, if so required by
the managing underwriter or underwriters of an underwritten public offering of
Shares, not to effect any sale or distribution of Registrable Securities (other
than as part of a public offering other than the Initial Public Offering) during
the seven days prior to and 180 days after the effective date of the
registration statement with respect to such underwritten public offering;
provided that this Section 6.03(b) shall be applicable to the holders of
Registrable Securities only if all executive officers and directors and all
stockholders holding more than five percent (5%) of the then outstanding Common
Stock are subject to a similar restriction.
Notwithstanding anything herein or in the Ancillary Agreements to
the contrary, Goldman Sachs and it Affiliates shall not be restricted from
engaging in any brokerage, investment advisory, financial advisory, anti-raid
advisory, merger advisory, financing, asset management, trading, market making,
arbitrage and other similar activities conducted in the ordinary course of its
or its Affiliates' business.
(c) The Company agrees, if so required by the managing underwriter
or underwriters in connection with such public offering of Registrable
Securities pursuant to Section 6.01 or Section 6.02, not to effect any public
sale or distribution of any of its equity securities or securities convertible
into or exchangeable or exercisable for any of such equity securities during the
seven days prior to and the 180 days after the effective date of any
registration statement with respect to such public offering, except as part of
such public offering or except in connection with a stock option plan, stock
purchase plan, savings or similar plan, or an acquisition, merger or exchange
offer.
(d) It is understood that, in any public offering of Registrable
Securities, in addition to the Shares (the "Initial Shares") the underwriters
have committed to purchase, the underwriting agreement may grant the
underwriters an option to purchase a number of additional shares (the "Option
Shares") equal to up to 15% of the initial Shares (or such other maximum amount
as the National Association of Securities Dealers, Inc. may then permit), solely
to cover over-allotments. Shares proposed to be sold by the Company and the
requesting holders shall be allocated between Initial Shares and Option Shares
as agreed or, in the absence of agreement, in the same manner as the Initial
Shares.
SECTION 6.04. Preparation; Reasonable Investigation. In connection
with the preparation and filing of each registration statement registering
Registrable Securities under the Securities Act, the Company shall give the
holders of Registrable Securities on whose behalf such Registrable Securities
are to be so registered and their underwriters, if any, and their respective
counsel, accountants and other agents, upon reasonable prior notice and
according to a schedule acceptable to the management of the Company in its sole
discretion, access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have issued a report on its financial statements as shall
32
<PAGE>
be necessary, in the opinion of such holders and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
SECTION 6.05. Indemnification for Liabilities Under the Securities
Laws. (a) In the event of any registration of any equity securities of the
Company under the Securities Act, the Company shall indemnify and hold harmless
the seller of any Registrable Securities covered by such registration statement,
its directors and officers, managers, general and limited partners (and
directors and officers thereof and, if such seller is a portfolio or investment
fund, its investment advisors), each other Person who participates as an
underwriter in the public offering of such securities, each officer and director
of each such underwriter, and each other Person, if any, who Controls such
seller or any such underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, against any losses, claims,
damages, liabilities and expenses, joint or several, to which such seller or any
such director or officer or participating or Controlling Person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus included therein, or any
amendment or supplement thereto, or any document incorporated by reference
therein, or (ii) 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 the Company shall reimburse such seller, and each such
director, officer, manager, partner, underwriter and Controlling Person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company for use in the preparation
thereof by such seller or underwriter, as the case may be, or (ii) an untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus but notified to such seller and underwriter prior to
any Sale of Registrable Securities and subsequently corrected by the Company in
any final prospectus, amendment or supplement made available to such seller or
underwriter but which final prospectus, amendment or supplement was not used by
such seller or underwriter in the Sale of Registrable Securities that gave rise
to such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any such
director, officer, underwriter or Controlling Person and shall survive the
transfer of such Shares by such seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to Section
6.01 or Section 6.02, that the
33
<PAGE>
Company shall have received an undertaking satisfactory to it from (i) the
prospective seller of such Registrable Securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
6.05(a), except that any such prospective seller shall not in any event be
liable for an amount in excess of the net proceeds of sale of such prospective
seller's Registrable Securities so to be sold together with any amounts payable
under Section 6.06 hereof) the Company, each such underwriter of such Shares,
each officer and director of each such underwriter and each other Person, if
any, who controls the Company or any such underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, and (ii)
each such underwriter of such Shares, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 6.05(a)) the Company,
each officer and director of the Company, each prospective seller, each officer
and director of each prospective seller and each other Person, if any, who
Controls the Company or any such prospective seller within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, with respect
to any statement in or omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus included therein,
or any amendment or supplement thereto, if such statement or omission was made
in reliance upon and in conformity with written information furnished by such
prospective seller or such underwriter, as the case may be, to the Company for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any such director, officer or Controlling Person and
shall survive the transfer of such Shares by such seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding (including any governmental
investigation) involving a claim referred to in Section 6.05(a) or (b), such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding provisions of this Section 6.05, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim (in
which case, the indemnifying party shall not be liable for the fees and expenses
of more than one counsel for all sellers of Registrable Securities, or more than
one counsel for the underwriters in connection with any one action or separate
but similar or related actions), the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. No indemnifying party shall
consent to entry of any
34
<PAGE>
judgment or enter into any settlement which (i) does not include as an
unconditional term thereof, the giving by the claimant or plaintiff to the
Indemnified Party of a release from all liability in respect to such claim or
litigation or (ii) includes an admission of guilt on behalf of such Indemnified
Party.
SECTION 6.06. Contribution. (a) If the indemnification provided for
in Section 6.05 is unavailable to the indemnified parties in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party shall contribute to the amounts paid or payable by such
indemnified parties as a result of such losses, claims, damages or liabilities
(i) as between the Company and the holders of Registrable Securities covered by
a registration statement, on the one hand, and the underwriters, on the other,
in such proportion as is appropriate to reflect the relative benefits received
by the Company and such holders, on the one hand, and the underwriters, on the
other, from the Public Offering of the Registrable Securities, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Company and such holders, on the one hand, and of the underwriters,
on the other, in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations, and (ii) as between the Company, on the one hand, and
each holder of Registrable Securities covered by a registration statement, on
the other, in such proportion as is appropriate to reflect the relative fault of
the Company and of each such holder in connection with such statements or
omissions, as well as any other relevant equitable considerations. The relative
benefits received by the Company and such holders, on the one hand, and the
underwriters, on the other, shall be deemed to be in the same proportion as the
total proceeds from the public offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and such
holders bear to the total underwriting discounts and commissions received by the
underwriters. The relative fault of the Company and such holders, on the one
hand, and of the underwriters, on the other, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and such holders or by the
underwriters. The relative fault of the Company, on the one hand, and of each
such holder, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(b) The Company and the holders of Registrable Securities agree that
it would not be just and equitable if contribution pursuant to this Section 6.06
were determined by pro rata allocation (even if the underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the next preceding
paragraph. The amount paid or payable by an indemnifying party as a result of
the losses, claims, damages or liabilities referred to in the next preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses
35
<PAGE>
reasonably incurred by the indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 6.06, no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public pursuant to such public offering exceeds the amount of any damages that
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no holder of
Registrable Securities shall be required to contribute any amount (together with
any amount payable under Section 6.05(b)) in excess of the amount by which the
net proceeds from the sale of Registrable Securities received by such holder
pursuant to such public offering exceeds the amount of any damages that such
holder 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. Each Securityholder's obligation to contribute
pursuant to this Section 6.06 is several in the proportion that the proceeds of
the public offering received by such Securityholder bears to the total proceeds
of the public offering received by all the Securityholders and not joint.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. New Investors to Execute Agreement. The Company shall
not, at any time prior to its Initial Public Offering, issue any shares of
Common Stock, or resell any shares of Common Stock held in its treasury, or
issue or resell any security convertible or exchangeable into Common Stock,
other than Common Stock that is issued to Priceline upon exercise of the
Priceline Warrant and Common Stock issued to the employees of the Company upon
exercise of options granted pursuant to the Company's Omnibus Employee Equity
Plan, unless prior to the consummation of any such issuance or Sale, each Person
to whom such security is proposed to be issued or sold executes and delivers
this Agreement to the Company and each Securityholder. Upon the execution and
delivery by any Person of this Agreement, Schedule I hereto shall be revised to
include the name of such Person and such Person shall be deemed a
"Securityholder" for purposes of this Agreement and shall have the rights and be
subject to the obligations of a Securityholder as such under this Agreement.
SECTION 7.02. Rights to Purchase New Securities. (a) In the event
that the Company proposes to issue New Securities (prior to, and other than in
connection with, an Initial Public Offering), each Securityholder shall have the
right to purchase in lieu of the Person to whom the Company proposed to issue
such New Securities, in accordance with paragraph (b) below, a number of Shares
or other New Securities which the
36
<PAGE>
Company proposes to issue equal to the product of (i) the total number or amount
of Shares or other New Securities which the Company proposes to issue at such
time and (ii) a fraction, the numerator of which shall be the total number of
Voting Interests which such Securityholder holds or beneficially owns at such
time, and the denominator of which shall be the sum of (i) the total number of
Voting Interests then outstanding plus (ii) the total number of Voting Interests
Priceline is entitled to purchase on the fifth anniversary date of the Priceline
Warrant or, if earlier, upon the occurrence of an Exercise Event under the
Priceline Warrant. The rights given by the Company under this Section 7.02 shall
terminate if unexercised within 30 days after receipt of the Notice of Issuance
referred to in paragraph (b) below.
(b) In the event that the Company proposes to undertake an issuance
of New Securities (prior to, and other than in connection with, an Initial
Public Offering), it shall give written notice (a "Notice of Issuance") of its
intention to each Securityholder, describing all material terms of the New
Securities, the price and all material terms upon which the Company proposes to
issue such New Securities. Each Securityholder shall have 30 days from the date
of the Notice of Issuance to agree to purchase all or any portion of its pro
rata share of such New Securities (as determined pursuant to paragraph (a)
above) for the same consideration, if such consideration shall consist solely of
cash, or for cash, cash equivalents or marketable securities having an
equivalent value to the consideration payable by the Person to whom the Company
proposes to issue such New Securities at the time of payment, and otherwise upon
the terms specified in the Notice of Issuance by giving written notice to the
Company, and stating therein the quantity of New Securities to be purchased by
such Securityholder.
SECTION 7.03. Further Assurances. Each of the parties hereto shall
use reasonable efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws to consummate and make effective the transactions contemplated
hereunder, including, without limitation, using reasonable efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of the competent governmental entities. Without limiting the generality
of the foregoing, the parties shall, when required in order to effect the
transactions contemplated hereunder, make all necessary filings, and thereafter
make any other required or appropriate submissions, under the HSR Act and shall
supply as promptly as practicable to the appropriate governmental entity any
additional information and documentary material that may be requested pursuant
to the HSR Act. Each of the parties shall cooperate with the other when required
in order to effect the transactions contemplated hereunder. In case at any time
after the date hereof, any further action is necessary or desirable to carry out
the purposes of this Agreement, the proper officers and directors of each of the
parties shall use their reasonable best efforts to take all such action.
SECTION 7.04. Access to Management. In addition to the rights
granted pursuant to Article VI of the Subscription Agreement, each
Securityholder shall have the right to consult with members of the Company's
management to such degree and in such manner as shall be sufficient to meet the
needs of such Securityholders' venture capital operating company requirements
under ERISA.
37
<PAGE>
SECTION 7.05. Nominees. Notwithstanding anything herein to the
contrary, any Investor may hold its shares in nominee form through a reputable
securities depository.
SECTION 7.06. Use of Names. Neither the Company nor any of its
Affiliates shall use the names of any Investor or any Affiliate of an Investor
in any press release, notice or other publication without the prior consent of
such Investor, which such consent shall not be unreasonably withheld; provided,
however, that each Investor acknowledges and agrees that the Company may issue a
press release upon the Closing under the Subscription Agreement stating the
total amount invested in the Company and a list of the Investors.
SECTION 7.07. Aggregation of Shares. All shares held by The Goldman
Sachs Group, Inc. shall be aggregated with the Shares held by its Affiliates,
whether such Shares were acquired hereunder or pursuant to a transfer permitted
under Article V hereof, for the purpose of determining the availability of any
rights under this Agreement and any other applicable transaction agreement.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Indemnification of Parties. (a) The Company shall
indemnify each Securityholder or affiliate thereof, and their respective
directors, managers, officers and employees (collectively, "Non-Company
Indemnitees") against, and hold each Non-Company Indemnitee harmless from, all
claims, suits, judgments, losses, damages, fines or costs (including reasonable
legal fees and expenses) ("Losses") arising out of or resulting from the breach
of any representation or warranty made by the Company herein or the breach of or
failure to perform any agreement or covenant made by the Company and contained
herein.
(b) Each Securityholder shall indemnify the Company and its
directors, managers, officers and employees (collectively, the "Company
Indemnitees") and the other Non-Company Indemnitees against, and hold each
Company Indemnitee and other Non-Company Indemnitee harmless from, all Losses
resulting from or arising out of any breach of any representation or warranty
made by such party herein or the breach of or failure to perform any agreement
or covenant made by such party and contained herein.
(c) Non-Company Indemnitees and Company Indemnitees (each, an
"Indemnified Party") shall give the party hereto from whom indemnification is
sought (the "Indemnifying Party") prompt written notice of any Losses as to
which such Indemnified Party may request indemnification hereunder. If the
Indemnifying Party acknowledges in writing its obligation to indemnify the
Indemnified Party hereunder against any such Losses, then the Indemnifying Party
shall be entitled to assume and control the defense of any claim, suit, or
38
<PAGE>
demand by any third party ("Third Party Claim") at its expense and through
counsel of its choice if it gives notice of its intention to do so to the
Indemnified Party within five (5) days of the receipt of such notice from the
Indemnified Party; provided that if there exists or is reasonably likely to
exist a conflict or interest that would make it inappropriate in the judgment of
the Indemnified Party, in its sole and absolute discretion, for the same counsel
to represent both the Indemnified Party and the Indemnifying Party, then the
Indemnified Party shall be entitled to retain its own counsel, at the expense of
the Indemnifying Party. In the event the Indemnifying Party exercises the right
to undertake any such defense against any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to the Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party. Similarly,
in the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense and make available to the
Indemnified Party, at the Indemnified Party's expense, all such witnesses,
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Indemnifying Party without the prior written consent of the Indemnified
Party.
(d) In no event shall the Indemnifying Party be liable to an
Indemnified Party for any indirect, incidental, special, punitive, exemplary or
consequential damages arising out of or otherwise relating to this Agreement,
even if the Indemnifying Party has been advised of the possibility or likelihood
of such damages.
SECTION 8.02. Indemnification of Directors. The Company hereby
agrees to employ its reasonable efforts to enter into an agreement with each
director on the Board no later than December 31, 1999, pursuant to which
agreement the Company shall agree to indemnify such director for expenses and
liabilities arising in connection with legal proceedings to which such director
is named as a party as a result of her or his activities as director on the
Board in accordance with the By-Laws of the Company and this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Termination. This Agreement shall terminate only:
(a) by virtue of a written agreement to that effect, signed by all
parties hereto or all parties then possessing any rights hereunder;
39
<PAGE>
(b) upon the expiration of (i) all rights created hereunder and (ii)
all statutes of limitations applicable to the enforcement of claims
hereunder;
(c) at any time following the exercise in full or expiration
unexercised of the Priceline Warrant, if Securityholders holding not less
than 50% of the aggregate outstanding Shares held by the Securityholders
(excluding Shares held by Priceline, if any) shall vote to terminate this
Agreement at an earlier date;
provided that no termination of this Agreement pursuant to paragraph (a), (b) or
(c) above shall affect the right of any party to recover damages or collect
indemnification for any breach of the representations, warranties or covenants
herein that occurred prior to such termination.
SECTION 9.02. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
SECTION 9.03. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in Person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 9.03):
(a) if to the Company:
Priceline WebHouse Club, Inc.
One High Ridge Park
Stamford, CT 06905
Telecopy No.: (203) 595-8305
Attention: Anne Maffei, Vice President--Corporate Finance
(b) if to Priceline:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy No.: (203) 595-8345
Attention: Melissa Taub, General Counsel
40
<PAGE>
(c) if to Walker Digital:
Walker Digital Corporation
One High Ridge Park
Stamford, CT 06905
Telecopy No.: (203) 595-8266
Attention: Randy Christofferson, President
(d) if to any other Investor, then to the address or telecopy number
set forth opposite such Person's name on Schedule I or II hereto.
SECTION 9.04. Public Announcements. Except as required by law,
governmental regulation or by the requirements of any securities exchange on
which the securities of a party hereto are listed, no party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or otherwise communicate with any news media without
the prior written consent of the other party, and the parties shall cooperate as
to the timing and contents of any such press release or public announcement.
SECTION 9.05. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 9.06. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law,
governmental regulation or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the greatest possible
extent.
SECTION 9.07. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
with respect to the subject matter hereof.
SECTION 9.08. Assignment. This Agreement shall not be assigned
without the express written consent of the parties (which consent may be granted
or withheld in the sole discretion of any party), except in connection with any
transfer of Shares permitted under Article V hereof; and except that Priceline
may assign its rights hereunder to an Affiliate, provided that any such
assignment shall not relieve Priceline of its obligations hereunder.
41
<PAGE>
SECTION 9.09. No Third-Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and successors and nothing herein, express or implied, is
intended to or shall confer upon any other Person or entity, any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 9.10. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the parties.
SECTION 9.11. Governing Law. This Agreement shall be governed by the
laws of the State of New York. All actions and proceedings arising out of or
relating to this Agreement may be heard and determined in any New York State or
federal court sitting in the City of New York, County of Manhattan, and the
parties hereto hereby irrevocably submit to the nonexclusive jurisdiction of
such courts in any such action or proceeding and irrevocably waive any defense
of an inconvenient forum to the maintenance of any such action or proceeding.
SECTION 9.12. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement. Copies of executed
counterparts transmitted by telecopy or other electronic transmission service
shall be considered original executed counterparts for purposes of this Section
9.12; provided that receipt of copies of such counterparts is confirmed.
SECTION 9.13. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 9.14. Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement, the Ancillary Agreements or the
transactions contemplated hereby and thereby and for any counterclaim therein.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized signatories hereunto duly
authorized as of the date first above written.
PRICELINE WEBHOUSE CLUB, INC.
By:
-------------------------------
Name:
Title:
PRICELINE.COM INCORPORATED
By:
-------------------------------
Name:
Title:
WALKER DIGITAL, LLC
By:
-------------------------------
Name: Jay Walker
Title: Chairman
THE GOLDMAN SACHS GROUP, INC.
By:
-------------------------------
Name:
Title:
<PAGE>
STONE STREET FUND 1999, L.P.
By: Stone Street 1999 Corp., as
General Partner
By:
-------------------------------
Name:
Title:
VULCAN VENTURES INCORPORATED
By:
-------------------------------
Name: William D. Savoy
Title: Vice President
ARISTA CAPITAL PARTNERS, LP
By:
-------------------------------
Name:
Title:
JONATHAN OTTO
-----------------------------------
MICHAEL LOEB
-----------------------------------
<PAGE>
WILLIAM D. SAVOY
-----------------------------------
<PAGE>
SCHEDULE I
LIST OF INVESTORS WHO BECOME SIGNATORIES
HERETO SUBSEQUENT TO THE DATE HEREOF
- -------------------------------------------------------------------------------
Investor Address Date Signature
-------- ------- ---- ---------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE II
ADDRESSES OF INVESTORS
Vulcan Ventures Incorporated
110-110th Avenue Northeast
Suite 550
Bellevue, Washington 98004
Telecopy No.: (425) 543-1985
Attention: Diane H. Daggatt
The Goldman Sachs Group, Inc.
85 Broad Street
New York, NY 10004
Telecopy No.: (212) 357-5505
Attention: Tara Harrison
Stone Street Fund 1999, L.P.
c/o Stone Street 1999 Corp.
85 Broad Street
New York, NY 10004
Telecopy No.: (212) 357-5505
Attention: Tara Harrison
Arista Capital Partners, L.P.
c/o Dawntreader
118 West 22nd Street
11th Floor
New York, NY 10011
Telecopy No.: (212) 337-1257
Attention: Andrew Weissman
Jonathan Otto
c/o Priceline WebHouse Club, Inc.
One High Ridge Park
Stamford, CT 06905
Telecopy No.: (203) 595-8305
47
<PAGE>
Michael Loeb
[Address]
Telecopy No.:
William D. Savoy
110-110th Avenue Northeast
Suite 550
Bellevue, Washington 98004
Telecopy No.:
48
<PAGE>
SCHEDULE III
INITIAL NOMINEES TO BOARD OF DIRECTORS
Securityholder Nominee
- -------------- -------
Priceline................................... Richard Braddock
Walker Digital.............................. Jay Walker
Jonathan Otto............................... Jonathan Otto
Vulcan...................................... Diane H. Dagatt
Goldman Sachs...............................
[Independent]...............................
[Independent]...............................
49
Exhibit 10.22.2
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
INTELLECTUAL PROPERTY
LICENSE AGREEMENT
This INTELLECTUAL PROPERTY LICENSE AGREEMENT (this "Agreement"),
made and entered into this 26th day of October, 1999 (the "Effective Date"), by
and between PRICELINE.COM INCORPORATED, a Delaware corporation ("Priceline"),
and PRICELINE WEBHOUSE CLUB, INC., a Delaware corporation ("WebHouse") (each, a
"Party", and collectively the "Parties"),
W I T N E S S E T H :
WHEREAS, Priceline is an Internet-based company with significant
name recognition of its trademarked "priceline" name and patented "demand
collection system" for selling products over the Internet,
WHEREAS, Walker Digital, LLC ("Walker Digital") is a research and
development company containing certain trade secrets, know-how and other
intellectual property;
WHEREAS, in connection with the establishment of WebHouse's business
of the sale of retail products in a "name your price" format over the Internet,
(i) Walker Digital is (A) contributing certain know-how and other assets and
liabilities used in or incurred during the initial development of WebHouse's
business, pursuant to an asset contribution agreement dated as of the date
hereof between Walker Digital and WebHouse (the "Asset Contribution Agreement")
and (B) licensing certain intellectual property pursuant to a license agreement
between Walker Digital and Priceline dated as of the date hereof, which
intellectual property shall in turn be sublicensed by Priceline to WebHouse,
(ii) Walker Digital Corporation, a research and development company, is
contributing certain employees to WebHouse under the Asset Contribution
Agreement, and (iii) Priceline is (A) licensing and sublicensing, as applicable,
the use of the "priceline" name, certain patent rights and other intellectual
property rights for use in connection with WebHouse's business, pursuant to this
Agreement, (B) providing professional services, including accounting and legal
services to WebHouse pursuant to a services agreement between Priceline and
WebHouse dated as of the date hereof (the "Services Agreement"), and (C)
providing certain marketing and technical services to WebHouse pursuant to a
marketing and technical services agreement between Priceline and WebHouse dated
as of the date hereof (the "Marketing and Technical Services Agreement");
WHEREAS, in consideration for the cash and the assets it has
contributed pursuant to the Asset Contribution Agreement, Walker Digital is
receiving a promissory note in the amount of $14,592,185.60, payable on April
26, 2000 (the "Walker Digital Note");
[**]=Confidential Treatment requested for redacted portion
<PAGE>
WHEREAS, in consideration of their cash contributions, Walker
Digital and certain other investors (the "Investors") are receiving a total of
23,500,000 shares of WebHouse's common stock, par value $.01 per share (the
"Common Stock"), pursuant to the subscription agreement (the "Subscription
Agreement") dated as of the date hereof between WebHouse and the Investors;
WHEREAS, in consideration for its execution and deliveries pursuant
to this Agreement, Priceline is receiving a warrant to purchase under certain
circumstances up to 137.5 million shares of Common Stock pursuant to an
agreement between Priceline and WebHouse dated as of the date hereof (the
"Priceline Warrant") and has certain rights to participate in WebHouse's
corporate governance;
WHEREAS, in connection with the establishment of WebHouse, Priceline
is agreeing, pursuant to the Services Agreement and the Marketing and Technical
Services Agreement, to provide services to and to coordinate marketing
activities with WebHouse in exchange for arm's-length consideration;
WHEREAS, Priceline is the owner or licensee of certain intellectual
property related to Buyer-Driven Commerce; and
WHEREAS, WebHouse desires to obtain a license to use such
intellectual property in certain licensed fields and Priceline desires to grant
to WebHouse such a license under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. General. As used herein, the following terms shall
have the following meanings:
"Affiliate" shall mean, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by, or is under common Control with, such specified
Person.
"Agreement" shall have the meaning set forth in the preamble.
[**]=Confidential Treatment requested for redacted portion
<PAGE>
"Asset Contribution Agreement" shall have the meaning set forth in
the recitals.
"Buyer-Driven Commerce" shall mean any commerce system or process
that permits a prospective buyer to fix the terms and conditions, including
price, on which such buyer is willing to purchase a particular product or
service, with such offer being guaranteed or otherwise secured by the buyer
should a seller of the product or service accept the terms of the buyer's offer,
as such process may evolve, expand or develop from time to time.
"Change of Control" shall mean and shall be deemed occur if: (a)
upon the exercise of the Warrant in full, Priceline would not beneficially own
or retain, directly or indirectly, more than 50% of the WebHouse Voting
Interests; (b) WebHouse shall sell, assign, or otherwise transfer all or
substantially all of its assets to any Person other than Priceline or an
Affiliate thereof; or (c) during any consecutive two (2) year period,
individuals who at the beginning of such period constituted the Board of
Directors of WebHouse (together with any new directors whose election by the
Board of Directors of WebHouse or whose nomination for election by the
stockholders of WebHouse was approved by a vote of the majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason (other than by action of Priceline) to constitute a majority of
the Board of Directors of WebHouse then in office.
"Common Stock" shall have the meaning set forth in the recitals.
"Confidential Information" shall have the meaning set forth in
Section 9.01.
"Control" (including the terms "Controlled by" and "under common
Control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Core Merchandise Field" shall mean the field of Internet-based
Buyer-Driven Commerce related to the sale of groceries, health and beauty items
and household supplies by Retailers. The Core Merchandise Field shall
specifically exclude the field of Buyer-Driven-Commerce related to re-sales of
goods or services between consumers where both of such consumers would normally
be ultimate consumers of such goods or services.
"Effective Date" shall have the meaning set forth in the preamble.
"Exclusive Hosting Term" shall have the meaning set forth in Section
6.02.
[**]=Confidential Treatment requested for redacted portion
3
<PAGE>
"Expiration Event" shall mean the event of Priceline not controlling
a majority of the WebHouse Voting Interests upon the expiration of the Warrant.
"Indemnified Party" shall have the meaning set forth in Section
11.03.
"Indemnifying Party" shall have the meaning set forth in Section
11.03
"Intellectual Property" shall mean all intellectual property rights,
including United States and foreign patents and patent applications, divisions,
continuations, continuations-in-part, reissues, or extensions thereof, trade
secrets, know-how and copyrights, trademarks and trademark related rights.
"Investors" shall have the meaning set forth in the recitals.
"Joint Intellectual Property" shall mean all Intellectual Property
to the extent covering inventions, improvements, modifications, alterations, or
enhancements that are made jointly by WebHouse and Priceline during the Term of
this Agreement.
"Licensed Patents" shall mean (a) the patents and patent
applications listed on Schedule A hereto, together with any continuations,
continuations-in-part, reissues, reexaminations, and foreign counterparts
thereof, and (b) any other patents or patent applications that are now owned or
controlled by, or licensed to (with the right to grant sublicenses), Priceline,
or that become owned or controlled by or licensed to (with the right to grant
sublicenses) Priceline prior to the Expiration Event, in each case relating to
the Core Merchandise Field or the New Merchandise Field.
"Licensed Trademarks" shall mean (a) the trademarks and service
marks set forth on Schedule B, all registrations and applications thereof,
including, without limitation, the registrations and applications set forth on
Schedule B, and any foreign counterparts thereof and (b) any other trademarks
and service marks, domain names, trade dress, logos and other source
identifiers, including registrations thereof, that are now owned or controlled
by, or licensed to (with the right to grant sublicenses), Priceline, or that
become owned or controlled by or licensed to (with the right to grant
sublicenses) Priceline prior to the Expiration Event, in each case relating to
the Core Merchandise Field or the New Merchandise Field.
"Net Revenue" shall mean the net revenue of WebHouse as disclosed on
the annual audited financial statements for any fiscal year and the interim
unaudited quarterly financial statements for any fiscal quarter, in each case in
the Core Merchandise Field and the New Merchandise Field.
[**]=Confidential Treatment requested for redacted portion
4
<PAGE>
"New Merchandise Field" shall mean the field of Internet-based
Buyer-Driven Commerce related to the sale of products or services other than
groceries, health and beauty items and household supplies by Retailers. The New
Merchandise Field shall specifically exclude the fields of (a)
Buyer-Driven-Commerce related to re-sales of goods or services between consumers
where both of such consumers would normally be ultimate consumers of such goods
or services and (b) Buyer-Driven-Commerce related to the sales of (i)
automobiles, (ii) home financing products and services, (iii) hotel room
reservations, (iv) airline tickets and (v) other travel related services.
"Other Licensed Intellectual Property" shall mean all patents,
know-how, trade secrets, copyrights and other intellectual property that is now
owned or controlled by, or licensed to (with the right to grant sublicenses),
Priceline, or that becomes owned or controlled by or licensed to (with the right
to grant sublicenses) Priceline prior to the Expiration Event, in each case
relating to the Core Merchandise Field or the New Merchandise Field. Other
Licensed Intellectual Property shall include all Priceline engineering
components, including but not limited to Priceline's (a) offer pricing system
software, (b) Dcommapper software for load balancing, (c) Psession software for
load balancing, and (d) DBPolicy Manager software for load balancing.
"Party" shall have the meaning set forth in the preamble.
"Person" shall mean an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, pool, syndicate, sole proprietorship, incorporated organization,
governmental authority or any other form of entity.
"Priceline" shall have the meaning set forth in the preamble.
"Priceline Field" shall mean the field of Internet-based
Buyer-Driven Commerce outside of the Core Merchandise Field and the New
Merchandise Field.
"Priceline Home Page" shall mean the home page of the Priceline web
site, currently located at the URL www.priceline.com, or any successor site
thereto.
"Priceline Warrant" shall have the meaning set forth in the
recitals.
"Representative" shall have the meaning set forth in Section
9.01(a).
"Retailers" shall mean Persons that sell goods or services directly
to ultimate consumers; provided, however, Retailers shall not include any
business wherein the buyer picks up the goods at a vending machine or a
restaurant.
"Service Standards" shall have the meaning set forth in Section
5.01.
[**]=Confidential Treatment requested for redacted portion
5
<PAGE>
"Subscription Agreement" shall have the meaning set forth in
recitals.
"Term" shall have the meaning set forth in Section 12.01.
"Third Party Claim" shall have the meaning set forth in Section
11.03.
"Voting Interest" of WebHouse means one Share of Common Stock and
any other share or unit of Capital Stock issued by WebHouse, the holders of
which are ordinarily, in the absence of contingencies, entitled to one vote in
the election of WebHouse's directors (or Persons performing similar functions),
or the approval of its management and policies, even if the right to vote has
been suspended by the occurrence of a contingency.
"Warrant" shall mean Priceline's warrant to purchase shares of
WebHouse under the Priceline Warrant.
"WebHouse" shall have the meaning set forth in the preamble.
"WebHouse Field" shall mean the Core Merchandise Field and the New
Merchandise Field.
"WebHouse Home Page" shall mean the home page of the WebHouse web
site, which the Parties currently contemplate will be located at the URL
www.webhouseclub.com, or any successor site thereto.
ARTICLE II
LICENSE GRANT
SECTION 2.01. Patent License. (a) Core Merchandise Field. Subject to
the terms and conditions of this Agreement, Priceline hereby grants to WebHouse
a worldwide exclusive license under the Licensed Patents to make, have made,
offer for sale, sell, use, import and export products and services in the Core
Merchandise Field; provided that the license granted under this Section 2.01(a)
shall become non-exclusive upon the Expiration Event.
(b) New Merchandise Field. Subject to the terms and conditions of
this Agreement, Priceline hereby grants to WebHouse a worldwide non-exclusive
license under the Licensed Patents to make, have made, offer for sale, sell,
use, import and export products and services in the New Merchandise Field.
SECTION 2.02. Trademark License. (a) Core Merchandise Field. Subject
to the terms and conditions of this Agreement, Priceline hereby grants to
WebHouse a worldwide
[**]=Confidential Treatment requested for redacted portion
6
<PAGE>
exclusive license to use the Licensed Trademarks on or in connection with goods
and services in the Core Merchandise Field.
(b) New Merchandise Field. Subject to the terms and conditions of
this Agreement, Priceline hereby grants to WebHouse a non-exclusive license to
use the Licensed Trademarks on or in connection with goods and services in the
New Merchandise Field.
SECTION 2.03. Other Intellectual Property License. (a) Core
Merchandise Field. Subject to the terms and conditions of this Agreement,
Priceline hereby grants to WebHouse a worldwide exclusive license to use the
Other Licensed Intellectual Property, including but not limited to the right to
reproduce, distribute, offer for sale, sell, display and prepare derivative
works of copyrights in the Other Licensed Intellectual Property, on or in
connection with the manufacture, marketing, distribution and sale of products
and services in the Core Merchandise Field; provided that the license granted
under this Section 2.03(a) shall become non-exclusive upon the Expiration Event.
(b) New Merchandise Field. Subject to the terms and conditions of
this Agreement, Priceline hereby grants to WebHouse a non-exclusive license to
use the Other Licensed Intellectual Property, including but not limited to the
right to reproduce, distribute, offer for sale, sell, display and prepare
derivative works of copyrights in the Other Licensed Intellectual Property, on
or in connection with the manufacture, marketing, distribution and sale of
products and services in the New Merchandise Field.
SECTION 2.04. WebHouse Intellectual Property. In the event that
WebHouse creates, acquires or develops any intellectual property, including
Joint Intellectual Property, relating to or useful in the Priceline Field prior
to the earlier of (a) the Expiration Event and (b) the termination of this
Agreement in accordance with Article XII, WebHouse hereby grants Priceline,
during the Term (x) a worldwide, royalty-free, fully paid, and exclusive right
and license, including the right to grant sublicenses to Affiliates, to such
intellectual property in the Priceline Field and (y) a worldwide, royalty-free,
fully paid and co-exclusive (with WebHouse and its Affiliates) right and
license, including the right to grant sublicenses to Affiliates, to such
intellectual property in the New Merchandise Field; provided that the licenses
granted under this Section 2.04 shall become non-exclusive upon the Expiration
Event.
SECTION 2.05. Customer Lists. Each Party shall have access to the
customer lists of the other Party; provided that, with the exception of strictly
internal business purposes, neither Party may use the other Party's customer
lists without prior written approval of such other Party which shall not be
unreasonably withheld.
SECTION 2.06. Reservation of Rights. All rights not expressly
granted to a Party hereunder shall remain the exclusive property of the other
Party. Without limiting the foregoing, and subject to the rights granted to
WebHouse under this Agreement, Priceline shall
[**]=Confidential Treatment requested for redacted portion
7
<PAGE>
retain the exclusive right to (a) sell, assign or otherwise transfer the
Licensed Patents, Licensed Trademarks and Other Licensed Intellectual Property
to any third party, or (b) to license others to use the Licensed Patents,
Licensed Trademarks (either alone or with other brand names, trademarks, service
marks, trade names, characters or designs) or Other Licensed Intellectual
Property in fields outside of the Core Merchandise Field.
ARTICLE III
ROYALTIES
SECTION 3.01. Royalties. (a) During the Term of this Agreement, and
except as set forth in Sections 3.01(b) and 3.01(c) hereof, WebHouse shall pay
Priceline a royalty equal to [**]% of quarterly Net Revenues less than $[**],
[**]% of quarterly Net Revenues between $[**] and $[**], [**]% of quarterly Net
Revenues between $[**] and $[**], [**] of quarterly Net Revenues between $[**]
and $[**], and [**]% of quarterly Net Revenues greater than $[**].
(b) The royalty payable by WebHouse under Section 3.01(a) shall be
reduced as follows: WebHouse shall pay Priceline a royalty equal to [**]% of
quarterly Net Revenues less than $[**], [**]% of quarterly Net Revenues between
$[**] and $[**], [**]% of quarterly Net Revenues between $[**] and $[**], [**]%
of quarterly Net Revenues between $[**] and $[**], and [**]% of quarterly Net
Revenues greater than $[**] during the Term, in the event that all of the
licenses granted under Section 2.02 hereof shall be terminated for any reason.
(c) The royalty payable by WebHouse under Section 3.01(a) shall be
reduced as follows: WebHouse shall pay Priceline a royalty equal to [**]% of
quarterly Net Revenues less than $[**], [**]% of quarterly Net Revenues between
$[**] and $[**], [**]% of quarterly Net Revenues between $[**] and $[**], [**]%
of quarterly Net Revenues between $[**] and $[**], and [**]% of quarterly Net
Revenues greater than $[**] during the Term, in the event that all of the
licenses granted under Section 2.01 hereof shall be terminated for any reason.
SECTION 3.02. Currency. All royalties due hereunder shall be paid in
United States dollars without deductions of any kind. Any and all taxes due on
or in connection with the royalties payable to Priceline hereunder (other than
taxes based upon the income of Priceline) shall be borne by WebHouse and shall
not be deducted from the royalties payable hereunder.
SECTION 3.03. Reports and Payments. WebHouse shall furnish to
Priceline a written report by the end of January, April, July and October of
each year setting forth the quarterly Net Revenues of WebHouse during the
preceding calendar quarter and the royalties
[**]=Confidential Treatment requested for redacted portion
8
<PAGE>
payable to Priceline with respect thereto, which report shall be accompanied by
the royalties then due.
SECTION 3.04. Overdue Payments. Any payments that are not timely
paid as provided hereunder shall bear interest at the annual rate of the lower
of ten percent (10%) or the maximum rate allowed by law, accruing as of the
first day such payment became overdue. Any failure of WebHouse to make timely
payment to Priceline of royalties due hereunder shall be deemed to constitute a
breach of this Agreement.
SECTION 3.05. Records. WebHouse shall maintain accurate records and
books of account showing all revenue of WebHouse in sufficient detail to enable
the royalties payable by WebHouse hereunder to be accurately determined. Upon
reasonable notice to WebHouse, Priceline shall have the right to conduct an
audit (not more than twice per calendar year), either itself or through an
independent accounting firm, of any royalties payable hereunder at any time up
to three (3) years after payment of such royalties, and to examine the records
and books of account of WebHouse in connection therewith to verify the accuracy
of reports and payments required to be delivered to Priceline hereunder.
Priceline shall bear the full cost and expense of such audit, unless a
discrepancy in excess of twenty percent (20%) in favor of Priceline is
discovered, in which event WebHouse shall bear the full cost and expense of such
audit. Regardless of the amount of discrepancy, all discrepancies shall be
immediately due and payable. Any discrepancy due shall bear interest at the
annual rate of the lower of ten percent (10%) or the maximum rate allowed by
law, accruing as of the first day such payment became overdue.
ARTICLE IV
OWNERSHIP OF TRADEMARKS AND
JOINT INTELLECTUAL PROPERTY
SECTION 4.01. Ownership. WebHouse acknowledges that Priceline owns
all right, title and interest in and to the Licensed Patents, Licensed
Trademarks and Other Licensed Intellectual Property. WebHouse shall not take any
action that is inconsistent with the ownership of the Licensed Trademarks by
Priceline. WebHouse agrees that nothing in this Agreement, and no use of the
Licensed Trademarks by WebHouse pursuant to this Agreement, shall vest in
WebHouse, or shall be construed to vest in WebHouse, any right of ownership in
or to the Licensed Trademarks other than the right to use the Licensed
Trademarks in accordance with this Agreement.
SECTION 4.02. Goodwill. All goodwill and improved reputation in
respect of the Licensed Trademarks generated by WebHouse's use of the Licensed
Trademarks shall inure to the benefit of Priceline. WebHouse shall not by any
act or omission use the Licensed Trademarks in any manner that tarnishes,
degrades, disparages or reflects adversely on Priceline
[**]=Confidential Treatment requested for redacted portion
9
<PAGE>
or its business or reputation. Nothing in this Agreement shall be deemed to (a)
give Priceline any right, title or interest in or to WebHouse's trade names,
trademarks, or service marks with which WebHouse uses the Licensed Trademarks,
(b) give WebHouse any right, title or interest in or to Priceline's trade names,
trademarks, or service marks with which Priceline uses the Licensed Trademarks
outside of the Core Merchandise Field and the New Merchandise Field, or (c) give
either Party the right to use any trademarks or service marks of the other Party
other than the Licensed Trademarks.
SECTION 4.03. Joint Intellectual Property. As between Priceline and
WebHouse, WebHouse shall be the exclusive owner of the entire right, title and
interest in and to Joint Intellectual Property, and Priceline hereby assigns all
right title and interest to Joint Intellectual Property to WebHouse; provided,
however, such Joint Intellectual Property shall be licensed to Priceline
pursuant to Section 2.04.
ARTICLE V
MAINTENANCE OF SERVICE STANDARDS AND INSPECTION
SECTION 5.01. Service Standards. In order to preserve the inherent
value of the Licensed Trademarks, WebHouse shall ensure that all Buyer-Driven
Commerce related services provided by WebHouse under the Licensed Trademarks
shall be of at least the same quality as Buyer-Driven Commerce related services
provided by Priceline under the Licensed Trademarks outside of the Core
Merchandise Field and the New Merchandise Field and shall conform to the image,
reputation, branding and positioning standards promulgated by Priceline from
time to time (the "Service Standards"). WebHouse shall use and display the
Licensed Trademarks only in such form and manner as shall be approved by
Priceline, which approval shall not be unreasonably withheld or delayed.
SECTION 5.02. Exact Usage. WebHouse shall not use any Licensed
Trademark without the prior written approval of Priceline, which approval shall
not be unreasonably withheld or delayed.
SECTION 5.03. Legal Compliance. WebHouse agrees that the business
operated by it in connection with the Licensed Trademarks shall, in all material
respects, comply with all laws, rules, regulations and requirements of any
governmental body as may be applicable to the operation, advertising and
promotion of such business.
SECTION 5.04. Right to Inspect. Priceline shall have the right to
inspect, upon reasonable notice and during normal business hours, the premises
of WebHouse to the extent reasonably necessary in order to ensure that the
quality of goods and services distributed, marketed, or sold under the Licensed
Trademarks meet the Service Standards, and solely to the
[**]=Confidential Treatment requested for redacted portion
10
<PAGE>
extent that such inspection cannot reasonably be made using information or
materials publicly available. Should Priceline notify WebHouse that any of its
business activities do not comply with the Service Standards, WebHouse shall
promptly make commercially reasonable efforts to correct such defects.
ARTICLE VI
ADVERTISING AND PROMOTIONAL MATERIALS
SECTION 6.01. Advertising and Promotional Materials. WebHouse shall
submit all sales, promotional and advertising materials to be used by WebHouse
in connection with products or services bearing Licensed Trademarks, including,
but not limited to, web site content (including web site advertising),
newspaper, and radio and television advertising, to Priceline for prior approval
thereof, which approval shall not be unreasonably withheld. In the event
Priceline's approval or rejection of such sales, promotional, or advertising
materials is not received by WebHouse within fifteen (15) days of submission of
such materials to Priceline for approval, such materials shall be deemed
approved by Priceline; provided, however, that Priceline may, at its discretion
and upon written notice to WebHouse, terminate this provision pursuant to which
such materials are deemed approved if approval or rejection is not received by
WebHouse within fifteen (15) days of submission.
SECTION 6.02. Hosting Website Home Page. Priceline shall provide the
exclusive link to the WebHouse Home Page by hosting a link on the Priceline Home
Page until the earlier of (i) the Expiration Event or (ii) termination of the
license granted under Section 2.02 hereof (the "Exclusive Hosting Term"). During
the Exclusive Hosting Term, WebHouse shall be the sole and exclusive provider of
products and services in the Core Merchandise Field to which Priceline provides
a link on the Priceline Home Page. WebHouse shall not establish an access route
to the WebHouse Home Page independent of Priceline's Home Page, without the
prior express written consent of Priceline, during the Exclusive Hosting Term.
Priceline shall use commercially reasonable efforts to ensure that such link to
the WebHouse Home Page is operational at all times. In the event Priceline is
unable to provide a link to the WebHouse Home Page for a commercially
unreasonable period of time, Priceline shall allow WebHouse to establish an
access route to the WebHouse Home Page independent of Priceline's Home Page.
Priceline shall, at the request of WebHouse, continue to provide a link to
WebHouse's Home Page for a transition period of six (6) months upon termination
of the Exclusive Hosting Term. Priceline shall control the placement of the link
to the WebHouse Home Page on the Priceline Home Page; provided, however, that
the size and type of such link shall be at least comparable to the size of and
similar in type to the links to other comparable products and services offered
by Priceline on the Priceline Home Page. Exhibit 1 hereto contains an example of
the size and type of a link to the WebHouse Home Page in comparison to the size
and type of links to other comparable products and services.
[**]=Confidential Treatment requested for redacted portion
11
<PAGE>
SECTION 6.03. No Other Control. The submission of sales, advertising
and promotional materials to Priceline for approval thereof under the terms of
Section 6.01 shall be solely for the purpose of ensuring compliance with the
Service Standards, and Priceline shall have no right with respect to approval of
pricing, selection of specific products and services, or any other aspect of the
business of WebHouse.
ARTICLE VII
PROTECTION OF LICENSED INTELLECTUAL PROPERTY
SECTION 7.01. Notification of Infringement. Each Party shall
immediately notify the other Party and provide to the other Party all relevant
background facts upon becoming aware of (i) any registrations of, or
applications for registration of, marks that do or may conflict with any
Licensed Trademark in the Core Merchandise Field or the New Merchandise Field,
and (ii) any infringement, misappropriation, imitation, dilution, illegal use or
misuse of the Licensed Trademarks, Licensed Patents, and Other Licensed
Intellectual Property in the Core Merchandise Field or the New Merchandise
Field.
SECTION 7.02. Action Against Infringer. Priceline shall have the
first right, but not the obligation, to take action against others in the
courts, administrative agencies or otherwise, at Priceline's cost and expense,
to prevent or terminate infringement, misappropriation, imitation, illegal use
or misuse of the Licensed Trademarks, Licensed Patents, and Other Licensed
Intellectual Property in the Core Merchandise Field or the New Merchandise
Field, and to oppose or cancel applications or registrations of trademarks,
service marks, trade dress, characters and designs that do or may conflict with
any of the Licensed Trademarks in the Core Merchandise Field or the New
Merchandise Field. WebHouse agrees to cooperate with Priceline in any litigation
or other enforcement action that Priceline may undertake to enforce or protect
the Licensed Trademarks, Licensed Patents, and Other Licensed Intellectual
Property in the Core Merchandise Field or the New Merchandise Field and, upon
Priceline's request, to execute, file and deliver all documents and proof
necessary for such purpose, including being named as a party to such litigation
as required by law. All reasonable out-of-pocket expenses incurred by WebHouse
in connection therewith shall be reimbursed by Priceline. WebHouse shall have
the right to participate and be represented in any such action, suit or
proceeding by its own counsel at its own expense. WebHouse shall have no claim
of any kind against Priceline based on or arising out of Priceline's handling of
or decisions concerning any such action, suit, proceeding, settlement, or
compromise, and WebHouse hereby irrevocably releases Priceline from any such
claim, provided, however, that Priceline shall not enter into any settlement or
compromise of such action, suit or proceeding that affects or concerns the
validity, enforceability, or ownership of any Licensed Trademarks, Licensed
Patents, or the Other Licensed Intellectual Property in the Core Merchandise
Field or the New Merchandise Field
[**]=Confidential Treatment requested for redacted portion
12
<PAGE>
without the prior written consent of WebHouse, which consent shall not be
unreasonably withheld.
SECTION 7.03. Enforcement by WebHouse. Priceline shall promptly
notify WebHouse in the event it elects not to take action under the terms of
Section 7.02. WebHouse shall thereafter have the option to commence any such
action against others in the Core Merchandise Field or the New Merchandise Field
under its own direction and control, and at its cost and expense. Priceline
shall reasonably assist WebHouse in such action if so requested, and shall be
named a party to such action if requested by WebHouse or required by law.
Priceline shall have the right to participate and be represented in any such
action, suit or proceeding by its own counsel at its own expense. Priceline
shall have no claim of any kind against WebHouse based on or arising out of
WebHouse's handling of or decisions concerning any such action, suit,
proceeding, settlement, or compromise, and Priceline hereby irrevocably releases
WebHouse from any such claim, provided that WebHouse shall not enter into any
settlement or compromise of such action, suit or proceeding that affects or
concerns the validity, enforceability (except in respect of granting immunity
from suit in connection with such settlement or compromise) or ownership of any
Licensed Trademarks, Licensed Patents or Other Licensed Property in the
Priceline Field or the New Merchandise Field without the prior written consent
of Priceline, which consent shall be at Priceline's sole discretion. WebHouse
may discontinue such action, suit or proceeding if in its sole discretion it
determines that such action, suit or proceeding is not advantageous to WebHouse.
SECTION 7.04. Withdrawal of Enforcement. If either Party brings an
action under this Article VII and subsequently ceases to pursue or withdraws
from such action, it shall promptly notify the other Party and the other Party
may substitute itself for the withdrawing Party under the terms of this Article
VII.
SECTION 7.05. Recoveries. All damages or other compensation of any
kind recovered in such action, suit, or proceeding or from any settlement or
compromise brought under this Article VII shall be for the benefit of the Party
that brought such action, suit, or proceeding, or in the event of a withdrawal
by a Party under Section 7.04 hereof, shall be apportioned between the Parties
in an amount proportional to the amount paid by each such Party with respect to
its costs and expenses in bringing such action, suit, or proceeding; provided,
however, that to the extent that damages or compensation recovered by one Party
are based on revenues or profits lost by the other Party, such other Party shall
be entitled to its pro rata share of such damages or compensation.
[**]=Confidential Treatment requested for redacted portion
13
<PAGE>
ARTICLE VIII
MAINTENANCE OF LICENSED INTELLECTUAL PROPERTY
SECTION 8.01. Priceline to Control. Except as otherwise provided in
this Article VIII, Priceline shall prosecute and maintain all Licensed
Trademarks, Licensed Patents, and Other Licensed Intellectual Property in the
name of Priceline at the cost and expense of Priceline. WebHouse shall provide
reasonable cooperation to Priceline in connection with such prosecution or
maintenance, and shall make available to Priceline or its authorized attorneys,
agents or representatives such of its employees as WebHouse in its reasonable
judgment deems necessary in order to assist Priceline with the prosecution or
maintenance of registrations and applications.
SECTION 8.02. New Trademarks. Upon the reasonable request of
WebHouse, Priceline shall file and obtain, at its own expense, additional
applications for registration of Licensed Trademarks as used or intended to be
used by WebHouse in the Core Merchandise Field or the New Merchandise Field. Any
trademark applications filed and registrations obtained under the terms of this
Section 8.02 shall be in the name of Priceline and shall be included in the
Licensed Trademarks. Nothing in this Section 8.02 shall restrict WebHouse's
right to obtain trademark registrations in its own name and for its own benefit.
SECTION 8.03. Priceline Abandonment. Without the prior written
consent of WebHouse, Priceline shall not abandon or allow to lapse any
registration or application of the Licensed Trademarks, Licensed Patents, and
Other Licensed Intellectual Property. In the event Priceline desires to abandon
any such registration or application and upon the request of WebHouse, Priceline
shall assign such registration or application to WebHouse.
[**]=Confidential Treatment requested for redacted portion
14
<PAGE>
ARTICLE IX
CONFIDENTIALITY
SECTION 9.01. Confidentiality. WebHouse will receive or learn from
Priceline, and Priceline's subsidiaries and affiliates, and Priceline will learn
from WebHouse, information, both orally and in writing, concerning the business
of Priceline or WebHouse, respectively, including, without limitation,
financial, technical and marketing information, and data and information related
to the development of technology and services, trade secrets, technology, plans,
methods, processes, specifications, models, protocols, techniques, research
projects, information management systems and software, whether protectable by
patent, copyright or other statutory means, relating to WebHouse's and
Priceline's business, as the case may be, and which information is deemed, in
the case of WebHouse, proprietary to WebHouse and, in the case of Priceline,
proprietary to Priceline. Both Parties hereby agree, as set forth below, to
protect such information, whether furnished before, on or after the date of this
Agreement, as it protects its own similar confidential information, but never
less than commercially reasonable efforts and not to disclose such information
to anyone except as otherwise provided for in this Agreement. Such information,
in whole or in part, together with analyses, compilations, programs, reports,
proposals, studies or any other documentation prepared by the Parties, as the
case may be, that contain or otherwise reflect or make reference to such
information, is hereinafter referred to as "Confidential Information". Both
Parties hereby agree that the Confidential Information will be used solely for
the purpose of this Agreement and not for any other purpose. Both Parties
further agree that any Confidential Information pertaining to the other Party is
the sole and exclusive property of such other Party, and that the receiving
Party shall not have any right, title, or interest in or to such Confidential
Information except as expressly provided in this Agreement. Both Parties further
agree to hold in the strictest confidence and not to disclose to anyone for any
reason Confidential Information pertaining to the other Party; provided that
(a) such Confidential Information may be disclosed to the receiving
Party's respective officers, directors, employees, agents, or
representatives (collectively, "Representatives") on a "need to know"
basis for the purpose of this Agreement on the condition that
(i) each such Representative will be informed by the receiving
Party of the confidential nature of such Confidential Information
and will agree to be bound by the terms of this Agreement and not to
disclose the Confidential Information to any other person, and
(ii) both Parties agree to accept full responsibility for any
breach of this Section 9.01 by its respective Representatives; and
[**]=Confidential Treatment requested for redacted portion
15
<PAGE>
(b) Confidential Information pertaining to the other Party may be
disclosed upon the prior written consent of the other Party.
Both Parties hereby agree, upon the request of the other Party, to promptly
deliver to the other Party the Confidential Information pertaining to such other
Party, without retaining any copies thereof.
SECTION 9.02. Exceptions. The term "Confidential Information" shall
not include any information: (a) that at the time of disclosure or thereafter is
generally available to or known by the public (other than as a result of a
disclosure directly or indirectly by the receiving Party); (b) is independently
developed by the receiving Party, without reference to or use of, the
Confidential Information of the other Party; (c) was known by the receiving
Party as of the time of disclosure without breach of confidentiality; (d) is
lawfully learned from a third party not under obligation to the disclosing
Party. In the event that the receiving Party is requested pursuant to, or
required by, applicable law or regulation or by legal process to disclose
Confidential Information, the receiving Party shall (i) provide prompt written
notice to the other Party prior to such disclosure in order for such Party to
seek an appropriate protective order or other remedy, (ii) consult with the
other Party to resist or narrow the scope of such request or legal process and
(iii) in the event disclosure is required, use its best efforts to disclose only
that portion of Confidential Information that is legally required to be
disclosed and to ensure that all Confidential Information disclosed will be
accorded confidential treatment.
SECTION 9.03. Unauthorized Disclosure. Each Party acknowledges and
confirms that the Confidential Information of each Party constitutes proprietary
information and trade secrets valuable to such Party, and that the unauthorized
use, loss or outside disclosure of such Confidential Information shall cause
irreparable injury to such Party. Each Party shall notify the other Party
immediately upon discovery of any unauthorized use or disclosure of Confidential
Information of the other Party, and will cooperate with the other Party in every
reasonable way to help regain possession of such Confidential Information and to
prevent its further unauthorized use. Each Party acknowledges that monetary
damages may not be a sufficient remedy for unauthorized disclosure of
Confidential Information and that the other Party shall be entitled, without
waiving other rights or remedies, to such injunctive or equitable relief as may
be deemed proper by a court of competent jurisdiction. Each Party shall be
entitled to recover reasonable attorney's fees for any action arising out of or
relating to a disclosure of its Confidential Information by the other Party.
[**]=Confidential Treatment requested for redacted portion
16
<PAGE>
ARTICLE X
REPRESENTATIONS AND WARRANTIES
SECTION 10.01. Representations and Warranties of Priceline.
Priceline represents and warrants that as of the date hereof:
(a) Organization and Authority. Priceline is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all necessary power and authority to enter into this Agreement,
to carry out its obligations hereunder and to consummate the transactions
contemplated hereby. Priceline is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the properties owned or leased
by it or the operation of its business makes such licensing or qualification
necessary, except to the extent that the failure to be so licensed or qualified
would not materially and adversely affect Priceline's assets, liabilities or
results of operations or prevent or materially delay the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
Priceline, the performance by it of its obligations hereunder and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all requisite action on its part. This Agreement has been duly
executed and delivered by Priceline, and (assuming due authorization, execution
and delivery by the other Person signatory hereto) this Agreement constitutes a
legal, valid and binding obligation of Priceline enforceable against it in
accordance with its terms.
(b) No Conflict. The execution, delivery and performance of this
Agreement by Priceline do not and will not (i) violate, conflict with or result
in the breach of any provision of its Certificate of Incorporation or By-laws,
(ii) conflict with or violate any law, governmental regulation or governmental
order applicable to Priceline or any of its assets, properties or businesses or
(iii) conflict with, result in any breach of, constitute a default (or event
which with the giving of notice or lapse of time, or both, would become a
default) under, require any consent under, or give to others any rights pursuant
to, any contract, agreement or arrangement by which Priceline is bound; except
to the extent that any conflict under (ii) or (iii) above would not prevent or
materially delay the consummation of the transactions contemplated by this
Agreement.
(c) Ownership. To the knowledge of Priceline, Priceline is either
(i) the owner of the entire right, title and interest in and to the Licensed
Trademarks, Licensed Patents, and Other Licensed Intellectual Property or (ii)
has been granted a license thereunder and has the right to grant to WebHouse the
rights granted herein.
(d) Enforceability. To the knowledge of Priceline, the Licensed
Trademarks, Licensed Patents, and Other Licensed Intellectual Property have not
been adjudged invalid or unenforceable in whole or part.
[**]=Confidential Treatment requested for redacted portion
17
<PAGE>
(e) Actions. Except as listed on Schedule C hereto, no actions have
been asserted or are pending, nor, to the knowledge of Priceline, has any such
action been threatened, against Priceline either (i) challenging or seeking to
deny or restrict the use by Priceline of any of the Licensed Trademarks,
Licensed Patents, or Other Licensed Intellectual Property, or (ii) alleging that
the use of the Licensed Trademarks, Licensed Patents, or Other Licensed
Intellectual Property by Priceline does or may conflict with, misappropriate or
infringe the intellectual property rights of any third party.
(f) No Infringement. To Priceline's knowledge, the use of the
Licensed Trademarks, Licensed Patents, and Other Licensed Intellectual Property
in connection with the business of WebHouse as contemplated herein does not
conflict with, misappropriate, or infringe the intellectual property rights of
any third party.
(g) Conduct of Business. To Priceline's knowledge, the rights
licensed hereunder are sufficient for WebHouse to operate its business as
currently anticipated.
(h) Exclusive Rights. To Priceline's knowledge, none of the rights
licensed hereunder conflict with any license or covenant not to sue granted by
Priceline to any third party.
SECTION 10.02. Representations and Warranties of WebHouse. WebHouse
represents and warrants that as of the date hereof:
(a) Organization and Authority. WebHouse is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all necessary power and authority to enter into this Agreement,
to carry out its obligations hereunder and to consummate the transactions
contemplated hereby. WebHouse is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the properties owned or leased
by it or the operation of its business makes such licensing or qualification
necessary, except to the extent that the failure to be so licensed or qualified
would not materially and adversely affect WebHouse's assets, liabilities or
results of operations or prevent or materially delay the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
WebHouse, the performance by it of its obligations hereunder and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all requisite action on its part. This Agreement has been duly
executed and delivered by WebHouse, and (assuming due authorization, execution
and delivery by the other Person signatory hereto) this Agreement constitutes a
legal, valid and binding obligation of WebHouse enforceable against it in
accordance with its terms.
(b) No Conflict. The execution, delivery and performance of this
Agreement by WebHouse do not and will not (i) violate, conflict with or result
in the breach of any provision of its Certificate of Incorporation or By-laws,
(ii) conflict with or violate any law, governmental
[**]=Confidential Treatment requested for redacted portion
18
<PAGE>
regulation or governmental order applicable to WebHouse or any of its assets,
properties or businesses or (iii) conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights pursuant to, any contract, agreement or arrangement by which
Priceline is bound; except to the extent that any conflict under (ii) or (iii)
above would not prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
ARTICLE XI
INDEMNIFICATION
SECTION 11.01. Indemnification by WebHouse. WebHouse agrees to
defend, indemnify, and hold Priceline and its Affiliates and the respective
directors, officers, employees, and agents of Priceline harmless from and
against any and all losses, debts, liabilities, claims, demands, causes of
action and expenses (including attorney's fees and deposition and discovery
expenses) arising out of or resulting from (a) the breach by WebHouse of any of
its representations, warranties, covenants and agreements contained within this
Agreement, or (b) the carrying on of WebHouse's business other than those losses
that would constitute a breach of Priceline's representations and warranties set
forth herein.
SECTION 11.02. Indemnification by Priceline. Priceline agrees to
defend, indemnify, and hold WebHouse and its Affiliates and the respective
directors, officers, employees, and agents of WebHouse harmless from and against
any and all losses arising out of or resulting from (a) the breach by Priceline
of any of its representations, warranties, covenants and agreements contained
within this Agreement, (b) the carrying on of Priceline's business and (c)
actions brought against WebHouse by third parties to the extent that Priceline
is indemnified by others for such third-party liabilities.
SECTION 11.03. Indemnification Process. In respect of any claim,
suit or demand by any third party ("Third Party Claim") arising from or relating
to unauthorized acts or breaches of the terms of this Agreement, WebHouse and
Priceline (each, an "Indemnified Party") shall give the Party hereto from whom
indemnification is sought (the "Indemnifying Party") prompt written notice of
any Third Party Claim of which such Indemnified Party has knowledge concerning
any losses as to which such Indemnified Party may request indemnification
hereunder. If the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party hereunder against any losses that may result
from such Third Party Claim, then the Indemnifying Party shall be entitled to
assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the Indemnified Party within five (5) days of the receipt of such notice from
the Indemnified Party; provided that if there exists or is reasonably likely to
exist a conflict or interest that would
[**]=Confidential Treatment requested for redacted portion
19
<PAGE>
make it inappropriate in the judgment of the Indemnified Party, in its sole and
absolute discretion, for the same counsel to represent both the Indemnified
Party and the Indemnifying Party, then the Indemnified Party shall be entitled
to retain its own counsel, at the expense of the Indemnifying Party. In the
event the Indemnifying Party exercises the right to undertake any such defense
against any such Third Party Claim as provided above, the Indemnified Party
shall cooperate with the Indemnifying Party in such defense and make available
to the Indemnifying Party, at the Indemnifying Party's expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by the Indemnifying Party. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Party in such defense and make available to the Indemnified Party,
at the Indemnified Party's expense, all such witnesses, records, materials and
information in the Indemnifying Party's possession or under the Indemnifying
Party's control relating thereto as is reasonably required by the Indemnified
Party. No such Third Party Claim may be settled by the Indemnifying Party
without the prior written consent of the Indemnified Party.
ARTICLE XII
TERM AND TERMINATION
SECTION 12.01. Term of Agreement. This Agreement shall remain in
force until the later of (i) the termination of the patent license granted under
Section 2.01 or (ii) the termination of the trademark license granted under
Section 2.02, unless earlier terminated in accordance with the provisions of
this Article 12 (the "Term").
SECTION 12.02. Term of Licenses. (a) Unless earlier terminated under
the terms of this Article 12, the patent licenses granted under Section 2.01 and
the Other Intellectual Property license granted under Section 2.03 shall
terminate on October 26, 2019; provided, however, in the event that the patent
licenses granted under Section 2.01 and the Other Intellectual Property License
granted under Section 2.03 terminate on October 26, 2019, the Parties shall in
good faith negotiate the terms of and the Parties shall enter into a royalty
bearing patent and Other Intellectual Property license of equivalent scope to
the licenses granted under Sections 2.01 and 2.03 with such royalties based on
the fair market value of such license.
(b) Unless earlier terminated under the terms of this Article 12,
the trademark licenses granted under Section 2.02 shall terminate on the earlier
of (i) the date six (6) months after the Expiration Event or (ii) October 26,
2019; provided, however, in the event that the trademark licenses granted under
Section 2.02 terminate on October 26, 2019, the Parties shall in good faith
negotiate the terms of and the Parties shall enter into a royalty bearing
trademark
[**]=Confidential Treatment requested for redacted portion
20
<PAGE>
license of equivalent scope to the licenses granted under Section 2.02 with such
royalties based on the fair market value of such license.
SECTION 12.03. Termination of Trademark Licenses by Priceline. (a)
Priceline may terminate the trademark licenses granted under Section 2.02 on six
(6) months written notice to WebHouse in the event that WebHouse fails to
achieve annual Net Revenues of $100 million in the fiscal year ending December
31, 2001.
(b) Priceline may terminate the trademark licenses granted under
Section 2.02 on six (6) months written notice following a Change of Control.
SECTION 12.04. Termination by WebHouse. WebHouse may terminate this
Agreement, or any of the licenses granted hereunder (a) at any time upon ninety
(90) days written notice to Priceline or (b) upon any willful material breach by
Priceline of its obligations under Section 6.02.
SECTION 12.05. Termination for Breach. In addition to any other
rights of termination provided for in this Agreement, if either Party commits a
material breach of any of the material provisions of this Agreement, and such
breach is not cured within ninety (90) days after the date on which notice of
breach is sent by the non-breaching Party to the breaching Party, the breaching
Party shall have the right to terminate the Agreement upon a further thirty (30)
days written notice to the breaching Party.
SECTION 12.06. Upon Termination of Trademark Licenses. Upon
termination of this Agreement or the trademark licenses granted under Section
2.02, WebHouse shall immediately cease and desist all uses of the Licensed
Trademarks, and will promptly, at its option, either destroy all materials and
signage bearing any Licensed Trademarks or will deliver to Priceline all such
materials and signage. WebHouse shall thereafter make no reference in its
advertising or promotional materials as having been formerly associated with or
licensed by Priceline. WebHouse will not subsequently adopt or use any
trademark, service mark, trade name, domain name, trade dress, logo or other
source identifier which is derived from or confusingly similar to any Licensed
Trademark. Priceline shall thereafter make no reference in its advertising or
promotional materials as having been formerly associated with or licensed by
WebHouse. Priceline will not subsequently adopt or use any trademark, service
mark, trade name, domain name, trade dress, logo or other source identifier
which is derived from or confusingly similar to any trademark, service mark,
domain name, trade dress, logos or other source identifier owned or controlled
by WebHouse.
SECTION 12.07. Upon Termination of Agreement. Except as provided in
Section 12.09, upon termination of this Agreement (i) all licenses granted
hereunder pursuant to Article 2 shall immediately terminate, and (ii) WebHouse
shall within fifteen (15) days thereafter
[**]=Confidential Treatment requested for redacted portion
21
<PAGE>
generate a final written report of the revenues of WebHouse through the
termination date, and pay Priceline the royalties due through the termination
date.
SECTION 12.08. Payment of Royalties upon Termination. Termination of
this Agreement for any reason shall not affect any obligation of WebHouse to pay
Priceline any royalties accrued as of the date of termination.
SECTION 12.09. Survival. The provisions of Articles 9, 11, 12 and 13
and Section 3.05 shall survive termination of this Agreement in accordance with
their terms. In the event of termination of this Agreement by WebHouse under
Section 12.05 for a breach of this Agreement by Priceline, the provisions of
Section 2.01 and 2.03 shall additionally survive termination of this Agreement.
ARTICLE XIII
GENERAL
SECTION 13.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the Party incurring such costs and expenses.
SECTION 13.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a Party as shall be specified
in a notice given in accordance with this Section 13.02):
(a) if to WebHouse:
Priceline WebHouse Club, Inc.
Five High Ridge Park
Stamford, CT 06905
Telecopy No.: (203) 595-8305
Attention: Anne Maffei
(b) if to Priceline:
priceline.com Incorporated
One High Ridge Park
[**]=Confidential Treatment requested for redacted portion
22
<PAGE>
Stamford, CT 06905
Telecopy No.: (203) 595-8345
Attention: Melissa Taub
SECTION 13.03. Public Announcements. Except as required by law, by
governmental regulation or by the requirements of any securities exchange on
which the securities of a Party hereto are listed, no Party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or otherwise communicate with any news media without
the prior written consent of the other Party, and the Parties shall cooperate as
to the timing and contents of any such press release or public announcement.
SECTION 13.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 13.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any Party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the Parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 13.06. Entire Agreement. This Agreement constitutes the
entire agreement of the Parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
with respect to the subject matter hereof.
SECTION 13.07. Assignment and Sublicense. This Agreement may not be
assigned nor any license granted hereunder sublicensed by either Party without
the express written consent of the other Party (which consent may be granted or
withheld in the sole discretion of any Party), except that (i) this Agreement
may be assigned, without consent, in connection with the sale of a Party's
business whether such is a sale of all or substantially all of such Party's
assets, a merger or a stock sale and (ii) Priceline may assign or sublicense its
rights hereunder to an Affiliate thereof; provided that any such assignment
shall not relieve Priceline of its obligations hereunder. This Agreement shall
inure to the benefit of, and be binding upon, the successors of the Parties
hereto, provided such assignment was in compliance with the terms hereof.
[**]=Confidential Treatment requested for redacted portion
23
<PAGE>
SECTION 13.08. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the Parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other person or entity any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 13.09. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the Parties.
SECTION 13.10. Governing Law. This Agreement shall be governed by
the laws of the State of New York. All actions and proceedings arising out of or
relating to this Agreement may be heard and determined in any New York State or
federal court sitting in the City of New York, County of Manhattan, and the
Parties hereto hereby irrevocably submit to the nonexclusive jurisdiction of
such courts in any such action or proceeding and irrevocably waive any defense
of an inconvenient forum to the maintenance of any such action or proceeding.
SECTION 13.11. Counterparts. This Agreement may be executed in one
or more counterparts, and by the different Parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement. Copies
of executed counterparts transmitted by telecopy, telefax or other electronic
transmission service shall be considered original executed counterparts for
purposes of this Section 13.11; provided that receipt of copies of such
counterparts is confirmed.
SECTION 13.12. Specific Performance. The Parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the Parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 13.13. Waiver of Jury Trial. Each of the Parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement or the transactions contemplated hereby
and for any counterclaim therein.
SECTION 13.14. Execution of Documents. Consistent with the terms of
this Agreement, each Party shall perform all lawful acts and execute such
instruments as the other Party may reasonably request to confirm, evidence,
maintain or protect such Party's rights to or under any of the intellectual
property licensed hereunder. If a Party refuses or fails to perform such acts or
execute such instruments, the other Party may do so as attorney-in-fact for such
purpose.
[**]=Confidential Treatment requested for redacted portion
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective authorized signatories thereunto duly authorized
as of the date first above written.
PRICELINE.COM INCORPORATED
By: _________________________________
Name:
Title:
PRICELINE WEBHOUSE CLUB, INC.
By: _________________________________
Name:
Title:
[**]=Confidential Treatment requested for redacted portion
Exhibit 10.22.3
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
MARKETING AND TECHNICAL SERVICES AGREEMENT
This MARKETING AND TECHNICAL SERVICES AGREEMENT (this "Agreement"),
made and entered into this 26th day of October, 1999 (the "Effective Date"), by
and between PRICELINE.COM INCORPORATED, a Delaware corporation ("Priceline"),
and PRICELINE WEBHOUSE CLUB, INC., a Delaware corporation ("WebHouse") (each, a
"Party," and collectively, the "Parties"),
W I T N E S S E T H :
WHEREAS, Priceline is an Internet-based company with significant
name recognition of its trademarked "priceline" name and patented "demand
collection system" for selling products over the Internet;
WHEREAS, Walker Digital, LLC ("Walker Digital") is a research and
development company containing certain trade secrets, know-how and other
intellectual property;
WHEREAS, in connection with the establishment of WebHouse's business
of the sale of retail products in a "name your price" format over the Internet,
(i) Walker Digital is (A) contributing certain know-how and other assets and
liabilities used in or incurred during the initial development of WebHouse's
business, pursuant to an asset contribution agreement dated as of the date
hereof between Walker Digital and WebHouse (the "Asset Contribution Agreement")
and (B) licensing certain intellectual property pursuant to a license agreement
between Walker Digital and Priceline dated as of the date hereof, which
intellectual property shall in turn be sublicensed by Priceline to WebHouse,
(ii) Walker Digital Corporation, a research and development company, is
contributing certain employees to WebHouse under the Asset Contribution
Agreement, and (iii) Priceline is (A) licensing and sublicensing, as applicable,
the use of the "priceline" name, certain patent rights and other intellectual
property rights for use in connection with WebHouse's business, pursuant to an
intellectual property license agreement between Priceline and WebHouse dated as
of the date hereof (the "Priceline License Agreement"), (B) providing
professional services, including accounting and legal services to WebHouse
pursuant to a services agreement between Priceline and WebHouse dated as of the
date hereof (the "Services Agreement"), and (C) providing certain marketing and
technical services to WebHouse pursuant to this Agreement;
[**]=Confidential Treatment requested for redacted portion
<PAGE>
WHEREAS, in consideration for the cash and the assets it has
contributed pursuant to the Asset Contribution Agreement, Walker Digital is
receiving a promissory note in the amount of $14,592,185.60, payable on April
26, 2000;
WHEREAS, in consideration of their cash contributions, Walker
Digital and certain other investors (the "Investors") are receiving a total of
23,500,000 shares of WebHouse's common stock, par value $.01 per share (the
"Common Stock"), pursuant to the subscription agreement (the "Subscription
Agreement") dated as of the date hereof between WebHouse and the Investors;
WHEREAS, in consideration for its execution and deliveries pursuant
to the Priceline License Agreement, Priceline is receiving a warrant to purchase
under certain circumstances up to 137.5 million shares of Common Stock pursuant
to an agreement between Priceline and WebHouse dated as of the date hereof (the
"Priceline Warrant") and has certain rights to participate in WebHouse's
corporate governance;
WHEREAS, in connection with the establishment of WebHouse, Priceline
is agreeing, pursuant to the Services Agreement and this Agreement, to provide
services to and to coordinate marketing activities with WebHouse in exchange for
arm's-length consideration; and
WHEREAS, subsequent to the date of this Agreement, Priceline shall,
for a period of time, provide or cause to be provided to WebHouse certain
marketing and technical services with respect to WebHouse's business.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. General. As used herein, the following terms shall
have the following meanings:
"Affiliate" shall mean, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by, or is under common Control with, such specified
Person.
"Agreement" shall have the meaning set forth in the preamble.
[**]=Confidential Treatment requested for redacted portion
<PAGE>
"Asset Contribution Agreement" shall have the meaning set forth in
the recitals.
"Buyer-Driven Commerce" shall mean any commerce system or process
that permits a prospective buyer to fix the terms and conditions, including
price, on which such buyer is willing to purchase a particular product or
service, with such offer being guaranteed or otherwise secured by the buyer
should a seller of the product or service accept the terms of the buyer's offer.
"Change of Control" shall mean and shall be deemed to occur if: (a)
upon the exercise of the Warrant in full, Priceline would not beneficially own
or retain, directly or indirectly, more than 50% of the WebHouse Voting
Interests; (b) WebHouse shall sell, assign, or otherwise transfer all or
substantially all of its assets to any Person other than Priceline or an
Affiliate thereof; or (c) during any consecutive two (2) year period,
individuals who at the beginning of such period constituted the Board of
Directors of WebHouse (together with any new directors whose election by the
Board of Directors of WebHouse or whose nomination for election by the
stockholders of WebHouse was approved by a vote of the majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason (other than by action of Priceline) to constitute a majority of
the Board of Directors of WebHouse then in office.
"Common Stock" shall have the meaning set forth in the recitals.
"Confidential Information" shall have the meaning set forth in
Section 6.01.
"Control" (including the terms "Controlled by" and "under common
Control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Cooperative Marketing Services" shall have the meaning set forth in
Section 2.03.
"Effective Date" shall have the meaning set forth in the preamble.
"Investors" shall have the meaning set forth in the recitals.
"Party" or "Parties" shall have the meaning set forth in the
preamble.
[**]=Confidential Treatment requested for redacted portion
3
<PAGE>
"Person" shall mean an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, pool, syndicate, sole proprietorship, incorporated organization,
governmental authority or any other form of entity.
"Priceline" shall have the meaning set forth in the preamble.
"Priceline License Agreement" shall have the meaning set forth in
the recitals.
"Priceline Warrant" shall have the meaning set forth in the
Recitals.
"Primary Marketing Services" shall mean services related to the
promotion and advertisement of WebHouse's business independent of Priceline's
business.
"Services" shall mean Shared Technology Infrastructure Services,
Technology Development Services, Cooperative Marketing Services and Primary
Marketing Services.
"Shared Technology Infrastructure Services" shall have the meaning
set forth in Section 2.01.
"Subscription Agreement" shall have the meaning set forth in the
recitals.
"Technology Development Services" shall mean services related to the
design and development of hardware and software related to WebHouse's business.
"Term" shall have the meaning set forth in Section 4.01.
"Voting Interest" of WebHouse means one Share of Common Stock and
any other share or unit of Capital Stock issued by WebHouse, the holders of
which are ordinarily, in the absence of contingencies, entitled to one vote in
the election of WebHouse's directors (or Persons performing similar functions),
or the approval of its management and policies, even if the right to vote has
been suspended by the occurrence of a contingency.
"Warrant" shall mean Priceline's warrant to purchase shares of
WebHouse under the Priceline Warrant.
"WebHouse" shall have the meaning set forth in the preamble.
ARTICLE II
[**]=Confidential Treatment requested for redacted portion
4
<PAGE>
THE SERVICES
SECTION 2.01 Provision of Technical Services. Subject to the terms
and conditions of this Agreement and in accordance with the standards of
performance set forth in Section 2.02, Priceline shall provide to WebHouse the
Shared Technology Infrastructure Services specified in Schedule 1 hereto (the
"Shared Technology Infrastructure Services") during the Term. During the Term,
the Parties agree to share certain hardware and software systems and cooperate
regarding the purchase of other hardware and software systems in connection with
the provision of Shared Technology Infrastructure Services by Priceline to
WebHouse.
(b) Subject to the terms and conditions of this Agreement and in
accordance with the standards of performance set forth in Section 2.02,
Priceline shall provide to WebHouse Technology Development Services during the
period beginning on the Effective date and ending on March 31, 2000. Upon mutual
agreement between the Parties, the Parties may agree to extend the period within
which Priceline shall provide Technology Development Services beyond March 31,
2000, pursuant to Section 2.04.
SECTION 2.02. Standard of Performance. Priceline agrees to provide
or cause to be provided to WebHouse the Shared Technology Infrastructure
Services and the Technology Development Services in substantially the same
manner and at substantially the same levels as such activities are conducted for
Priceline's own benefit (including, without limitation, by performing all
necessary maintenance of systems and infrastructure used in providing the Shared
Technology Infrastructure Services and the Technology Development Services).
SECTION 2.03. Marketing Services. Subject to the terms and
conditions of this Agreement, Priceline and WebHouse shall cooperate in good
faith to conduct marketing activities in respect of co-branding and
co-positioning of the Parties' respective services, during the Term (the
"Cooperative Marketing Services"). The companies shall develop and implement
brand recognition and awareness strategies and campaigns which integrate and
associate the Priceline name with WebHouse and its business. In furtherance of
these objectives, Priceline shall, inter alia, list or name WebHouse and the
goods and services offered by WebHouse in any advertising media wherein other
Priceline services or affiliates are listed or named.
(b) Subject to the terms and conditions of this Agreement, Priceline
shall provide to WebHouse Primary Marketing Services during the period beginning
on the Effective date and ending on March 31, 2000. Upon mutual agreement
between the Parties, the Parties may agree to extend the period within which
Priceline shall provide Primary Marketing Services beyond March 31, 2000,
pursuant to Section 2.04.
[**]=Confidential Treatment requested for redacted portion
5
<PAGE>
SECTION 2.04. Changes. WebHouse may request the provision of
additional Shared Technology Infrastructure Services, Technology Development
Services, Cooperative Marketing Services, Primary Marketing Services or new
services which were not previously requested and may request the cessation of
specific Services then being provided. In such case, the parties shall negotiate
in good faith whether and on what terms Priceline shall provide (if at all) any
additional Services.
SECTION 2.05. Cooperation and Access. (a) Each of the Parties hereto
agrees to fully cooperate in good faith with the other in connection with the
Services provided under this Agreement and matters related to or arising
hereunder, including, without limitation, Priceline's cooperation with WebHouse
to enable WebHouse to establish its own infrastructure to perform the Technical
Services itself, independently of Priceline.
(b) WebHouse shall permit Priceline and its employees and agents
access during regular business hours (or otherwise upon reasonable prior notice)
to such data and personnel designated by WebHouse as involved in receiving or
overseeing the Technical Services as reasonably requested by Priceline to
facilitate Priceline's performance of this Agreement. Priceline shall permit
WebHouse and its employees and agents access during regular business hours (or
otherwise upon reasonable prior notice) to individuals responsible for the
Technical Services and shall provide WebHouse with such data and records as
WebHouse may reasonably request for the purposes of allowing WebHouse to
exercise general oversight and to monitor the performance of the Technical
Services.
(c) WebHouse shall be entitled to have access at all reasonable
times and on reasonable notice to the premises and records of Priceline (insofar
as such records relate to the business of WebHouse) and any agent or Affiliate
providing the Technical Services hereunder (including any individual responsible
for providing the Services) for purposes of verifying the accuracy of charges
for Services rendered hereunder and to verify the proper performance of Services
by Priceline.
(d) Each party agrees to make available any of its employees whose
assistance, testimony or presence is necessary to assist the other party in
evaluating or defending any claims, including the presence of such persons as
witnesses in hearings or trials for such purpose; provided that the party
requiring such assistance shall reimburse the party providing such assistance
(or the employee) for any direct out-of-pocket costs in connection with such
employee's assistance, testimony or presence, promptly following receipt of
appropriate documentation of such out-of-pocket costs.
(e) Each party shall cooperate with and assist the other party in
obtaining any third-party consents necessary for the performance of the
Technical Services hereunder, including, without limitation, any required
consent under any software license or real property
[**]=Confidential Treatment requested for redacted portion
6
<PAGE>
lease. The costs and expenses of obtaining any such consents shall be borne
equally by the parties. In the event that the parties are unable to obtain any
required consent they shall negotiate in good faith reasonable modifications of
the Services such that such consents are not required.
ARTICLE III
FEES
SECTION 3.01 Fees. (a) Cooperative Marketing Services Fees: As of
the Effective Date, the amount of compensation and specific Cooperative
Marketing Services to be provided shall be negotiated in good faith quarterly in
advance of such succeeding quarter. The amount of compensation shall be based on
the fair market value of such Cooperative Marketing Services. In the event the
parties are unable to agree on the amount of compensation or the specific
Cooperative Marketing Services to be provided for any given quarter, the
compensation shall equal the amount agreed in the immediately preceding quarter
plus [**]% and the Cooperative Marketing Services provided shall be the same
Cooperative Marketing Services provided the previous quarter. The compensation
paid by WebHouse for Cooperative Marketing Services shall not exceed [**]% of
Priceline's total quarterly advertising and marketing related expenditures.
(b) Primary Marketing Services Fees. On or before December 31, 1999,
WebHouse shall pay Priceline $[**] as compensation for past Primary Marketing
Services and for Primary Marketing Services to be performed through December 31,
1999. On or before March 31, 2000, WebHouse shall pay Priceline $[**] as
compensation for Primary Marketing Services to be performed through March 31,
1999. Thereafter, WebHouse shall not be obligated to pay Priceline any
compensation for Primary Marketing Services unless the Parties agree upon the
provision of additional Primary Marketing Services pursuant to Sections 2.03(b)
and 2.04. In the event that the Parties agree that Priceline shall provide such
additional Primary Marketing Services, the Parties shall negotiate in good faith
quarterly in advance of such succeeding quarter the amount of compensation to be
paid by WebHouse to Priceline as compensation for such additional Primary
Marketing Services. Such compensation shall be based on the fair market value of
such additional Primary Marketing Services.
(c) Shared Technology Infrastructure Services Fees: On or before
December 31, 1999, WebHouse shall pay Priceline $[**] as compensation for
past Shared Technology Infrastructure Services and for Shared Technology
Infrastructure Services to be performed through December 31, 1999. Thereafter,
the amount of compensation and specific Shared Technology Infrastructure
Services to be provided shall be negotiated in good faith quarterly in advance
of such succeeding quarter. The amount of compensation shall be based on the
fair market value of such Shared Technology Infrastructure Services and the
unamortized value of
[**]=Confidential Treatment requested for redacted portion
7
<PAGE>
any capitalized assets (as determined in accordance with generally accepted
accounting principles consistently applied by Priceline) acquired by Priceline
that are directly related to and required for Priceline's provision of Shared
Technology Infrastructure Services. In the event the parties are unable to agree
on the amount of compensation or the specific Technical Services to be provided
for any given quarter, the compensation shall equal the amount agreed in the
immediately preceding quarter plus [**]% and the Shared Technology
Infrastructure Services provided shall be the same Shared Technology
Infrastructure Services provided the previous quarter. In the event the parties
are unable to agree on the amount of compensation or Shared Technology
Infrastructure Services for the first quarter of the year 2000, the compensation
shall be $[**] and the Shared Technology Infrastructure Services shall be the
same Shared Technology Infrastructure Services provided during 1999. Any
hardware or software purchased or developed by Priceline for the exclusive use
of WebHouse shall be billed to WebHouse at Priceline's cost and shall be owned
exclusively by WebHouse.
(d) Technical Development Services Fees. On or before December 31,
1999, WebHouse shall pay Priceline $[**] as compensation for past Technical
Development Services and for Technical Development Services to be performed
through December 31, 1999. On or before March 31, 2000, WebHouse shall pay
Priceline $[**] as compensation for Technical Development Services to be
performed through March 31, 2000. Thereafter, WebHouse shall not be obligated to
pay Priceline any compensation for Technical Development Services unless the
Parties agree upon the provision of additional Technical Development Services
pursuant to Sections 2.01(b) and 2.04. In the event that the Parties agree that
Priceline shall provide such additional Technical Development Services, the
Parties shall negotiate in good faith quarterly in advance of such succeeding
quarter the amount of compensation to be paid by WebHouse to Priceline as
compensation for such additional Technical Development Services. Such
compensation shall be based on the fair market value of such additional
Technical Development Services.
[**]=Confidential Treatment requested for redacted portion
8
<PAGE>
ARTICLE IV
TERM AND TERMINATION
SECTION 4.01. Term. Unless earlier terminated under the terms of
this Agreement, the Term of this Agreement (the "Term") shall commence on the
Effective Date and continue for a period of 12 months and shall automatically
continue for successive one-year terms thereafter until terminated by either
party effective at the end of such initial 12-month term or the then current
one-year term, in each case on written notice given at least 18 months prior to
the end of such initial 12-month term or the then current one-year term;
provided that, unless the parties otherwise agree in writing, the term of this
Agreement shall not extend beyond the termination of the trademark license
granted under Section 2.02 of the Priceline License Agreement.
SECTION 4.02. Termination. Priceline shall continue to make each
Service available through the end of the Term or, if earlier, until canceled by
WebHouse by written notice to Priceline. Notwithstanding the foregoing, this
Agreement (and the obligation to provide any Services) may be terminated:
(a) by WebHouse, at any time upon ninety (90) days written notice to
Priceline;
(b) by mutual agreement of Priceline and WebHouse;
(c) by Priceline, at any time, not less than 90 days after delivery
of notice to WebHouse, in the event that WebHouse shall have defaulted on
or breached any material term of this Agreement and shall not have cured
such breach within 60 days after receiving notice from Priceline
specifying the nature of such default or breach;
(d) by WebHouse, at any time, not less than 90 days after delivery
of notice to Priceline, in the event that Priceline shall have defaulted
on or breached any material term of this Agreement and shall not have
cured such breach within 60 days after receiving notice from WebHouse
specifying the nature of such default or breach;
(e) by either party, immediately upon delivery of notice to the
other party, in the event that such other party (i) requires a composition
or other similar arrangement with creditors, files for bankruptcy or is
declared bankrupt or (ii) shall have assigned or transferred to any third
party any of its rights or obligations hereunder except in accordance with
Section 7.07; or
(f) by Priceline, at any time, following the expiration of the
Warrant.
[**]=Confidential Treatment requested for redacted portion
9
<PAGE>
SECTION 4.03. Payments Upon Termination. In the event that, upon
termination of this Agreement, any capitalized assets acquired by Priceline that
were directly related to and required for Priceline's provision of Shared
Technology Infrastructure Services retain any unamortized value (as determined
in accordance with generally accepted accounting principles consistently applied
by Priceline), WebHouse shall continue to pay Priceline compensation for Shared
Technology Infrastructure Services quarterly until the value of such capitalized
assets has been completely amortized.
ARTICLE V
RESPONSIBILITY
SECTION 5.01. Relationship of the Parties. Nothing in this Agreement
shall be construed as (a) an assumption by Priceline of any obligation to
maintain or increase the sales or profits of WebHouse or otherwise to assume
responsibility for WebHouse's operations; (b) an assumption by Priceline of any
financial obligation of WebHouse; (c) the creation of any relationship of
employment or agency between WebHouse and employees or consultants of Priceline,
its subsidiaries or associated companies; (d) an assumption by Priceline of any
responsibility for the work performed by outside suppliers employed by WebHouse
at the suggestion or recommendation of Priceline; or (e) the delegation of any
function or authority of WebHouse to Priceline. In all matters relating to this
Agreement, each Party hereto shall be solely responsible for the acts of its own
employees, and employees of one Party shall not be considered employees of the
other Party. Except as specifically permitted by this Agreement, no Party hereto
or any of its employees shall have any authority to negotiate, enter into any
contract or incur any obligation, on behalf of the other Party. The Parties
hereto are independent contractors and neither Party is an employee, partner or
joint venturer of the other.
SECTION 5.02. Limitation of Liability. Priceline MAKES NO WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES PROVIDED HEREUNDER. Priceline
shall have no liability for any losses or damages that WebHouse may incur as a
result of the provision or non-provision of Services except to the extent caused
by the gross negligence or wilful misconduct of such person. In no event shall
Priceline, its officers, directors, employees, agents, independent contractors,
affiliates and stockholders be liable for any consequential or special damages
suffered by WebHouse as a result of any representations, actions or inactions by
any person or entity in respect of its obligations hereunder.
ARTICLE VI
CONFIDENTIALITY
[**]=Confidential Treatment requested for redacted portion
10
<PAGE>
SECTION 6.01. Confidentiality. WebHouse will receive or learn from
Priceline, and Priceline's parents, subsidiaries and Affiliates, and Priceline
will learn from WebHouse, information, both orally and in writing, concerning
the business of Priceline or WebHouse, respectively, including, without
limitation, financial, technical and marketing information, data, information
related to the development of technology and services, trade secrets,
technology, plans, methods, processes, specifications, models, protocols,
techniques, research projects, information management systems and software,
whether protectable by patent, copyright or other statutory means, relating to
WebHouse's and Priceline's business, as the case may be, and which information
is deemed, in the case of WebHouse, proprietary to WebHouse and, in the case of
Priceline, proprietary to Priceline. Both Parties hereby agree, as set forth
below, to protect such information, whether furnished before, on or after the
date of this Agreement, as it protects its own similar confidential information,
but never less than commercially reasonable efforts, and not to disclose such
information to anyone except as otherwise provided for in this Agreement. Such
information, in whole or in part, together with analyses, compilations,
programs, reports, proposals, studies or any other documentation prepared by the
Parties, as the case may be, which contains or otherwise reflects or makes
reference to such information, is hereinafter referred to as "Confidential
Information". Both Parties hereby agree that the Confidential Information will
be used solely for the purpose of this Agreement and not for any other purpose.
Both Parties further agree that any Confidential Information pertaining to the
other Party is the sole and exclusive property of such other Party, and that the
receiving Party shall not have any right, title, or interest in or to such
Confidential Information except as expressly provided in this Agreement. Both
Parties further agree to hold in the strictest confidence and not to disclose to
anyone for any reason Confidential Information pertaining to the other Party;
provided that
(a) such Confidential Information may be disclosed to the receiving
Party's respective officers, directors, employees, agents, or
representatives (collectively, "Representatives") on a "need to know"
basis for the purpose of this Agreement on the condition that
(i) each such Representative will be informed by the receiving
Party of the confidential nature of such Confidential Information
and will agree to be bound by the terms of this Agreement and not to
disclose the Confidential Information to any other person and
(ii) both Parties agree to accept full responsibility for any
breach of this Section 6.01 by their respective Representatives; and
(b) Confidential Information pertaining to the other Party may be
disclosed upon the prior written consent of the other Party.
[**]=Confidential Treatment requested for redacted portion
11
<PAGE>
Both Parties hereby agree, upon the request of the other Party, to promptly
deliver to the other Party, at its own cost, the Confidential Information
pertaining to such other Party, without retaining any copies thereof.
SECTION 6.02. Non-Confidential Information. The term "Confidential
Information" shall not include any information: (a) which at the time of
disclosure or thereafter is generally available to or known by the public (other
than as a result of a disclosure directly or indirectly by the receiving Party);
(b) is independently developed by the receiving Party, without reference to or
use of, the Confidential Information of the other Party; (c) was known by the
receiving Party as of the time of disclosure without breach of confidentiality;
(d) is lawfully learned from a third party not under obligation to the
disclosing Party; or (e) is required to be disclosed pursuant to a subpoena,
court order or other legal process, whereupon the receiving Party shall provide
prompt written notice to the other Party prior to such disclosure.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the Party incurring such costs and expenses.
SECTION 7.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a Party as shall be specified
in a notice given in accordance with this Section 7.02):
(a) if to Priceline:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy No.: (203) 595-8345
Attention: Melissa Taub
(b) if to WebHouse:
[**]=Confidential Treatment requested for redacted portion
12
<PAGE>
Priceline WebHouse Club, Inc.
One High Ridge Park
Stanford, CT 06905
Telecopy No.: (203) 595-8305
Attention: Anne Maffei
SECTION 7.03. Public Announcements. Except as required by law,
governmental regulation or by the requirements of any securities exchange on
which the securities of a Party hereto are listed, no Party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or otherwise communicate with any news media without
the prior written consent of the other Party, and the Parties shall cooperate as
to the timing and contents of any such press release or public announcement.
SECTION 7.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 7.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any Party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the Parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 7.06. Entire Agreement. This Agreement constitutes the
entire agreement of the Parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
with respect to the subject matter hereof.
SECTION 7.07. Assignment. This Agreement shall not be assigned
without the express written consent of the Parties (which consent may be granted
or withheld in the sole discretion of any Party) except that this Agreement may
be assigned, without consent, in connection with the sale of a Party's entire
business whether such is a sale of all or substantially all of such Party's
assets, a merger or a stock sale. This Agreement shall inure to the benefit of,
and be binding upon, the successors of the Parties hereto and the assignees of
the Parties hereto, provided such assignment was in compliance with the terms
hereof.
SECTION 7.08. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the Parties hereto and their
permitted assigns and nothing
[**]=Confidential Treatment requested for redacted portion
13
<PAGE>
herein, express or implied, is intended to or shall confer upon any other person
or entity any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
SECTION 7.09. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the Parties.
SECTION 7.10. Governing Law. This Agreement shall be governed by the
laws of the State of New York. All actions and proceedings arising out of or
relating to this Agreement may be heard and determined in any New York State or
federal court sitting in the City of New York, County of Manhattan, and the
Parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of
such courts in any such action or proceeding and irrevocably waive any defense
of an inconvenient forum to the maintenance of any such action or proceeding.
SECTION 7.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different Parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section 7.11; provided that receipt of copies of such counterparts is confirmed.
SECTION 7.12. Specific Performance. The Parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the Parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 7.13. Waiver of Jury Trial. Each of the Parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement or the transactions contemplated hereby
and for any counterclaim therein.
[**]=Confidential Treatment requested for redacted portion
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective authorized signatories thereunto duly authorized
as of the date first above written.
PRICELINE.COM INCORPORATED
By: _________________________________
Name:
Title:
PRICELINE WEBHOUSE CLUB, INC.
By: _________________________________
Name:
Title:
[**]=Confidential Treatment requested for redacted portion
<PAGE>
SCHEDULE 1
TECHNICAL SERVICES
1. Clarus Accounting System: A system that provides accounts payable,
accounts receivable, general ledger processing, budgeting and reporting,
including shared network connections.
2. MIS Data Warehousing: Shared database server and database environment.
Priceline WebHouse Club will have separate database layouts for its operational
database and data warehouse on the shared server, including shared network
connections.
3. Brio Reporting Software: Shared BRIO software engine, server, and
network. Priceline WebHouse will have separate BRIO reports specific to its
business on the server, including shared network connections.
4. Informatica ETL: Shared tool used to transform data from operational
MIS database to data warehouse.
5. Oracle Database Servers: Three production database servers, each with a
shared Oracle database engine, will be shared, including shared network
connections.
6. Shareplex Software: Software that copies data between the primary and
secondary production databases, including shared network connections.
7. Silknet Software: Software and servers that provide application for
call center operations, including shared network connections.
8. Kana Software: Software and servers that provide e-mail management for
call center operations, including shared network connections.
9. Paylinx: Software and servers that provide interface to Paymentech for
credit card authorization, including shared network connections.
10. Networking Infrastructure: Networking hardware and software including
servers routers and related service fees.
[**]=Confidential Treatment requested for redacted portion
Exhibit 10.22.4
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of October 26, 1999 (this "Agreement"),
between PRICELINE.COM INCORPORATED, a Delaware corporation ("Grantee"), and
PRICELINE WEBHOUSE CLUB, INC., a Delaware corporation ("Issuer"),
W I T N E S S E T H :
WHEREAS, Grantee is an Internet-based company with significant name
recognition of its trademarked "priceline" name and patented "demand collection
system" for selling products over the Internet;
WHEREAS, Walker Digital, LLC ("Walker Digital") is a research and
development company containing certain trade secrets, know-how and other
intellectual property;
WHEREAS, in connection with the establishment of Issuer's business
of the sale of retail products in a "name your price" format over the Internet,
(i) Walker Digital is (A) contributing certain know-how, and other assets and
liabilities used in or incurred during the initial development of the Company's
business, pursuant to an asset contribution agreement dated as of the date
hereof between Walker Digital and Issuer (the "Asset Contribution Agreement")
and (B) licensing certain intellectual property pursuant to a license agreement
between Walker Digital and Priceline dated as of the date hereof, which
intellectual property shall in turn be sublicensed by Priceline to Issuer, (ii)
Walker Digital Corporation, a research and development company, is contributing
certain employees to Issuer under the Asset Contribution Agreement, and (iii)
Grantee is (A) licensing and sublicensing, as applicable, the use of the
"priceline" name, certain patent rights and other intellectual property rights
for use in connection with the Issuer's business, pursuant to an intellectual
property license agreement between Grantee and Issuer dated as of the date
hereof, (the "Priceline License Agreement") (B) providing professional services,
including accounting and legal services to Issuer pursuant to a services
agreement between the Grantee and Issuer dated as of the date hereof (the
"Services Agreement"), and (C) providing certain marketing and technical
services to Issuer pursuant to a marketing and technical services agreement
between Grantee and Issuer dated as of the date hereof (the "Marketing and
Technical Services Agreement");
WHEREAS, in consideration for the cash and the assets it has
contributed pursuant to the Asset Contribution Agreement, Walker Digital is
receiving a promissory note in the amount of $14,592,185.60, payable on April
26, 2000;
[**]=Confidential Treatment requested for redacted portion
<PAGE>
WHEREAS, in consideration of their cash contributions, Walker
Digital and certain other investors (the "Investors") are receiving a total of
23,500,000 shares of common stock of Issuer, par value $.01 per share (the
"Common Stock"), pursuant to the subscription agreement dated as of the date
hereof (the "Subscription Agreement") between Issuer and the Investors;
WHEREAS, in consideration for Grantee's execution and deliveries
pursuant to the Priceline License Agreement, Issuer desires to issue, and
Grantee desires to accept, a warrant to purchase up to 137.5 million shares of
Common Stock and furthermore has certain rights to participate in Issuer's
corporate governance;
WHEREAS, Issuer, Walker Digital, Grantee and the Investors will
enter into an agreement providing certain rights to the parties and subjecting
them to certain restrictions (the "Securityholders' Agreement"); and
WHEREAS, in connection with the establishment of Issuer, Grantee is
agreeing, pursuant to the Services Agreement and Marketing and Technical
Services Agreement, to provide services to and to coordinate marketing
activities with the Company in exchange for arm's-length consideration.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants set forth herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Agreement" or "this Agreement" means this Warrant Agreement, dated
as of October 26, 1999, between the Issuer and the Grantor, and all
amendments hereto made in accordance with the provisions of Section 8.09.
"Asset Contribution Agreement" shall have the meaning assigned in
the recitals.
"Board of Directors" means the board of directors of the Issuer.
[**]=Confidential Treatment requested for redacted portion
2
<PAGE>
"Business Day" means any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized by law to be closed in
the City of New York.
"Capital Stock" means, with respect to any Person at any time, any
and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of capital stock, partnership
interests (whether general or limited), limited liability company
interests or equivalent ownership interests in or issued by such Person.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one
transaction or a series of related transactions, of all or substantially
all of the properties or assets of Issuer to any "person" (as that term is
used in Section 13(d)(3) of the Exchange Act) other than Grantee or an
affiliate of Grantee;
(2) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) other than Grantee or an affiliate of Grantee,
becomes the Beneficial Owner, directly or indirectly, of voting stock of
Issuer with the power to vote 50% or more of the total votes entitled to
be cast on any matter submitted to a vote of shareholders of Issuer;
(3) during any consecutive two year period, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election to the Board of Directors, or whose
nomination for election by the shareholders of Issuer, was approved by the
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(4) Issuer consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, Issuer, in any such
event pursuant to a transaction in which any of the outstanding voting
stock of Issuer or such other Person is converted into or exchanged for
cash, securities or other property, other than any such transaction where
the voting stock of Issuer outstanding immediately prior to such
transaction is converted into or exchanged for voting stock of the
surviving or transferee Person constituting a majority of the outstanding
shares of such voting stock of such surviving or transferee Person
(immediately after giving effect to such issuance) and no Person other
than Grantee or an affiliate of Grantee becomes the Beneficial Owner,
directly or indirectly, of voting stock of such Person with the power to
vote 50% or more of the total votes entitled to be cast on any matter
submitted to a vote of shareholders.
[**]=Confidential Treatment requested for redacted portion
3
<PAGE>
"Closing" shall have the meaning assigned in Section 5.01.
"Common Stock" shall have the meaning assigned in the recitals.
"Control" (including the terms "Controlled by" and "under common
Control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs
of such Person.
"Convertible Securities" shall have the meaning assigned in Section
2.04(b)(i).
"Employee Options" shall mean the options to acquire 17.3 million
Shares that may be granted to employees, consultants, directors and
officers of Issuer pursuant to the Issuer's 1999 Omnibus Employee Equity
Plan, as amended from time to time, or any successor plan.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any
kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of
ownership.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exercise Event" shall have the meaning assigned in Section 2.02(b).
"Exercise Notice" shall have the meaning assigned in Section
2.02(c).
"Exercise Price" shall have the meaning assigned in Section 2.01.
"Expiration Date" shall have the meaning assigned in Section
2.02(a).
"Governmental Entities" means any domestic or foreign governmental,
administrative or regulatory authority or agency.
"Grantee" shall have the meaning assigned in the preamble.
"Grantee Common Stock" shall have the meaning assigned in Section
2.02(c).
[**]=Confidential Treatment requested for redacted portion
4
<PAGE>
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Initial Public Offering" means the first underwritten public
offering of the Common Stock resulting in aggregate net proceeds (after
expenses and underwriting commissions and discounts) to Issuer and any
selling stockholders of at least $50 million; provided that, following
such offering the Common Stock is listed on a United States or foreign
national securities exchange or quoted on any United States or foreign
automated securities quotation system.
"Insolvency Event" means, in respect of a Person, that time when the
sum of the Company's debts exceeds the sum of its assets, valued at fair
market value; or that such Person shall not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts, or
shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by it or against it seeking to adjudicate
it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy
insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and,
in the case of any such proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good faith,
either such proceeding shall remain undismissed or unstayed for a period
of 30 days or any of the actions sought in proceeding (including, without
limitation, the entry of an order for relief against, or the appointment
of a receiver, trustee, custodian or other similar official for, it or any
substantial part of it property) shall occur; or Issuer shall take any
corporate action to authorize any of the actions set forth above.
"Investors" shall have the meaning assigned in the recitals.
"Issuer" shall have the meaning assigned in the preamble.
"Marketing and Technical Services Agreement" shall have the meaning
assigned in the recitals.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"Net Revenue" means the net revenue of Issuer as disclosed on the
annual audited financial statements for any fiscal year and the unaudited
quarterly financial statements for any fiscal quarter.
"New Securities" means any Capital Stock of Issuer, whether now
authorized or not, and rights, options or warrants to purchase such
Capital Stock, and securities of any
[**]=Confidential Treatment requested for redacted portion
5
<PAGE>
type whatsoever that are, or may become, convertible into or exchangeable
or exercisable for Capital Stock of Issuer; provided that the term "New
Securities" does not include (i) securities of Issuer issued to employees,
consultants, officers or directors of Issuer, or which have been reserved
for issuance, pursuant to any employee stock option, stock purchase, stock
bonus plan, or other similar stock agreement or arrangement approved by
the Board of Directors, including the Priceline designee to the Board,
(ii) securities of Issuer issued in connection with any stock split, stock
dividend or recapitalization of Issuer, (iii) securities of Issuer issued
in an Initial Public Offering, (iv) securities of Issuer issued upon the
conversion or exchange of convertible or exchangeable securities of Issuer
that are outstanding as of the date of this Agreement, (v) Warrant Shares
or (vi) any right, option or warrant to acquire any security convertible
into or exchangeable or exercisable for the securities excluded from the
definition of New Securities pursuant to subclause (i) above if issued
pursuant to any employee stock option, stock purchase, stock bonus plan or
other similar stock agreement or arrangement approved by the Board of
Directors, including the Priceline designee to the Board of Directors.
"Notice of Issuance" shall have the meaning assigned in Section
2.05(b).
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well
as any syndicate or group that would be deemed to be a person under
Section 13(d)(3) of the Exchange Act.
"Priceline License Agreement" shall have the meaning assigned in the
recitals.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"Services Agreement" shall have the meaning assigned in the
recitals.
"Share" means any share of Common Stock.
"Stock Payment Amount" shall have the meaning assigned in Section
2.03(a).
"Stockholder" means each Person (other than the Issuer) who shall
own, beneficially or of record, any Shares and be listed in the share
registry of the Issuer as the owner thereof.
"Subscription Agreement" shall have the meaning assigned in the
recitals.
"Subsidiary" or "Subsidiaries" of any Person means any corporation,
partnership, joint venture, association or other entity, all of the
Capital Stock or other similar equity
[**]=Confidential Treatment requested for redacted portion
6
<PAGE>
interests of which, are owned beneficially and of record by such Person
directly or indirectly through one or more intermediaries.
"Third Party" means, with respect to Grantee, any Person, other than
(i) Issuer, (ii) any Subsidiary of Issuer or (iii) any Subsidiary of
Grantee.
"Walker Digital" shall have the meaning assigned in the recitals.
"Warrant" shall have the meaning assigned in Section 2.01.
"Warrant Shares" shall have the meaning assigned in Section 2.01.
ARTICLE II
THE WARRANT
SECTION 2.01. Grant of Warrant. Issuer hereby grants to Grantee an
irrevocable, fully vested warrant (the "Warrant") to purchase 137,500,000 Shares
(the "Warrant Shares"), at a purchase price per Warrant Share initially equal to
$3.00 (the "Exercise Price"), subject to the terms and conditions set forth
herein. The number of shares constituting the Warrant Shares and the Exercise
Price are both subject to adjustment as set forth in Section 2.04 hereof.
SECTION 2.02. Exercise of Warrant. (a) Subject to the conditions set
forth in Article VI, the Warrant may be exercised by Grantee, in whole or in
part, at any time after the fifth anniversary of the date of this Agreement or,
if earlier, the occurrence of an Exercise Event; provided that the Warrant shall
terminate and be of no further force and effect upon the earlier to occur of (i)
Closing of the final exercise of the Warrant, (ii) sixty (60) days after the
Issuer notifies Grantee of a willful and material breach by Grantee of Section
6.02 of the License Agreement, if such breach is not cured prior to the
expiration of such sixty (60) day period, and (iii) thirty days following the
fifth anniversary of the date hereof (the "Expiration Date"). Notwithstanding
the termination of the Warrant, Grantee shall be entitled to purchase those
Warrant Shares with respect to which it has issued an Exercise Notice (as
defined below) prior to the termination of the Warrant. The termination of the
Warrant shall not affect any rights hereunder which by their terms extend beyond
the date of such termination.
(b) An "Exercise Event" shall occur for purposes of this Agreement
upon the occurrence of any of the following events:
[**]=Confidential Treatment requested for redacted portion
7
<PAGE>
(i) Issuer achieves Net Revenue of $[**] for any four-quarter period
immediately preceding the date of measurement, or any shorter period in
which Issuer achieves Net Revenue of $[**];
(ii) the occurrence of an Insolvency Event in respect of Issuer;
(iii) the adoption of a plan relating to the liquidation or
dissolution of the Company;
(iv) the occurrence of a Change of Control, or Board approval of a
transaction that would result in a Change of Control; or
(v) Board approval of an Initial Public Offering.
Promptly upon the occurrence of any event described in clauses (i) and (ii)
above, and no later than fifteen (15) days prior to an event described in
clauses (iii) through (v) above, Issuer shall provide Grantee with notice of
such event together with the consolidated financial statements of Issuer, and
Grantee may exercise the Warrant until the Expiration Date.
(c) The Warrant shall be exercised by written notice from Grantee to
Issuer (an "Exercise Notice") stating that the Warrant is being exercised and
setting forth: (i) a proposed closing date, which (subject to the earlier
satisfaction or waiver of the conditions set forth in Article VI) shall be:
(A) in the case of an exercise upon the fifth anniversary hereof or
pursuant to clause (b)(i) or (b)(ii) above, no earlier than fifteen (15)
days after, and no later than thirty (30) days after, the date of delivery
of such notice, and
(B) in the case of an exercise pursuant to clause (b)(iii) through
(b)(v) above, shall be the closing date of the transaction giving rise to
the Exercise Event or such earlier date as shall be specified in the
Exercise Notice,
on which date the Warrant Shares shall be issued; (ii) the number of Warrant
Shares to be purchased; and (iii) whether Grantee will purchase the Warrant
Shares with cash, shares of Grantee's common stock, par value $.01 per share
("Grantee Common Stock") or a combination thereof (including the relative
percentage of any combination). The Warrant shall be deemed to be exercised on
the date of delivery of the Exercise Notice, at which time the decision to
exercise the Warrant shall be irrevocable; provided that, in the case of an
exercise pursuant to clause (b)(iv) or (b)(v) above, the Warrant's exercise
shall be conditional upon the closing of the transaction giving rise to the
Exercise Event.
[**]=Confidential Treatment requested for redacted portion
8
<PAGE>
(d) In the event that Grantee exercises the Warrant in part only,
upon such exercise Issuer shall execute and deliver to Grantee, at Issuer's
expense, a new Warrant exercisable for the number of Shares representing the
unexercised portion of the Warrant so exercised in part.
SECTION 2.03. Form of Payment. (a) The Exercise Price may be paid in
cash, in shares of Grantee Common Stock or in any combination thereof at the
sole discretion of the Grantee. The number of shares of Grantee Common Stock to
be delivered in payment of all or a portion of the aggregate Exercise Price (the
"Stock Payment Amount") shall be determined by dividing the portion of the
aggregate Exercise Price to be paid in Grantee Common Stock by the average of
the closing prices of Grantee Common Stock quoted on the Nasdaq Stock Market
(or, if then traded on a national securities exchange, the average of the
closing prices of Grantee Common Stock on the principal national securities
exchange on which listed or, if quoted on the NASD OTC Bulletin Board, the
average of the means of the closing bid and asked price of Grantee Common Stock)
on each of the ten (10) trading days immediately preceding the date the Exercise
Notice is delivered.
(b) In the event of any change in Grantee Common Stock or in the
number of outstanding shares of Grantee Common Stock between the date of an
Exercise Notice and the Closing by reason of a stock dividend, split-up,
recapitalization, combination, exchange of shares or similar transaction or any
other extraordinary change in the corporate or capital structure of Grantee
(including, without limitation, the declaration or payment of an extraordinary
dividend of cash, securities or other property), the type and number of shares
or securities to be delivered by Grantee in payment of the Stock Payment Amount
shall be adjusted appropriately so that Issuer shall receive upon payment of the
Stock Payment Amount the number and class of shares or other securities or
property that Issuer would have received in respect of Grantee Common Stock if
Grantee had paid the Stock Payment Amount immediately prior to such change.
SECTION 2.04. Adjustments upon Share Issuances, Changes in
Capitalization, Etc. (a) In the event that Issuer shall issue or sell, prior to
the exercise in full or expiration of the Warrant, any Shares (except as
provided in paragraph (f) below) or Convertible Securities (as hereinafter
defined) or any rights or options to purchase Shares or Convertible Securities
for a consideration per share less than the Exercise Price in effect immediately
prior to such issue or sale, then forthwith upon such issue or sale the Exercise
Price shall be reduced to a price (calculated to the nearest $.0001) determined
by dividing (i) an amount equal to the sum of (A) the number of Shares
outstanding immediately prior to such issue or sale multiplied by the Exercise
Price then in effect, and (B) the consideration, if any, received by the Issuer
upon such issue or sale, by (ii) the total number of Shares outstanding
immediately after such issue or sale.
(b) For the purposes of calculating any adjustment to the Exercise
Price pursuant to paragraph (a) above, the following provisions shall apply:
[**]=Confidential Treatment requested for redacted portion
9
<PAGE>
(i) In case at any time Issuer shall grant any rights to subscribe
for, or any rights or options to purchase, Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per Share for which Common Stock is
issuable upon the exercise of such rights or options or upon conversion or
exchange of such Convertible Securities
(determined by dividing (A) the total amount, if any, received or
receivable by Issuer as consideration for the granting of such
rights or options, plus the minimum aggregate amount of additional
consideration payable to Issuer upon the exercise of such rights or
options, plus, in the case of any such rights or options which
relate to such Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or sale
of such Convertible Securities and upon the conversion or exchange
thereof, by (B) the total maximum number of Shares issuable upon the
exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the
exercise of such rights or options)
shall be less than the Exercise Price in effect immediately prior to the
time of the granting of such rights or options, then the total maximum
number of Shares issuable upon the exercise of such rights or options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such rights or
options shall (as of the date of granting of such rights or options) be
deemed to be outstanding and to have been issued for such price per Share.
Except as provided in paragraph (e) of this Section 2.04, no further
adjustments of the Exercise Price shall be made upon the actual issue of
such Common Stock or of such Convertible Securities upon exercise of such
rights or options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(ii) In case at any time Issuer shall issue or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per Share for which Common
Stock is issuable upon such conversion or exchange
(determined by dividing (A) the total amount received or receivable
by Issuer as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to Issuer upon the
[**]=Confidential Treatment requested for redacted portion
10
<PAGE>
conversion or exchange thereof, by (B) the total maximum number of
Shares issuable upon the conversion or exchange of all such
Convertible Securities)
shall be less than the Exercise Price in effect immediately prior to the
time of such issue or sale, then the total maximum number of Shares
issuable upon conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued for such price per
Share, provided that (i) except as provided in paragraph (e) of this
Section 2.04, no further adjustments of the Exercise Price shall be made
upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities, and (ii) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights to subscribe
for or to purchase or of any option to purchase any such Convertible
Securities for which adjustments of the Exercise Price have been or are to
be made pursuant to other provisions of this paragraph (b), no further
adjustment of the Exercise Price shall be made by reason of such issue or
sale.
(iii) In case at any time Issuer shall declare a dividend or make
any other distribution upon any stock of the Company payable in Common
Stock or Convertible Securities, any Common Stock or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(iv) In case at any time any Share or Convertible Securities or any
rights or options to purchase any Common Stock or Convertible Securities
shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by Issuer therefor, without
deduction therefrom of any expenses incurred or any underwriting
commissions or concessions or discounts paid or allowed by Issuer in
connection therewith. In case any Shares or Convertible Securities or any
rights or options to purchase any Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by Issuer shall be deemed to be
the fair value of such consideration as determined by the Board of
Directors, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by
Issuer in connection therewith. In case any Shares or Convertible
Securities or any rights or options to purchase any Common Stock or
Convertible Securities shall be issued in connection with any merger of
another corporation into Issuer, the amount of consideration therefor
shall be deemed to be the fair value of the assets of such merged
corporation as determined by the Board of Directors after deducting
therefrom all cash and other consideration (if any) paid by Issuer in
connection with such merger.
[**]=Confidential Treatment requested for redacted portion
11
<PAGE>
(v) In case at any time Issuer shall take a record of the holders of
Common Stock for the purpose of entitling them (i) to receive a dividend
or other distribution payable in Common Stock or Convertible Securities,
or (ii) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the
issue or sale of the Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the
case may be.
(c) In the event that Issuer shall make any distribution of its
assets upon or with respect to its Common Stock, as a liquidating or partial
liquidating dividend or otherwise, Grantee shall, upon any exercise of the
Warrant subsequent to the record date for such distribution or, in the absence
of a record date, subsequent to the date of such distribution, receive, in
addition to the Shares subscribed for, the amount of such assets (or, at the
option of Issuer, a sum equal to the value thereof at the time of distribution
as determined by the Board of Directors in its sole discretion) which would have
been distributed to Grantee if it had exercised the Warrant for that number of
Shares immediately prior to the record date for such distribution or, in the
absence of a record date, immediately prior to the date of such distribution.
(d) In case at any time Issuer shall subdivide its outstanding
Shares into a greater number of Shares, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced and conversely, in
case the outstanding Shares of the Issuer shall be combined into a smaller
number of Shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased.
(e) (i) If the purchase price provided for in any right or option
referred to in subparagraph (i) of paragraph (b) above, or the rate at which any
Convertible Securities referred to in subparagraph (i) or (ii) of said paragraph
(b) are convertible into or exchangeable for Common Stock, shall change or a
different purchase price or rate shall become effective at any time or from time
to time (other than under or by reason of provisions designed to protect against
dilution), then, upon such change becoming effective, the Exercise Price then in
effect hereunder shall forthwith be increased or decreased to such Exercise
Price as would have obtained had the adjustments made upon the granting or
issuance of such rights or options or Convertible Securities been made upon the
basis of (1) the issuance of the number of Shares theretofore actually delivered
upon the exercise of such options or rights or upon the conversion or exchange
of such Convertible Securities, and the total consideration received therefor,
and (2) the granting or issuance at the time of such change of any such options,
rights, or Convertible Securities then still outstanding for the consideration,
if any, received by the Company therefor and to be received on the basis of such
changed price.
(ii) On the expiration of any right or option referred to in
subparagraph (i) of paragraph (b) above, or on the termination of any right to
convert or exchange any Convertible Securities referred to in subparagraph (i)
or (ii) of said paragraph (b), the Exercise Price shall
[**]=Confidential Treatment requested for redacted portion
12
<PAGE>
forthwith be readjusted to such amount as would have obtained had the adjustment
made upon the granting or issuance of such rights or options or Convertible
Securities been made upon the basis of the issuance or sale of only the Shares
actually issued upon the exercise of such options or rights or upon the
conversion or exchange of such Convertible Securities.
(iii) If the purchase price provided for in any right or option
referred to in subparagraph (i) of paragraph (b) above, or the rate at which any
Convertible Securities referred to in subparagraph (i) or (ii) of said paragraph
(b) are convertible into or exchangeable for Common Stock, shall change at any
time under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of any such
Convertible Security, the Exercise Price then in effect hereunder shall
forthwith be decreased to such Exercise Price as would have obtained had the
adjustments made upon the issuance of such right or option or Convertible
Security been made upon the basis of the issuance of (and the total
consideration received for) the Shares so delivered.
(f) Issuer shall not be required to make any adjustment of the
Exercise Price in the case of:
(i) the granting by Issuer of Employee Options,
(ii) the issuance of Shares pursuant to the exercise of Employee
Options, whether granted prior to or subsequent to the date hereof, or
(iii) the issuance of such additional Shares as may be issuable upon
the exercise of such options as a result of adjustment in the number of
Shares covered by such options for stock dividends, stock splits or other
changes in the capitalization of Issuer.
(g) If any capital reorganization or reclassification of the Capital
Stock of Issuer, or consolidation or merger of Issuer with another corporation,
or the sale of all or substantially all of its assets to another corporation,
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, Issuer or such successor or purchasing
corporation, as the case may be, shall execute with Grantee an agreement
providing that Grantee shall have the right thereafter and until the Expiration
Date to exercise the Warrant for the kind and amount of stock, securities or
assets receivable upon such reorganization, reclassification, consolidation,
merger or sale by a holder of the number of Shares for which the Warrant might
have been exercised immediately prior to such reorganization, reclassification,
consolidation, merger or sale, subject to adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
2.04.
[**]=Confidential Treatment requested for redacted portion
13
<PAGE>
(h) (i) Whenever the Exercise Price is adjusted pursuant to the
provisions of this Section 2.04, the number of Warrant Shares for which the
Warrant is exercisable shall be adjusted so that it shall equal the number
determined by multiplying the number of Warrant Shares for which the Warrant was
exercisable immediately prior to such adjustment by a fraction, the numerator of
which shall be the Exercise Price in effect immediately prior to such
adjustment, and the denominator of which shall be the Exercise Price in effect
immediately thereafter.
(ii) Issuer shall not be required to issue fractional Shares upon
any exercise of the Warrant following any adjustment in the number of Warrant
Shares for which the Warrant is exercisable pursuant to subparagraph (i) above.
If any fraction of a Share would, except for the provisions of this sentence, be
issuable on the exercise of the Warrant (or specified portion thereof), Issuer
shall pay an amount in cash calculated by it to be equal to the then current
market value per Share multiplied by such fraction, rounded to the nearest whole
cent.
(i) The provisions of this Agreement, including, without limitation,
Sections 2.01, 2.02, 2.04, 2.05 and 5.04, shall apply with appropriate
adjustments to any securities for which the Warrant becomes exercisable pursuant
to this Section 2.04.
SECTION 2.05. Right to Purchase New Securities. (a) In the event
that Issuer proposes to issue New Securities (prior to, and other than in
connection with, an Initial Public Offering), Grantee shall have the right to
purchase in lieu of the Person to whom Issuer proposed to issue such New
Securities, in accordance with paragraph (b) below, a number of Shares or other
New Securities which Issuer proposes to issue equal to the product of (i) the
total number or amount of Shares or other New Securities which Issuer proposes
to issue at such time and (ii) a fraction, the numerator of which shall be the
total number of Shares which Grantee owns or is entitled to purchase on the
fifth anniversary of the date of this Agreement or, if earlier, upon the
occurrence of an Exercise Event, pursuant to this Warrant, and the denominator
of which shall be the total number of Shares then outstanding plus the total
number of Shares which Grantee is entitled to purchase on the fifth anniversary
of the date of this Agreement or, if earlier upon the occurrence of an Exercise
Event, pursuant to this Warrant. The rights given by Issuer under this Section
2.05 shall terminate if unexercised within 30 days after receipt of the Notice
of Issuance referred to in paragraph (b) below.
(b) In the event that Issuer proposes to undertake an issuance of
New Securities (prior to an Initial Public Offering), it shall give written
notice (a "Notice of Issuance") of its intention to Grantee, describing all
material terms of the New Securities, the price and all material terms upon
which Issuer proposes to issue such New Securities. The Grantee shall have 30
days from the date of the Notice of Issuance to agree to purchase all or any
portion of its pro rata share of such New Securities (as determined pursuant to
paragraph (a) above) for the same consideration, if such consideration shall
consist solely of cash, or for cash, cash equivalents or
[**]=Confidential Treatment requested for redacted portion
14
<PAGE>
marketable securities having an equivalent value to the consideration payable by
the Person to whom Issuer proposes to issue such New Securities at the time of
payment, and otherwise upon the terms specified in the Notice of Issuance by
giving written notice to Issuer, and stating therein the quantity of New
Securities to be purchase by Grantee.
SECTION 2.06. Further Assurances. Issuer and Grantee shall use
reasonable efforts to take, or cause to be taken, all appropriate action, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws to consummate and make effective the transactions contemplated
hereunder, including, without limitation, using reasonable efforts to obtain all
required licenses, permits, consents, approvals, authorizations, qualifications
and orders of Governmental Entities. Without limiting the generality of the
foregoing, the parties hereto shall, when required in order to effect the
transactions contemplated hereunder, make all necessary filings, and thereafter
make any other required or appropriate submissions, under the HSR Act and shall
supply as promptly as practicable to the appropriate Governmental Entity any
additional information and documentary material that may be requested pursuant
to the HSR Act. Each of the parties hereto shall cooperate with the other when
required in order to effect the transactions contemplated hereunder. In case at
any time after the date hereof, any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each of the parties hereto shall use their reasonable best efforts to take all
such action.
[**]=Confidential Treatment requested for redacted portion
15
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ISSUER
Issuer hereby represents and warrants to Grantee as follows:
SECTION 3.01. Due Organization and Authority. Issuer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and authority to enter into
this Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. Issuer is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary, except to the extent that the failure to be so licensed
or qualified would not materially and adversely affect the assets, liabilities
or results of operations of Issuer or prevent or materially delay the
consummation of the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Issuer, the performance of Issuer's
obligations hereunder and the consummation of the transactions contemplated
hereby have been duly authorized by all requisite action on the part of Issuer.
This Agreement has been duly executed and delivered by Issuer, and (assuming due
authorization, execution and delivery by the other party hereto) this Agreement
constitutes legal, valid and binding obligations of Issuer enforceable against
Issuer in accordance with its terms.
SECTION 3.02. Capital Stock of Company. The authorized capital stock
of Issuer consists of 300,000,000 shares of Common Stock, of which 23,500,000
shares will be issued and outstanding following the closing of the Subscription
Agreement, and 50,000,000 shares of preferred stock, of which none has been
designated or issued by Issuer. Issuer has reserved Common Stock for issuance in
the amounts and for the purposes that follow:
(i) 137.5 million shares of Common Stock have been reserved for
issuance upon exercise of the Warrant;
(ii) 666,667 shares of Common Stock have been reserved for issuance
upon exercise of the warrant held by BDS Business Center, Inc.;
(iii) 65,000 shares of Common Stock have been reserved for issuance
upon exercise of the warrant held by William Shatner; and
(iv) 17,333,333 shares of Common Stock have been reserved for
issuance upon the exercise of certain employee options to be granted
pursuant to the Company's Omnibus Employee Equity Plan, of which
12,911,749 shares relate to options that have been granted as of the date
hereof.
[**]=Confidential Treatment requested for redacted portion
16
<PAGE>
Except as set forth above, (i) no shares of Capital Stock of Issuer
have been reserved for issuance for any reason; (ii) no subscription, warrant,
option, convertible security, or other right (contingent or other) to purchase
or otherwise acquire Capital Stock of Issuer is authorized or outstanding; and
(iii) Issuer has made no commitment to issue shares, subscription, warrants,
options, convertible securities, or other such rights or to distribute to
holders of any of its Capital Stock any evidence of indebtedness or asset.
SECTION 3.03. Authority to Issue Shares. Issuer has taken all
necessary corporate action to authorize and reserve and permit it to issue, and
at all times from the date hereof until its obligation to deliver shares of
Common Stock upon the exercise of the Warrant terminates, shall have reserved,
all the Warrant Shares issuable pursuant to this Agreement, and Issuer shall
take all necessary corporate action to authorize and reserve and permit it to
issue all additional shares of Common Stock or other securities which may be
issued pursuant to Section 2.04 or 2.05, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, shall be duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights.
SECTION 3.04. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 3.05 have been obtained,
the execution, delivery and performance of this Agreement by Issuer does not and
will not (a) violate, conflict with or result in the breach of any provision of
Issuer's Certificate of Incorporation or By-laws, (b) conflict with or violate
any law, governmental regulation or governmental order applicable to Issuer or
any of its respective assets, properties or businesses, or (c) conflict with,
result in any breach of, constitute a default (or event which with the giving of
notice or lapse of time, or both, would become a default) under, require any
consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of, or result in the
creation of any Encumbrance on any of the assets or properties of Issuer
pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease,
sublease, license, permit, franchise or other instrument or arrangement to which
Issuer is a party or by which any of such assets or properties is bound or
affected; except to the extent that any conflict under (b) or (c) above would
not materially and adversely affect Issuer's assets, liabilities or results of
operations or prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
SECTION 3.05. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by Issuer does not and will not
require any consent, approval, authorization or other order of, action by,
filing with or notification to, any Governmental Entities, except such as are
required by the HSR Act.
[**]=Confidential Treatment requested for redacted portion
17
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GRANTEE
Grantee hereby represents and warrants to Issuer as follows:
SECTION 4.01. Due Organization and Authority. Grantee is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and authority to enter into
this Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. Grantee is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary, except to the extent that the failure to be so licensed
or qualified would not prevent or materially delay the transactions contemplated
by this Agreement. The execution and delivery of this Agreement by Grantee, the
performance of Grantee's obligations hereunder and the consummation of the
transactions contemplated hereby have been duly authorized by all requisite
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee, and (assuming due authorization, execution and delivery by
the other party hereto) this Agreement constitutes legal, valid and binding
obligations of Grantee enforceable against Grantee in accordance with its terms.
SECTION 4.02. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 4.03 have been obtained,
the execution, delivery and performance of this Agreement by Grantee does not
and will not (a) violate, conflict with or result in the breach of any provision
of Grantee's Certificate of Incorporation or By-laws, (b) conflict with or
violate any law, governmental regulation or governmental order applicable to
Grantee or any of its assets, properties or businesses, or (c) conflict with,
result in any breach of, constitute a default (or event which with the giving of
notice or lapse of time, or both, would become a default) under, require any
consent under, or give to others any rights pursuant to, any contract, agreement
or arrangement by which Grantee is bound; except to the extent that any conflict
under (b) or (c) above would not prevent or materially delay the consummation of
the transactions contemplated by this Agreement.
SECTION 4.03. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by Grantee does not and will not
require any consent, approval, authorization or other order of, action by,
filing with or notification to, any Governmental Entities, except such as are
required by the HSR Act.
SECTION 4.04. Private Placement. Grantee understands that the
offering and sale of the Warrant Shares hereunder are intended to be exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act and represents the following:
[**]=Confidential Treatment requested for redacted portion
18
<PAGE>
(a) The Warrant Shares are being acquired for Grantee's own account
and without a view to the public distribution thereof or any interest
therein;
(b) Grantee is an "accredited investor" as such term is defined in
Regulation D, as amended, under the Securities Act; and
(c) Grantee has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Warrant Shares, and is capable of bearing the
economic risks of such investment, including a complete loss of its
investment in the Warrant Shares.
ARTICLE V
CLOSING
SECTION 5.01. Closing. Upon the terms and subject to the conditions
set forth in this Agreement, the transactions provided for in Article II shall
take place at one or more closings (each a "Closing") to be held at the offices
of the Issuer at One High Ridge Park, Stamford, Connecticut, at 10:00 a.m.
Eastern Standard Time on the later of the proposed closing date specified in the
Exercise Notice or the Business Day immediately following the satisfaction or
waiver of all conditions to the obligations of the parties as set forth in
Article VI, or at such other place or at such other time or on such other date
as the parties may mutually agree.
SECTION 5.02. Closing Deliveries by Issuer. At each Closing, Issuer
shall deliver to Grantee:
(a) a certificate or certificates evidencing the number of Warrant
Shares registered in Grantee's name and in such denominations as Grantee
shall request;
(b) a certificate from Issuer, signed by a duly authorized officer,
to the effect that the representations and warranties of Issuer contained
in this Agreement are true and correct as of the Closing, with the same
force and effect as if made on the date of the Closing, and that all
covenants and agreements of Issuer contained in this Agreement to be
complied with on or prior to the Closing have been complied with;
(c) a true and complete copy, certified by the Secretary of Issuer,
of the resolutions duly and validly adopted by the Board, evidencing their
authorization of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, together with a
certified copy of the Certificate of Incorporation and By-laws of Issuer;
and
[**]=Confidential Treatment requested for redacted portion
19
<PAGE>
(d) a legal opinion of Shearman & Sterling, counsel to Issuer, in
form and substance satisfactory to Grantee.
SECTION 5.03. Closing Deliveries by Grantee. At each Closing,
Grantee shall deliver:
(a) a certificate, signed by a duly authorized officer, to the
effect that the representations and warranties of such party contained in
this Agreement are true and correct as of the Closing, with the same force
and effect as if made on the date of the Closing, and that all covenants
and agreements of Grantee contained in this Agreement to be complied with
on or prior to the Closing have been complied with; and
(b) the Exercise Price for the Warrant Shares by wire transfer of
immediately available funds and delivery of a certificate or certificates
evidencing Grantee Common Stock equal to the Stock Payment Amount, if any,
accompanied by such legal opinions, officer's certificates and other
supporting documentation as Issuer shall reasonably require.
SECTION 5.04. Legends on Certificates. (a) Certificates evidencing
Warrant Shares delivered hereunder may, at Issuer's election, contain the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR AN EXEMPTION THEREFROM
AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS.
Such certificates shall not bear such legend if in the opinion of counsel
satisfactory to Issuer (it being agreed that Shearman & Sterling shall be
satisfactory) the securities being sold thereby may be publicly sold without
registration under the Securities Act.
(b) Certificates evidencing Grantee Common Stock delivered hereunder
as the Stock Payment amount may, at Grantee's election, contain the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT
[**]=Confidential Treatment requested for redacted portion
20
<PAGE>
OF 1933 OR AN EXEMPTION THEREFROM AND, IN EACH CASE, IN COMPLIANCE
WITH APPLICABLE STATE SECURITIES LAWS.
Such certificates shall not bear such legend if in the opinion of counsel
satisfactory to Grantee (it being agreed that Skadden, Arps, Slate, Meagher &
Flom shall be satisfactory) the securities being sold thereby may be publicly
sold without registration under the Securities Act.
ARTICLE VI
CONDITIONS TO CLOSING
The obligations of each party to this Agreement to consummate the
transactions contemplated hereby shall be subject to the fulfillment, at or
prior to each Closing, of each of the following conditions:
SECTION 6.01. Representations, Warranties and Covenants. The
representations and warranties of each other party contained in this Agreement
shall have been true and correct when made and shall be true and correct as of
the Closing, with the same force and effect as if made on the date of the
Closing, and all covenants and agreements contained in this Agreement to be
complied with on or prior to Closing shall have been complied with in all
material respects.
SECTION 6.02. No Prohibition. None of the transactions contemplated
hereby shall have been prohibited by any applicable law, court order or
governmental regulation.
SECTION 6.03. HSR Act. Any waiting period (and any extension
thereof) under the HSR Act applicable to the transactions contemplated hereby
shall have expired or shall have been terminated.
ARTICLE VII
AFFIRMATIVE COVENANTS
SECTION 7.01. Preservation of Existence. Issuer shall use its
reasonable commercial efforts to:
(a) preserve and maintain in full force and effect its existence and
good standing under the laws of the State of Delaware;
[**]=Confidential Treatment requested for redacted portion
21
<PAGE>
(b) preserve and maintain in full force and effect all material
rights, privileges, qualifications, applications, licenses and franchises
necessary in the normal conduct of its business;
(c) preserve its business organization; and
(d) file or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by any
governmental authority and that, if not timely filed, would have a
material adverse effect on Issuer's financial condition or results of
operation.
SECTION 7.02. Financial Statements and Other Information. Issuer
shall deliver to Grantee, in form and substance satisfactory to Grantee:
(a) as soon as available, but not later than ninety (90) days after
the end of each fiscal year of Issuer, a copy of the audited balance sheet
of Issuer as of the end of such fiscal year and the related statements of
operations and cash flows for such fiscal year, setting forth in each case
in comparative form the figures for the previous year, all in reasonable
detail and accompanied by a management summary and analysis of the
operations of Issuer for such fiscal year accompanied by the report of a
nationally recognized independent certified public accounting firm, which
report shall state that such financial statements present fairly, in all
material respects, the financial condition as of such date and results of
operations and cash flows for the period indicated in conformity with GAAP
applied on a consistent basis; and
(b) commencing with the fiscal period ending on March 31, 2000, as
soon as available, but in any event not later than forty-five (45) days
after the end of each of the first three fiscal quarters of each fiscal
year, the unaudited balance sheet of Issuer, and the related statements of
operations and cash flows for such quarter and for the period commencing
on the first day of the fiscal year and ending on the last day of such
quarter, all certified by an appropriate officer of Issuer as presenting
fairly the financial condition as of such date and results of operations
and cash flows for the periods indicated in conformity with GAAP applied
on a consistent basis, subject to normal year-end adjustments, the absence
of a management's discussion and analysis of financial condition section
and the absence of footnotes required by GAAP.
SECTION 7.03. Annual Budget. Not less than thirty (30) days prior to
the end of each fiscal year, or at such later date as may be determined by
Issuer's Board of Directors, Issuer shall prepare and submit to its Board of
Directors for its approval an operating budget of Issuer for the next fiscal
year.
[**]=Confidential Treatment requested for redacted portion
22
<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
SECTION 8.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 8.02):
(a) if to Issuer:
Priceline WebHouse Club, Inc.
One High Ridge Park
Stamford, CT 06905
Telecopy No.: (203) 595-8305
Attention: Anne Maffei, Vice President -- Corporate Finance
(b) if to Grantee:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy No.: (203) 595-8345
Attention: Melissa Taub, General Counsel
SECTION 8.03. Public Announcements. Except as required by law,
governmental regulation or by the requirements of any securities exchange on
which the securities of a party hereto are listed, no party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or otherwise communicate with any news media without
the prior written consent of the other party, and the parties shall cooperate as
to the timing and contents of any such press release or public announcement.
[**]=Confidential Treatment requested for redacted portion
23
<PAGE>
SECTION 8.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 8.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 8.06. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
with respect to the subject matter hereof.
SECTION 8.07. Assignment. This Agreement shall not be assigned
without the express written consent of the parties hereto (which consent may be
granted or withheld in the sole discretion of any party) except that Grantee may
assign its rights hereunder to a Subsidiary thereof; provided that any such
assignment shall not relieve the assigning party of its obligations hereunder.
This Agreement shall inure to the benefit of, and be binding upon, the
successors of the parties hereto and the assignees of the parties hereto,
provided such assignment was in compliance with the terms hereof.
SECTION 8.08. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person or entity any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 8.09. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the parties hereto.
SECTION 8.10. Governing Law. This Agreement shall be governed by the
laws of the State of New York. All actions and proceedings arising out of or
relating to this Agreement may be heard and determined in any New York State or
federal court sitting in the City of New York, County of New York, and the
parties hereto hereby irrevocably submit to the nonexclusive jurisdiction of
such courts in any such action or proceeding and irrevocably waive any defense
of an inconvenient forum to the maintenance of any such action or proceeding.
[**]=Confidential Treatment requested for redacted portion
24
<PAGE>
SECTION 8.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section 8.11; provided that receipt of copies of such counterparts is confirmed.
SECTION 8.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 8.13. Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement or the transactions contemplated hereby
and for any counterclaim therein.
[**]=Confidential Treatment requested for redacted portion
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
PRICELINE.COM INCORPORATED
By: ___________________________________
Name:
Title:
PRICELINE WEBHOUSE CLUB, INC.
By: ___________________________________
Name:
Title:
[**]=Confidential Treatment requested for redacted portion
Exhibit 10.22.5
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
SERVICES AGREEMENT
This SERVICES AGREEMENT, dated as of October 26, 1999 (this
"Agreement"), between PRICELINE.COM INCORPORATED., a Delaware corporation
("Priceline"), and PRICELINE WEBHOUSE CLUB, INC., a Delaware corporation (the
"Company"),
W I T N E S S E T H :
WHEREAS, Priceline is an Internet-based company with significant
name recognition of its trademarked "priceline" name and patented "demand
collection system" for selling products over the internet;
WHEREAS, Walker Digital, LLC ("Walker Digital") is a research and
development company containing certain trade secrets, know-how and other
intellectual property;
WHEREAS, in connection with the establishment of the Company's
business of the sale of retail products in a "name your price" format over the
Internet for the sale of products by businesses to consumers (the "Business")
(i) Walker Digital is (A) contributing certain know-how and other assets and
liabilities used in or incurred during the initial development of the Business
pursuant to an asset contribution agreement dated as of the date hereof (the
"Asset Contribution Agreement") between Walker Digital and the Company, and (B)
licensing certain intellectual property pursuant to a license agreement between
Walker Digital and Priceline, dated as of the date hereof, which intellectual
property shall in turn be sublicensed by Priceline to the Company, (ii) Walker
Digital Corporation, a research and development company, is contributing certain
employees to the Company under the Asset Contribution Agreement, and (iii)
Priceline is (A) licensing and sublicensing, as applicable, the use of the
"priceline" name, certain patent rights and other intellectual property rights
for use in connection with the Business, pursuant to an intellectual property
license agreement between Priceline and the Company, dated as of the date hereof
(the "Priceline License Agreement"), (B) providing professional services,
including accounting and legal services to the Company pursuant to this
Agreement, and (C) providing certain marketing and technical services to the
Company pursuant to a marketing and technical services agreement between
Priceline and the Company, dated as of the date hereof (the "Marketing and
Technical Services Agreement");
WHEREAS, in consideration for the cash and the assets it has
contributed pursuant to the Asset Contribution Agreement, Walker Digital is
receiving from the Company a Promissory Note in the amount of $14,592,185.60
payable on April 26, 2000;
[**]=Confidential Treatment requested for redacted portion
<PAGE>
WHEREAS, in consideration of their cash contributions, Walker
Digital and certain other investors (the "Investors") are receiving a total of
23,500,000 shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), pursuant to the subscription agreement (the "Subscription
Agreement") dated as of the date hereof between WebHouse and the Investors;
WHEREAS, in consideration for its execution and deliveries pursuant
to the Priceline License Agreement, Priceline is receiving a warrant (the
"Priceline Warrant") to purchase, under certain circumstances, up to 137.5
million shares of Common Stock and has certain rights to participate in the
Company's corporate governance;
WHEREAS, in connection with the establishment of the Company,
Priceline is agreeing, pursuant to this Agreement and the Marketing and
Technical Services Agreement, to provide services to, and to coordinate
marketing activities with, the Company in exchange for arm's-length
consideration; and
WHEREAS, subsequent to the date of this Agreement, Priceline is
willing to provide or cause to be provided to the Company for a limited period
of time certain professional, operating and administrative services with respect
to the Business.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
THE SERVICES
SECTION 1.01. Provision of Services. Subject to the terms and
conditions set forth in this Agreement, Priceline shall provide or cause to be
provided the professional services, including, but not limited to, accounting
and legal to the Company currently provided by Priceline to the Business (the
"Services"); provided, however, that Priceline shall only be required to provide
such Services to the extent that it has the internal resources available at the
time to provide such Services and Priceline shall have no obligation to engage
any third party to provide such Services.
SECTION 1.02. Covered Services. Priceline shall be obligated to make
available and provide the Services at the time of execution and throughout the
Term as reasonably requested from time to time, in writing, by the Company.
[**]=Confidential Treatment requested for redacted portion
2
<PAGE>
SECTION 1.03. Standard of Performance. Priceline agrees to provide
or cause to be provided to the Company the Services in substantially the same
manner and at substantially the same quality levels as such Services are
currently provided to the Company by Priceline; provided that the Company may
request the provision of a lower volume of any Services.
SECTION 1.04. Term. Unless earlier terminated pursuant to Section
1.05, this Agreement shall terminate on October 26, 2000 (the "Term") and
thereafter shall be of no further force and effect, except nothing herein shall
relieve either party hereto from liability for any willful breach hereof;
provided that the parties by mutual written agreement may extend the term of the
Agreement.
SECTION 1.05. Termination. Priceline shall continue to make the
Services available through the end of the Term or, if earlier, until canceled by
the Company by written notice to Priceline. Notwithstanding the foregoing, this
Agreement (and the obligation to provide any Services) may be terminated:
(a) by mutual agreement of Priceline and the Company;
(b) by Priceline, at any time, not less than 60 days after delivery
of notice to the Company, in the event that the Company shall have
defaulted on or breached any material term of this Agreement and shall not
have cured such breach within 30 days after receiving notice from
Priceline specifying the nature of such default or breach;
(c) by the Company, at any time, not less than 60 days after
delivery of notice to Priceline, in the event that Priceline shall have
defaulted on or breached any material term of this Agreement and shall not
have cured such breach within 30 days after receiving notice from the
Company specifying the nature of such default or breach;
(d) by either party, immediately upon delivery of notice to the
other party, in the event that such other party (x) requires a composition
or other similar arrangement with creditors, files for bankruptcy or is
declared bankrupt or (y) shall have assigned or transferred to any third
party any of its rights or obligations hereunder except in accordance with
Section 4.07; or
(e) by Priceline, at any time, following the expiration, in
accordance with its terms, of Priceline's warrant to purchase 137.5
million shares of Common Stock pursuant to the Warrant Agreement.
SECTION 1.06. Compensation for Services. The amount of compensation
and Services to be provided shall be $[**] for all Services provided from the
date of this Agreement through to December 31, 1999, and, after such time,
specific Services and compensation therefor shall be negotiated in good faith in
advance of the provision of such
[**]=Confidential Treatment requested for redacted portion
3
<PAGE>
Services; provided that compensation for such Services shall be provided at
their fair market value.
SECTION 1.07. Changes. The Company may request the provision of
additional Services or new services which were not previously requested and
which are acceptable to Priceline, in its sole discretion, to provide, and may
request the cessation of specific Services then being provided. In such case,
the parties shall negotiate in good faith on any additional compensation to be
paid for additional Services or new services or for a rebate of the compensation
paid or to be paid in respect of Services no longer rendered. In the event the
parties are unable to agree on the amount of compensation or the specific
Services to be provided for any given quarter, the compensation shall equal the
amount agreed upon in the immediately preceding quarter plus [**]% (on an annual
basis) and the Services provided shall be the same Services provided the
previous quarter. In the event the parties are unable to agree on the amount of
compensation or Services for the first quarter of the year 2000, the
compensation shall equal one-quarter of the annualized amount of the
compensation agreed upon for the partial 1999 year plus [**]% of such quarterly
amount and the Services shall be the same Services provided during 1999.
ARTICLE II
RESPONSIBILITY
SECTION 2.01. Relationship of the Parties. Nothing in this Agreement
shall be construed as (a) an assumption by Priceline of any obligation to
maintain or increase the sales or profits of the Company or otherwise to assume
responsibility for the Company's operations; (b) an assumption by Priceline of
any financial obligation of the Company; (c) the creation of any relationship of
employment or agency between the Company and employees or consultants of
Priceline, its subsidiaries or associated companies; (d) an assumption by
Priceline of any responsibility for the work performed by outside suppliers
employed by the Company at the suggestion or recommendation of Priceline; or (e)
the delegation of any function or authority of the Company to Priceline. In all
matters relating to this Agreement, each party hereto shall be solely
responsible for the acts of its own employees, and employees of one party shall
not be considered employees of the other party. Except as specifically permitted
by this Agreement, no party hereto nor any of its employees shall have any
authority to negotiate, enter into any contract or incur any obligation, on
behalf of the other party. The parties hereto are independent contractors and
neither party is an employee, partner or joint venturer of the other.
SECTION 2.02. Limitation of Liability. Priceline MAKES NO WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES PROVIDED HEREUNDER. Priceline
shall have no liability for any losses or damages that the Company may incur as
a result of the provision or non-provision of Services except to the extent
caused by the gross negligence
[**]=Confidential Treatment requested for redacted portion
4
<PAGE>
or wilful misconduct of such person. In no event shall Priceline, its officers,
directors, employees, agents, independent contractors, affiliates and
stockholders be liable for any consequential or special damages suffered by the
Company as a result of any representations, actions or inactions by any person
or entity in respect of its obligations hereunder.
[**]=Confidential Treatment requested for redacted portion
5
<PAGE>
ARTICLE III
CONFIDENTIALITY
SECTION 3.01. Confidentiality. The Company will receive or learn
from Priceline, and Priceline's parents, subsidiaries and affiliates, and
Priceline will learn from the Company, information, both orally and in writing,
concerning the business of Priceline or the Company, respectively, including,
without limitation, financial, technical and marketing information, data,
information related to the development of technology and services, trade
secrets, technology, plans, methods, processes, specifications, models,
protocols, techniques, research projects, information management systems and
software, whether protectable by patent, copyright or other statutory means,
relating to the Company's and Priceline's business, as the case may be, and
which information is deemed, in the case of the Company, proprietary to the
Company and, in the case of Priceline, proprietary to Priceline. Both parties
hereby agree, as set forth below, to protect such information, whether furnished
before, on or after the date of this Agreement, as it protects its own similar
confidential information, but never less than commercially reasonable efforts,
and not to disclose such information to anyone except as otherwise provided for
in this Agreement. Such information, in whole or in part, together with
analyses, compilations, programs, reports, proposals, studies or any other
documentation prepared by the parties, as the case may be, which contains or
otherwise reflects or makes reference to such information, is hereinafter
referred to as "Confidential Information". Both parties hereby agree that the
Confidential Information will be used solely for the purpose of this Agreement
and not for any other purpose. Both parties further agree that any Confidential
Information pertaining to the other party is the sole and exclusive property of
such other party, and that the receiving party shall not have any right, title,
or interest in or to such Confidential Information except as expressly provided
in this Agreement. Both parties further agree to hold in the strictest
confidence and not to disclose to anyone for any reason Confidential Information
pertaining to the other party; provided that
(a) such Confidential Information may be disclosed to the receiving
party's respective officers, directors, employees, agents, or
representatives (collectively, "Representatives") on a "need to know"
basis for the purpose of this Agreement on the condition that
(i) each such Representative will be informed by the receiving
party of the confidential nature of such Confidential Information
and will agree to be bound by the terms of this Agreement and not to
disclose the Confidential Information to any other person and
[**]=Confidential Treatment requested for redacted portion
6
<PAGE>
(ii)both parties agree to accept full responsibility for any
breach of this Section 3.01 by its respective Representatives; and
(b) Confidential Information pertaining to the other party may be
disclosed upon the prior written consent of the other party.
Both parties hereby agree, upon the request of the other party, to promptly
deliver to the other party, at its own cost, the Confidential Information
pertaining to such other party, without retaining any copies thereof.
SECTION 3.02. Nonconfidential Information. The term "Confidential
Information" shall not include any information which: (a) at the time of
disclosure or thereafter is generally available to or known by the public (other
than as a result of a disclosure directly or indirectly by the receiving party);
(b) is independently developed by the receiving party, without reference to or
use of the Confidential Information of the other party; (c) was known by the
receiving party as of the time of disclosure without breach of confidentiality;
(d) is lawfully learned from a third party not under obligation to the
disclosing party; or (e) is required to be disclosed pursuant to a subpoena,
court order or other legal process, whereupon the receiving party shall provide
prompt written notice to the other party prior to such disclosure.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
SECTION 4.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 4.02):
(a) if to Priceline:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
[**]=Confidential Treatment requested for redacted portion
7
<PAGE>
Telecopy No.: (203) 595-8345
Attention: Melissa Taub
(b) if to the Company:
Priceline WebHouse Club, Inc.
One High Ridge Park
Stanford, CT 06905
Telecopy No.: (203) 595-8305
Attention: Anne Maffei
SECTION 4.03. Public Announcements. Except as required by law, by
governmental regulation or by the requirements of any securities exchange on
which the securities of a party hereto are listed, no party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or otherwise communicate with any news media without
the prior written consent of the other party, and the parties shall cooperate as
to the timing and contents of any such press release or public announcement.
SECTION 4.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 4.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 4.06. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
with respect to the subject matter hereof.
SECTION 4.07. Assignment and Sublicense. This Agreement may not be
assigned by either party without the express written consent of the other party
(which consent may be granted or withheld in the sole discretion of any party),
except that (i) this Agreement may be assigned, without consent, in connection
with the sale of a party's business whether such is a sale of all or
substantially all of such party's assets, a merger or a stock sale and (ii)
Priceline
[**]=Confidential Treatment requested for redacted portion
8
<PAGE>
may assign or sublicense its rights hereunder to an affiliate thereof; provided
that any such assignment shall not relieve Priceline of its obligations
hereunder. This Agreement shall inure to the benefit of, and be binding upon,
the successors of the parties hereto, provided such assignment was in compliance
with the terms hereof.
SECTION 4.08. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other person or entity any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 4.09. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the parties.
SECTION 4.10. Governing Law. This Agreement shall be governed by the
laws of the State of New York. All actions and proceedings arising out of or
relating to this Agreement may be heard and determined in any New York State or
federal court sitting in the City of New York, County of Manhattan, and the
parties hereto hereby irrevocably submit to the nonexclusive jurisdiction of
such courts in any such action or proceeding and irrevocably waive any defense
of an inconvenient forum to the maintenance of any such action or proceeding.
SECTION 4.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section 4.11; provided that receipt of copies of such counterparts is confirmed.
SECTION 4.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 4.13. Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement or the transactions contemplated hereby
and for any counterclaim therein.
SECTION 4.14. Relationship of the Parties. The parties hereto are
independent contractors and neither party is an employee, partner or joint
venturer of the other. Under no circumstances shall any of the employees of a
party hereto be deemed to be employees of the other party for any purpose.
Neither party shall have the right to bind the other to any agreement with a
third party nor to represent itself as a partner or joint venturer of the other.
[**]=Confidential Treatment requested for redacted portion
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective authorized signatories thereunto duly authorized
as of the date first above written.
PRICELINE.COM INCORPORATED
By: _________________________________
Name:
Title:
PRICELINE WEBHOUSE CLUB, INC.
By: _________________________________
Name:
Title:
[**]=Confidential Treatment requested for redacted portion
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
AIRLINE PARTICIPATION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated November 15, 1999, is by and
between priceline.com Incorporated, a Delaware corporation with an address
at Five High Ridge Park, Stamford, Connecticut 06905 ("Priceline"), and the
undersigned airline, whose principal place of business is set forth in the
notice provision of this Agreement ("Airline").
PRELIMINARY STATEMENT:
Priceline provides a service that allows consumers to purchase
airline tickets at an offer price determined by the consumer (the
"Priceline Service"). The consumer identifies the departure and return
dates for travel and the price the consumer is willing to pay for the
airline ticket(s). Priceline then determines if it is able to fulfill the
customer's offer and, if it is able to do so, Priceline issues a ticket to
the customer on the applicable carrier.
Airline desires to participate in the Priceline Service and, in
connection therewith, will provide Priceline with unpublished fares subject
to the Restrictions (defined herein) for select origin and destination city
pairs (each, an "O&D") identified by Airline in accordance with the terms
and conditions set forth in this Agreement.
Priceline desires to include Airline as a participating carrier in
the Priceline Service and to have access to such unpublished fares in
accordance with the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements set
forth in this Agreement, the parties agree as follows:
I. Ticket Restrictions and Related Matters
1. Airline shall make available unpublished fares to Priceline for
O&Ds identified by Airline in accordance with the terms and
conditions set forth in this Agreement. Unpublished fares
provided to Priceline must be issued in accordance with rules and
restrictions provided to Priceline by Airline from time to time.
By way of example, unpublished fares on certain O&D's may require
specific routings or be flight/day specific. At all times during
the term of this Agreement, Airline will exclusively control and
determine the unpublished fares and levels of inventory provided
to Priceline. It is expressly understood and agreed that Airline
makes no commitment whatsoever regarding the level of inventory,
number of O&Ds or the level of unpublished fares that will be
provided to Priceline.
2. All tickets issued by Priceline for carriage on Airline (each, a
"Priceline Ticket"), as well as tickets issued by Priceline on
its other Participating Carriers (as hereinafter defined) shall
be subject to the restrictions listed in (a) through (h) below
(the "Restrictions"):
(a) Except as otherwise provided in Paragraph IV.4 hereof, all
Priceline Tickets will be non-refundable, non-endorsable and
non-changeable;
(b) All travel will be round-trip with no stopovers or open-jaw
travel permitted;
(c) Frequent Flyer mileage and upgrades will not be permitted;
provided, Airline may offer such benefits to the extent that
it is impractical to impose such frequent flyer restrictions
on Priceline Tickets;
(d) Priceline customers must agree to (i) make up to one stop or
connection on both their departing and return flights, (ii)
accept a ticket on any carrier participating in Priceline's
airline ticket service ("Participating Carrier"), and (iii)
travel on any flight on the specified date of travel (x) for
domestic U.S. flights, departing during the 6 a.m. - 10 p.m.
time period unless the customer has specified a request to
include flights departing outside those periods, and (y) for
international flights, at any time (i.e., 12:01 a.m. to
11:59 p.m.);
(e) All Priceline travel reservations and bookings shall be made
without Priceline customers specifying a preferred (or
requested) carrier, flight or time of day travel
preference(s) on the specified date(s) of travel;
(f) All Priceline Tickets require instant ticketing guaranteed
with a major credit card if Priceline is able to provide an
airline ticket within the customer's requested price,
departure and return date parameters;
(g) Priceline Ticket reservations are limited to no more than
eight persons traveling in the same itinerary; and
(h) Except as otherwise provided herein, in any seven-day
calendar period, a Priceline customer shall be limited to
making one offer price for airline ticket(s) for a Trip. A
"Trip" is defined as travel between the same airports on the
same dates of travel. A Priceline customer may, within a
seven-calendar day period, make an offer for travel in a
different airport pair or on different dates of travel.
Priceline will not knowingly sell a ticket to a Priceline
customer in response to a second (or subsequent) offer for a
Trip within a seven calendar day period; provided, that
Priceline may sell a ticket in connection with a second
offer if the Priceline customer (i) raises the offer by a
minimum of $[**] and (ii) accepts, as part of the second
offer, (x) a travel package which includes a hotel or
rental car offer, or (y) a product or service co-marketed
by Priceline such as a credit card or long distance telephone
service or other co-marketing program.
3. If during any two consecutive months during the term of this
Agreement, the number of tickets sold by Priceline on
Participating Carriers that do not include a Saturday night stay
is greater than [**]% of all tickets sold on all Participating
Carriers through Priceline during such period, then Airline shall
have the right to cause Priceline to include as part of the
Restrictions, a Saturday night stay for all tickets sold on all
Participating Carriers through Priceline; provided, however, that
Airline's right to impose such restriction shall terminate and be
of no further force or effect at such time as Delta Air Lines,
Inc. ("Delta") no longer has a contractual right to cause
Priceline to impose a Saturday night stay restriction for
Priceline's airline ticket sales on all Participating Carriers.
Additionally, in the event that Priceline licenses any of
Priceline's proprietary software to Delta, Priceline will license
such software to Airline on the same terms and conditions as
apply to any license to Delta to the extent that contractual
rights of Delta as of the date hereof do not prohibit such
license (subject to any waiver by Delta); provided, however, that
Priceline shall thereafter have the right unilaterally to modify
or terminate such license to Airline if Priceline's license to
Delta is similarly modified or terminated. Additionally, so long
as, and only so long as, Delta shall have the contractual right
to limit the number of second look offers under Paragraph I.2(h)
to no more than 20 percent of first look offers, Priceline will
comply with such Restriction, and Airline, shall hereby have an
independent right to enforce such Restriction for all
Participating Carriers. Subject to the foregoing, Priceline
further agrees that it shall be prohibited from removing or
materially modifying any of the Restrictions applicable to any
Participating Carrier that will materially increase the usage of
Priceline by business flyers without the prior written consent of
Airline.
4. Airline may include, in addition to the Restrictions, other fare
rules and conditions for Priceline Tickets issued on Airline such
as advance purchase or Saturday night stay requirements. Subject
to Paragraph II.2, Priceline also reserves the right after
written notice to Airline to impose, on a non-discriminatory
basis on all Participating Carriers, additional restrictions on
tickets sold by Priceline, including a Saturday night stay
requirement, as part of the Restrictions.
5. The Restrictions will be communicated by Priceline to the
customer via the Internet (or through Priceline's customer
service representatives if the consumer contacts Priceline
through its toll free customer service number), and will be set
forth on ticketing and/or itinerary documentation issued by
Priceline.
6. All Priceline Tickets issued for carriage on Airline shall be
subject to the published conditions of carriage and the fare
rules of Airline, to the extent such conditions and fare rules
are not inconsistent with the Restrictions. Airline will honor
all Priceline Tickets issued for travel on Airline in accordance
with the Restrictions and other rules and conditions established
by Airline for Priceline Tickets.
7. All tickets issued by Priceline on any Participating Carrier
shall be subject to the Restrictions and any additional
restrictions imposed by Priceline in accordance with the second
sentence of Paragraph I.4.
II. Priceline Ticket Reservations, Bookings, Payment and Fulfillment
1. Airline will file unpublished fares and rules for Priceline
Tickets with the computer reservation system ("CRS") used by
Priceline. Airline may file fares under Airline's two letter
designation code on flights operated by other carriers.
Notwithstanding the forgoing, Priceline will use best efforts to
cooperate with Airline to identify and work toward the most
efficient system selected by Airline, including Airline's
internal reservation system, for the filing of fares for use by
Priceline in the operation of its air travel service with
Airline.
2. Subject to Paragraph III, Priceline will determine the price at
which Priceline Tickets are sold based on customer offers
received through the Priceline Service. Priceline shall not
advertise prices or fares below Airline's published fares. As
used herein, "published fare" means an Airline fare published
through the Airline Tariff Publishing Company ("ATP") and
available for sale by Airline appointed agents for scheduled air
transportation. Priceline shall not advertise prices or fares in
any O&D below Airlines published fares in the applicable O&D.
3. All unpublished fares made available by Airline for sale through
the Priceline Service shall not be commissionable and shall be
inclusive, where applicable, of the applicable domestic federal
transportation excise tax for such unpublished fare. All such
unpublished fares shall be exclusive of any domestic federal
segment taxes, and any domestic or international fuel, departure,
arrival, passenger facility, airport, terminal and/or security
taxes or surcharges which, when applicable, must be added to the
fare amount collected from the passenger and shown on the
Priceline Ticket.
4. Subject to Paragraph III, upon locating an unpublished fare with
inventory availability satisfying a Priceline customer's ticket
request, Priceline shall immediately ticket the customer's ticket
price against a valid credit card provided by the Priceline
customer.
5. In all Priceline Ticket transactions, Priceline will be the
merchant of record and will pay all associated merchant credit
card fees. All Priceline Tickets sold on Airline will be settled
through Airline Reporting Corporation ("ARC").
6. All Priceline Tickets of Airline issued through the Priceline
Service will be issued by Priceline using Agency ARC: 07-50854-6.
In collecting payment for Priceline Tickets, Priceline will act
as the agent of Airline pursuant to Agent's ARC Agent Reporting
Agreement with ARC.
7. Unless otherwise directed by a Priceline customer, all Priceline
Tickets issued on Airline will be issued electronically. After
issuance, Priceline will promptly forward to the customer a
receipt of proof of purchase, conditions of carriage on Airline
and a copy of the Restrictions (including any additional
restrictions imposed by Airline). In the event a Priceline
customer requests Airline to provide a separate electronic ticket
receipt for an electronic ticket, the price shown on Airline's
receipt will reflect that such ticket is a "bulk" electronic
ticket.
8. Priceline will encourage its customers to accept electronic
ticketing for all Priceline Ticket requests by imposing an
additional charge for the issuance of paper tickets and
maintaining the issuance of electronic tickets as the default
option on the Priceline Service.
9. Subject to the provisions of Paragraph II.5 above, all Priceline
paper tickets for carriage on Airline will be issued by Priceline
on standard ARC traffic documents and will be validated with
Airline's validation in accordance with ARC requirements. The
passenger coupon will show "bulk" for the fare amount and will
include all additional collections noted in Paragraph II.3 above.
The auditor's coupon will show the Airline's unpublished fare
authorized for Priceline.
10. In the event that Priceline is unable to fulfill an airline
ticket request from unpublished fares and seat inventory provided
from Participating Carriers in a manner not inconsistent with
this Agreement, Priceline reserves the right to sell tickets on
Airline using published fares used by travel agents generally as
reflected in CRSs, in accordance with the rules and conditions
associated with such fares and in accordance with an allocation
method that allocates such purchases in proportion to the
aggregate domestic or international market share (as applicable)
offered by each Participating Carrier in the O&D requested;
provided that the Participating Carrier has seats available for
sale at the published fares comparable to the published fares
available from other Participating Carriers in such O&D.
11. [**]
[**]
III. Priceline Ticket Allocation Methodology
Priceline will maintain an allocation methodology that determines when
participating airlines will be given the first opportunity to fill a
customer ticket request. Priceline will provide a first-look allocation
system whereby each Participating Carrier will be allocated first-looks for
each O&D's in proportion to its natural market share of all Participation
Carriers for such O&D's, as determine by a standard industry QSI
calculation. Airline acknowledges Delta Airlines' preexisting "first look"
advantage and agrees to participate in the Priceline Service on an interim
basis with Delta's "first look" allocation advantage. Priceline agrees to
negotiate expeditiously and in good faith with Delta to remove this first
look advantage relative to Airline. Priceline will notify Airline promptly
when the first look allocation advantage has been removed. Thereafter, in
no case will another Participating Carrier be given a first-look bias over
Airline. Priceline shall use its best efforts to establish a methodology,
acceptable to Airline, whereby Airline may indicate which flight to use to
fulfill a customer's request in the event that more than one flight (e.g.,
different departure times or different stops or connections) satisfies a
Priceline customer's request. Priceline agrees to fulfill all Priceline
first look ticket requests allocable to Airline at the "Highest Qualifying
Fare" available from Airline. In the interim period where Delta maintains
its first look advantage, carrier will receive second looks based upon O+D
QSI share and fulfillment at the "highest qualifying fare". As used herein,
the term "Highest Qualifying Fare" means the highest priced Airline
unpublished fare meeting the Priceline customer's offer price and other
terms, plus the amount of Priceline's minimum ticket margin, as established
from time to time by Priceline and notified to Airline. Once a first look
"level playing field" has been achieved, Priceline will allocate "second
through nth looks" in its sole discretion; provided, however, that
Priceline will not agree to provide any |Participating Carrier which has a
"level playing field" in the first look allocation system with an advantage
over the Airline in the second look allocation system; and provided
further, however, that Airline's contractual position with respect to
second looks shall be no less favorable than the contractual position of Delta.
IV. Priceline Customer Service
1. Priceline will provide twenty-four hour customer support services
to all Priceline customers through a toll-free number at the
customer support center designated by Priceline from time to
time. The customer support center will be adequately staffed with
personnel trained to take Priceline Ticket requests by phone and
respond to all customer inquiries for related service and
support.
2. Priceline will use commercially reasonable efforts to ensure that
its customer service representatives provide quality customer
service and support to Priceline customers in a prompt, reliable
and courteous manner.
3. Priceline will respond to Priceline customer questions and issues
pertaining to special handling requirements for Priceline Tickets
including processing any special customer handling requirements
in respect of Priceline Tickets issued on Airline.
4. The ticket Restrictions will apply to all tickets issued through
the Priceline Service on Airline. Airline may waive, at its own
cost and expense, one or more of the Restrictions set forth in
Paragraphs I.2 (a)-(f) pursuant to a direct arrangement made by
Airline with the applicable customer holding a Priceline Ticket.
On an exception basis where necessary or appropriate to address
an escalating customer service issue of any individual customer,
Priceline may refund the price of a Priceline Ticket applicable
to such customer. At Airlines' request, Priceline shall provide
Airline with a monthly report detailing the number and amount of
refunded Priceline Tickets involving air transportation services
on Airline. Priceline and Airline will jointly develop the
guidelines upon which such exception refunds will be governed.
V. Confidentiality
1. Priceline and Airline will each hold in confidence and, without
the prior written consent of the other, will not reproduce,
distribute, transmit, transfer or disclose, directly or
indirectly, in any form, by any means or for any purpose, any
Confidential Information of the other party. As used herein, the
term "Confidential Information" shall mean this Agreement and its
subject matter, and proprietary information that is provided to
or obtained from one party to the other party including any
information which derives economic value, actual or potential,
from not being generally known to, and not generally
ascertainable by proper means by, other persons, including the
unpublished fares provided by Airline to Priceline pursuant to
this Agreement. The recipient of Confidential Information may
only disclose such information to its employees on a need-to-know
basis.
2. The obligations of a recipient party with respect to Confidential
Information shall remain in effect during and after the term of
this Agreement (including any renewals or extensions hereof) and
for a period of one (1) year thereafter, except to the extent
such data:
(a) is or becomes generally available to the public other than
as a result of a disclosure by the recipient, or its
directors, officers, employees, agents or advisors;
(b) becomes available to the recipient on a non-confidential
basis from a source other than the disclosing party or its
affiliated companies, provided that such source is not bound
by any confidentiality obligations to the disclosing party
or its affiliated companies (as applicable);
(c) is necessary to comply with applicable law or the order or
other legal process of any court, governmental or similar
authority having jurisdiction over the recipient. Both
parties hereto acknowledges that the other party may be
required to file this Agreement with the Securities and
Exchange Commission ("SEC"), as required by federal
securities laws, and that such filing shall not be deemed a
violation of the provisions of this Article V; provided,
that either party may request confidential treatment of
provisions of this Agreement; or
(d) was in the possession of the recipient party prior to the
date of disclosure by the other party, as shown by written
records of the recipient party; provided, however, that both
parties acknowledge and confirm that they began exchanging
data on April 1, 1998.
3. Except as otherwise specifically provided in Section 2(c) of this
Paragraph V with respect to either party's filing requirements
with the SEC, in the event that the recipient becomes legally
compelled to disclose any of such Confidential Information by any
governmental body or court, recipient will provide the disclosing
party with prompt notice so that the disclosing party may seek a
protective order or other appropriate remedy and/or waive
compliance (in writing) with the provisions hereof. In the event
that such protective order or other remedy is not obtained, or
the disclosing party waives (in writing) compliance with the
provisions hereof, recipient will furnish only that portion of
such Confidential Material which is legally required and will
exercise its reasonable business efforts to obtain appropriate
assurance that confidential treatment will be accorded such
Confidential Information
4. The recipient of Confidential Information will exercise
reasonable commercial care in protecting the confidentiality of
the other party's Confidential Information.
5. Priceline will not disclose (including, without limitation, by
sale) to any third party information obtained through the
Priceline Service or otherwise concerning a customer who has
acquired a ticket on Airline using the Priceline Service.
6. Nothing contained herein shall be construed to prevent Airline
from competing, directly or indirectly, with Priceline. Priceline
shall not provide any Confidential Information to Airline that
would in any way prohibit or inhibit such competition.
7. Priceline will not identify Airline's participation in the
Priceline Service until a customer is booked and confirmed for
ticketing. Furthermore, Priceline will not, in any media
(including its Internet site), indicate that Airline is
participating or has participated in the Priceline Service except
to indicate that as a consumer proposition, a Priceline customer
must accept a routing on one of the major U.S. full service
airlines or, in the case of international travel, other airline
carriers available through the Priceline Service. Except as set
forth above, Priceline will not disclose Airline's participating
in the Priceline Service without Airline's prior consent. Airline
will not disclose its participation in the Priceline Service
without Priceline's prior consent. Notwithstanding the forgoing,
Priceline may identify Airline as one of its Participating
Carriers in its public filings with the SEC.
VI. Proprietary Marks
During the term of this Agreement neither Priceline nor Airline shall
use the other party's trademarks, trade names, service marks, logos,
emblems, symbols or other brand identifiers in advertising or
marketing materials, unless it has obtained the prior written
approval of the other party. The consent required by this Paragraph
VI shall extend to the content of the specific advertising or
marketing items as well as the placement and prominence of the
applicable trademark, trade name, service mark, logo, emblem, symbol
or other brand identifier of the other party. Priceline or Airline,
as applicable, shall cause the withholding, discontinuance, recall or
cancellation, as appropriate, of any advertising or promotional
material not approved in writing by the other party, that differs
significantly from that approved by the other party, or that is put to
a use or used in a media not approved by the other party.
VII. Reporting
Priceline will provide monthly reports in a format designated by
Airline summarizing (i) information concerning each ticket issued by
Priceline on Airline; (ii) aggregate information (i.e. non airline
specific) for all tickets issued by Priceline in each O&D that
Airline participates; and (iii) aggregate information for all
Priceline offers from customers not ticketed in each O&D that Airline
participates.
Priceline will provide to Airline an annual statement by Priceline's
independent accounting firm or other qualified third-party concerning
Priceline's compliance with the ticket allocation methodology
specified in Paragraph III and all reporting obligations required by
this Agreement.
Airline may, upon reasonable notice to Priceline and during normal
business hours, audit the financial books and records of Priceline
and the information specified in Paragraphs VII 1 and 2. Any such
audit shall be at the sole cost and expense of Airline and shall be
conducted in a manner that does not unduly disrupt or interfere with
the normal business operations of Priceline.
VIII. Term of Agreement
1. Subject to the provisions of this Paragraph VIII, this Agreement
will commence on the date set forth on the first page of this
Agreement (the "Commencement Date") and will continue for a
period of five (5) years thereafter. Notwithstanding the
foregoing, (i) Airline may terminate this Agreement with or
without cause on 30 days' prior written notice to Priceline, and
(ii) Priceline may terminate this Agreement on 30 day's prior
written notice to Airline if, at any time, Airline voluntarily
participates in another name-your-price airline ticket service
other than the Company's and its affiliates' airline ticket
services or makes any public disparaging statements regarding
Priceline or its services.
2. The obligations of the parties under Paragraph V of this
Agreement shall survive for the period specified in Section 2 of
Paragraph V, and the obligations of the parties under Paragraph
IX of this Agreement shall indefinitely survive the termination
of this Agreement.
3. In the event of written notice of termination of this Agreement
in accordance with the terms of this Paragraph VIII, all
Priceline Tickets issued on Airline prior to the effective date
of termination specified in such notice will be honored by
Airline under the terms of this Agreement.
IX. Indemnification
1. Priceline will indemnify, defend and hold harmless Airline, its
officers, directors, employees and agents, from and against all
damages, losses and causes of action including, without
limitation, damage to property or bodily injury, to the extent
caused by Priceline's breach of this Agreement or the ARC Agent
Reporting Agreement, or by the negligence or willful acts or
omissions of Priceline or any of its employees or agents.
Additionally, Priceline will indemnify, defend and hold harmless
Airline, its officers, directors, employees and agents from and
against all liabilities for federal transportation tax (including
interest and penalties), if any, payable on amounts collected by
Priceline on tickets issued for travel on Airline in excess of
amounts paid by Priceline to Airline in respect to such tickets.
2. Airline will indemnify, defend and hold harmless Priceline and
its officers, directors, employees and agents from and against
all damages, losses and causes of action including, without
limitation, damage to property or bodily injury, to the extent
caused by Airline's breach of this Agreement or by the negligence
or willful acts or omissions of Airline or any of its employees
or agents.
X. No Exclusivity
The relationship by and between Airline and Priceline as set forth in
this Agreement shall be non-exclusive. As such, Airline may
participate in other programs similar to the Priceline Service or in
any line of business.
XI. Representations and Warranties
1. Priceline represents and warrants to Airline that (i) Priceline
has obtained all consents and approvals necessary for Priceline
to execute and deliver this Agreement and to perform its
obligations hereunder, (ii) Priceline's execution and delivery of
this Agreement and its performance of its obligations hereunder
does not violate any provision of its charter or bylaws or any
agreement to which Priceline is a party or is bound, and (iii)
Airline's participation in the Priceline Service will not be
restricted as to any O&D serviced through the Priceline Service
other than restrictions, if any, imposed by Airline or regulators
to which Airline is subject.
2. Airline represents and warrants to Priceline that (i) Airline has
obtained all consents and approvals necessary for Airline to
execute and deliver this Agreement and to perform its obligations
hereunder and (ii) Airline's execution and delivery of this
Agreement and its performance of its obligations hereunder does
not violate any provision of its charter or bylaws or any
agreement to which Airline is a party or is bound.
XII. General Provisions
1. No waiver or breach of any of the provisions of this Agreement
shall be construed as a waiver of any other breach of the same
or any other
provision.
2. If any paragraph, sentence or clause of this Agreement shall be
adjudged illegal, invalid or unenforceable, such illegality,
invalidity or unenforceability shall not affect the legality,
validity or enforceability of this Agreement as a whole or of any
paragraph, sentence or clause hereof not so adjudged.
3. Any notice required or permitted hereunder shall be deemed
sufficient if given in writing and delivered personally, by
facsimile transmission, by reputable overnight courier service or
United States mail, postage prepaid return receipt requested, to
the addresses shown below or to such other addresses as are
specified by similar notice, and shall be deemed received upon
personal delivery, upon confirmed facsimile receipt, two (2) days
following deposit with such courier service, or three (3) days
from deposit in the United States mails, in each case as herein
provided:
If to Priceline: If to Airline:
Priceline.com Incorporated United Air Lines, Inc.
Five High Ridge Park 1200 East Algonquin Road
Stamford, CT 06905 Elk Grove Township, IL 60007
Attention: Paul Francis Attention: Scott Praven
Chief Financial Officer Vice President - Revenue
Management
Phone: (203)-705-3000 Phone: 847-700-5051
Fax: (203)-595-8344 Fax: 847-700-2534
With a copy to: With a copy to:
Priceline.com Incorporated United Air Lines, Inc.
Five High Ridge Park 1200 East Algonquin Road
Stamford, CT 06905 Elk Grove Township, IL 60007
Attention: Timothy G. Attention: Fran Maher
Brier General Counsel
Phone: (203)-705-3000 Phone: 847-700-6250
Fax: (203)-595-8343 Fax: 847-700-4683
A party may change its address and the name of its designated
recipient of copies of notices for purposes of this Agreement
by giving the other parties written notice of the new name and
the address, phone and facsimile number of its designated
recipient in accordance with this Paragraph XII(3).
4. This Agreement supersedes and replaces all previous understandings
or agreement, whether oral or in any written form, with respect to
the subject matter addressed herein. The captions in this
Agreement are for convenience only and do not alter any terms of
this Agreement.
5. This Agreement may be amended or modified only by a written
amendment executed by the parties.
6. The formation, construction, performance and validity of
this Agreement shall be governed by the internal laws of the
State of New York. Each party agrees that any civil suit or
action brought against it as a result of any of its
obligations under this Agreement may be brought against it
either in the state or federal courts of the principal place
of business of either party, and each party hereby
irrevocably submits to the jurisdiction of such courts and
irrevocably waives, to the fullest extent permitted by law,
any objections that it may now or hereafter have to the
laying of the venue of such civil suit or action and any
claim that such civil suit or action has been brought in an
inconvenient forum, and each party further agrees that final
judgment in any such civil suit or action shall be
conclusive and binding upon it and shall be enforceable
against it by suit upon such judgment in any court of
competent jurisdiction.
7. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and together, shall
constitute one and the same instrument. Execution may be
effected by delivery of facsimiles of signature pages (and
the parties shall follow such delivery by prompt delivery of
originals of such pages).
8. No party will in any manner or by any device, either
directly or indirectly, act in violation of any applicable
law, governmental order or regulation, including, but not
limited to, those concerning advertisement of air
transportation services. Priceline shall comply at all times
with the provisions of Airline's tariffs (except where such
tariffs are specifically amended by Airline under the terms
of this Agreement) and the terms of the ARC Agent Reporting
Agreement and any addenda thereto.
9. Priceline agrees to notify Airline promptly, in writing, in
the event there is a change of control in the ownership of
Priceline. For purposes of this Agreement, a "change of
control" means (i) the acquisition by any other person or
group (within the meaning of Section 13(d)(3) of the
Securities Exchange Act (except an employee group of such
party, any of its subsidiaries or a holding company of such
party)), of the beneficial ownership of securities
representing 20% or more of the combined voting power of the
securities entitled to vote generally in the election of the
board of directors of the applicable party, or (ii) the
sale, mortgage, lease or other transfer of assets or earning
power constituting more than 50% of the assets or earning
power of such party (other than ordinary course financing);
provided that in no event shall a "change of control" be
defined to include (i) an initial public offering of shares
of the party's capital stock, (ii) the formation by a party
of a holding company, or (iii) an intra-corporate
transaction with a company under common control with a
party.
10. No party hereto shall assign or transfer or permit the
assignment or transfer of this Agreement without the prior
written consent of the other party.
11. This Agreement shall not be deemed to create any partnership
or joint venture between Airline and Priceline, or to create
any rights in favor of any person or entity other than the
parties hereto. This Agreement is for the sole benefit of
the parties and nothing herein expressed or implied shall
give or be construed to give any other person any legal or
equitable rights hereunder
12. NO PARTY WILL BE LIABLE TO THE OTHER FOR ANY OF THE OTHER
PARTY'S INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOST
REVENUES, LOST PROFITS, OR LOST PROSPECTIVE ECONOMIC
ADVANTAGE, ARISING FROM THIS AGREEMENT OR ANY BREACH HEREOF.
13. THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR IN THE
EVENT ANY PROVISION OF PARAGRAPH V AND PARAGRAPH VI OF THIS
AGREEMENT IS NOT PERFORMED IN ACCORDANCE WITH THE TERMS
THEREOF AND THAT THE PARTIES SHALL BE ENTITLED TO AN
INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF SUCH
PROVISIONS AND TO ENFORCE SPECIFICALLY THE TERMS THEREOF.
14. Each party has participated in the negotiation and drafting
of this Agreement. In the event any ambiguity or question of
intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date indicated above.
PRICELINE.COM INCORPORATED UNITED AIR LINES, INC.
By:_____________________________ By:____________________________
Name: Name:
Title: Title:
[**]=Confidential Treatment requested for redacted portion
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE WARRANT ISSUED PURSUANT TO THIS PARTICIPATION WARRANT AGREEMENT HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION.
PARTICIPATION WARRANT AGREEMENT
To Purchase Shares of Common Stock
Dated as of November 15, 1999
PRICELINE.COM INCORPORATED
a Delaware Corporation
Issue Date: November 15, 1999
THIS CERTIFIES THAT, United Air Lines, Inc. (the "Warrant Holder"), with a
place of business at 1200 East Algonquin Road, Elk Grove Township, IL
60007, for value received, is entitled, upon the terms and subject to the
conditions of this Participation Warrant Agreement (this "Warrant
Agreement"), to subscribe for and purchase fully-paid and non-assessable
shares of common stock, par value $.008 per share (the "Common Stock"), of
priceline.com Incorporated, a Delaware corporation (the "Company").
1. Issuance of Warrants. On the Issue Date, the Company will issue
to the Warrant Holder warrants (the "Warrants") to acquire Five Million
Five Hundred Thousand (5,500,000) shares of the Common Stock (the
"Shares"), subject to adjustment as hereinafter provided pursuant to
Section 10 herein.
2. Exercise Price. The Warrants have an exercise price of $52.6250
per share (closing price as reported on NASDAQ on date of grant) of Common
Stock, as adjusted pursuant to the provisions of Section 10 of this Warrant
Agreement (the "Exercise Price").
3. Term. The Warrants are fully vested on the Issue Date. Except
as otherwise provided herein, the term of the Warrants and the right to
purchase Shares as granted herein shall be exercisable on the fifth (5th)
anniversary of the Issue Date; provided, further, that if any of the
Warrants first become exercisable on the fifth (5th) anniversary of the
Issue Date, the Warrant Holder will have an additional six months
thereafter to exercise its purchase rights in respect of those Warrants
(the end of such five year period and additional six months, if applicable,
being referred to herein as the "Termination Date").
4. Exercise Events.
(a) General. Unless otherwise exercisable at an earlier date,
in accordance with this Section 4, all of the Warrants shall be fully
exercisable commencing of the fifth anniversary of the Issue Date.
(b) Early Exercise Rights.
(i) The Warrant Holder will have the right at any time
during the first Measuring Period (as defined in
Section 4(c) below), to exercise Warrants, subject to
adjustment as provided in Section 10 hereof, equal to
[**]% or [**]% of the Shares, as applicable, provided
that, except as otherwise provided in Sections
4(b)(iii) and 4(b)(iv) hereof, (i) the right to
exercise Warrants for [**]% of the Shares shall not
accrue unless and until the Company has, on an
aggregated basis during the first Measuring Period,
received at least $[**] million of Net Revenues (as
also defined in Section 4(c) below) from tickets sold
during such Measuring Period for travel on the
Warrant Holder, its subsidiaries and/or on the
Warrant Holder's code share partners using Warrant
Holder's code (collectively, "Warrant Holder and its
Code Share Partners"), and (ii) the right to exercise
Warrants for [**]% of the Shares shall not accrue
unless and until the Company has, on an aggregated
basis during the first Measuring Period, received at
least $[**] million of Net Revenues from tickets sold
during such Measuring Period for travel on the
Warrant Holder and its Code Share Partners.
(ii) During the period which Warrant Holder is subject to a
first look disadvantage in the Company's airline
allocation system relative to Delta Air Lines, Inc., Net
Revenues, for the purpose of measurement toward early
exercise in the first Measuring Period, will be multiplied
by a factor of three (3). Additionally, in the event that
Warrant Holder remains subject to a first look
disadvantage relative to Delta Air Lines, Inc. on [**],
Warrant Holder will be entitled to exercise Warrants for
[**]% of the Shares beginning [**]. Any such early
exercise will be offset against the early exercise rights
for the first Measuring Period.
(iii) The Warrant Holder will have the right at any time
during the second Measuring Period and all remaining
Measuring Periods thereafter, to exercise Warrants,
subject to adjustment as provided in Section 10
hereof, equal to [**]% or [**]% of the Shares, as
applicable, or such lesser percentage of the Shares
as shall constitute all of the remaining Shares not
then exercisable; provided that (i) the right to
exercise Warrants for [**]% of such Shares shall not
accrue unless and until the Company has, on an
aggregated basis during the applicable Measuring
Period, received at least $[**] million of Net
Revenues from tickets sold during such Measuring
Period for travel on the Warrant Holder and its Code
Share Partners, and (ii) the right to exercise
Warrants for [**]% of such Shares shall not accrue
unless and until the Company has, on an aggregated
basis during the applicable Measuring Period,
received at least $[**] million of Net Revenues from
tickets sold during such Measuring Period for travel
on the Warrant Holder and its Code Share Partners.
(iv) Notwithstanding the Net Revenue benchmarks specified
in clauses (i) and (ii) of this Section 4(b) for the
early exercisability of Warrants, if, in any
Measuring Period, the Company fails to achieve the
minimum Net Revenues from ticket sales for travel on
Warrant Holder and its Code Share Partners necessary
to enable Warrant Holder to exercise Warrants for the
[**]% or [**]% portion of Shares that would otherwise
become exercisable if such benchmarks were achieved
during such Measuring Period, then, effective on the
last day of such Measuring Period and thereafter,
Warrant Holder (i) shall have the right to exercise
Warrants for the [**]% portion of Warrants that would
otherwise become exercisable upon achieving the
corresponding Net Revenue benchmark for such
Measuring Period, if Warrant Holders and its Code
Share Partners' percentage of the aggregate of all
ticket sale revenues (calculated using the same
methodology used to calculate Net Revenue hereunder)
received by the Company for U.S. originating O&D's
for such Measuring Period equals or exceeds [**]% of
Warrant Holder's Fair Share (as defined in Section
4(c) below)(the "[**]% Fair Share Threshold"), and (ii)
shall have the right to exercise Warrants for the [**]%
portion of Warrants that would otherwise become
exercisable upon achieving the corresponding Net
Revenue benchmark for such Measuring Period, if
Warrant Holder's and its Code Share Partners'
percentage of the aggregate of all ticket sale
revenues received by the Company for U.S. originating
O&D's for such Measuring Period equals or exceeds
[**]% of Warrant Holder's Fair Share (the "[**]% Fair
Share Threshold"). For purposes of determining
whether Warrant Holder achieves the [**]% Fair Share
Threshold and/or the [**]% Fair Share Threshold for
the first, and only the first, Measuring Period, the
parties shall calculate Warrant Holder's and its Code
Share Partners' percentage of the Company's ticket
sale revenues for U.S. originating O&D's for such
period based on either (i) their percentage of the
aggregate of all ticket sale revenues received by the
Company for ticket sales for U.S. originating O&D's
during the entire first Measuring Period, or (ii)
their percentage of the aggregate of all ticket sale
revenues received by the Company for ticket sales for
U.S. originating O&D's during the final six (6)
months of the First Measuring Period, whichever is
more favorable for the Warrant Holder.
(v) In the event that the Company does not achieve the
$[**] million Net Revenue benchmark specified in
clauses (i) of this Section 4(b) and Warrant Holder
does not achieve the [**]% Fair Share Threshold
specified in clause (iii) of this Section 4(b) for
the early exercisability of Warrants for the first
Measuring Period, Warrant Holder shall have the right
upon completion of the first Measuring Period and
thereafter to exercise Warrants for the [**]% portion
of Warrants that would otherwise become exercisable
upon the Company's achieving the $[**] million Net
Revenue benchmark or Warrant Holder's achieving the
[**]% Fair Share Threshold for such Measuring Period,
if, during the entire term of the first Measuring
Period, Warrant Holder does not voluntarily
participate in any name-your-price airline ticket
service other than the Company's and its affiliates'
airline ticket services.
(vi) In the event that the Company does not achieve the
$[**] million Net Revenue benchmark specified in
clause (ii) of this Section 4(b) and Warrant Holder
does not achieve the [**]% Fair Share Threshold
specified in clause (iii) of this Section 4(b) for
the early exercisability of Warrants for the second
Measuring Period, Warrant Holder shall have the right
upon completion of the second Measuring Period and
thereafter to exercise Warrants for [**]% of the [**]%
portion of the Warrants that would have otherwise
become exercisable upon the Company's achieving the
$[**] million Net Revenue benchmark or Warrant
Holder's achieving the [**]% Fair Share Threshold for
such Measuring Period, if, during the entire term of
the second Measuring Period, Warrant Holder does not
voluntarily participate in any name-your-price
airline ticket service other than the Company's and
its affiliates' airline ticket services.
(vii) In the event that the Company does not achieve the
$[**] million Net Revenue benchmark specified in
clause (ii) of this Section 4(b) and Warrant Holder
does not achieve the [**]% Fair Share Threshold
specified in clause (iii) of this Section 4(b) for
the early exercisability of Warrants for the third
Measuring Period, Warrant Holder shall have the right
upon completion of the third Measuring Period and
thereafter to exercise Warrants for [**]% of the [**]%
portion of the Warrants that would have otherwise
become exercisable upon the Company's achieving the
$[**] million Net Revenue benchmark or Warrant
Holder's achieving the [**]% Fair Share Threshold for
such Measuring Period, if, during the entire term of
the third Measuring Period, Warrant Holder does not
voluntarily participate in any name-your-price
airline ticket service other than the Company's and
its affiliates' airline ticket services.
(c) Measuring Periods and Net Revenue.
(i) As used in this Warrant Agreement, the term
"Measuring Period" shall mean a 12-month period, with
the first such Measuring Period commencing on the
Date the Warrant Holder first provides tickets for
sale by the Company (the "First Ticket Date").
Subsequent Measuring Periods will expire on the
second, third, fourth and fifth anniversary of the
First Ticket Date, respectively, except that the
fifth Measuring Period shall end on the fifth (5th)
anniversary of the Issue Date.
(ii) As used in this Warrant Agreement, the term "Net
Revenue" shall mean the total ticket revenue received
by the Company from tickets sold for travel on the
Warrant Holder and its Code Share Partners, net of
federal excise and segment taxes, passenger facility
charges and related fees. The parties acknowledge
that credit card processing fees, and any processing
fees or similar fees charged by the Company to the
consumer in connection with the sale of a ticket
shall not be included in the calculation of Net
Revenue.. Attached hereto as Exhibit D is an example
of the calculation of Net Revenue.
(iii) As used in this Warrant Agreement, the term "Fair
Share" shall mean Warrant Holder's domestic market
share calculated as a fraction, the numerator of
which shall be Warrant Holder's RPM's for U.S.
originating O&D's only, and the denominator of which
shall be the total RPM's for U.S. originating O&D's
only of all of the Company's participating airlines.
5. Exercise of Purchase Rights.
(a) Subject to the provisions of Section 4 of this Warrant
Agreement, the purchase rights represented by this Warrant Agreement are
exercisable by the Warrant Holder, in whole or in part, at any time, or
from time to time during the period set forth in Section 3 above, by
tendering to the Company at its principal office a duly completed and
executed notice of exercise in the form attached hereto as Exhibit A (the
"Notice of Exercise"), the Warrants and the Exercise Price. Upon receipt
of such items, the Company shall issue to the Warrant Holder a certificate
for the number of shares of Common Stock purchased. The Warrant Holder,
upon exercise of the Warrants, shall be deemed to have become the holder of
the Shares represented thereby (and such Shares shall be deemed to have
been issued) immediately prior to the close of business on the date or
dates upon which the Warrants are exercised. In the event of any exercise
of the rights represented by the Warrants, certificates for the Shares so
purchased shall be delivered to the Warrant Holder or its designee as soon
as practical and in any event within ten (10) business days after receipt
of such notice and, unless the Warrants have been fully exercised or
expired, new Warrants representing the remaining portion of the Warrants
and the underlying Shares, if any, with respect to which this Warrant
Agreement shall not then have been exercised shall also be issued to the
Warrant Holder as soon as possible and in any event within such ten-day
period.
(b) Net Issue Exercise. Notwithstanding any provisions herein
to the contrary, if the fair market value of one share of the Company's
Common Stock is greater than the Exercise Price (at the date of calculation
as set forth below), in lieu of exercising the Warrants for cash, the
Warrant Holder may elect to receive shares equal to the value (as
determined below) of the Warrants (or portion thereof being canceled) by
surrender of the Warrants at the principal office of the Company together
with the duly executed Notice of Exercise in which event the Company shall
issue to the Warrant Holder a number of shares of Common Stock computed
using the following formula: X=Y(A-B)/ A WHERE X= the number of shares of
Common Stock to be issued to the Warrant Holder; Y= the number of shares of
the Common Stock purchasable under the Warrants or, if only a portion of
the Warrants is being exercised, the portion of the Warrants being canceled
(at the date of such calculation); A= the fair market value of one share of
the Company's Common Stock (at the date of such calculation); and B=
Exercise Price (at the date of such calculation). For purposes of the
above calculation, fair market value of one share of the Common Stock shall
be equal to the closing trading price of the Company's Common Stock on the
day immediately prior to the date the Notice of Exercise is tendered to the
Company.
6. Reservation of Shares. The Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of the rights to purchase the Shares as provided
in this Warrant Agreement. All of the Shares shall be duly authorized and,
when issued upon such exercise, shall be validly issued, fully paid and
nonassessable, and free and clear of all preemptive rights.
7. No Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant Holder's
rights to purchase the Shares.
8. No Rights as Shareholder. This Warrant Agreement does not
entitle the Warrant Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise of the Warrant Holder's
rights to purchase the Shares as provided for herein.
9. Redemption. The Warrants represented by this Warrant Agreement
are not redeemable by the Company.
10. Adjustment Rights. The Exercise Price and the number of shares
of Common Stock purchasable hereunder are subject to adjustment from time
to time, as follows:
(a) Merger. If at any time there shall be a merger or
consolidation of the Company with or into another corporation when the
Company is not the surviving corporation, then, as part of such merger or
consolidation, lawful provision shall be made so that the holder of the
Warrants evidenced hereby shall thereafter be entitled to receive upon
exercise of rights herein granted, during the period specified herein and
upon payment of the aggregate Exercise Price, the number of shares of stock
or other securities or property of the successor corporation resulting from
such merger or consolidation, to which a holder of the stock deliverable
upon exercise of the rights granted in this Warrant Agreement would have
been entitled in such merger or consolidation if such rights had been
exercised immediately before such merger or consolidation. In any such
case, appropriate adjustment shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and
interests of the holder after the merger or consolidation. The Company
will not effect any such merger or consolidation unless, prior to the
consummation thereof, the successor corporation shall assume, by written
instrument reasonably satisfactory in form and substance to the Warrant
Holder, the obligations of the Company under the Warrants.
(b) Reclassification, Etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise,
change any of the securities as to which purchase rights under this Warrant
Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant Agreement
immediately prior to such subdivision, combination, reclassification or
other change.
(c) Split, Subdivision or Combination of Shares. If the Company
at any time shall split or subdivide its Common Stock, the Exercise Price
shall be proportionately decreased and the number of Shares issuable
pursuant to this Warrant Agreement shall be proportionately increased. If
the Company at any time shall combine or reverse split its Common Stock,
the Exercise Price shall be proportionately increased and the number of
Shares issuable pursuant to this Warrant Agreement shall be proportionately
decreased.
(d) Stock Dividends. If the Company at any time shall pay a
dividend payable in Common Stock, then the Exercise Price shall be
adjusted, from and after the date of determination of stockholders entitled
to receive such dividend, to that price determined by multiplying the
Exercise Price in effect immediately prior to such date of determination by
a fraction (i) the numerator of which shall be the total number of shares
of Common Stock outstanding immediately prior to such dividend and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend. The Warrant Holder shall
thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares of Common Stock (calculated to the
nearest whole share) obtained by multiplying (i) the Exercise Price in
effect immediately prior to such adjustment by (ii) the number of shares of
Common Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Other Changes. If any change in the outstanding Common
Stock of the Company or any other event occurs as to which the other
provisions of this Section 10 are not strictly applicable or if strictly
applicable, would not fairly protect the purchase rights of the Warrant
Holder in accordance with such provisions, then the Board of Directors of
the Company shall make an adjustment in the number of and class of shares
available under the Warrants, the Exercise Price or the application of such
provisions, so as to protect the purchase rights of the Warrant Holder.
The adjustment shall be such as will give the Warrant Holder upon exercise
for the same aggregate Exercise Price the total number, class and kind of
shares or other property as the Warrant Holder would have owned had the
Warrants been exercised prior to the event and had the Warrant Holder
continued to hold such shares until after the event requiring adjustment.
(f) Notice of Adjustments; Notices. Whenever the Exercise Price
or number of shares purchasable hereunder shall be adjusted pursuant to
Section 10 hereof, the Company shall issue a certificate signed by its
Chief Executive Officer or Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the
Exercise Price and number of shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first class mail, postage prepaid) to the holder of this
Warrant. The Company shall give written notice to the Warrant Holder at
least 10 days prior to the date on which the Company closes its books or
takes a record for determining rights to receive any dividends or
distributions. The Company shall also give written notice to the Warrant
Holder at least 30 business days prior to the date on which a merger or
consolidation of the Company with or into another corporation when the
Company is not the surviving corporation shall take place.
(g) No Change of Warrant Necessary. Irrespective of any
adjustment in the Exercise Price or in the number or kind of securities
issuable upon exercise of the Warrant, unless the Warrant Holder otherwise
requests, this Warrant Agreement may continue to express the same price and
number and kind of shares of Common Stock as are stated in this Warrant
Agreement as initially executed.
11. Representations and Warranties of the Warrant Holder.
The Warrant Holder hereby represents and warrants to the Company as
follows:
(a) Existence and Power. The Warrant Holder is a (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and (ii) has the corporate
power and authority to execute, deliver and perform its obligations under
this Warrant Agreement.
(b) Authorization; No Contravention. The execution, delivery
and performance by the Warrant Holder of this Warrant Agreement and the
transactions contemplated hereby (i) have been duly authorized by all
necessary corporate action of the Warrant Holder and (ii) do not contravene
the terms of the Certificate of Incorporation or By-laws of the Warrant
Holder, each as amended as of and through the Issue Date.
(c) Governmental Authorization; Third Party Consents. No
approval, consent, compliance, exemption or authorization of any
governmental authority or agency, or of any other person or entity, is
necessary or required in connection with the execution, delivery or
performance by, or enforcement against, the Warrant Holder of this Warrant
Agreement or the transactions contemplated hereby.
(d) Binding Effect. This Warrant Agreement has been duly
executed and delivered by the Warrant Holder and constitutes the valid and
binding obligations of the Warrant Holder, enforceable against it in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability (regardless of whether considered in a proceeding at law or
in equity).
(e) Purchase for Own Account. The Warrants issued to the
Warrant Holder pursuant to this Warrant Agreement, and the Shares to be
issued upon vesting and exercise thereof, are being or will be acquired for
the Warrant Holder's own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would
be in violation of the securities laws of the United States of America, or
any state.
(f) Restricted Securities. The Warrant Holder understands that
the Warrants and the Shares issuable upon vesting and exercise of the
Warrants, will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement
is exempt pursuant to Section 4(2) of the Securities Act and that reliance
of the Company on such exemption is predicated in part on such Warrant
Holder's representations set forth herein. The Warrant Holder represents
that it is experienced in evaluating companies such as the Company, has
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment and has the
ability to suffer the total loss of the investment. The Warrant Holder
further represents that it has had the opportunity to ask questions of and
receive answers from the Company concerning the terms and conditions of the
Warrants, the business of the Company, and to obtain additional information
to such Warrant Holder's satisfaction.
(g) Accredited Investor. The Warrant Holder is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the
Securities Act, as presently in effect.
12. Compliance with Securities Act; Transferability of Warrant or
Shares of Common Stock.
(a) Compliance with Securities Act. The Warrant Holder, by
acceptance hereof, agrees that the Warrants, and the shares of Common Stock
to be issued upon exercise of the Warrants, are being acquired for
investment and that such Warrant Holder will not offer, sell or otherwise
dispose of the Warrants, or any shares of Common Stock to be issued upon
exercise of the Warrants except under circumstances which will not result
in a violation of the Securities Act of 1933, as amended (the "Securities
Act"), or any applicable state securities laws. The Warrants and all
shares of Common Stock issued upon exercise of the Warrants (unless
registered under) the Securities Act and any applicable state securities
laws) shall be stamped or imprinted with a legend in substantially the
following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE
SUCH TRANSACTION."
(b) Exchange, Transfer, Assignment. The Warrants cannot be
exchanged, transferred or assigned otherwise than in accordance with
applicable law. Upon compliance with applicable law and surrender of the
Warrants to the Company with the Assignment Form annexed hereto as Exhibit
B duly executed, and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Warrant Agreement in the
name of the heir, devisee or assignee named in such instrument of
assignment and this Warrant Agreement shall promptly be canceled. Subject
to the terms hereof, the Warrants may be assigned in whole or in part.
13. Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants,
will not be registered at the time of their issuance under the Securities
Act for the reason that the sale provided for in this Agreement is exempt
pursuant to Section 4(2) of the Securities Act based on the representations
of the warrant Holder set forth herein. The Warrant Holder represents that
it is experienced in evaluating companies such as the Company, has such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment and has the ability to
suffer the total loss of the investment. The Warrant Holder further
represents that it has had the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the
Warrants, the business of the Company, and to obtain additional information
to such Warrant Holder's satisfaction. The Warrant Holder is an
"Accredited Investor" within the meaning of Rule 501 of Regulation D under
the Securities Act, as presently in effect.
14. Registration Rights. Upon the parties' execution of this Warrant
Agreement and the Acknowledgment and Agreement to the Amended and Restated
Registration Rights Agreement attached hereto as Exhibit C, Warrant Holder
shall be made a party to that certain Amended and Restated Registration
Rights Agreement, dated as of December 8, 1998, by and among the Company,
the stockholders of the Company named therein and such other stockholders
and warrant holders of the Company made a party thereto. In addition,
within 30 days of the execution of this Warrant Agreement, the Company
agrees to enter into an agreement with Warrant Holder, in form and
substance reasonably satisfactory to Warrant Holder, which shall grant
Warrant Holder the right to transfer its registration rights pursuant to
such Amended and Restated Registration Rights Agreement dated as of
December 8, 1998 to any assignee or assignees of all or any part of this
Warrant or the Shares issuable upon exercise hereof, which assignees, upon
their execution and delivery of an Acknowledgment and Agreement to the
Amended and Restated Registration Rights Agreement substantially in the
form of Exhibit C hereto (with appropriate changes therein) shall each have
all the rights and obligations of a Demand Stockholder (as defined in such
Agreement) under such Agreement; provided that no registration statement
with respect to less than a minimum of 250,000 Shares shall be required to
be effected by the Company thereunder for the benefit of any such assignee.
15. Miscellaneous.
(a) No Consequential Damages. No party hereto shall be entitled
to consequential damages as a result of any breach of a covenant,
representation or warranty contained herein.
(b) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be
by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:
(i) if to the Company, to:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy: (203) 595-8345
Attention: Melissa M. Taub, Esq.
and to:
Skadden, Arps, Slate, Meagher, & Flom, L.L.P.
One Rodney Square
Wilmington, DE 19801
Telecopy: (302) 651-3001
Attention: Patricia Moran Chuff, Esq.
(ii) if to the Warrant Holder, to:
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Township, IL 60007
Attention: Scott Praven
Vice President Revenue Management
Phone: 847-700-5051
Fax: 847-700-2534
and to:
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Township, IL 60007
Telephone:847-700-6250
Telecopy: 847-700-4683
Attention: Fran Maher
General Counsel
(c) All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
business days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied.
(d) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the parties hereto. No person, other than the
parties hereto and their successors and permitted assigns, is intended to
be a beneficiary of this Agreement.
(e) Amendment and Waiver.
(i) No failure or delay on the part of the Company, or
the Warrant Holder in exercising any right, power or
remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right,
power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that
may be available to the Company and the Warrant
Holder at law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or to
any provision of this Warrant Agreement, any waiver
of any provision of this Warrant Agreement, and any
consent to any departure by the Company or the
Warrant Holder from the terms of any provision of
this Agreement, shall be effective only if it is made
or given in writing and signed by the Company and the
Warrant Holder.
(f) Counterparts. This Warrant Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Warrant Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(i) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired, unless the provisions held invalid, illegal or unenforceable
shall substantially impair the benefits of the remaining provisions hereof.
(j) Entire Agreement. This Warrant Agreement, together with the
exhibits hereto is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Warrant Agreement, together with the
exhibits hereto, supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
(k) Publicity. Except as may be required by law, none of the
parties hereto shall issue a publicity release or public announcement or
otherwise make any disclosure concerning this Warrant Agreement or the
transactions contemplated hereby, without prior approval by the other party
(which approval shall not be unreasonably withheld); provided, however,
that nothing in this Warrant Agreement shall restrict the Warrant Holder
from disclosing information (a)that is already publicly available and (b)
to its attorneys, accountants, consultants and other advisors to the extent
necessary to obtain their services in connection with the Warrant Holder's
investment or participation in the Company. If any announcement is
required by law to be made by any party hereto concerning this Warrant
Agreement or the transactions contemplated hereby, prior to making such
announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
(l) Charges; Taxes and Expenses. Issuance of certificates for
shares upon the exercise of the Warrants shall be made without charge to
the Warrant Holder for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificates, all of which taxes
and expenses shall be paid by the Company.
(m) Saturdays, Sundays, Holidays, Etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or a legal holiday.
(n) Lost Warrants. The Company covenants to the Warrant Holder
that, upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant Agreement and,
in the case of any such loss, theft or destruction, upon receipt of an
indemnity reasonably satisfactory to the Company, or in the case of any
such mutilation, upon surrender and cancellation of this Warrant Agreement,
the Company will make and deliver a new Warrant Agreement of like tenor, in
lieu of the lost, stolen, destroyed or mutilated document.
(o) Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any governmental
authority or any other person, and otherwise fulfilling, or causing the
fulfillment of, the various obligations made herein), as may be reasonably
required or desirable to carry out or to perform the provisions of this
Warrant Agreement and to consummate and make effective as promptly as
possible the transactions contemplated by this Warrant Agreement.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and
delivered by the authorized officers of each of the undersigned.
PRICELINE.COM INCORPORATED
By: _____________________________
Name:
Title:
UNITED AIR LINES, INC.
By: _____________________________
Name:
Title:
EXHIBIT A
NOTICE OF EXERCISE
To: priceline.com Incorporated
1. ___ The undersigned hereby elects to purchase __________
shares of the Common Stock of priceline.com Incorporated pursuant to the
terms of the Participation Warrant Agreement, dated as of __________, 1999,
by and between priceline.com Incorporated and the undersigned (the
"Warrant Agreement"), and tenders herewith payment of the purchase price
of such shares in full.
___ The undersigned hereby elects to convert ___________
percent (____%) of the value of the Warrants pursuant to the provisions of
Section 5(b) of the Warrant Agreement.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned.
UNITED AIR LINES, INC.
By: _____________________________
_________________________________
(Print Name of Signatory)
_________________________________
(Title of Signatory)
Date: ________________
EXHIBIT B
ASSIGNMENT FORM
TO: priceline.com Incorporated
The undersigned hereby assigns and transfers unto ________________________
of _______________________________________________________________________
(Please typewrite or print in block letters)
the right to purchase ____________ shares of the common stock of
priceline.com Incorporated subject to the Participation Warrant Agreement,
dated as of ________________, 1999, by and between priceline.com
Incorporated and the undersigned (the "Warrant Agreement").
This assignment complies with the provisions of Section 12(b) of the
Warrant Agreement and is accompanied by funds sufficient to pay all
applicable transfer taxes.
UNITED AIR LINES, INC.
By: _____________________________
_________________________________
(Print Name of Signatory)
_________________________________
(Title of Signatory)
Date: ________________
EXHIBIT C
ACKNOWLEDGMENT AND AGREEMENT
TO THE AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
WHEREAS, pursuant to a Participation Warrant Agreement, the
undersigned received a warrant to purchase 5,500,000 shares of common
stock, par value $.008 per share (the "Shares"), of priceline.com
Incorporated, a Delaware corporation (the "Company"); and
WHEREAS, the undersigned wishes to receive certain registration rights
with respect to such Shares; and
WHEREAS, the undersigned has reviewed a copy of that certain Amended
and Restated Registration Rights Agreement, dated as of December 8, 1998
(the "Agreement"), among the Company, General Atlantic Partners 48, L.P.,
GAP Coinvestment Partners, L.P., General Atlantic Partners 50, L.P. and the
stockholders named therein and has been given a copy of the Agreement and
afforded ample opportunity to read and to have counsel review it, and the
undersigned is thoroughly familiar with its terms.
NOW, THEREFORE, in consideration of the mutual premises contained
herein and in the Agreement and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
undersigned hereby acknowledges and agrees that (i) the undersigned has
been given a copy of the Agreement and afforded ample opportunity to read
and to have counsel review it, and the undersigned is thoroughly familiar
with its terms, (ii) the Shares are subject to terms and conditions set
forth in the Agreement, (iii) the undersigned does hereby agree fully to be
bound by the Agreement as a "Demand Stockholder" (as therein defined), and
upon the execution and delivery of this Acknowledgment and Agreement by the
Company, the undersigned shall have all the rights and obligations under
the Agreement as a Demand Stockholder, and (iv) the undersigned does hereby
name _________________to serve as their representative under the Agreement.
This 15th day of November, 1999.
Acknowledged and agreed:
PRICELINE.COM INCORPORATED UNITED AIR LINES, INC.
By: ___________________________ By: __________________________
Name: Name:
Title: Title:
[**]=Confidential Treatment requested for redacted portion
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
AIRLINE PARTICIPATION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of November 17, 1999,
is by and between priceline.com Incorporated, a Delaware corporation
("Priceline"), and US Airways, Inc., a Delaware corporation ("US Airways").
PRELIMINARY STATEMENT
Priceline provides a service that allows consumers to purchase
airline tickets at an offer price determined by the consumer (the
"Priceline Service"). The consumer identifies the departure and return
dates for travel and the price the consumer is willing to pay for the
airline ticket(s). Priceline then determines if it is able to fulfill the
customer's offer and, if it is able to do so, Priceline issues a ticket to
the customer on the applicable carrier.
US Airways desires to participate in the Priceline Service and,
in connection therewith, will provide Priceline with unpublished fares
subject to the Restrictions (defined herein) for select origin and
destination city pairs (each, an "O&D") identified by US Airways in
accordance with the terms and conditions set forth in this Agreement.
Priceline desires to include US Airways as a participating
carrier in the Priceline Service and to have access to such unpublished
fares in accordance with the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements
set forth in this Agreement, the parties agree as follows:
I. Delta Airlines Consent to US Airways participation:
US Airways acknowledges Priceline's pre-existing agreement with Delta
Air Lines, Inc. ("Delta") granting Delta the right to approve and/or
limit additional airline participation in the Priceline Service.
Priceline represents that it has obtained permission from Delta
consenting to US Airways' ' participation in the Priceline Service
upon the condition that Priceline limit US Airways' participation as
provided in Section V of this Agreement. Priceline acknowledges the
desire and preference of US Airways to participate in the Priceline
Service without restriction. This Agreement in its entirety
supersedes any previous participation agreement between Priceline and
USAirways.
II. Ticket Restrictions and Related Matters
US Airways shall make available unpublished fares to Priceline for
O&Ds identified by US Airways in accordance with the terms and
conditions set forth in this Agreement. Unpublished fares provided to
Priceline must be issued in accordance with rules and restrictions
provided to Priceline from time to time. By way of example,
unpublished fares on certain O&Ds may require specific routings or be
flight/day specific. At all times during the term of this Agreement,
US Airways will control and determine the unpublished fares and levels
of inventory provided to Priceline. It is expressly understood and
agreed that US Airways makes no commitment whatsoever regarding the
level of inventory, number of O&Ds or the level of unpublished fares
that will be provided to Priceline.
All tickets issued by Priceline for carriage on US Airways (each, a
"Priceline Ticket") shall be subject to the following restrictions
(the "Restrictions"):
Except as otherwise provided in this Agreement, all Priceline
Tickets will be non-refundable, non-endorsable and non-changeable;
All travel will be round-trip with no stopovers or open-jaw
travel permitted;
Frequent Flyer mileage and upgrades will not be permitted;
provided, US Airways may offer such benefits to the extent that it is
impractical to impose such frequent flyer restrictions on Priceline
Tickets;
Priceline customers must agree to (i) make at least one stop or
connection on both their departing and return flights, (ii) accept a
ticket on any Participating Carrier, and (iii) travel on any flight on
the specified date of travel (x) for domestic U.S. flights, departing
during the 6 a.m. 10 p.m. time period unless the customer has
specified a request to include flights departing outside those
periods, and (y) for international flights, at any time (i.e., 12:01
a.m. to 11:59 p.m.);
All Priceline travel reservations and bookings shall be made
without Priceline customers specifying a preferred (or requested)
carrier, flight or time of day travel preference(s) on the specified
date(s) of travel;
All Priceline Tickets require instant ticketing guaranteed with a
major credit card if Priceline is able to provide an airline ticket
within the customer's requested price, departure and return date
parameters;
Priceline Ticket reservations are limited to no more than eight
persons traveling in the same itinerary; and
Except as otherwise provided herein, in any seven-day calendar
period, a Priceline customer shall be limited to making one offer
price for airline ticket(s) for a Trip. A "Trip" is defined as travel
between the same airports on the same dates of travel. A Priceline
customer may, within a seven-calendar day period, make an offer for
travel in a different airport pair or on different dates of travel.
Priceline will not knowingly sell a ticket to a Priceline customer in
response to a second (or subsequent) offer for a Trip within a seven
calendar day period; provided, that Priceline may sell a ticket in
connection with a second offer if the Priceline customer (i) accepts,
as part of the second offer, (x) a travel package which includes a
hotel or rental car offer, or (y) a product or service co-marketed by
Priceline such as a credit card or long distance telephone service or
other co-marketing program.
US Airways may include, in addition to the Restrictions, other
fare rules and conditions for Priceline Tickets issued on US Airways
such as advance purchase or Saturday night stay requirements.
Priceline also reserves the right to impose additional restrictions on
Priceline Tickets, including a Saturday night stay requirement, as
part of the Restrictions.
The Restrictions will be communicated by Priceline to the
customer via the Internet (or through Priceline's customer service
representatives if the consumer contacts Priceline through its toll-
free customer service number), and will be set forth on ticketing
and/or itinerary documentation issued by Priceline.
All Priceline Tickets issued for carriage on US Airways shall be
subject to the published conditions of carriage and the fare rules of
US Airways, to the extent such conditions and fare rules are
consistent with the Restrictions. US Airways will honor all Priceline
Tickets issued for travel on US Airways in accordance with the
Restrictions and other rules and conditions established by US Airways
for Priceline Tickets.
III. Priceline Ticket Reservations, Bookings, Payment and Fulfillment
1. US Airways will file unpublished fares and rules for
Priceline Tickets with the computer reservation system ("CRS") used by
Priceline.
2. Subject to Article VI, Priceline will determine the price at
which tickets are sold based on customer offers received through the
Priceline Service. Priceline shall not advertise prices or fares offered
by any carrier that are below US Airways' published or unpublished fares.
3. All unpublished fares made available by US Airways for sale
through the Priceline Service shall not be commissionable and shall be
inclusive, where applicable, of the applicable domestic federal
transportation excise tax. All such unpublished fares shall be exclusive
of any domestic federal segment taxes, and any domestic or international
fuel, departure, arrival, passenger facility, airport, terminal and/or
security taxes or surcharges which, when applicable, must be added to the
fare amount collected from the passenger and shown on the Priceline Ticket.
4. Upon locating an unpublished fare satisfying a Priceline
customer's ticket request, Priceline shall immediately ticket the
customer's ticket price against a valid credit card provided by the
Priceline customer.
5. In all Priceline Ticket transactions, Priceline will be the
merchant of record and will pay all associated merchant credit card fees.
All Priceline tickets sold on US Airways will be settled through US Airways
Reporting Corporation ("ARC").
6. All tickets of US Airways issued through the Priceline
Service will be issued by Priceline using Agency ARC: 07-50854-6. In
collecting payment for Priceline Tickets, Priceline will act as the agent
of US Airways pursuant to Agent's ARC Agent Reporting Agreement with ARC.
7. Unless otherwise directed by a Priceline customer, all
Priceline Tickets issued on US Airways will be issued electronically.
After issuance, Priceline will promptly forward to the customer a receipt
of proof of purchase, contract of carriage on US Airways and a copy of the
Restrictions (including any additional restrictions imposed by US Airways).
In the event a Priceline customer requests US Airways to provide a separate
electronic ticket receipt for an electronic ticket, the price shown on US
Airways' receipt will reflect that such ticket is a "bulk" electronic
ticket.
8. Priceline will encourage its customers to accept electronic
ticketing for all Priceline Ticket requests by imposing an additional
charge for the issuance of paper tickets and maintaining the issuance of
electronic tickets as the default option on the Priceline Service.
9. Subject to the provisions of Article II above, all Priceline
paper tickets for carriage on US Airways will be issued by Priceline on
standard ARC traffic documents and will be validated with US Airways'
validation in accordance with the ARC requirements. The passenger coupon
will show "bulk" for the fare amount and will include all additional
collections noted in Article II above. The auditor's coupon will show the
US Airways' unpublished fare as authorized by Priceline.
10. In the event that Priceline is unable to fulfill a Priceline
ticket request from unpublished fares and seat inventory provided from US
Airways participation in the Priceline Service, Priceline reserves the
right to sell tickets on US Airways using published fares used by travel
agents generally as reflected in CRSs, in accordance with the rules and
conditions associated with such fares.
11. US Airways agrees to test special fares in Priceline at [**]%
to [**]% off any retail fare available for sale by the travel agency
community. However, US Airways retains the right to increase, decrease or
eliminate the discount in any and all markets throughout the life of this
Agreement. In addition, US Airways will from time to time, and at its own
discretion, provide Priceline with discounts and special fares that are not
generally available through traditional retail distribution channels.
12. Priceline may use fares provided to the Priceline Service
for promotional purposes on specific terms as agreed to by US Airways as
long as the actual fares offered are not made public and US Airways is not
featured more prominently or frequently than any other participant. In
addition, US Airways will from time to time, at its discretion, provide
Priceline with specific offers to promote customer use of the Priceline
Service.
When notifying passengers that their bids were unsuccessful
through the Priceline Service, Priceline will offer such passengers a "hot
link" to US Airways' branded reservation home page (USAirways.com) as an
alternative source for air fares and tickets. Priceline agrees to present
US Airways, among potential multiple airline links, in an unbiased manner.
Priceline will work to offer this enhancement to its current service in as
timely a manner as possible not to exceed 180 days after the date of this
Agreement.
IV. Priceline Ticket Allocation Methodology; Participating Carriers
1. Priceline has established an allocation methodology that
determines when a participating airline will be given the first opportunity
to fill a customer ticket request. First and second looks are allocated to
participating carriers on the basis of objective quality of service index
("QSI") criteria provided by Airline Planning Group, LLC ("APG"). The
allocation system will apply this O&D QSI in the top 2500 domestic and top
2500 international markets based on demanded revenue. In smaller O & D
markets, "looks" will be allocated on the basis of aggregate carrier system
share. Priceline will not give any carrier a structural first or second
look advantage that is more favorable than that given to USAirways.
2. Priceline will allocate US Airways' "First Look" and "Second
Look" opportunities based on US Airways' QSI share of carriers
participating in Priceline. USAirways' first Looks will be written at the
highest qualifying US Airways fare provided to Priceline. In cases where
either the first or second look carrier fails to fulfill any given offer,
Priceline reserves the right to allocate traffic as it chooses.
3. During the term of this Agreement, if Priceline offers
another airline terms of participation affecting sales of airline tickets,
including but not limited to the offer of airline availability, prices or
promotions, that are in the aggregate more favorable than those offered to
US Airways hereunder, then Priceline will offer US Airways the same or
equivalent benefit. This provision does not apply to agreements entered
between Priceline and another airline prior to US Airways' participation in
Priceline.
4. Priceline will not make any changes to its allocation or
other processing methodology that will reduce US Airways' revenue share of
sales through Priceline over the term of this Agreement. US Airways market
share, however, may be affected by the participation of fewer or additional
airlines on a pro rata basis. At US Airways request, Priceline will supply
substantiation that that its allocation or other processing methodologies
comply with the terms of this Agreement.
5. Priceline will work in good faith with US Airways to assist
it in achieving its objective for the Priceline Service within the context
of the allocation system set forth above. Priceline may work in good faith
with other participating airlines in achieving their objectives for the
Priceline Service within the context of the allocation system.
V. Restriction on US Airways Participation.
1. In the following markets, Priceline is contractually
restricted by Delta, from issuing US Airways tickets within the Priceline
Service:
a. To/from Atlanta except between ATL-CLT/PHL/PIT and any
market to or from ATL not served by Delta or its commuter
affiliate(s).
b. To/from BOS to any market served from BOS on a nonstop basis
by Delta or its commuter affiliate(s) except between BOS-CLT/PHL/PIT
c. To/from LGA to any market served from LGA on a nonstop basis
by Delta or its commuter affiliate(s) except between LGA-CLT/PHL/PIT
2. US Airways acknowledges the existence of the restrictions on
its participation.
VI. Priceline Customer Service
1. Priceline will provide twenty-four hour customer support
services to all Priceline customers through a toll-free number at the
customer support center designated by Priceline from time to time. The
customer support center will be adequately staffed with personnel trained
to take Priceline Ticket requests by phone and respond to all customer
inquiries for related service and support.
2. Priceline will use commercially reasonable efforts to ensure
that its customer service representatives provide quality customer service
and support to Priceline customers in a prompt, reliable and courteous
manner.
3. Priceline will respond to Priceline customer questions and
issues pertaining to special handling requirements for Priceline Tickets
including processing any special customer handling requirements in respect
of Priceline Tickets issued on US Airways.
4. The ticket Restrictions will apply to all tickets issued
through the Priceline Service on US Airways. US Airways may waive, at its
own cost and expense, one or more of the Restrictions set forth in Article
II, Sections 2(1)-(6) pursuant to a direct arrangement made by US Airways
with the applicable customer holding a Priceline Ticket. On an exception
basis where necessary or appropriate to address an escalating customer
service issue of any individual customer, Priceline may refund the price of
a Priceline Ticket pursuant to the applicable customer. Priceline will
report such refunds and cancellations to US Airways monthly. In the event
that such refunds exceed [**]% of gross ticket sales in any month, Priceline
will implement such actions as are necessary to cause total refunds to be
below [**]% of gross ticket sales in the following month. If in any three
month period, total refunds exceed [**]% of gross ticket sales, Priceline will
be responsible for any refunds greater than [**]% of gross ticket sales.
Priceline and US Airways will jointly develop any further guidelines on
which such exception refunds will be governed.
VII. [**]
1. [**]
2. Priceline reserves the right to solely determine at what
offer price customers may purchase an airline ticket through the Priceline
Service. However, Priceline will not agree with any airline to establish a
minimum price in any O&D market.
3. Priceline will provide US Airways with participation rights
in the Priceline Service as favorable as it provides to United Airlines and
America Airlines, subject to restrictions in Article V.
VIII. Confidentiality
1. US Airways agrees to keep the terms of this agreement
confidential until such time as Priceline has received formal notification
from Delta Airlines validly consenting to US Airways' participation in the
Priceline system.
2. Priceline and US Airways will each hold in confidence and,
without the prior written consent of the other, will not reproduce,
distribute, transmit, transfer or disclose, directly or indirectly, in any
form, by any means or for any purpose, any Confidential Information of the
other party. As used herein, the term "Confidential Information" shall
mean this Agreement and its subject matter, and proprietary information
that is provided to or obtained from one party to the other party including
any information which derives economic value, actual or potential, from not
being generally known to, and not generally ascertainable by proper means
by, other persons, including the unpublished fares provided by US Airways
to Priceline pursuant to this Agreement. The recipient of Confidential
Information may only disclose such information to its employees on a need-
to-know basis.
3. The obligations of a recipient party with respect to
Confidential Information shall remain in effect during and after the term
of this Agreement (including any renewals or extensions hereof) and for a
period of five (5) years thereafter, except to the extent such data:
(1) is or becomes generally available to the public other than
as a result of a disclosure by the recipient, or its directors,
officers, employees, agents or advisors;
(2) becomes available to the recipient on a non-confidential
basis from a source other than the disclosing party or its affiliated
companies, provided that such source is not bound by any
confidentiality obligations to the disclosing party or its affiliated
companies (as applicable); or
(3) is necessary to comply with applicable law or the order or
other legal process of any court, governmental or similar authority
having jurisdiction over the recipient. US Airways acknowledges that
Priceline may be required to file this Agreement with the Securities
and Exchange Commission ("SEC"), as required by federal securities
laws, and that such filing shall not be deemed a violation of the
provisions of this Article VIII.
4. Except as otherwise specifically provided in Section 2(c) of
this Article VIII with respect to Priceline's filing requirements with the
SEC, in the event that the recipient becomes legally compelled to disclose
any such Confidential Information by any governmental body or court,
recipient will provide the disclosing party with prompt notice so that the
disclosing party may seek a protective order or other appropriate remedy
and/or waive compliance (in writing) with the provisions hereof. In the
event that such protective order or other remedy is not obtained, or the
disclosing party waives (in writing) compliance with the provisions hereof,
recipient will furnish only that portion of such Confidential Material
which is legally required and will exercise its reasonable business efforts
to obtain appropriate assurance that confidential treatment will be
accorded such Confidential Information.
5. The recipient of Confidential Information will exercise
reasonable commercial care in protecting the confidentiality of the other
party's Confidential Information.
6. Priceline will not disclose (including, without limitation,
by sale) to any third party information obtained through the Priceline
Service concerning a customer who has acquired a ticket on US Airways using
the Priceline Service.
IX. Proprietary Marks
During the term of this Agreement neither Priceline nor US
Airways shall use the other party's trademarks, trade names, service marks,
logos, emblems, symbols or other brand identifiers in advertising or
marketing materials, unless it has obtained the prior written approval of
the other party. The consent required by this Article IX shall extend to
the content of the specific advertising or marketing items as well as the
placement and prominence of the applicable trademark, trade name, service
mark, logo, emblem, symbol or other brand identifier of the other party.
Priceline or US Airways, as applicable, shall cause the withholding,
discontinuance, recall or cancellation, as appropriate, of any advertising
or promotional material not approved in writing by the other party, that
differs significantly from that approved by the other party, or that is put
to a use or used in a media not approved by the other party.
X. Reporting
1. Priceline will provide monthly reports in a format
designated by US Airways summarizing (i) information concerning each ticket
issued by Priceline on US Airways; (ii) aggregate information (i.e. non US
Airways specific) for all tickets issued by Priceline in each O&D that US
Airways participates; and (iii) aggregate information for all Priceline
offers from customers not ticketed in each O&D that US Airways
participates.
2. [**]
XI. Term of Agreement
1. This Agreement shall be effective on and as of the date
first above written. Thereafter, US Airways may unilaterally terminate
this Agreement for any reason on 90 days' prior written notice to
Priceline. This agreement shall be binding to Priceline for a period of
five years following the Commencement Date after which Priceline may
unilaterally terminate this Agreement for any reason on 90 days' prior
written notice to US Airways.
2. The obligations of the parties under Articles VIII and XII
of this Agreement shall indefinitely survive the expiration or any
termination of this Agreement.
3. In the event of written notice of termination of this
Agreement in accordance with the terms of this Article XI, all Priceline
Tickets issued on US Airways prior to the effective date of termination
specified in such notice will be honored by US Airways under the terms of
this Agreement.
XII. Indemnification
1. Priceline will indemnify, defend and hold harmless US
Airways, its officers, directors, employees and agents, from and against
all damages, losses and causes of action including, without limitation,
damage to property or bodily injury, to the extent caused by Priceline's
breach of this Agreement of the ARC Agent Reporting Agreement, or by the
negligence or willful acts of Priceline or any of its employees or agents.
2. US Airways will indemnify, defend and hold harmless
Priceline and its officers, directors, employees and agents from and
against all damages, losses and causes of actions including, without
limitation, damage to property or bodily injury, to the extent caused by US
Airways' breach of this Agreement or by the negligence or willful acts of
US Airways or any of its employees or agents.
XIII. No Exclusivity
The relationship by and between US Airways and Priceline as set
forth in this Agreement shall be non-exclusive. As such, US Airways may
participate in other programs similar to the Priceline Service.
XIV. General Provisions
1. No waiver or breach of any of the provisions of this
Agreement shall be construed as a waiver of any succeeding breach of the
same or any other provision.
2. If any paragraph, sentence or clause of this Agreement shall
be adjudged illegal, invalid or unenforceable, such illegality, invalidity
or unenforceability shall not affect the legality, validity or
enforceability of this Agreement as a whole or of any paragraph, sentence
or clause hereof not so adjudged.
3. Any notice required or permitted hereunder shall be deemed
sufficient if given in writing and delivered personally, by facsimile
transmission, by reputable overnight courier service or United States mail,
postage prepaid return receipt requested, to the addresses shown below or
to such other addresses as are specified by similar notice, and shall be
deemed received upon personal delivery, upon confirmed facsimile receipt,
two (2) days following deposit with such courier service, or three (3) days
from deposit in the United States mails, in each case as herein provided:
If to Priceline: If to US Airways:
Priceline.com Incorporated US Airways Inc.
Five High Ridge Park 2345 Crystal Drive
Stamford, CT 06905 Arlington, VA 22227
Attention: Paul Francis Attention: Thomas Mutryn
Chief Financial Officer Chief Financial Officer
Phone: (203) 705-3000 Phone: (703) 872-5700
Fax: (203) 595-8344 Fax:
With a copy to: With a copy to:
Priceline.com Incorporated US Airways Inc.
Five High Ridge Park 2345 Crystal Drive
Stamford, CT 06905 Arlington, VA 22227
Attention: Timothy G. Brier Attention: Assistant General Counsel
Phone: (203) 705-3000 Phone: (703) 872-5230
Fax: (203) 595-8343 Fax: (703) 872-7979
A party may change its address and the name of its designated
recipient of copies of notices for purposes of this Agreement by giving the
other parties written notice of the new name and the address, phone and
facsimile number of its designated recipient in accordance with this
Article XIV, Section 3.
4. This Agreement supersedes and replaces all previous
understandings or agreement, whether oral or in any written form, with
respect to the US Airways' participation in the Priceline Service or any
other subject matter addressed herein. The captions in this Agreement are
for convenience only and do not alter any terms of this Agreement.
5. This Agreement may be amended or modified only by a written
amendment executed by the parties.
6. The formation, construction, performance and validity of
this Agreement shall be governed by the internal laws of the State of
Delaware. Each party agrees that any civil suit or action brought against
it as a result of any of its obligations under this Agreement may be
brought against it either in the state or federal courts of the principal
place of business of either party, and each party hereby irrevocably
submits to the jurisdiction of such courts and irrevocably waives, to the
fullest extent permitted by law, any objections that it may now or
hereafter have to the laying of the venue of such civil suit or action and
any claim that such civil suit or action has been brought in an
inconvenient forum, and each party further agrees that final judgment in
any such civil suit or action shall be conclusive and binding upon it and
shall be enforceable against it by suit upon such judgment in any court of
competent jurisdiction.
7. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and together, shall constitute one and
the same instrument. Execution may be effected by delivery of facsimiles
of signature pages (and the parties shall follow such delivery by prompt
delivery of originals of such pages).
8. No party will in any manner or by any device, either
directly or indirectly, act in violation of any applicable law,
governmental order or regulation. Priceline shall comply at all times with
the provisions of US Airways' tariffs (except where such tariffs are
specifically amended by US Airways under the terms of this Agreement) and
the terms of the ARC Agent Reporting Agreement and any addenda thereto.
9. Priceline agrees to notify US Airways promptly, in writing,
in the event there is a change of control in the ownership of Priceline.
For purposes of this Agreement, a "change of control" means (i) the
acquisition by any other person or group (within the meaning of Section
13(d)(3) of the Securities Exchange Act (except an employee group of such
party, any of its subsidiaries or a holding company of such party)), of the
beneficial ownership of securities representing 20% or more of the combined
voting power of the securities entitled to vote generally in the election
of the board of directors of the applicable party, or (ii) the sale,
mortgage, lease or other transfer of assets or earning power constituting
more than 50% of the assets or earning power of such party (other than
ordinary course financing); provided that in no event shall a "change of
control" be defined to include (i) an initial public offering of shares of
the party's capital stock, (ii) the formation by a party of a holding
company, or (iii) an intra-corporate transaction with a company under
common control with a party.
10. No party hereto shall assign or transfer or permit the
assignment or transfer of this Agreement without the prior written consent
of the other party.
11. This Agreement shall not be deemed to create any partnership
or joint venture between US Airways and Priceline, or to create any rights
in favor of any person or entity other than the parties hereto. This
Agreement is for the sole benefit of the parties and nothing herein
expressed or implied shall give or be construed to give any other person
any legal or equitable rights hereunder.
12. NO PARTY WILL BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES, INCLUDING LOST REVENUES, LOST PROFITS, OR LOST PROSPECTIVE
ECONOMIC ADVANTAGE, ARISING FROM THIS AGREEMENT OR ANY BREACH HEREOF.
13. THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR IN
THE EVENT ANY PROVISION OF THIS AGREEMENT IS NOT PERFORMED IN ACCORDANCE
WITH THE TERMS HEREOF AND THAT THE PARTIES SHALL BE ENTITLED TO AN
INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF THIS AGREEMENT AND TO
ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS AGREEMENT.
14. Each party has participated in the negotiation and drafting
of this Agreement. In the event any ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date indicated above.
PRICELINE.COM INCORPORATED US AIRWAYS INC.
By: _________________________ By: _________________________
Name: Name:
Title: Title:
[**]=Confidential Treatment requested for redacted portion
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE WARRANT ISSUED PURSUANT TO THIS PARTICIPATION WARRANT AGREEMENT HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION.
PARTICIPATION WARRANT AGREEMENT
To Purchase Shares of Common Stock
Dated as of November 17, 1999
PRICELINE.COM INCORPORATED
a Delaware Corporation
Issue Date November 17, 1999
THIS CERTIFIES THAT, U S Airways, Inc. (the "Warrant Holder"), with a place
of business at Crystal Park Four, 2345 Crystal Drive, Arlington, Virginia
22227, for value received, is entitled, upon the terms and subject to the
conditions of this Participation Warrant Agreement (this "Warrant
Agreement"), to subscribe for and purchase fully-paid and non-assessable
shares of common stock, par value $.008 per share (the "Common Stock"), of
priceline.com Incorporated, a Delaware corporation (the "Company").
1. Issuance of Warrants. On the Issue Date, the Company will issue
to the Warrant Holder warrants (the "Warrants") to acquire One
Million Five Hundred Thousand (1,500,000) shares of the Common
Stock (the "Shares"), subject to adjustment as hereinafter
provided pursuant to Section 10 herein.
2. Exercise Price. The Warrants have an exercise price of $52.625
per share of Common Stock, as adjusted pursuant to the
provisions of Section 10 of this Warrant Agreement (the
"Exercise Price").
3. Term. The Warrants are fully vested on the Issue Date. Except
as otherwise provided for herein, the term of the Warrants and
the right to purchase Shares as granted herein shall be
exercisable on the fifth (5th) anniversary of the Issue Date;
provided, further, that if any of the Warrants first become
exercisable on the fifth (5th) anniversary of the Issue Date,
the Warrant Holder will have an additional six months
thereafter to exercise its purchase rights in respect of those
Warrants (the end of such five year period and additional six
months, if applicable, being referred to herein as the
"Termination Date").
4. Exercise Events.
(a) General. Unless otherwise exercisable at an earlier date,
in accordance with this Section 4, all of the Warrants shall be fully
exercisable commencing of the fifth anniversary of the Issue Date.
(b) Early Exercise Rights. Subject to the provisions of Section
4(d) hereof, Warrant Holder shall have the following early exercise rights:
(i) The Warrant Holder will earn the right to exercise Warrants
for the first [**] Shares, subject to adjustment as
provided in Section 10 hereof, upon completion of any
Measuring Period (as identified in Section 4(c) hereof)
during which the Company has sold at least $[**] million of
tickets issued for travel on the Warrant Holder, its
subsidiaries and/or on the Warrant Holder's code share
partners using Warrant Holder's code (collectively, "Warrant
Holder and Code Share Partners") (such amount being measured
by the amount paid by the Company to the Warrant Holder and
its code share partners net of federal excise taxes on such
amount, PFCs and related collections) ("Net Revenue").
(ii) The Warrant Holder will earn the right to exercise Warrants
for the full amount of the second [**] Shares, subject to
adjustment as provided in Section 10 hereof, upon completion
of any Measuring Period during which the Company has sold at
least $[**] million of Net Revenue. If, upon completion of
any Measuring Period, the Company has sold more than $[**]
million but less than $[**] million of Warrant Holder Net
Fares during such Measuring Period, Warrant Holder will earn
the right to exercise that number of Warrants for a portion
of the second [**] Shares, subject to adjustment as
provided in Section 10 hereof, equal to the product of (i)
[**] (subject to adjustment as provided in Section 10
hereof) multiplied by (ii) a fraction, the numerator of
which shall be the Net Revenue in excess of $[**] million sold
by the Company during such Measuring Period, and the
denominator of which shall be $[**] million.
(iii) Net Revenue will be measured separately, not cumulatively, for
each measuring period. For example, if the Company has sold
Warrant Holder Net Fares of $[**] million during the first
Measuring Period, $[**] million during the second Measuring
Period, and $[**] million during the third Measuring Period,
then the Warrant Holder will earn the right to exercise
Warrants for [**] Shares upon completion of the first Measuring
Period, the right to exercise Warrants for [**] Shares ([**] x
[**]) upon completion of the second Measuring Period, and the
right to execise Warrants for [**] Shares ([**] x [**]) upon
completion of the third Measuring Period. For purposes of this
example, it is assumed that no adjustment pursuant to Section
10 hereof has occurred.
(iv) Notwithstanding the Net Revenue benchmarks specified in clauses
(i) and (ii) of this Section 4(b) for the early exercisability
of Warrants, if, in any Measuring Period, the Company fails to
achieve the minimum Net Revenue from ticket sales for travel on
Warrant Holder and its Code Share Partners necessary to enable
Warrant Holder to exercise Warrants thereunder, then, effective
on the completion of such Measuring Period and thereafter,
Warrant Holder (i) shall have the right to exercise Warrants
for [**] Shares, subject to adjustment as provided in Section
10 hereof, if Warrant Holder's and its Code Share Partners'
percentage of the Aggregate Ticket Sales Revenues (as defined
in Section 4(c)) for U.S. originating O&D's for such Measuring
Period equals or exceeds [**]% of Warrant Holder's Fair Share
(as defined in Section 4(c) below), and (ii) shall have the
right to exercise Warrants for [**] Shares, if Warrant Holder's
and its Code Share Partners' percentage of the Aggregate Net
Ticket Sale Revenues for U.S. originating O&D's for such
Measuring Period equals or exceeds [**]% of Warrant Holder's
Fair Share. In the event that in any Measuring Period, the
Warrant Holder exceeds [**]% of its Fair Share but does not
reach [**]% of its Fair Share, then Warrant Holder will earn
the right to exercise that number of Warrants for a portion of
the second [**] Shares, subject to adjustment as provided in
Section 10 hereof, equal to the product of (i) [**] (subject to
adjustment as provided in Section 10 hereof) multiplied by (ii)
a fraction, the numerator of which shall be the Fair Share
percentage (expressed as a number and not a percentage) in
excess of [**]% achieved by the Warrant Holder and its Code
Share Partners during such Measuring Period, and the
denominator of which shall be [**]. Fair Share will be measured
separately, not cumulatively, for each Measuring Period. For
example, if the Warrant Holder achieves [**]% of its Fair Share
during the first Measuring Period, [**]% of its Fair Share
during second Measuring Period, and [**]% during the third
Measuring Period, then the Warrant Holder will earn the right
to exercise Warrants for [**] Shares upon completion of the
first Measuring Period, the right to exercise Warrants for [**]
Shares ([**] x [**]) upon completion of the second Measuring
Period, and the right to exercise Warrants for [**] Shares
([**] x [**]) upon completion of the third Measuring Period.
(c) Measuring Periods; Fair Share; Aggregate Net Ticket Sale
Revenues.
(i) Each Measuring Period shall be a 12 month period, with the
first Measuring Period commencing on the date the Warrant
Holder first provides tickets for sale by the Company (the
"First Ticket Date") and ending on the first anniversary of
such date. Subsequent Measuring Periods will expire on the
second, third, fourth and fifth anniversary of the First
Ticket Date, respectively; provided that the last Measuring
Period will expire on the fifth anniversary of the Issue Date.
(ii) As used in this Warrant Agreement, the term "Fair Share"
shall mean Warrant Holder's domestic market share calculated
as a fraction, the numerator of which shall be Warrant
Holder's RPM's for U.S. originating O&D's only, and the
denominator of which shall be the total RPM's for U.S.
originating O&D's only of all of the Company's participating
airlines. The forgoing calculation shall excluded in the
numerator and the denominator, O&D markets in which Warrant
Holder is restricted from providing service in the Company's
airline ticket service ("Restricted Markets").
(iii) As used is this Warrant Agreement, the term "Aggregate Net
Ticket Sale Revenues" for any Measuring Period, shall mean,
the total amount paid by the Company to its participating
airlines, including Warrant Holder and its Code Share
Partners for airline tickets sold for US originating O&D's
(excluding O&D's for Restricted Markets) on all of the
Company's participating airlines, net of federal excise
taxes on such amounts, PFCs and related collections.
(d) Warrant Holder's right to earn early exercise rights under
Section 4(b) is contingent upon Airline's NOT TAKING AN EQUITY POSITION OF
ANY NATURE WHATSOEVER, including, without limitation, common stock,
preferred stock, warrants, options, or debt, in any other operator or
affiliate thereof (an "Operator") of a "demand collection system" for sale
of airline tickets over the Internet. For purposes of this Section 4(d),
"demand collection system" is narrowly defined as an airline ticket service
that (i) enables a consumer to name the price the consumer is willing to
pay for one or more airline tickets prior to the Seller's display of the
price actually paid by the consumer, (ii) enables the seller to bind the
consumer to the consumer's offer price upon the seller's acceptance of the
consumer's offer, and (iii) does not permit the consumer to specify the
exact airline on which the consumer is willing to fly. In order for Warrant
Holder to be entitled to earn the early exercise rights specified in
Section 4(b)(i) and 4(b)(ii), as the case may be, Warrant Holder must not
at any time between the date hereof and the date it earns such early
exercise rights, take an equity position of any nature whatsoever in any
Operator of a "demand collection system" other than the Company's for the
sale of airline tickets over the Internet. For example, if in the first
Measuring Period, the Company achieves Net Revenues that would entitle the
Warrant Holder to exercise Warrants for the first 750,000 Shares, the
Warrant Holder will be entitled to exercise such Warrants at all times
after the completion of such Measuring Period so long as the Warrant Holder
at all times from the date hereof though the date it earned such early
exercise rights had not taken an equity position in any other Operator of a
"demand collection system" for the sale of airline tickets over the
Internet. If at any time from the date hereof prior to the fifth 5th
anniversary of the Grant Date, the Warrant Holder takes an equity position
in an Operator of another "demand collection system" for the sale of
airline tickets over the Internet, the Warrant Holder's right to earn early
exercise rights will terminate and be of no further force or effect with
respect to Warrants for which Warrant Holder did not earn early exercise
rights prior to the date of Warrant Holder's taking such equity position,
and such Warrants will become exercisable on the fifth 5th anniversary of
the Grant Date.
5. Exercise of Purchase Rights. Subject to the provisions of Section
4 of this Warrant Agreement, the purchase rights represented by
this Warrant Agreement are exercisable by the Warrant Holder, in
whole or in part, at any time, or from time to time during the
period set forth in Section 3 above, by tendering to the Company
at its principal office a duly completed and executed notice of
exercise in the form attached hereto as Exhibit A (the "Notice of
Exercise"), the Warrants and the Exercise Price. Upon receipt of
such items, the Company shall issue to the Warrant Holder a
certificate for the number of shares of Common Stock purchased.
The Warrant Holder, upon exercise of the Warrants, shall be
deemed to have become the holder of the Shares represented
thereby (and such Shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates
upon which the Warrants are exercised. In the event of any
exercise of the rights represented by the Warrants, certificates
for the Shares so purchased shall be delivered to the Warrant
Holder or its designee as soon as practical and in any event
within ten (10) business days after receipt of such notice and,
unless the Warrants have been fully exercised or expired, new
Warrants representing the remaining portion of the Warrants and
the underlying Shares, if any, with respect to which this Warrant
Agreement shall not then have been exercised shall also be issued
to the Warrant Holder as soon as possible and in any event within
such tenday period.
6. Reservation of Shares. The Company will at all times have
authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of the rights to purchase the
Shares as provided in this Warrant Agreement. All of the Shares
shall be duly authorized and, when issued upon such exercise,
shall be validly issued, fully paid and nonassessable, and free
and clear of all preemptive rights.
7. No Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the
Warrant Holder's rights to purchase the Shares.
8. No Rights as Shareholder. This Warrant Agreement does not entitle
the Warrant Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise of the Warrant
Holder's rights to purchase the Shares as provided for herein.
9. Redemption. The Warrants represented by this Warrant Agreement
are not redeemable by the Company.
10. Adjustment Rights. The Exercise Price and the number of shares of
Common Stock purchasable hereunder are subject to adjustment from
time to time, as follows:
(a) Merger. If at any time there shall be a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as part of such merger or consolidation,
lawful provision shall be made so that the holder of the Warrants evidenced
hereby shall thereafter be entitled to receive upon exercise of rights
herein granted, during the period specified herein and upon payment of the
aggregate Exercise Price, the number of shares of stock or other securities
or property of the successor corporation resulting from such merger or
consolidation, to which a holder of the stock deliverable upon exercise of
the rights granted in this Warrant Agreement would have been entitled in
such merger or consolidation if such rights had been exercised immediately
before such merger or consolidation. In any such case, appropriate
adjustment shall be made in the application of the provisions of this
Warrant Agreement with respect to the rights and interests of the holder
after the merger or consolidation. The Company will not effect any such
merger or consolidation unless, prior to the consummation thereof, the
successor corporation shall assume, by written instrument reasonably
satisfactory in form and substance to the Warrant Holder, the obligations
of the Company under the Warrants.
(b) Reclassification, Etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise,
change any of the securities as to which purchase rights under this Warrant
Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant Agreement
immediately prior to such subdivision, combination, reclassification or
other change.
(c) Split, Subdivision or Combination of Shares. If the Company
at any time shall split or subdivide its Common Stock, the Exercise Price
shall be proportionately decreased and the number of Shares issuable
pursuant to this Warrant Agreement shall be proportionately increased. If
the Company at any time shall combine or reverse split its Common Stock,
the Exercise Price shall be proportionately increased and the number of
Shares issuable pursuant to this Warrant Agreement shall be proportionately
decreased.
(d) Stock Dividends. If the Company at any time shall pay a
dividend payable in Common Stock, then the Exercise Price shall be
adjusted, from and after the date of determination of stockholders entitled
to receive such dividend, to that price determined by multiplying the
Exercise Price in effect immediately prior to such date of determination by
a fraction (i) the numerator of which shall be the total number of shares
of Common Stock outstanding immediately prior to such dividend and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend. The Warrant Holder shall
thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares of Common Stock (calculated to the
nearest whole share) obtained by multiplying (i) the Exercise Price in
effect immediately prior to such adjustment by (ii) the number of shares of
Common Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Other Changes. If any change in the outstanding Common
Stock of the Company or any other event occurs as to which the other
provisions of this Section 10 are not strictly applicable or if strictly
applicable, would not fairly protect the purchase rights of the Warrant
Holder in accordance with such provisions, then the Board of Directors of
the Company shall make an adjustment in the number of and class of shares
available under the Warrants, the Exercise Price or the application of such
provisions, so as to protect the purchase rights of the Warrant Holder. The
adjustment shall be such as will give the Warrant Holder upon exercise for
the same aggregate Exercise Price the total number, class and kind of
shares or other property as the Warrant Holder would have owned had the
Warrants been exercised prior to the event and had the Warrant Holder
continued to hold such shares until after the event requiring adjustment.
(f) Notice of Adjustments; Notices. Whenever the Exercise Price
or number of shares purchasable hereunder shall be adjusted pursuant to
Section 10 hereof, the Company shall issue a certificate signed by its
Chief Executive Officer or Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the
Exercise Price and number of shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first class mail, postage prepaid) to the holder of this
Warrant. The Company shall give written notice to the Warrant Holder at
least 10 days prior to the date on which the Company closes its books or
takes a record for determining rights to receive any dividends or
distributions. The Company shall also give written notice to the Warrant
Holder at least 30 business days prior to the date on which a merger or
consolidation of the Company with or into another corporation when the
Company is not the surviving corporation shall take place.
(g) No Change of Warrant Necessary. Irrespective of any
adjustment in the Exercise Price or in the number or kind of securities
issuable upon exercise of the Warrant, unless the Warrant Holder otherwise
requests, this Warrant Agreement may continue to express the same price and
number and kind of shares of Common Stock as are stated in this Warrant
Agreement as initially executed.
11. Representations and Warranties of the Warrant Holder.
The Warrant Holder hereby represents and warrants to the Company as
follows:
(a) Existence and Power. The Warrant Holder is a (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and (ii) has the corporate
power and authority to execute, deliver and perform its obligations under
this Warrant Agreement.
(b) Authorization; No Contravention. The execution, delivery
and performance by the Warrant Holder of this Warrant Agreement and the
transactions contemplated hereby (i) have been duly authorized by all
necessary corporate action of the Warrant Holder and (ii) do not contravene
the terms of the Certificate of Incorporation or Bylaws of the Warrant
Holder, each as amended as of and through the Issue Date.
(c) Governmental Authorization; Third Party Consents. No
approval, consent, compliance, exemption or authorization of any
governmental authority or agency, or of any other person or entity, is
necessary or required in connection with the execution, delivery or
performance by, or enforcement against, the Warrant Holder of this Warrant
Agreement or the transactions contemplated hereby.
(d) Binding Effect. This Warrant Agreement has been duly
executed and delivered by the Warrant Holder and constitutes the valid and
binding obligations of the Warrant Holder, enforceable against it in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability (regardless of whether considered in a proceeding at law or
in equity).
(e) Purchase for Own Account. The Warrants issued to the
Warrant Holder pursuant to this Warrant Agreement, and the Shares to be
issued upon vesting and exercise thereof, are being or will be acquired for
the Warrant Holder's own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would
be in violation of the securities laws of the United States of America, or
any state.
(f) Restricted Securities. The Warrant Holder understands that
the Warrants and the Shares issuable upon vesting and exercise of the
Warrants, will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement
is exempt pursuant to Section 4(2) of the Securities Act and that reliance
of the Company on such exemption is predicated in part on such Warrant
Holder's representations set forth herein. The Warrant Holder represents
that it is experienced in evaluating companies such as the Company, has
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment and has the
ability to suffer the total loss of the investment. The Warrant Holder
further represents that it has had the opportunity to ask questions of and
receive answers from the Company concerning the terms and conditions of the
Warrants, the business of the Company, and to obtain additional information
to such Warrant Holder's satisfaction.
(g) Accredited Investor. The Warrant Holder is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the
Securities Act, as presently in effect.
12. Compliance with Securities Act; Transferability of Warrant or
Shares of Common Stock.
(a) Compliance with Securities Act. The Warrant Holder, by
acceptance hereof, agrees that the Warrants, and the shares of Common Stock
to be issued upon exercise of the Warrants, are being acquired for
investment and that such Warrant Holder will not offer, sell or otherwise
dispose of the Warrants, or any shares of Common Stock to be issued upon
exercise of the Warrants except under circumstances which will not result
in a violation of the Securities Act of 1933, as amended (the "Securities
Act"), or any applicable state securities laws. The Warrants and all shares
of Common Stock issued upon exercise of the Warrants (unless registered
under) the Securities Act and any applicable state securities laws) shall
be stamped or imprinted with a legend in substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED TO EFFECTUATE SUCH TRANSACTION."
(b) Exchange, Transfer, Assignment or Loss of Warrants. The
Warrants cannot be exchanged, transferred or assigned otherwise than in
accordance with applicable law. Upon compliance with applicable law and
surrender of the Warrants to the Company with the Assignment Form annexed
hereto as Exhibit B duly executed, and funds sufficient to pay any transfer
tax, the Company shall, without charge, execute and deliver a new Warrant
Agreement in the name of the heir, devisee or assignee named in such
instrument of assignment and this Warrant Agreement shall promptly be
canceled. In the event that Warrant Holder sells, assigns or transfers this
Warrant Agreement and the Warrants represented hereby, the early exercise
rights and restrictions set forth in Section 4(b), 4(c), and 4(d) shall
survive, provided, that the determination, at any time and from time to
time, of whether the new Warrant Holder shall be entitled to early exercise
rights under such sections will be made on whether US Airways, Inc. has
achieved and/or does achieve the performance targets specified in Sections
4(b) and 4(c) and has and continues even after the assignment to be in
compliance with the restrictions set forth in Section 4(d). Accordingly, if
at any time, before or after a sale, assignment or transfer of this Warrant
Agreement and the Warrants represented hereby, US Airways, Inc. (if it had
continued to the hold Warrants represented hereby) would not be entitle to
early exercise rights, the assignee hereof will not be entitle to the early
exercise rights.
13. Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the
Warrants, will not be registered at the time of their issuance
under the Securities Act for the reason that the sale provided
for in this Agreement is exempt pursuant to Section 4(2) of the
Securities Act based on the representations of the warrant Holder
set forth herein. The Warrant Holder represents that it is
experienced in evaluating companies such as the Company, has such
knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of its investment
and has the ability to suffer the total loss of the investment.
The Warrant Holder further represents that it has had the
opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the Warrants, the
business of the Company, and to obtain additional information to
such Warrant Holder's satisfaction. The Warrant Holder is an
"Accredited Investor" within the meaning of Rule 501 of
Regulation D under the Securities Act, as presently in effect.
14. Registration Rights. The Company will use its best efforts to
cause the Warrant Holder to become a party to that certain
Amended Registration Rights Agreement, dated as of December 8,
1998, by and among the Company and the stockholders of the
Company named therein, on such terms and conditions as may be
reasonably acceptable to the Company, the Warrant Holder and the
other stockholders party to such Amended Registration Rights
Agreement.
15. Miscellaneous.
(a) No Consequential Damages. No party hereto shall be entitled to
consequential damages as a result of any breach of a covenant, representation
or warranty contained herein.
(b) Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by
registered or certified firstclass mail, return receipt requested,
telecopier, courier service or personal delivery:
(i) if to the Company, to:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy: (203) 5958345
Attention: Melissa M. Taub, Esq.
(ii) if to the Warrant Holder, to:
U S Airways, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Telecopy:
Attention:Joseph A. Haik
Director, System Forecasts
and to:
U S Airways, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Telecopy:
Attention: General Counsel
(c) All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
business days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied.
(d) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the parties hereto. No person, other than the
parties hereto and their successors and permitted assigns, is intended to
be a beneficiary of this Agreement.
(e) Amendment and Waiver.
(i) No failure or delay on the part of the Company, or the
Warrant Holder in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power
or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or
remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be
available to the Company and the Warrant Holder at law,
in equity or otherwise.
(ii) Any amendment, supplement or modification of or to any
provision of this Warrant Agreement, any waiver of any
provision of this Warrant Agreement, and any consent to
any departure by the Company or the Warrant Holder from
the terms of any provision of this Agreement, shall be
effective only if it is made or given in writing and
signed by the Company and the Warrant Holder.
(f) Counterparts. This Warrant Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Warrant Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(i) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired, unless the provisions held invalid, illegal or unenforceable
shall substantially impair the benefits of the remaining provisions hereof.
(j) Entire Agreement. This Warrant Agreement, together with the
exhibits hereto is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Warrant Agreement, together with the exhibits
hereto, supersedes all prior agreements and understandings between the
parties with respect to such subject matter and, specifically, this Warrant
Agreement replaces the Participation Warrant Agreement dated September
16th, 1999 (September Warrant) which was executed but not effective until
approved by delta Air Lines, Inc. the September Warrant is void and no
further in effect.
(k) Publicity. Except as may be required by law, none of the
parties hereto shall issue a publicity release or public announcement or
otherwise make any disclosure concerning this Warrant Agreement or the
transactions contemplated hereby, without prior approval by the other party
(which approval shall not be unreasonably withheld); provided, however,
that nothing in this Warrant Agreement shall restrict the Warrant Holder
from disclosing information (a)that is already publicly available and (b)
to its attorneys, accountants, consultants and other advisors to the extent
necessary to obtain their services in connection with the Warrant Holder's
investment or participation in the Company. If any announcement is required
by law to be made by any party hereto concerning this Warrant Agreement or
the transactions contemplated hereby, prior to making such announcement
such party will deliver a draft of such announcement to the other parties
and shall give the other parties an opportunity to comment thereon.
(l) Charges; Taxes and Expenses. Issuance of certificates for
shares upon the exercise of the Warrants shall be made without charge to
the Warrant Holder for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificates, all of which taxes
and expenses shall be paid by the Company.
(m) Saturdays, Sundays, Holidays, Etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or a legal holiday.
(n) Lost Warrants. The Company covenants to the Warrant Holder
that, upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant Agreement and,
in the case of any such loss, theft or destruction, upon receipt of an
indemnity reasonably satisfactory to the Company, or in the case of any
such mutilation, upon surrender and cancellation of this Warrant Agreement,
the Company will make and deliver a new Warrant Agreement of like tenor, in
lieu of the lost, stolen, destroyed or mutilated document.
(o) Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any governmental
authority or any other person, and otherwise fulfilling, or causing the
fulfillment of, the various obligations made herein), as may be reasonably
required or desirable to carry out or to perform the provisions of this
Warrant Agreement and to consummate and make effective as promptly as
possible the transactions contemplated by this Warrant Agreement.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and
delivered by the authorized officers of each of the undersigned.
PRICELINE.COM INCORPORATED
By:_______________________________________
Name:
Title:
U S AIRWAYS, INC.
By:_______________________________________
Name:
Title:
EXHIBIT A
NOTICE OF EXERCISE
To: Priceline.com Incorporated
1. The undersigned hereby elects to purchase __________ shares
of the Common Stock of priceline.com Incorporated pursuant to the terms of
the Warrant Participation Agreement, dated as of _________________, 1999,
by and between priceline.com Incorporated and the undersigned (the "Warrant
Agreement"), and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned.
U S AIRWAYS, INC.
By:______________________________________
_________________________________________
(Print Name of Signatory)
_________________________________________
(Title of Signatory)
Date:________________
EXHIBIT B
ASSIGNMENT FORM
TO: priceline.com Incorporated
The undersigned hereby assigns and transfers unto ____________________________
of ___________________________________________________________________________
(Please typewrite or print in block letters)
the right to purchase ____________ shares of the common stock of
priceline.com Incorporated subject to the Warrant Participation Agreement,
dated as of ________________, 1999, by and between priceline.com
Incorporated and the undersigned (the "Warrant Agreement").
This assignment complies with the provisions of Section 12(b) of the
Warrant Agreement and is accompanied by funds sufficient to pay all
applicable transfer taxes.
U S AIRWAYS, INC.
By:___________________________________
______________________________________
(Print Name of Signatory)
______________________________________
(Title of Signatory)
Date:_________________________________
EXHIBIT C
ACKNOWLEDGMENT AND AGREEMENT
TO THE AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
WHEREAS, pursuant to a Participation Warrant Agreement, the undersigned
received a warrant to purchase 1,500,000 shares of common stock, par value
$.008 per share (the "Shares"), of priceline.com Incorporated, a Delaware
corporation (the "Company"); and
WHEREAS, the undersigned wishes to receive certain registration rights with
respect to such Shares; and
WHEREAS, the undersigned has reviewed a copy of that certain Amended
and Restated Registration Rights Agreement, dated as of December 8, 1998
(the "Agreement"), among the Company, General Atlantic Partners 48, L.P.,
GAP Coinvestment Partners, L.P., General Atlantic Partners 50, L.P. and the
stockholders named therein and has been given a copy of the Agreement and
afforded ample opportunity to read and to have counsel review it, and the
undersigned is thoroughly familiar with its terms.
NOW, THEREFORE, in consideration of the mutual premises contained
herein and in the Agreement and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
undersigned hereby acknowledges and agrees that (i) the undersigned has
been given a copy of the Agreement and afforded ample opportunity to read
and to have counsel review it, and the undersigned is thoroughly familiar
with its terms, (ii) the Shares are subject to terms and conditions set
forth in the Agreement, (iii) the undersigned does hereby agree fully to be
bound by the Agreement as a "Demand Stockholder" (as therein defined), and
upon the execution and delivery of this Acknowledgment and Agreement by the
Company, the undersigned shall have all the rights and obligations under
the Agreement as a Demand Stockholder, and (iv) the undersigned does hereby
name _________________to serve as their representative under the Agreement.
This 17th day of November, 1999.
Acknowledged and agreed:
PRICELINE.COM INCORPORATED U S AIRWAYS, INC.
By:__________________________________ By:___________________________
Name: Name:
Title: Title:
[**]=Confidential Treatment requested for redacted portion
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
AIRLINE PARTICIPATION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of November 17, 1999, is
by and between priceline.com Incorporated, a Delaware corporation with an
address at Five High Ridge Park, Stamford, Connecticut 06905 ("Priceline"),
and American Airlines, Inc., a Delaware corporation, whose principal place
of business is set forth in the notice provision of this Agreement
("Airline").
Preliminary Statement
Priceline provides a service that allows consumers to purchase airline
tickets at an offer price determined by the consumer (the "Priceline
Service"). The consumer identifies the departure and return dates for
travel and the price the consumer is willing to pay for the airline
ticket(s). Priceline then determines if it is able to fulfill the
customer's offer and, if it is able to do so, Priceline issues a ticket to
the customer on the applicable carrier.
Airline desires to participate in the Priceline Service and, in
connection therewith, will provide Priceline with unpublished fares subject
to the Restrictions (defined herein) for select origin and destination city
pairs (each, an "O&D") identified by Airline in accordance with the terms
and conditions set forth in this Agreement.
Priceline desires to include Airline as a participating carrier in the
Priceline Service and to have access to such unpublished fares in
accordance with the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements set
forth in this Agreement, the parties agree as follows:
I. Ticket Restrictions and Related Matters
1. Airline shall make available to Priceline unpublished fares (the
number an pricing of which determined by Airline in its sole
discretion), for O&Ds (selected by Airline in its sole
discretion) for a minimum period of l year, effective from the
date that Priceline issues the first ticket on such fares. Such
fares may be either, in Airline's sole discretion, "Special Net
Fares" that provide fixed price levels with rules and
availability classes specific to Priceline; or these fares may be
"Netted Retail Fare" that are constructed by applying a specific
discount, if any, to published retail fares. If Netted Retail
Fares are used, Airline agrees to provide reasonable advance
purchase rule waivers so that such fares can be used to issue
Priceline Tickets (defined below). All unpublished fares
provided to Priceline must be issued in accordance with rules and
restrictions provided to Priceline by Airline from time to time.
By way of example only, unpublished fares on certain O&D's may
require specific routings or be flight/day specific. At all times
during the term of this Agreement, Airline will exclusively
control and determine the unpublished fares, the O&Ds, the rules
and restrictions, and the levels of inventory provided to
Priceline by Airline.
2. All tickets issued by Priceline for carriage on Airline (each, a
"Priceline Ticket") shall be subject to the following
restrictions (the "Restrictions"):
(a) Except as otherwise provided in Section IV.4 hereof, all
Priceline Tickets will be nonrefundable, nonendorsable and
nonchangeable;
(b) All travel will be roundtrip with no stopovers or openjaw
travel permitted, with no upgrades permitted and no seat
assignments prior to date of departure;
(c) Frequent Flyer mileage and upgrades will not be permitted;
provided, Airline may offer such benefits at its option;
(d) Priceline customers must agree to (i) make up to one stop or
connection on both their departing and return flights on any
routing, (ii) accept a ticket on any carrier participating
in the Priceline Service (each , a "Participating Carrier"),
and (iii) travel on any flight on the specified date of
travel (x) for domestic U.S. flights, departing during the 6
a.m. 10p.m. time period (or other base period that may be
identified) unless the customer has specified a request to
include flights departing outside those periods, and (y) for
international flights, at any time (i.e., 12:0 l a.m. to
11:59 p.m.);
(e) All Priceline travel reservations and bookings shall be made
without Priceline customers specifying a preferred (or
requested) carrier, flight or time of day travel
preference(s) on the specified date(s) of travel;
(f) All Priceline Tickets require instant ticketing guaranteed
with a major credit card if Priceline is able to provide an
airline ticket within the customer's requested price,
departure and return date parameters;
(g) Priceline Ticket reservations are limited to no more than
eight persons traveling in the same itinerary; and
(h) Except as otherwise provided herein, in any seven (7) day
calendar period, a Priceline customer shall be limited to
making one (1) offer price for airline ticket(s) for a Trip. A
"Trip" is defined as travel between the same airports on the
same dates of travel. A Priceline customer may, within a seven
calendar day period, make an offer for travel in a different
airport pair, on different dates of travel or accept off-peak
travel on nonjet service. Priceline will not sell a ticket to a
Priceline customer in response to a second (or subsequent)
offer for a Trip within a seven calendar day period; provided,
that Priceline may sell a ticket in connection with a one time
second offer if the Priceline customer (i) raises the offer by
a minimum of [**] and (ii) accepts, as part of the second
offer, (x) a travel package which includes a hotel or rental
car offer, or (y) a product or service co- marketed by
Priceline such as a credit card or long distance telephone
service or other co-marketing program
3. Airline may include, in addition to the Restrictions, other fare
rules and conditions for Priceline Tickets issued on Airline.
All Priceline Tickets issued for carriage on Airline shall be
subject to the published conditions of carriage and the fare
rules of Airline, to the extent such conditions and fare rules
are not inconsistent with the Restrictions. Airline will honor
all Priceline Tickets issued for travel on Airline in accordance
with the Restrictions and other rules and conditions established
by Airline for Priceline Tickets.
II. Priceline Ticket Reservations., Bookings, Payment and Fulfillment
1. Airline will file unpublished fares and rules for Priceline
Tickets selected by Airline with the computer reservation system
("CRS") used by Priceline. Additionally, Priceline will
cooperate with Airline to identify and work toward the most
efficient system for the filing of fares for use by Priceline in
the operation of its air travel service with Airline, including
direct settlement through Airline's internal reservation system.
2. Priceline will determine the price at which tickets are sold
based on customer offers received through the Priceline Service.
Priceline shall not advertise prices or fares below Airline's
published or unpublished fares.
3. All unpublished fares made available by Airline for sale through
the Priceline Service shall not be commissionable and shall be
inclusive, where applicable, of the applicable domestic federal
transportation excise tax contained in Section 4261(a) of the
Internal Revenue Code. All such unpublished fares shall be
exclusive of any Ticket Taxes, which, when applicable, must be
added to the fare amount and paid by Priceline to Airline
including the domestic federal segment taxes contained in Section
4261(b) of the Internal Revenue Code. The term "Ticket Taxes" is
defined in Section VII.4. of this Agreement.
4. In all Priceline Ticket transactions, Priceline will be the
merchant of record and will pay and be responsible for all
associated merchant charges and expenses including, without
limitation, credit card fees, and will assume the risk of
nonpayment by the customers and/or the credit card companies. All
Priceline tickets sold on Airline will be settled through Airline
Reporting Corporation ("ARC").
5. All tickets of Airline issued through the Priceline Service will
be issued by Priceline using Agency ARC: 07508546. In collecting
payment for Priceline Tickets, Priceline will act as the agent of
Airline pursuant to Agent's ARC Agent Reporting Agreement with
ARC.
6. Unless otherwise directed by a Priceline customer, all Priceline
Tickets issued on Airline will be issued electronically.
Priceline will encourage its customers to accept electronic
ticketing for all Priceline Ticket requests by imposing an
additional charge for the issuance of paper tickets and
maintaining the issuance of electronic tickets as the default
option on the Priceline Service. After issuance of electronic
tickets, Priceline will promptly forward to the customer a
receipt of purchase and standard conditions.
7. Subject to the provisions of Paragraph II.5 above, all Priceline
paper tickets for carriage on Airline will be issued by Priceline
on standard ARC traffic documents and will be validated with
Airline's validation in accordance with ARC requirements. The
passenger coupon will show "bulk" for the fare amount and will
include all additional collections noted in Paragraph 11.3 above.
The auditor's coupon will show the Airline's unpublished fare
authorized for Priceline.
8. At the request of Airline, Priceline will incorporate into the
Priceline Service, on commercially negotiated terms, a "hot link"
to the designated Internet site of Airline; provided, however,
that Priceline will have a reasonable period of time following
any such request to accomplish any system changes, additions or
enhancements necessary or appropriate for the inclusion of any
such hot link.
III. Priceline Ticket Allocation Methodology
All Participating Carriers will be given the first opportunity to fill
a customer ticket request based on a formula which allocates such
requests in proportion to the aggregate domestic or international
market share (as applicable) of each Participating Carrier for each
O&D requested. If a Participating Carrier fails to respond to a
ticket request on its designated first look, then Priceline will
allocate the request through a second round of preferred looks, which
will be allocated in proportion to the aggregate domestic or
international market shares (as applicable) of all remaining
Participating Carriers for each O&D requested (but excluding the
Participating Carrier that failed to fulfill the ticket request on the
first look). In the event that the Participating Carrier with the
first look allocation is unable to satisfy the offer, and the
Participating Carrier with the second look allocation is unable to
satisfy the offer, Priceline will allocate "subsequent looks" in its
sole discretion to satisfy a customer's offer.
IV. Priceline Customer Service
1. Priceline will provide twenty-four (24) hour customer support
services to all Priceline customers through a toll-free number at
the customer support center designated by Priceline from time to
time. The customer support center will be adequately staffed with
personnel trained to take Priceline Ticket requests by phone and
respond to all customer inquiries for related service and
support. Priceline will use commercially reasonable efforts to
ensure that its customer service representatives provide quality
customer service and support to Priceline customers in a prompt,
reliable and courteous manner.
2. The ticket Restrictions will apply to all tickets issued through
the Priceline Service on Airline. Airline may waive, at its own
cost and expense, one or more of the Restrictions set forth in
Sections I.2 (a)(f) pursuant to a direct arrangement made by
Airline with the applicable customer holding a Priceline Ticket.
On an exception basis where necessary or appropriate to address
an escalating customer service issue of any individual customer,
Priceline may refund the price of a Priceline Ticket applicable
to such customer. In the event that such refunds exceed [**]% of
Priceline Ticket gross ticket sales in any month, Priceline will
implement such actions as are necessary to cause total refunds to
be below [**]% of Priceline Ticket gross ticket sales in the
following month. If in any three month period, total refunds
exceed [**]% of Priceline Ticket gross ticket sales, Priceline will
be responsible for any refunds greater than [**]% of Priceline
Ticket gross ticket sales. At Airlines' request, Priceline shall
provide Airline with a monthly report detailing the number and
amount of refunded Priceline Tickets involving air transportation
services on Airline. Priceline and Airline will jointly develop
additional the guidelines upon which such exception refunds will
be governed.
V. Confidentiality
1. Priceline and Airline will each hold in confidence and, without
the prior written consent of the other, will not reproduce,
distribute, transmit, transfer or disclose, directly or
indirectly, in any form, by any means or for any purpose, any
Confidential Information of the other party. As used herein, the
term "Confidential Information" shall mean this Agreement and its
subject matter, and proprietary information that is provided to
or obtained from one party to the other party including any
information which derives economic value, actual or potential,
from not being generally known to, and not generally
ascertainable by proper means by, other persons, including the
unpublished fares provided by Airline to Priceline pursuant to
this Agreement. The recipient of Confidential Information may
only disclose such information to its employees, attorneys and
accountants on a need-to-know basis and provided each is aware of
this provision and agrees to comply with its terms.
2. The obligations of a recipient party with respect to Confidential
Information shall remain in effect during and after the term of
this Agreement (including any renewals or extensions hereof) and
for a period of five (5) years thereafter, except to the extent
such data:
(a) as a result of a disclosure by the recipient, or its
directors ,officers, employees, agents or advisors;
(b) becomes available to the recipient n a non-confidential
basis from a source other than the disclosing party or its
affiliated companies, provided that such source is not bound
by any confidentiality obligations to the disclosing party
or its affiliated companies (as applicable);
(c) is necessary to comply with applicable law or the order of
other legal process of any court or similar governmental
authority having jurisdiction over the recipient; provided,
that to the extent reasonably practicable, the recipient
shall deliver any such order or legal process to the other
party prior to complying therewith to enable the other party
to seek a protective order or other remedy to protect it's
the disclosure of its confidential information. Both parties
hereto acknowledges that the other party may be required to
file this Agreement with the Securities and Exchange
Commission ("SEC"), as required by federal securities laws,
and that such filing shall not be deemed a violation of the
provisions of this Article V; or
(d) was in the possession of the recipient party prior to the
date of disclosure by the other party, as shown by written
records of the recipient party
3. In the event the recipient becomes legally compelled to disclose
any of such Confidential Information by any governmental court or
body, recipient will provide the disclosing party with prompt
notice so that the disclosing party may seek a protective order
or other appropriate remedy and/or waive compliance (in writing)
with the provisions hereof. In the event that such protective
order or other remedy is not obtained, or the disclosing party
waives in writing compliance with the provisions hereof,
recipient will furnish only that portion of such Confidential
Information which is legally required and will exercise its
reasonable business efforts to obtain appropriate assurance that
confidential treatment will be accorded such Confidential
Information.
4. The recipient of Confidential Information will exercise
reasonable commercial care in protecting the confidentiality of
the other party's Confidential Information.
5. Priceline will not, without Airline's prior written consent,
identify Airline's participation in the Priceline service until a
customer is booked and confirmed for ticketing. Further,
Priceline will not, without Airline's prior written consent, in
any media (including its Internet site) indicate that Airline is
participating or has participated in the Priceline Service except
to indicate that as a consumer proposition, a Priceline customer
must accept a routing on one of the major U.S. full service
airlines or, in the case of international travel, other airline
carriers available through the Priceline Service. Airline will
not disclose its participation in the Priceline Service without
Priceline's prior consent.
6. During the term of this Agreement neither Priceline nor Airline
shall use the other party's trademarks, trade names, service
marks, logos, emblems, symbols or other brand identifiers in
advertising or marketing materials, unless it has obtained the
prior written approval of the other party. The consent required
by this Paragraph V.6. shall extend to the content of the
specific advertising or marketing items as well as the placement
and prominence of the applicable trademark, trade name, service
mark, logo, emblem, symbol or other brand identifier of the other
party. Priceline or Airline, as applicable, shall cause the
withholding, discontinuance, recall or cancellation, as
appropriate, of any advertising or promotional material not
approved in writing by the other party, that differs
significantly from that approved by the other party, or that is
put to a use or used in a media not approved by the other party.
7. Priceline will not disclose (including without limitation by
sale) to any third party information specific to a customer's
usage of Airline obtained through the Priceline Service.
8. During the term of the Agreement, and for a period of one year,
thereafter, Airline agrees not to make any remarks to the public
about Priceline or the Priceline Service that is intended to be
negative or disparaging, other than in connection with any
litigation between the parties or otherwise as required by law.
VI. Term of Agreement
1. Subject to the provisions of this Paragraph VI., the term of this
Agreement (herein so called) will commence on the date set forth
on the first page of this Agreement (the "Commencement Date") and
will continue until terminated pursuant to this Paragraph VI.
Notwithstanding the foregoing, Priceline or Airline may terminate
this Agreement at any time after one (1) year following the
Commencement Date, with or without cause, on thirty (30) days'
prior written notice to the other party.
2. In the event either party is in material breach of its
obligations under this Agreement, the non-breaching party may
terminate this Agreement on thirty (30) days written notice to
the breaching party, provided the breaching party has failed to
cure such breach within such thirty (30) day period.
3. Either party may terminate this Agreement upon written notice to
the other party in the event that bankruptcy or insolvency
proceedings are filed by or commenced against the other party.
4. The obligations of the parties under Paragraphs V., VII. and IX.
of this Agreement shall indefinitely (except as otherwise limited
to a certain term therein) survive the termination of this
Agreement.
5. In the event of written notice of termination of this Agreement
in accordance with the terms of this Paragraph VI, all Priceline
Tickets issued on Airline prior to the effective date of
termination specified in such notice will be honored by Airline
under the terms of this Agreement.
VII. Representations and Warranties and Indemnification
1. Each party hereby represents and warrants to the other as
follows:
(a) Such party is duly organized and validly existing under the
laws of the state of its incorporation and has full
corporate power and authority to enter into this Agreement
and to carry out the provisions hereof.
(b) Such party is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) This Agreement is a legal and valid obligation binding upon
it and enforceable with its terms. The execution, delivery
and performance of this Agreement by such party does not
conflict with any agreement, instrument or understanding,
oral or written, to which it is a party or by which it may
be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having
jurisdiction over it.
2. Priceline represents and warrants that it owns or has the legal
right to use the systems, processes and technology used by
Priceline to provide the Priceline Services and they do not, to
the best of its knowledge, infringe any patent of any third
party.
3. Priceline will indemnify, defend and hold harmless Airline, its
officers, directors, employees and agents, from and against all
damages, losses and causes of action (including reasonable
attorneys' fees), including, without limitation, damage to
property or bodily injury, on an after-tax basis, to the extent
caused by or related to (i) Priceline's breach of this Agreement
or the ARC Agent Reporting Agreement, (ii) any inaccuracy in any
of Priceline's representations or warranties set forth in
Paragraphs VII.1. and VII.2. above, (iii) by the negligence or
willful acts of Priceline or any of its employees or agents, or
(iv) any actual or alleged claim that all or any part of the
systems, processes or technology used by Priceline to provide the
Priceline Services infringes, directly or indirectly, any patent
or copyright or misappropriates any trade secret.
4. Priceline shall be solely responsible for collecting and
remitting Ticket Taxes, if any, payable on amounts collected by
Priceline on tickets issued for travel by Airline in excess of
amounts paid by Priceline to Airline in respect to such tickets.
The term "Ticket Taxes" includes: (i) any applicable taxes
pursuant to Section 4261 of the Internal Revenue Code paid along
with all penalties and interest thereon and (ii) any applicable
passenger facility charges, stamp taxes, excise taxes, (including
segment fees), value added taxes (in the nature of a sales or use
tax), gross receipts taxes (in the nature of a sales or use tax),
U.S. Department of Agriculture APHIS user fees, U.S. Customs user
fees, U.S. Immigration and Naturalization Service user fees,
security charges and other taxes and user fees or charges imposed
by any domestic or foreign governmental entity on a per passenger
basis or as a percentage of the fare paid and all penalties and
interest thereon. Priceline will indemnify, defend and hold
harmless Airline and its affiliates, and any of their officers,
directors, employees, and agents, from and against all
assessments or payments for tax, interest and penalties for
Ticket Taxes on any amounts attributed to the excess of the
amounts paid or payable by Priceline to Airline for tickets
purchased under this Agreement. This indemnification
specifically includes, but is not limited to, assessments or
payments under Sections 4261, 4263, 6651, 6652, 6656, 6662, 6672,
or 6861 of the Internal Revenue Code, and any successor
provisions. Priceline further agrees, as part of this
indemnification, to reimburse Airline and its affiliates, and any
of their officers, directors, employees, and agents, for any
reasonable out of pocket expenses, including attorneys' fees and
expenses Airline may have incurred in connection with any such
assessment or payment raised by any authority in connection with
such Priceline Tickets. The obligations of this Section are
supplementary of those set forth in Section VII. 3. and shall
survive the termination of this Agreement.
5. Priceline hereby acknowledges that Airline's sales documentation
for Priceline Tickets sold to Priceline is sufficient to meet the
requirements of Section 7275 of the Internal Revenue Code and
Priceline is responsible for Section 7275 obligations regarding
ticketing and advertising of Priceline Tickets.
6. Airline will indemnify, defend and hold harmless Priceline and
its officers, directors, employees and agents from and against
all damages, losses and causes of action (including reasonable
attorneys' fees), including, without limitation, damage to
property or bodily injury, on an after-tax basis, to the extent
caused by (i) Airline's breach of this Agreement, (ii) any
inaccuracy in any of Airline's representations or warranties set
forth in Paragraph VII.1. above, or (iii) by the negligence or
willful acts of Airline or any of its employees or agents.
VIII. Reporting and Audit Rights
1. Priceline will provide monthly (or at least as frequently as to
the other Participating Carriers) electronic reports in a format
reasonably agreed to by Priceline and Airline summarizing (i)
information concerning each ticket issued by Priceline on
Airline; (ii) aggregate information (i.e. non airline specific)
for all tickets issued by Priceline I in each O&D that Airline
participates (including, without limitation, aggregate
information on the number of passengers ticketed per O&D by
travel date); (iii) aggregate information for all Priceline
offers not ticketed in each O&D that Airline participates; (iv)
information about the market share in each O&D in which Airline
participates; and (v) any other information reasonably requested
by Airline.
2. Priceline will provide to Airline an annual statement by
Priceline's independent accounting firm or other qualified third-
party concerning Priceline's compliance with the Priceline Ticket
Allocation Methodology specified in Paragraph III. and all
reporting obligations required by this Agreement.
3. Airline may, upon reasonable notice to Priceline and during
normal business hours, audit the financial books and records of
Priceline and the information specified in Paragraphs VIII.1. and
2. Any such audit shall be at the sole cost and expense of
Airline, except that the costs of the audit will be at the
expense of Priceline if it reveals that Priceline has not
materially complied with the terms of this Agreement.
IX. General Provisions
1. Any notice required or permitted hereunder shall be deemed
sufficient if given in writing and delivered personally, by
facsimile transmission, by reputable overnight courier service or
United States mail, postage prepaid return receipt requested, to
the addresses shown below or to such other addresses as are
specified by similar notice, and shall be deemed received upon
personal delivery, upon confirmed facsimile receipt, two (2) days
following deposit with such courier service, or three (3) days
from deposit in the United States mails, in each case as herein
provided:
If to Priceline:
Priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Attention: Paul Francis, Chief Financial Officer
Phone: (203 ) 705-0000
Fax: (203) 595-8344
With a copy to:
Priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Attention: Timothy G. Brier, Executive Vice President, Travel
Phone: (203) 7053000
Fax: (203) 5958343
If to Airline:
American Airlines, Inc.
4333 Amon Carter Boulevard
Fort Worth, TX 76155
Attention: Craig Kreeger, Vice President & General Sales Manager
Phone: (817) 972-2742
Fax: (972) 425-7697
With a copy to
American Airlines, Inc.
4333 Amon Carter Boulevard
Fort Worth, TX 76155
Attention: Corporate Secretary
Phone: (817) 9671254
Fax: (817) 9674313
A party may change its address and the name of its designated
recipient of copies of notices for purposes of this Agreement by
giving the other pates written notice of the new name and the
address, phone and facsimile number of its designated recipient
in accordance with this Paragraph IX.1.
2. The relationship by and among Airline, Priceline and as set forth
in this Agreement shall be nonexclusive. As such, Airline may
participate in other programs, similar or dissimilar, to the
Priceline Service.
3. No waiver or breach of any of the provisions of this Agreement
shall be construed as a waiver of any succeeding breach of the
same or any other provision.
4. This Agreement and the Attachments hereto supersede and replace
all previous understandings or agreements, oral or written, with
respect to the subject matter. The captions in this Agreement
are for convenience only and do not alter any terms of this
Agreement.
5. This Agreement may be amended or modified only by a written
amendment executed by the parties.
6. The formation, construction, performance and validity of this
Agreement shall be governed by the internal laws of the State of
New York. Each party agrees that any civil suit or action brought
against it as a result of any of its obligations under this
Agreement may be brought against it either in the state or
federal courts of the principal place of business of either
party, and each party hereby irrevocably submits to the
jurisdiction of such courts and irrevocably waives, to fullest
extent permitted by law, any objections that it may now or
hereafter have to the laying of the venue of such civil suit or
action and any claim that such civil suit or action has been
brought in an inconvenient forum, and each party further agrees
that final judgment in any such civil suit or action shall be
conclusive and binding upon it and shall be enforceable against
it by suit upon such judgment in any court of competent
jurisdiction.
7. No party will in any manner or by any device, either directly or
indirectly, act in violation of any applicable law, governmental
order or regulation. Priceline shall comply at all times with
the provisions of Airline's tariffs (except where such tariffs
are specifically amended by Airline under the terms of this
Agreement) and the terms of the Airline Reporting Corporation
(ARC) Agent Reporting Agreement and the American Airlines
Addendum thereto.
8. Priceline agrees to notify Airline promptly, in writing, in the
event there is a change of control in the ownership of Priceline.
For purposes of this Agreement, a "change of control" with
respect to a party means (i) the acquisition by any other person
or group (within the meaning of Section 13(d)(3) of the
Securities Exchange Act (except an employee group of such party,
any of its subsidiaries or a company of such party)), of the
beneficial ownership securities representing 20% or more of the
combined voting power of the securities entitled to vote
generally in the election of the board of directors of such
party, or (ii) the sale, mortgage, lease or other transfer of
assets or earning power constituting more than 50% of the assets
or earning power of such party (other than ordinary course
financing); PROVIDED that in no event shall a change of control
be defined to include (i) the formation by a party of a holding
company or (ii) an intra-corporate transaction with a company
under common control with a party. Upon the occurrence of a
change of control of a party, the other party may terminate this
Agreement on thirty (30) days prior written notice.
9. No party hereto shall assign or transfer or permit the assignment
or transfer of this Agreement without the prior written consent
of the other party.
10. This Agreement shall not be deemed to create any partnership or
joint venture between Airline and Priceline, nor to create any
rights in favor of any person or entity other than the parties
hereto. This Agreement is for the sole benefit of the parties
and nothing herein expressed or implied shall give or be
construed to give any other person any legal or equitable rights
hereunder.
11. NO PARTY WILL BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES, INCLUDING LOST REVENUES, LOST PROFITS, OR LOST
PROSPECTIVE ECONOMIC ADVANTAGE, ARISING FROM THIS AGREEMENT OR
ANY BREACH HEREOF.
12. In the event that either party hereto is prevented from
fulfilling any of its obligations under this Agreement for a
period not exceeding one hundred twenty (120) consecutive days
for a reason beyond its control, including, but not limited to,
strikes, lockouts, work stoppages or other labor disputes, riots,
civil commotions, acts of God, fire, flood and other weather-
related reasons, governmental action or directive (a "Force
Majeure Event "), such party shall not, by reason of being so
prevented, be in breach of this Agreement and such condition
shall not be cause of termination by the other party. If a Force
Majeure Event continues for a period in excess of one hundred
twenty (120) consecutive days as to one party which prevents that
party from fulfilling in any material way its obligations under
this Agreement to the party, the other party shall have the right
to terminate this Agreement upon thirty (30) days' advance
written notice to the other party.
13. It is expressly acknowledged that this Agreement is not
conditioned in any way upon Priceline's choice of, or use of,
any particular computer reservation system.
14. Unless otherwise expressly provided, the remedies provided by
this Agreement are not intended to be exclusive. Each shall be
cumulative and shall be in addition to all other remedies
available to either party under this Agreement, at law or in
equity.
15. This Agreement may be executed in counterparts, each of which
shall be deemed an original, and together, shall constitute one
and the same instrument. Execution may be effected by delivery
of facsimiles of signature pages (and the shall follow such
delivery by prompt delivery of originals of such pages).
IN WITNESS WHEREOF., the parties have executed and delivered this
Agreement on the date indicated above.
PRICELINE.COM INCORPORATED AMERICAN AIRLINES, INC.
By:______________________ By:________________________
Name: Timothy Brier Name:
Title: Executive Vice President, Title:
Travel
[**]=Confidential Treatment requested for redacted portion
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE WARRANT ISSUED PURSUANT TO THIS PARTICIPATION WARRANT AGREEMENT HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION.
PARTICIPATION WARRANT AGREEMENT
To Purchase Shares of Common Stock
Dated as of November 17, 1999
PRICELINE.COM INCORPORATED
a Delaware Corporation
Issue Date: November 17, 1999
THIS CERTIFIES THAT, American Airlines, Inc. (the "Warrant Holder"), with a
place of business at 4333Amon Carter Boulevard, Fort Worth, TX 76155, for
value received, is entitled, upon the terms and subject to the conditions
of this Participation Warrant Agreement (this "Warrant Agreement"), to
subscribe for and purchase fully-paid and non-assessable shares of common
stock, par value $.008 per share (the "Common Stock"), of priceline.com
Incorporated, a Delaware corporation (the "Company").
1. Issuance of Warrants. On the Issue Date, the Company will issue
to the Warrant Holder warrants (the "Warrants") to acquire Five Million
Five Hundred Thousand (5,500,000) shares of the Common Stock (the
"Shares"), subject to adjustment as hereinafter provided pursuant to
Section 10 herein.
2. Exercise Price. The Warrants have an exercise price of $56.625
per share (closing price as reported on NASDAQ on date of grant) of Common
Stock, as adjusted pursuant to the provisions of Section 10 of this Warrant
Agreement (the "Exercise Price").
3. Term. The Warrants are fully vested on the Issue Date. Except
as otherwise provided herein, the term of the Warrants and the right to
purchase Shares as granted herein shall be exercisable on the fifth (5th)
anniversary of the Issue Date; provided, further, that if any of the
Warrants first become exercisable on the fifth (5th) anniversary of the
Issue Date, the Warrant Holder will have an additional six months
thereafter to exercise its purchase rights in respect of those Warrants
(the end of such five year period and additional six months, if applicable,
being referred to herein as the "Termination Date").
4. Exercise Events.
(a) General. Unless otherwise exercisable at an earlier date,
in accordance with this Section 4, all of the Warrants shall be fully
exercisable commencing of the fifth anniversary of the Issue Date.
(b) Early Exercise Rights.
(i) The Warrant Holder will have the right at any time
during the first Measuring Period (as defined in
Section 4(c) below), to exercise Warrants, subject to
adjustment as provided in Section 10 hereof, equal to
[**]% or [**]% of the Shares, as applicable, provided
that, except as otherwise provided in Sections
4(b)(iii) and 4(b)(iv) hereof, (i) the right to
exercise Warrants for [**]% of the Shares shall not
accrue unless and until the Company has, on an
aggregated basis during the first Measuring Period,
received at least $[**] million of Net Revenues (as
also defined in Section 4(c) below) from tickets sold
during such Measuring Period for travel on the
Warrant Holder, its subsidiaries and/or on the
Warrant Holder's code share partners using Warrant
Holder's code (collectively, "Warrant Holder and its
Code Share Partners"), and (ii) the right to exercise
Warrants for [**]% of the Shares shall not accrue
unless and until the Company has, on an aggregated
basis during the first Measuring Period, received at
least $[**] million of Net Revenues from tickets sold
during such Measuring Period for travel on the
Warrant Holder and its Code Share Partners.
(ii) The Warrant Holder will have the right at any time
during the second Measuring Period and all remaining
Measuring Periods thereafter, to exercise Warrants,
subject to adjustment as provided in Section 10
hereof, equal to [**]% or [**]% of the Shares, as
applicable, or such lesser percentage of the Shares
as shall constitute all of the remaining Shares not
then exercisable; provided that (i) the right to
exercise Warrants for [**]% of such Shares shall not
accrue unless and until the Company has, on an
aggregated basis during the applicable Measuring
Period, received at least $[**] million of Net
Revenues from tickets sold during such Measuring
Period for travel on the Warrant Holder and its Code
Share Partners, and (ii) the right to exercise
Warrants for [**]% of such Shares shall not accrue
unless and until the Company has, on an aggregated
basis during the applicable Measuring Period,
received at least $[**] million of Net Revenues from
tickets sold during such Measuring Period for travel
on the Warrant Holder and its Code Share Partners.
(iii) Notwithstanding the Net Revenue benchmarks specified
in clauses (i) and (ii) of this Section 4(b) for the
early exercisability of Warrants, if, in any
Measuring Period, the Company fails to achieve the
minimum Net Revenues from ticket sales for travel on
Warrant Holder and its Code Share Partners necessary
to enable Warrant Holder to exercise Warrants for the
[**]% or [**]% portion of Shares that would otherwise
become exercisable if such benchmarks were achieved
during such Measuring Period, then, effective on the
last day of such Measuring Period and thereafter,
Warrant Holder (i) shall have the right to exercise
Warrants for the [**]% portion of Warrants that would
otherwise become exercisable upon achieving the
corresponding Net Revenue benchmark for such
Measuring Period, if Warrant Holders and its Code
Share Partners' percentage of the aggregate of all
ticket sale revenues (calculated using the same
methodology used to calculate Net Revenue hereunder)
received by the Company for U.S. originating O&D's
for such Measuring Period equals or exceeds [**]% of
Warrant Holder's Fair Share (as defined in Section
4(c) below)(the "[**]% Fair Share Threshold"), and (ii)
shall have the right to exercise Warrants for the [**]%
portion of Warrants that would otherwise become
exercisable upon achieving the corresponding Net
Revenue benchmark for such Measuring Period, if
Warrant Holder's and its Code Share Partners'
percentage of the aggregate of all ticket sale
revenues received by the Company for U.S. originating
O&D's for such Measuring Period equals or exceeds
[**]% of Warrant Holder's Fair Share (the "[**]% Fair
Share Threshold"). For purposes of determining
whether Warrant Holder achieves the [**]% Fair Share
Threshold and/or the [**]% Fair Share Threshold for
the first, and only the first, Measuring Period, the
parties shall calculate Warrant Holder's and its Code
Share Partners' percentage of the Company's ticket
sale revenues for U.S. originating O&D's for such
period based on either (i) their percentage of the
aggregate of all ticket sale revenues received by the
Company for ticket sales for U.S. originating O&D's
during the entire first Measuring Period, or (ii)
their percentage of the aggregate of all ticket sale
revenues received by the Company for ticket sales for
U.S. originating O&D's during the final six (6)
months of the First Measuring Period, whichever is
more favorable for the Warrant Holder.
(iv) In the event that the Company does not achieve the
$[**] million Net Revenue benchmark specified in
clauses (i) of this Section 4(b) and Warrant Holder
does not achieve the [**]% Fair Share Threshold
specified in clause (iii) of this Section 4(b) for
the early exercisability of Warrants for the first
Measuring Period, Warrant Holder shall have the right
upon completion of the first Measuring Period and
thereafter to exercise Warrants for the [**]% portion
of Warrants that would otherwise become exercisable
upon the Company's achieving the $[**] million Net
Revenue benchmark or Warrant Holder's achieving the
[**]% Fair Share Threshold for such Measuring Period,
if, during the entire term of the first Measuring
Period, Warrant Holder does not voluntarily
participate in any name- your-price airline ticket
service other than (i) the Company's and its
affiliates' airline ticket services and (ii) any
other name-your price airline ticket service with
which Warrant Holder was discussing participation
prior to the date of execution this agreement.
(v) In the event that the Company does not achieve the
$[**] million Net Revenue benchmark specified in
clause (ii) of this Section 4(b) and Warrant Holder
does not achieve the [**]% Fair Share Threshold
specified in clause (iii) of this Section 4(b) for
the early exercisability of Warrants for the second
Measuring Period, Warrant Holder shall have the right
upon completion of the second Measuring Period and
thereafter to exercise Warrants for [**]% of the [**]%
portion of the Warrants that would have otherwise
become exercisable upon the Company's achieving the
$[**] million Net Revenue benchmark or Warrant
Holder's achieving the [**]% Fair Share Threshold for
such Measuring Period, if, during the entire term of
the second Measuring Period, Warrant Holder does not
voluntarily participate in any name-your-price
airline ticket service other than (i) the Company's
and its affiliates' airline ticket services and (ii)
any other name-your price airline ticket service with
which Warrant Holder was discussing participation
prior to the date of execution this agreement.
(vi) In the event that the Company does not achieve the
$[**] million Net Revenue benchmark specified in
clause (ii) of this Section 4(b) and Warrant Holder
does not achieve the [**]% Fair Share Threshold
specified in clause (iii) of this Section 4(b) for
the early exercisability of Warrants for the third
Measuring Period, Warrant Holder shall have the right
upon completion of the third Measuring Period and
thereafter to exercise Warrants for [**]% of the [**]%
portion of the Warrants that would have otherwise
become exercisable upon the Company's achieving the
$[**] million Net Revenue benchmark or Warrant
Holder's achieving the [**]% Fair Share Threshold for
such Measuring Period, if, during the entire term of
the third Measuring Period, Warrant Holder does not
voluntarily participate in any name-your-price
airline ticket service other than (i) the Company's
and its affiliates' airline ticket services and (ii)
any other name-your price airline ticket service with
which Warrant Holder was discussing participation
prior to the date of execution this agreement.
(c) Measuring Periods and Net Revenue.
(i) As used in this Warrant Agreement, the term
"Measuring Period" shall mean a 12-month period, with
the first such Measuring Period commencing on the
Date the Warrant Holder first provides tickets for
sale by the Company (the "First Ticket Date").
Subsequent Measuring Periods will expire on the
second, third, fourth and fifth anniversary of the
First Ticket Date, respectively, except that the
fifth Measuring Period shall end on the fifth (5th)
anniversary of the Issue Date.
(ii) As used in this Warrant Agreement, the term "Net
Revenue" shall mean the total ticket revenue received
by the Company from tickets sold for travel on the
Warrant Holder and its Code Share Partners, net of
federal excise and segment taxes, passenger facility
charges and related fees. The parties acknowledge
that credit card processing fees, and any processing
fees or similar fees charged by the Company to the
consumer in connection with the sale of a ticket
shall not be included in the calculation of Net
Revenue.
(iii) As used in this Warrant Agreement, the term "Fair
Share" shall mean Warrant Holder's domestic market
share calculated as a fraction, the numerator of
which shall be Warrant Holder's RPM's for U.S.
originating O&D's only, and the denominator of which
shall be the total RPM's for U.S. originating O&D's
only of all of the Company's participating airlines.
5. Exercise of Purchase Rights.
(a) Subject to the provisions of Section 4 of this Warrant
Agreement, the purchase rights represented by this Warrant Agreement are
exercisable by the Warrant Holder, in whole or in part, at any time, or
from time to time during the period set forth in Section 3 above, by
tendering to the Company at its principal office a duly completed and
executed notice of exercise in the form attached hereto as Exhibit A (the
"Notice of Exercise"), the Warrants and the Exercise Price. Upon receipt
of such items, the Company shall issue to the Warrant Holder a certificate
for the number of shares of Common Stock purchased. The Warrant Holder,
upon exercise of the Warrants, shall be deemed to have become the holder of
the Shares represented thereby (and such Shares shall be deemed to have
been issued) immediately prior to the close of business on the date or
dates upon which the Warrants are exercised. In the event of any exercise
of the rights represented by the Warrants, certificates for the Shares so
purchased shall be delivered to the Warrant Holder or its designee as soon
as practical and in any event within ten (10) business days after receipt
of such notice and, unless the Warrants have been fully exercised or
expired, new Warrants representing the remaining portion of the Warrants
and the underlying Shares, if any, with respect to which this Warrant
Agreement shall not then have been exercised shall also be issued to the
Warrant Holder as soon as possible and in any event within such ten-day
period.
(b) Net Issue Exercise. Notwithstanding any provisions herein
to the contrary, if the fair market value of one share of the Company's
Common Stock is greater than the Exercise Price (at the date of calculation
as set forth below), in lieu of exercising the Warrants for cash, the
Warrant Holder may elect to receive shares equal to the value (as
determined below) of the Warrants (or portion thereof being canceled) by
surrender of the Warrants at the principal office of the Company together
with the duly executed Notice of Exercise in which event the Company shall
issue to the Warrant Holder a number of shares of Common Stock computed
using the following formula: X=Y(A-B)/ A WHERE X= the number of shares of
Common Stock to be issued to the Warrant Holder; Y= the number of shares of
the Common Stock purchasable under the Warrants or, if only a portion of
the Warrants is being exercised, the portion of the Warrants being canceled
(at the date of such calculation); A= the fair market value of one share of
the Company's Common Stock (at the date of such calculation); and B=
Exercise Price (at the date of such calculation). For purposes of the
above calculation, fair market value of one share of the Common Stock shall
be equal to the closing trading price of the Company's Common Stock on the
day immediately prior to the date the Notice of Exercise is tendered to the
Company.
6. Reservation of Shares. The Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of the rights to purchase the Shares as provided
in this Warrant Agreement. All of the Shares shall be duly authorized and,
when issued upon such exercise, shall be validly issued, fully paid and
nonassessable, and free and clear of all preemptive rights.
7. No Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant Holder's
rights to purchase the Shares.
8. No Rights as Shareholder. This Warrant Agreement does not
entitle the Warrant Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise of the Warrant Holder's
rights to purchase the Shares as provided for herein.
9. Redemption. The Warrants represented by this Warrant Agreement
are not redeemable by the Company.
10. Adjustment Rights. The Exercise Price and the number of shares
of Common Stock purchasable hereunder are subject to adjustment from time
to time, as follows:
(a) Merger. If at any time there shall be a merger or
consolidation of the Company with or into another corporation when the
Company is not the surviving corporation, then, as part of such merger or
consolidation, lawful provision shall be made so that the holder of the
Warrants evidenced hereby shall thereafter be entitled to receive upon
exercise of rights herein granted, during the period specified herein and
upon payment of the aggregate Exercise Price, the number of shares of stock
or other securities or property of the successor corporation resulting from
such merger or consolidation, to which a holder of the stock deliverable
upon exercise of the rights granted in this Warrant Agreement would have
been entitled in such merger or consolidation if such rights had been
exercised immediately before such merger or consolidation. In any such
case, appropriate adjustment shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and
interests of the holder after the merger or consolidation. The Company
will not effect any such merger or consolidation unless, prior to the
consummation thereof, the successor corporation shall assume, by written
instrument reasonably satisfactory in form and substance to the Warrant
Holder, the obligations of the Company under the Warrants.
(b) Reclassification, Etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise,
change any of the securities as to which purchase rights under this Warrant
Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant Agreement
immediately prior to such subdivision, combination, reclassification or
other change.
(c) Split, Subdivision or Combination of Shares. If the Company
at any time shall split or subdivide its Common Stock, the Exercise Price
shall be proportionately decreased and the number of Shares issuable
pursuant to this Warrant Agreement shall be proportionately increased. If
the Company at any time shall combine or reverse split its Common Stock,
the Exercise Price shall be proportionately increased and the number of
Shares issuable pursuant to this Warrant Agreement shall be proportionately
decreased.
(d) Stock Dividends. If the Company at any time shall pay a
dividend payable in Common Stock, then the Exercise Price shall be
adjusted, from and after the date of determination of stockholders entitled
to receive such dividend, to that price determined by multiplying the
Exercise Price in effect immediately prior to such date of determination by
a fraction (i) the numerator of which shall be the total number of shares
of Common Stock outstanding immediately prior to such dividend and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend. The Warrant Holder shall
thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares of Common Stock (calculated to the
nearest whole share) obtained by multiplying (i) the Exercise Price in
effect immediately prior to such adjustment by (ii) the number of shares of
Common Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Other Changes. If any change in the outstanding Common
Stock of the Company or any other event occurs as to which the other
provisions of this Section 10 are not strictly applicable or if strictly
applicable, would not fairly protect the purchase rights of the Warrant
Holder in accordance with such provisions, then the Board of Directors of
the Company shall make an adjustment in the number of and class of shares
available under the Warrants, the Exercise Price or the application of such
provisions, so as to protect the purchase rights of the Warrant Holder.
The adjustment shall be such as will give the Warrant Holder upon exercise
for the same aggregate Exercise Price the total number, class and kind of
shares or other property as the Warrant Holder would have owned had the
Warrants been exercised prior to the event and had the Warrant Holder
continued to hold such shares until after the event requiring adjustment.
(f) Notice of Adjustments; Notices. Whenever the Exercise Price
or number of shares purchasable hereunder shall be adjusted pursuant to
Section 10 hereof, the Company shall issue a certificate signed by its
Chief Executive Officer or Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the
Exercise Price and number of shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first class mail, postage prepaid) to the holder of this
Warrant. The Company shall give written notice to the Warrant Holder at
least 10 days prior to the date on which the Company closes its books or
takes a record for determining rights to receive any dividends or
distributions. The Company shall also give written notice to the Warrant
Holder at least 30 business days prior to the date on which a merger or
consolidation of the Company with or into another corporation when the
Company is not the surviving corporation shall take place.
(g) No Change of Warrant Necessary. Irrespective of any
adjustment in the Exercise Price or in the number or kind of securities
issuable upon exercise of the Warrant, unless the Warrant Holder otherwise
requests, this Warrant Agreement may continue to express the same price and
number and kind of shares of Common Stock as are stated in this Warrant
Agreement as initially executed.
11. Representations and Warranties of the Warrant Holder.
The Warrant Holder hereby represents and warrants to the Company as
follows:
(a) Existence and Power. The Warrant Holder is a (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and (ii) has the corporate
power and authority to execute, deliver and perform its obligations under
this Warrant Agreement.
(b) Authorization; No Contravention. The execution, delivery
and performance by the Warrant Holder of this Warrant Agreement and the
transactions contemplated hereby (i) have been duly authorized by all
necessary corporate action of the Warrant Holder and (ii) do not contravene
the terms of the Certificate of Incorporation or By-laws of the Warrant
Holder, each as amended as of and through the Issue Date.
(c) Governmental Authorization; Third Party Consents. No
approval, consent, compliance, exemption or authorization of any
governmental authority or agency, or of any other person or entity, is
necessary or required in connection with the execution, delivery or
performance by, or enforcement against, the Warrant Holder of this Warrant
Agreement or the transactions contemplated hereby.
(d) Binding Effect. This Warrant Agreement has been duly
executed and delivered by the Warrant Holder and constitutes the valid and
binding obligations of the Warrant Holder, enforceable against it in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability (regardless of whether considered in a proceeding at law or
in equity).
(e) Purchase for Own Account. The Warrants issued to the
Warrant Holder pursuant to this Warrant Agreement, and the Shares to be
issued upon vesting and exercise thereof, are being or will be acquired for
the Warrant Holder's own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would
be in violation of the securities laws of the United States of America, or
any state.
(f) Restricted Securities. The Warrant Holder understands that
the Warrants and the Shares issuable upon vesting and exercise of the
Warrants, will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement
is exempt pursuant to Section 4(2) of the Securities Act and that reliance
of the Company on such exemption is predicated in part on such Warrant
Holder's representations set forth herein. The Warrant Holder represents
that it is experienced in evaluating companies such as the Company, has
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment and has the
ability to suffer the total loss of the investment. The Warrant Holder
further represents that it has had the opportunity to ask questions of and
receive answers from the Company concerning the terms and conditions of the
Warrants, the business of the Company, and to obtain additional information
to such Warrant Holder's satisfaction.
(g) Accredited Investor. The Warrant Holder is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the
Securities Act, as presently in effect.
12. Compliance with Securities Act; Transferability of Warrant or
Shares of Common Stock.
(a) Compliance with Securities Act. The Warrant Holder, by
acceptance hereof, agrees that the Warrants, and the shares of Common Stock
to be issued upon exercise of the Warrants, are being acquired for
investment and that such Warrant Holder will not offer, sell or otherwise
dispose of the Warrants, or any shares of Common Stock to be issued upon
exercise of the Warrants except under circumstances which will not result
in a violation of the Securities Act of 1933, as amended (the "Securities
Act"), or any applicable state securities laws. The Warrants and all
shares of Common Stock issued upon exercise of the Warrants (unless
registered under) the Securities Act and any applicable state securities
laws) shall be stamped or imprinted with a legend in substantially the
following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED TO EFFECTUATE SUCH TRANSACTION."
(b) Exchange, Transfer, Assignment. The Warrants cannot be
exchanged, transferred or assigned otherwise than in accordance with
applicable law. Upon compliance with applicable law and surrender of the
Warrants to the Company with the Assignment Form annexed hereto as Exhibit
B duly executed, and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Warrant Agreement in the
name of the heir, devisee or assignee named in such instrument of
assignment and this Warrant Agreement shall promptly be canceled. Subject
to the terms hereof, the Warrants may be assigned in whole or in part.
13. Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants,
will not be registered at the time of their issuance under the Securities
Act for the reason that the sale provided for in this Agreement is exempt
pursuant to Section 4(2) of the Securities Act based on the representations
of the warrant Holder set forth herein. The Warrant Holder represents that
it is experienced in evaluating companies such as the Company, has such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment and has the ability to
suffer the total loss of the investment. The Warrant Holder further
represents that it has had the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the
Warrants, the business of the Company, and to obtain additional information
to such Warrant Holder's satisfaction. The Warrant Holder is an
"Accredited Investor" within the meaning of Rule 501 of Regulation D under
the Securities Act, as presently in effect.
14. Registration Rights. Upon the parties' execution of this Warrant
Agreement and the Acknowledgment and Agreement to the Amended and Restated
Registration Rights Agreement attached hereto as Exhibit C, Warrant Holder
shall be made a party to that certain Amended and Restated Registration
Rights Agreement, dated as of December 8, 1998, by and among the Company,
the stockholders of the Company named therein and such other stockholders
and warrant holders of the Company made a party thereto. In addition,
within 30 days of the execution of this Warrant Agreement, the Company
agrees to enter into an agreement with Warrant Holder, in form and
substance reasonably satisfactory to Warrant Holder, which shall grant
Warrant Holder the right to transfer its registration rights pursuant to
such Amended and Restated Registration Rights Agreement dated as of
December 8, 1998 to any assignee or assignees of all or any part of this
Warrant or the Shares issuable upon exercise hereof, which assignees, upon
their execution and delivery of an Acknowledgment and Agreement to the
Amended and Restated Registration Rights Agreement substantially in the
form of Exhibit C hereto (with appropriate changes therein) shall each have
all the rights and obligations of a Demand Stockholder (as defined in such
Agreement) under such Agreement; provided that no registration statement
with respect to less than a minimum of 250,000 Shares shall be required to
be effected by the Company thereunder for the benefit of any such assignee.
15. Miscellaneous.
(a) No Consequential Damages. No party hereto shall be entitled
to consequential damages as a result of any breach of a covenant,
representation or warranty contained herein.
(b) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be
by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:
(i) if to the Company, to:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy: (203) 595-8345
Attention: Melissa M. Taub, Esq.
and to:
Skadden, Arps, Slate, Meagher, & Flom, L.L.P.
One Rodney Square
Wilmington, DE 19801
Telecopy: (302) 651-3001
Attention: Patricia Moran Chuff, Esq.
(ii) if to the Warrant Holder, to:
American Airlines, Inc.
4333 Amon Carter Boulevard
Fort Worth, TX 76155
Attention: Craig Kreeger
Title:Vice President & General Sales Manager
Phone: 817-972-2742
Fax: 972-425-7697
and to:
American Airlines, Inc.
4333 Amon Carter Boulevard
Fort Worth, TX 76155
Telephone: 817-967-1254
Telecopy: 817-967-4313
Attention: Corporate Secretary
(c) All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
business days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied.
(d) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the parties hereto. No person, other than the
parties hereto and their successors and permitted assigns, is intended to
be a beneficiary of this Agreement.
(e) Amendment and Waiver.
(i) No failure or delay on the part of the Company, or
the Warrant Holder in exercising any right, power or
remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right,
power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that
may be available to the Company and the Warrant
Holder at law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or to
any provision of this Warrant Agreement, any waiver
of any provision of this Warrant Agreement, and any
consent to any departure by the Company or the
Warrant Holder from the terms of any provision of
this Agreement, shall be effective only if it is made
or given in writing and signed by the Company and the
Warrant Holder.
(f) Counterparts. This Warrant Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Warrant Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(i) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired, unless the provisions held invalid, illegal or unenforceable
shall substantially impair the benefits of the remaining provisions hereof.
(j) Entire Agreement. This Warrant Agreement, together with the
exhibits hereto is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Warrant Agreement, together with the
exhibits hereto, supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
(k) Publicity. Except as may be required by law, none of the
parties hereto shall issue a publicity release or public announcement or
otherwise make any disclosure concerning this Warrant Agreement or the
transactions contemplated hereby, without prior approval by the other party
(which approval shall not be unreasonably withheld); provided, however,
that nothing in this Warrant Agreement shall restrict the Warrant Holder
from disclosing information (a)that is already publicly available and (b)
to its attorneys, accountants, consultants and other advisors to the extent
necessary to obtain their services in connection with the Warrant Holder's
investment or participation in the Company. If any announcement is
required by law to be made by any party hereto concerning this Warrant
Agreement or the transactions contemplated hereby, prior to making such
announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
(l) Charges; Taxes and Expenses. Issuance of certificates for
shares upon the exercise of the Warrants shall be made without charge to
the Warrant Holder for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificates, all of which taxes
and expenses shall be paid by the Company.
(m) Saturdays, Sundays, Holidays, Etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or a legal holiday.
(n) Lost Warrants. The Company covenants to the Warrant Holder
that, upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant Agreement and,
in the case of any such loss, theft or destruction, upon receipt of an
indemnity reasonably satisfactory to the Company, or in the case of any
such mutilation, upon surrender and cancellation of this Warrant Agreement,
the Company will make and deliver a new Warrant Agreement of like tenor, in
lieu of the lost, stolen, destroyed or mutilated document.
(o) Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any governmental
authority or any other person, and otherwise fulfilling, or causing the
fulfillment of, the various obligations made herein), as may be reasonably
required or desirable to carry out or to perform the provisions of this
Warrant Agreement and to consummate and make effective as promptly as
possible the transactions contemplated by this Warrant Agreement.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and
delivered by the authorized officers of each of the undersigned.
PRICELINE.COM INCORPORATED
By: _____________________________
Name:
Title:
AMERICAN AIRLINES, INC.
By: _____________________________
Name:
Title:
EXHIBIT A
NOTICE OF EXERCISE
To: priceline.com Incorporated
1. ___ The undersigned hereby elects to purchase __________
shares of the Common Stock of priceline.com Incorporated pursuant to the
terms of the Participation Warrant Agreement, dated as of __________, 1999,
by and between priceline.com Incorporated and the undersigned (the
"Warrant Agreement"), and tenders herewith payment of the purchase price
of such shares in full.
___ The undersigned hereby elects to convert ___________
percent (____%) of the value of the Warrants pursuant to the provisions of
Section 5(b) of the Warrant Agreement.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned.
AMERICAN AIRLINES, INC.
By: ________________________________
____________________________________
(Print Name of Signatory)
____________________________________
(Title of Signatory)
Date: __________________
EXHIBIT B
ASSIGNMENT FORM
TO: priceline.com Incorporated
The undersigned hereby assigns and transfers unto _________________________
of ________________________________________________________________________
(Please typewrite or print in block letters)
the right to purchase ____________ shares of the common stock of
priceline.com Incorporated subject to the Participation Warrant Agreement,
dated as of ________________, 1999, by and between priceline.com
Incorporated and the undersigned (the "Warrant Agreement").
This assignment complies with the provisions of Section 12(b) of the
Warrant Agreement and is accompanied by funds sufficient to pay all
applicable transfer taxes.
AMERICAN AIRLINES, INC.
By: ________________________________
____________________________________
(Print Name of Signatory)
____________________________________
(Title of Signatory)
Date: __________________
EXHIBIT C
ACKNOWLEDGMENT AND AGREEMENT
TO THE AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
WHEREAS, pursuant to a Participation Warrant Agreement, the
undersigned received a warrant to purchase 5,500,000 shares of common
stock, par value $.008 per share (the "Shares"), of priceline.com
Incorporated, a Delaware corporation (the "Company"); and
WHEREAS, the undersigned wishes to receive certain registration
rights with respect to such Shares; and
WHEREAS, the undersigned has reviewed a copy of that certain Amended
and Restated Registration Rights Agreement, dated as of December 8, 1998
(the "Agreement"), among the Company, General Atlantic Partners 48, L.P.,
GAP Coinvestment Partners, L.P., General Atlantic Partners 50, L.P. and the
stockholders named therein and has been given a copy of the Agreement and
afforded ample opportunity to read and to have counsel review it, and the
undersigned is thoroughly familiar with its terms.
NOW, THEREFORE, in consideration of the mutual premises contained
herein and in the Agreement and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
undersigned hereby acknowledges and agrees that (i) the undersigned has
been given a copy of the Agreement and afforded ample opportunity to read
and to have counsel review it, and the undersigned is thoroughly familiar
with its terms, (ii) the Shares are subject to terms and conditions set
forth in the Agreement, (iii) the undersigned does hereby agree fully to be
bound by the Agreement as a "Demand Stockholder" (as therein defined), and
upon the execution and delivery of this Acknowledgment and Agreement by the
Company, the undersigned shall have all the rights and obligations under
the Agreement as a Demand Stockholder, and (iv) the undersigned does hereby
name _________________to serve as their representative under the Agreement.
This 17th day of November, 1999.
Acknowledged and agreed:
PRICELINE.COM INCORPORATED AMERICAN AIRLINES, INC.
By: ______________________________ By: __________________________
Name: Name:
Title: Title:
Exhibit 10.26
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE WARRANT ISSUED PURSUANT TO THIS PARTICIPATION WARRANT AGREEMENT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. IT MAY
NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED TO EFFECTUATE SUCH TRANSACTION.
PARTICIPATION WARRANT AGREEMENT
To Purchase Shares of Common Stock
Dated as of November 17, 1999
PRICELINE.COM INCORPORATED
a Delaware Corporation
Issue Date: November 17, 1999
THIS CERTIFIES THAT, Trans World Airlines, Inc. (the "Warrant Holder"), with a
place of business at One City Centre, 515 North 6th, Saint Louis, Missouri
63101, for value received, is entitled, upon the terms and subject to the
conditions of this Participation Warrant Agreement (this "Warrant Agreement"),
to subscribe for and purchase fully-paid and non-assessable shares of common
stock, par value $.008 per share (the "Common Stock"), of priceline.com
Incorporated, a Delaware corporation (the "Company").
1. Issuance of Warrants. On the Issue Date, the Company will issue to the
Warrant Holder warrants (the "Warrants") to acquire Five Hundred Thousand
(500,000) shares of the Common Stock (the "Shares"), subject to adjustment as
hereinafter provided pursuant to Section 10 herein.
2. Exercise Price. The Warrants have an exercise price of $59.93 per share
of Common Stock, as adjusted pursuant to the provisions of Section 10 of this
Warrant Agreement (the "Exercise Price").
3. Term. The Warrants are fully vested on the Issue Date. Except as
otherwise provided herein, the term of the Warrants and the right to purchase
Shares as granted herein shall be exercisable on the fifth (5th) anniversary of
the Issue Date; provided, further, that if any of the Warrants first become
exercisable on the fifth (5th) anniversary of the Issue Date, the Warrant Holder
will have an additional six months thereafter to exercise its purchase rights in
respect of those Warrants (the end of such five year period and additional six
months, if applicable, being referred to herein as the "Termination Date").
4. Exercise Events.
(a) General. Unless otherwise exercisable at an earlier date, in
accordance with this Section 4, all of the Warrants shall be fully exercisable
commencing of the fifth anniversary of the Issue Date.
(b) Early Exercise Rights. Subject to the provisions of Section 4(d)
hereof, Warrant Holder shall have the following early exercise rights:
(i) The Warrant Holder will have the right at any time
during the first Measuring Period (as defined in Section
4(c) below), to exercise Warrants, subject to adjustment
as provided in Section 10 hereof, equal to [**]% or
[**]% of the Shares, as applicable, provided that,
except as otherwise provided in Sections 4(b)(iii) and
4(b)(iv) hereof, (i) the right to exercise Warrants for
[**]% of the Shares shall not accrue unless and
-1-
<PAGE>
until the Company has, on an aggregated basis during the
first Measuring Period, received at least [**] million
of Net Revenues (as also defined in Section 4(c) below)
from tickets sold during such Measuring Period for
travel on the Warrant Holder, its subsidiaries and/or on
the Warrant Holder's code share partners using Warrant
Holder's code (collectively, "Warrant Holder and its
Code Share Partners"), and (ii) the right to exercise
Warrants for [**]% of the Shares shall not accrue unless
and until the Company has, on an aggregated basis during
the first Measuring Period, received at least $[**]
million of Net Revenues from tickets sold during such
Measuring Period for travel on the Warrant Holder and
its Code Share Partners.
(ii) The Warrant Holder will have the right at any time
during the second Measuring Period and all remaining
Measuring Periods thereafter, to exercise Warrants,
subject to adjustment as provided in Section 10 hereof,
equal to [**]% or [**]% of the Shares, as applicable, or
such lesser percentage of the Shares as shall constitute
all of the remaining Shares not then exercisable;
provided that (i) the right to exercise Warrants for
[**]% of such Shares shall not accrue unless and until
the Company has, on an aggregated basis during the
applicable Measuring Period, received at least $[**]
million of Net Revenues from tickets sold during such
Measuring Period for travel on the Warrant Holder and
its Code Share Partners, and (ii) the right to exercise
Warrants for [**]% of such Shares shall not accrue
unless and until the Company has, on an aggregated basis
during the applicable Measuring Period, received at
least $[**] million of Net Revenues from tickets sold
during such Measuring Period for travel on the Warrant
Holder and its Code Share Partners.
(iii) Notwithstanding the Net Revenue benchmarks specified in
clauses (i) and (ii) of this Section 4(b) for the early
exercisability of Warrants, if, in any Measuring Period,
the Company fails to achieve the minimum Net Revenues
from ticket sales for travel on Warrant Holder and its
Code Share Partners necessary to enable Warrant Holder
to exercise Warrants for the [**]% or [**]% portion of
Shares that would otherwise become exercisable if such
benchmarks were achieved during such Measuring Period,
then, effective on the last day of such Measuring Period
and thereafter, Warrant Holder (i) shall have the right
to exercise Warrants for the [**]% portion of Warrants
that would otherwise become exercisable upon achieving
the corresponding Net Revenue benchmark for such
Measuring Period, if Warrant Holders and its Code Share
Partners' percentage of the aggregate of all ticket sale
revenues (calculated using the same methodology used to
calculate Net Revenue hereunder) received by the Company
for U.S. originating O&D's for such Measuring Period
equals or exceeds [**]% of Warrant Holder's Fair Share
(as defined in Section 4(c) below) (the "[**]% Fair
Share Threshold"), and (ii) shall have the right to
exercise Warrants for the [**]% portion of Warrants that
would otherwise become exercisable upon achieving the
corresponding Net Revenue benchmark for such Measuring
Period, if Warrant Holder's and its Code Share Partners'
percentage of the aggregate of all ticket sale revenues
received by the Company for U.S. originating O&D's for
such Measuring Period equals or exceeds [**]% of Warrant
Holder's Fair Share (the "[**]% Fair Share Threshold").
-2-
<PAGE>
(iv) In the event that the Company does not achieve the
$[**] million Net Revenue benchmark specified in
clauses (i) of this Section 4(b) and Warrant Holder does
not achieve the [**]% Fair Share Threshold specified in
clause (iii) of this Section 4(b) for the early
exercisability of Warrants for the first Measuring
Period, Warrant Holder shall have the right upon
completion of the first Measuring Period and thereafter
to exercise Warrants for the [**]% portion of Warrants
that would otherwise become exercisable upon the
Company's achieving the $[**] million Net Revenue
benchmark or Warrant Holder's achieving the [**]% Fair
Share Threshold for such Measuring Period, if, during
the entire term of the first Measuring Period, Warrant
Holder does not voluntarily participate in any "demand
collection system" (as defined in Section 4 (d)) other
than the Company's and its affiliates' airline ticket
services.
(c) Measuring Periods and Net Revenue.
(i) As used in this Warrant Agreement, the term "Measuring
Period" shall mean a 12-month period, with the first
such Measuring Period commencing on the Date the Warrant
Holder first provides tickets for sale by the Company
following the Grant Date (the "First Ticket Date").
Subsequent Measuring Periods will expire on the second,
third, fourth and fifth anniversary of the First Ticket
Date, respectively, except that the fifth Measuring
Period shall end on the fifth (5Th) anniversary of the
Issue Date.
(ii) As used in this Warrant Agreement, the term "Net
Revenue" shall mean the total ticket revenue received by
the Company from tickets sold for travel on the Warrant
Holder and its Code Share Partners, net of federal
excise and segment taxes, passenger facility charges and
related fees. The parties acknowledge that credit card
processing fees, and any processing fees or similar fees
charged by the Company to the consumer in connection
with the sale of a ticket shall not be included in the
calculation of Net Revenue..
(iii) As used in this Warrant Agreement, the term "Fair Share"
shall mean Warrant Holder's domestic market share
calculated as a fraction, the numerator of which shall
be Warrant Holder's RPM's for U.S. originating O&D's
only, and the denominator of which shall be the total
RPM's for U.S. originating O&D's only of all of the
Company's participating airlines.
(d) Warrant Holder's right to early exercise under Section 4(b) is
contingent upon Airline's participating exclusively in the
Company's leisure airline ticket service as the only "demand
collection system" for Warrant Holder's sale of airline
tickets over the Internet. For purposes of this Section 4(d),
"demand collection system" is narrowly defined as an airline
ticket service that (i) enables a consumer to name the price
the consumer willing to pay for one or more airline tickets
(ii) enables the seller to bind the consumer to the consumer's
offer price upon the seller's acceptance of the consumer's
offer, and (iii) does not permit the consumer to specify the
exact airline on which the consumer is willing to fly. In
order for Warrant Holder to be entitled to the early exercise
rights specified in Section 4(b), Warrant Holder must not at
any time between the date hereof and the date
-3-
<PAGE>
exercises an early exercise of Warrants in accordance with
Section 4(b) participate in any "demand collection system"
other than the Company's for the sale of airline tickets over
the Internet. For example, if in the first Measuring Period,
the Company achieves Net Revenues to that would entitle the
Warrant Holder to exercise Warrants for [**]% of the Shares,
the Warrant Holder will be entitle to exercise such Warrants
at all time thereafter so long as the Warrant Holder at all
times from the date hereof though the date of such exercise
has not participated in another "demand collection system" for
the sale of airline tickets over the Internet. If at any time
from the date hereof though to the fifth 5th anniversary of
the Grant Date, the Warrant Holder participates in another
"demand collection system" for the sale of airline ticket over
the Internet, the Warrant Holder's early exercise rights will
terminate and be of no further force or effect, and such
Warrants will become exercisable on the fifth 5th anniversary
of the Grant Date.
5. Exercise of Purchase Rights.
(a) Subject to the provisions of Section 4 of this Warrant
Agreement, the purchase rights represented by this Warrant Agreement are
exercisable by the Warrant Holder, in whole or in part, at any time, or from
time to time during the period set forth in Section 3 above, by tendering to the
Company at its principal office a duly completed and executed notice of exercise
in the form attached hereto as Exhibit A (the "Notice of Exercise"), the
Warrants and the Exercise Price. Upon receipt of such items, the Company shall
issue to the Warrant Holder a certificate for the number of shares of Common
Stock purchased. The Warrant Holder, upon exercise of the Warrants, shall be
deemed to have become the holder of the Shares represented thereby (and such
Shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which the Warrants are exercised. In the
event of any exercise of the rights represented by the Warrants, certificates
for the Shares so purchased shall be delivered to the Warrant Holder or its
designee as soon as practical and in any event within ten (10) business days
after receipt of such notice and, unless the Warrants have been fully exercised
or expired, new Warrants representing the remaining portion of the Warrants and
the underlying Shares, if any, with respect to which this Warrant Agreement
shall not then have been exercised shall also be issued to the Warrant Holder as
soon as possible and in any event within such ten-day period.
(b) Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising the Warrants for cash, the Warrant Holder may elect to
receive shares equal to the value (as determined below) of the Warrants (or
portion thereof being canceled) by surrender of the Warrants at the principal
office of the Company together with the duly executed Notice of Exercise in
which event the Company shall issue to the Warrant Holder a number of shares of
Common Stock computed using the following formula: X=Y(A-B)/ A WHERE X= the
number of shares of Common Stock to be issued to the Warrant Holder; Y= the
number of shares of the Common Stock purchasable under the Warrants or, if only
a portion of the Warrants is being exercised, the portion of the Warrants being
canceled (at the date of such calculation); A= the fair market value of one
share of the Company's Common Stock (at the date of such calculation); and B=
Exercise Price (at the date of such calculation). For purposes of the above
calculation, fair market value of one share of the Common Stock shall be equal
to the closing trading price of the Company's Common Stock on the day
immediately prior to the date the Notice of Exercise is tendered to the Company.
6. Reservation of Shares. The Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for the
exercise of the rights to purchase the Shares as provided in this Warrant
Agreement. All of the Shares shall be duly authorized and, when issued upon
-4-
<PAGE>
such exercise, shall be validly issued, fully paid and nonassessable, and free
and clear of all preemptive rights.
7. No Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant Holder's
rights to purchase the Shares.
8. No Rights as Shareholder. This Warrant Agreement does not entitle the
Warrant Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise of the Warrant Holder's rights to purchase the
Shares as provided for herein.
9. Redemption. The Warrants represented by this Warrant Agreement are not
redeemable by the Company.
10. Adjustment Rights. The Exercise Price and the number of shares of
Common Stock purchasable hereunder are subject to adjustment from time to time,
as follows:
(a) Merger. If at any time there shall be a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as part of such merger or consolidation, lawful
provision shall be made so that the holder of the Warrants evidenced hereby
shall thereafter be entitled to receive upon exercise of rights herein granted,
during the period specified herein and upon payment of the aggregate Exercise
Price, the number of shares of stock or other securities or property of the
successor corporation resulting from such merger or consolidation, to which a
holder of the stock deliverable upon exercise of the rights granted in this
Warrant Agreement would have been entitled in such merger or consolidation if
such rights had been exercised immediately before such merger or consolidation.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interests of
the holder after the merger or consolidation. The Company will not effect any
such merger or consolidation unless, prior to the consummation thereof, the
successor corporation shall assume, by written instrument reasonably
satisfactory in form and substance to the Warrant Holder, the obligations of the
Company under the Warrants.
(b) Reclassification, Etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant Agreement
exist into the same or a different number of securities of any other class or
classes, this Warrant Agreement shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to the purchase
rights under this Warrant Agreement immediately prior to such subdivision,
combination, reclassification or other change.
(c) Split, Subdivision or Combination of Shares. If the Company at
any time shall split or subdivide its Common Stock, the Exercise Price shall be
proportionately decreased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately increased. If the Company at any time
shall combine or reverse split its Common Stock, the Exercise Price shall be
proportionately increased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately decreased.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in Common Stock, then the Exercise Price shall be adjusted, from and
after the date of determination of stockholders entitled to receive such
dividend, to that price determined by multiplying the Exercise Price in effect
immediately prior to such date of determination by a fraction (i) the numerator
of which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend and (ii) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after such
dividend. The Warrant Holder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Common
Stock (calculated to the nearest whole share)
-5-
<PAGE>
obtained by multiplying (i) the Exercise Price in effect immediately prior to
such adjustment by (ii) the number of shares of Common Stock issuable upon the
exercise hereof immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(e) Other Changes. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provisions of this
Section 10 are not strictly applicable or if strictly applicable, would not
fairly protect the purchase rights of the Warrant Holder in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number of and class of shares available under the Warrants, the Exercise
Price or the application of such provisions, so as to protect the purchase
rights of the Warrant Holder. The adjustment shall be such as will give the
Warrant Holder upon exercise for the same aggregate Exercise Price the total
number, class and kind of shares or other property as the Warrant Holder would
have owned had the Warrants been exercised prior to the event and had the
Warrant Holder continued to hold such shares until after the event requiring
adjustment.
(f) Notice of Adjustments; Notices. Whenever the Exercise Price or
number of shares purchasable hereunder shall be adjusted pursuant to Section 10
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer or Chief Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the holder of this Warrant. The Company shall give written notice to the Warrant
Holder at least 10 days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions. The Company shall also give written notice to the Warrant Holder
at least 30 business days prior to the date on which a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation shall take place.
(g) No Change of Warrant Necessary. Irrespective of any adjustment
in the Exercise Price or in the number or kind of securities issuable upon
exercise of the Warrant, unless the Warrant Holder otherwise requests, this
Warrant Agreement may continue to express the same price and number and kind of
shares of Common Stock as are stated in this Warrant Agreement as initially
executed.
11. Representations and Warranties of the Warrant Holder.
The Warrant Holder hereby represents and warrants to the Company as
follows:
(a) Existence and Power. The Warrant Holder is a (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and (ii) has the corporate power and
authority to execute, deliver and perform its obligations under this Warrant
Agreement.
(b) Authorization; No Contravention. The execution, delivery and
performance by the Warrant Holder of this Warrant Agreement and the transactions
contemplated hereby (i) have been duly authorized by all necessary corporate
action of the Warrant Holder and (ii) do not contravene the terms of the
Certificate of Incorporation or By-laws of the Warrant Holder, each as amended
as of and through the Issue Date.
(c) Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption or authorization of any governmental authority or
agency, or of any other person or entity, is necessary or required in connection
with the execution, delivery or performance by, or enforcement against, the
Warrant Holder of this Warrant Agreement or the transactions contemplated
hereby.
(d) Binding Effect. This Warrant Agreement has been duly executed
and delivered by the Warrant Holder and constitutes the valid and binding
obligations of the Warrant Holder, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
-6-
<PAGE>
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(e) Purchase for Own Account. The Warrants issued to the Warrant
Holder pursuant to this Warrant Agreement, and the Shares to be issued upon
vesting and exercise thereof, are being or will be acquired for the Warrant
Holder's own account and with no intention of distributing or reselling such
securities or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state.
(f) Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants, will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act and that reliance of the Company on such
exemption is predicated in part on such Warrant Holder's representations set
forth herein. The Warrant Holder represents that it is experienced in evaluating
companies such as the Company, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment and has the ability to suffer the total loss of the investment. The
Warrant Holder further represents that it has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Warrants, the business of the Company, and to obtain
additional information to such Warrant Holder's satisfaction.
(g) Accredited Investor. The Warrant Holder is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the Securities
Act, as presently in effect.
12. Compliance with Securities Act; Transferability of Warrant or Shares
of Common Stock.
(a) Compliance with Securities Act. The Warrant Holder, by
acceptance hereof, agrees that the Warrants, and the shares of Common Stock to
be issued upon exercise of the Warrants, are being acquired for investment and
that such Warrant Holder will not offer, sell or otherwise dispose of the
Warrants, or any shares of Common Stock to be issued upon exercise of the
Warrants except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any applicable
state securities laws. The Warrants and all shares of Common Stock issued upon
exercise of the Warrants (unless registered under) the Securities Act and any
applicable state securities laws) shall be stamped or imprinted with a legend in
substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION."
-7-
<PAGE>
(b) Exchange, Transfer, Assignment. The Warrants cannot be exchanged,
transferred or assigned otherwise than in accordance with applicable law. Upon
compliance with applicable law and surrender of the Warrants to the Company with
the Assignment Form annexed hereto as Exhibit B duly executed, and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant Agreement in the name of the heir, devisee or assignee
named in such instrument of assignment and this Warrant Agreement shall promptly
be canceled. Subject to the terms hereof, the Warrants may be assigned in whole
or in part.
13. Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants, will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act based on the representations of the warrant
Holder set forth herein. The Warrant Holder represents that it is experienced in
evaluating companies such as the Company, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to suffer the total loss of the
investment. The Warrant Holder further represents that it has had the
opportunity to ask questions of and receive answers from the Company concerning
the terms and conditions of the Warrants, the business of the Company, and to
obtain additional information to such Warrant Holder's satisfaction. The Warrant
Holder is an "Accredited Investor" within the meaning of Rule 501 of Regulation
D under the Securities Act, as presently in effect.
14. Registration Rights. Upon the parties' execution of this Warrant
Agreement and the Acknowledgment and Agreement to the Amended and Restated
Registration Rights Agreement attached hereto as Exhibit C, Warrant Holder shall
be made a party to that certain Amended and Restated Registration Rights
Agreement, dated as of December 8, 1998, by and among the Company, the
stockholders of the Company named therein and such other stockholders and
warrant holders of the Company made a party thereto. In addition, within 30 days
of the execution of this Warrant Agreement, the Company agrees to enter into an
agreement with Warrant Holder, in form and substance reasonably satisfactory to
Warrant Holder, which shall grant Warrant Holder the right to transfer its
registration rights pursuant to such Amended and Restated Registration Rights
Agreement dated as of December 8, 1998 to any assignee or assignees of all or
any part of this Warrant or the Shares issuable upon exercise hereof, which
assignees, upon their execution and delivery of an Acknowledgment and Agreement
to the Amended and Restated Registration Rights Agreement substantially in the
form of Exhibit C hereto (with appropriate changes therein) shall each have all
the rights and obligations of a Demand Stockholder (as defined in such
Agreement) under such Agreement; provided that no registration statement with
respect to less than a minimum of 250,000 Shares shall be required to be
effected by the Company thereunder for the benefit of any such assignee.
15. Miscellaneous.
(a) No Consequential Damages. No party hereto shall be entitled to
consequential damages as a result of any breach of a covenant, representation or
warranty contained herein.
(b) Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Company, to:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy: (203) 595-8345
Attention: Melissa M. Taub, Esq.
-8-
<PAGE>
and to:
Skadden, Arps, Slate, Meagher, & Flom, L.L.P.
One Rodney Square
Wilmington, DE 19801
Telecopy: (302) 651-3001
Attention: Patricia Moran Chuff, Esq.
(ii) if to the Warrant Holder, to:
Trans World Airlines, Inc.
One City Centre
515 North 6th
Saint Louis, Missouri 63101
Attention: Corporate Secretary
Telephone:
Fax: 314-589-3267
and to:
Trans World Airlines, Inc.
Level 5
11500 Ambassador Drive
Kansas City, Missouri 64153
Telephone:
Telecopy: 816-464-6168
Attention: Treasurer
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) business days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
(d) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. No person, other than the parties
hereto and their successors and permitted assigns, is intended to be a
beneficiary of this Agreement.
(e) Amendment and Waiver.
(i) No failure or delay on the part of the Company, or the
Warrant Holder in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company and the Warrant Holder at law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or to any
provision of this Warrant Agreement, any waiver of any provision of this Warrant
Agreement, and any consent to any
-9-
<PAGE>
departure by the Company or the Warrant Holder from the terms of any provision
of this Agreement, shall be effective only if it is made or given in writing and
signed by the Company and the Warrant Holder.
(f) Counterparts. This Warrant Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Warrant Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(i) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
(j) Entire Agreement. This Warrant Agreement, together with the
exhibits hereto is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Warrant Agreement, together with the exhibits hereto,
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Publicity. Except as may be required by law, none of the parties
hereto shall issue a publicity release or public announcement or otherwise make
any disclosure concerning this Warrant Agreement or the transactions
contemplated hereby, without prior approval by the other party (which approval
shall not be unreasonably withheld); provided, however, that nothing in this
Warrant Agreement shall restrict the Warrant Holder from disclosing information
(a) that is already publicly available and (b) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with the Warrant Holder's investment or participation in the
Company. If any announcement is required by law to be made by any party hereto
concerning this Warrant Agreement or the transactions contemplated hereby, prior
to making such announcement such party will deliver a draft of such announcement
to the other parties and shall give the other parties an opportunity to comment
thereon.
(l) Charges; Taxes and Expenses. Issuance of certificates for shares
upon the exercise of the Warrants shall be made without charge to the Warrant
Holder for any issue or transfer tax or other incidental expense in respect of
the issuance of such certificates, all of which taxes and expenses shall be paid
by the Company.
(m) Saturdays, Sundays, Holidays, Etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or a legal holiday.
(n) Lost Warrants. The Company covenants to the Warrant Holder that,
upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant Agreement and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation, upon
surrender and
-10-
<PAGE>
cancellation of this Warrant Agreement, the Company will make and deliver a new
Warrant Agreement of like tenor, in lieu of the lost, stolen, destroyed or
mutilated document.
(o) Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any governmental authority or
any other person, and otherwise fulfilling, or causing the fulfillment of, the
various obligations made herein), as may be reasonably required or desirable to
carry out or to perform the provisions of this Warrant Agreement and to
consummate and make effective as promptly as possible the transactions
contemplated by this Warrant Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and delivered
by the authorized officers of each of the undersigned.
PRICELINE.COM INCORPORATED
By:__________________________________
Name:
Title:
TRANS WORLD AIRLINES, INC.
By:__________________________________
Name:
Title:
-12-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: priceline.com Incorporated
1. ___ The undersigned hereby elects to purchase __________ shares
of the Common Stock of priceline.com Incorporated pursuant to the terms of the
Participation Warrant Agreement, dated as of _________________, 1999, by and
between priceline.com Incorporated and the undersigned (the "Warrant
Agreement"), and tenders herewith payment of the purchase price of such shares
in full.
___ The undersigned hereby elects to convert ___________ percent
(____%) of the value of the Warrants pursuant to the provisions of Section 5(b)
of the Warrant Agreement.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned.
TRANS WORLD AIRLINES, INC.
By:________________________________
___________________________________
(Print Name of Signatory)
___________________________________
(Title of Signatory)
Date:_____________________
-13-
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
TO: priceline.com Incorporated
The undersigned hereby assigns and transfers unto _____________________________
of _________________________________________________________________
(Please typewrite or print in block letters)
the right to purchase ____________ shares of the common stock of priceline.com
Incorporated subject to the Participation Warrant Agreement, dated as of
________________, 1999, by and between priceline.com Incorporated and the
undersigned (the "Warrant Agreement").
This assignment complies with the provisions of Section 12(b) of the Warrant
Agreement and is accompanied by funds sufficient to pay all applicable transfer
taxes.
TRANS WORLD AIRLINES, INC.
By:________________________________
___________________________________
(Print Name of Signatory)
___________________________________
(Title of Signatory)
Date:_____________________
<PAGE>
Exhibit C
ACKNOWLEDGMENT AND AGREEMENT
TO THE AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
WHEREAS, pursuant to a Participation Warrant Agreement, the undersigned
received a warrant to purchase 500,000 shares of common stock, par value $.008
per share (the "Shares"), of priceline.com Incorporated, a Delaware corporation
(the "Company"); and
WHEREAS, the undersigned wishes to receive certain registration rights with
respect to such Shares; and
WHEREAS, the undersigned has reviewed a copy of that certain Amended and
Restated Registration Rights Agreement, dated as of December 8, 1998 (the
"Agreement"), among the Company, General Atlantic Partners 48, L.P., GAP
Coinvestment Partners, L.P., General Atlantic Partners 50, L.P. and the
stockholders named therein and has been given a copy of the Agreement and
afforded ample opportunity to read and to have counsel review it, and the
undersigned is thoroughly familiar with its terms.
NOW, THEREFORE, in consideration of the mutual premises contained herein
and in the Agreement and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned hereby
acknowledges and agrees that (i) the undersigned has been given a copy of the
Agreement and afforded ample opportunity to read and to have counsel review it,
and the undersigned is thoroughly familiar with its terms, (ii) the Shares are
subject to terms and conditions set forth in the Agreement, (iii) the
undersigned does hereby agree fully to be bound by the Agreement as a "Demand
Stockholder" (as therein defined), and upon the execution and delivery of this
Acknowledgment and Agreement by the Company, the undersigned shall have all the
rights and obligations under the Agreement as a Demand Stockholder, and (iv) the
undersigned does hereby name _________________to serve as their representative
under the Agreement.
This 17th day of November, 1999.
Acknowledged and agreed:
PRICELINE.COM INCORPORATED TRANS WORLD AIRLINES, INC.
By:_____________________________ By:_________________________
Name: Name:
Title: Title:
-2-
[**] = Confidential Treatment requested for redacted portion
Exhibit 10.27
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE WARRANT ISSUED PURSUANT TO THIS PARTICIPATION WARRANT AGREEMENT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. IT MAY
NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED TO EFFECTUATE SUCH TRANSACTION.
PARTICIPATION WARRANT AGREEMENT
To Purchase Shares of Common Stock
Dated as of November 17, 1999
PRICELINE.COM INCORPORATED
a Delaware Corporation
Issue Date: November 17, 1999
THIS CERTIFIES THAT, Northwest Airlines, Inc. (the "Warrant Holder"), with a
place of business at 5101 Northwest Drive, Saint Paul, Minnesota 55111-3034, for
value received, is entitled, upon the terms and subject to the conditions of
this Participation Warrant Agreement (this "Warrant Agreement"), to subscribe
for and purchase fully-paid and non-assessable shares of common stock, par value
$.008 per share (the "Common Stock"), of priceline.com Incorporated, a Delaware
corporation (the "Company").
1. Issuance of Warrants. On the Issue Date, the Company will issue to the
Warrant Holder warrants (the "Warrants") to acquire Five Hundred Thousand
(500,000) shares of the Common Stock (the "Shares"), subject to adjustment as
hereinafter provided pursuant to Section 10 herein.
2. Exercise Price. The Warrants have an exercise price of $59.93 per share
of Common Stock, as adjusted pursuant to the provisions of Section 10 of this
Warrant Agreement (the "Exercise Price").
3. Term. The Warrants are fully vested on the Issue Date. Except as
otherwise provided herein, the term of the Warrants and the right to purchase
Shares as granted herein shall be exercisable on the fifth (5th) anniversary of
the Issue Date; provided, further, that if any of the Warrants first become
exercisable on the fifth (5th) anniversary of the Issue Date, the Warrant Holder
will have an additional six months thereafter to exercise its purchase rights in
respect of those Warrants (the end of such five year period and additional six
months, if applicable, being referred to herein as the "Termination Date").
4. Exercise Events.
(a) General. Unless otherwise exercisable at an earlier date, in
accordance with this Section 4, all of the Warrants shall be fully exercisable
commencing of the fifth anniversary of the Issue Date.
(b) Early Exercise Rights. Subject to the provisions of Section 4(d)
hereof, Warrant Holder shall have the following early exercise rights:
(i) The Warrant Holder will have the right at any time
during the first Measuring Period (as defined in Section
4(c) below), to exercise Warrants, subject to adjustment
as provided in Section 10 hereof, equal to [**]% or
[**]% of the Shares, as applicable, provided that,
except as otherwise provided in Sections 4(b)(iii) and
4(b)(iv) hereof, (i) the right to exercise Warrants for
[**]% of the Shares shall not accrue unless and
-1-
<PAGE>
until the Company has, on an aggregated basis during the
first Measuring Period, received at least $[**] million
of Net Revenues (as also defined in Section 4(c) below)
from tickets sold during such Measuring Period for
travel on the Warrant Holder, its subsidiaries and/or on
the Warrant Holder's code share partners using Warrant
Holder's code (collectively, "Warrant Holder and its
Code Share Partners"), and (ii) the right to exercise
Warrants for [**]% of the Shares shall not accrue unless
and until the Company has, on an aggregated basis during
the first Measuring Period, received at least $[**]
million of Net Revenues from tickets sold during such
Measuring Period for travel on the Warrant Holder and
its Code Share Partners.
(ii) The Warrant Holder will have the right at any time
during the second Measuring Period and all remaining
Measuring Periods thereafter, to exercise Warrants,
subject to adjustment as provided in Section 10 hereof,
equal to [**]% or [**]% of the Shares, as applicable, or
such lesser percentage of the Shares as shall constitute
all of the remaining Shares not then exercisable;
provided that (i) the right to exercise Warrants for
[**]% of such Shares shall not accrue unless and until
the Company has, on an aggregated basis during the
applicable Measuring Period, received at least $[**]
million of Net Revenues from tickets sold during such
Measuring Period for travel on the Warrant Holder and
its Code Share Partners, and (ii) the right to exercise
Warrants for [**]% of such Shares shall not accrue
unless and until the Company has, on an aggregated basis
during the applicable Measuring Period, received at
least $[**] million of Net Revenues from tickets sold
during such Measuring Period for travel on the Warrant
Holder and its Code Share Partners.
(iii) Notwithstanding the Net Revenue benchmarks specified in
clauses (i) and (ii) of this Section 4(b) for the early
exercisability of Warrants, if, in any Measuring Period,
the Company fails to achieve the minimum Net Revenues
from ticket sales for travel on Warrant Holder and its
Code Share Partners necessary to enable Warrant Holder
to exercise Warrants for the [**]% or [**]% portion of
Shares that would otherwise become exercisable if such
benchmarks were achieved during such Measuring Period,
then, effective on the last day of such Measuring Period
and thereafter, Warrant Holder (i) shall have the right
to exercise Warrants for the [**]% portion of Warrants
that would otherwise become exercisable upon achieving
the corresponding Net Revenue benchmark for such
Measuring Period, if Warrant Holders and its Code Share
Partners' percentage of the aggregate of all ticket sale
revenues (calculated using the same methodology used to
calculate Net Revenue hereunder) received by the Company
for U.S. originating O&D's for such Measuring Period
equals or exceeds [**]% of Warrant Holder's Fair Share
(as defined in Section 4(c) below) (the "[**]% Fair
Share Threshold"), and (ii) shall have the right to
exercise Warrants for the [**]% portion of Warrants that
would otherwise become exercisable upon achieving the
corresponding Net Revenue benchmark for such Measuring
Period, if Warrant Holder's and its Code Share Partners'
percentage of the aggregate of all ticket sale revenues
received by the Company for U.S. originating O&D's for
such Measuring Period equals or exceeds [**]% of Warrant
Holder's Fair Share (the "[**]% Fair Share Threshold").
-2-
<PAGE>
(iv) In the event that the Company does not achieve the
$[**] million Net Revenue benchmark specified in
clauses (i) of this Section 4(b) and Warrant Holder does
not achieve the [**]% Fair Share Threshold specified in
clause (iii) of this Section 4(b) for the early
exercisability of Warrants for the first Measuring
Period, Warrant Holder shall have the right upon
completion of the first Measuring Period and thereafter
to exercise Warrants for the [**]% portion of Warrants
that would otherwise become exercisable upon the
Company's achieving the $[**] million Net Revenue
benchmark or Warrant Holder's achieving the [**]% Fair
Share Threshold for such Measuring Period, if, during
the entire term of the first Measuring Period, Warrant
Holder does not voluntarily participate in any "demand
collection system" (as defined in Section 4(d)) other
than the Company's airline ticket service.
(c) Measuring Periods and Net Revenue.
(i) As used in this Warrant Agreement, the term "Measuring
Period" shall mean a 12-month period, with the first
such Measuring Period commencing on the Date the Warrant
Holder first provides tickets for sale by the Company
following the Grant Date (the "First Ticket Date").
Subsequent Measuring Periods will expire on the second,
third, fourth and fifth anniversary of the First Ticket
Date, respectively, except that the fifth Measuring
Period shall end on the fifth (5Th) anniversary of the
Issue Date.
(ii) As used in this Warrant Agreement, the term "Net
Revenue" shall mean the total ticket revenue received by
the Company from tickets sold for travel on the Warrant
Holder and its Code Share Partners, net of federal
excise and segment taxes, passenger facility charges and
related fees. The parties acknowledge that credit card
processing fees, and any processing fees or similar fees
charged by the Company to the consumer in connection
with the sale of a ticket shall not be included in the
calculation of Net Revenue..
(iii) As used in this Warrant Agreement, the term "Fair Share"
shall mean Warrant Holder's domestic market share
calculated as a fraction, the numerator of which shall
be Warrant Holder's RPM's for U.S. originating O&D's
only, and the denominator of which shall be the total
RPM's for U.S. originating O&D's only of all of the
Company's participating airlines.
(d) Warrant Holder's right to early exercise under Section 4(b) is
contingent upon Airline's participating exclusively in the
Company's leisure airline ticket service as the only "demand
collection system" for Warrant Holder's sale of airline
tickets over the Internet. For purposes of this Section 4(d),
"demand collection system" is narrowly defined as an airline
ticket service that (i) enables a consumer to name the price
the consumer is willing to pay for one or more airline
tickets, (ii) enables the seller to bind the consumer to the
consumer's offer price upon the seller's acceptance of the
consumer's offer, and (iii) does not permit the consumer to
specify the exact airline on which the consumer is willing to
fly. In order for Warrant Holder to be entitled to the early
exercise rights specified in Section 4(b), Warrant Holder must
not at any time between the date hereof and the date
-3-
<PAGE>
exercises an early exercise of Warrants in accordance with
Section 4(b) participate in any "demand collection system"
other than the Company's for the sale of airline tickets over
the Internet. For example, if in the first Measuring Period,
the Company achieves Net Revenues to that would entitle the
Warrant Holder to exercise Warrants for [**]% of the Shares,
the Warrant Holder will be entitle to exercise such Warrants
at all time thereafter so long as the Warrant Holder at all
times from the date hereof though the date of such exercise
has not participated in another "demand collection system" for
the sale of airline tickets over the Internet. If at any time
from the date hereof though to the fifth 5th anniversary of
the Grant Date, the Warrant Holder participates in another
"demand collection system" for the sale of airline ticket over
the Internet, the Warrant Holder's early exercise rights will
terminate and be of no further force or effect, and such
Warrants will become exercisable on the fifth 5th anniversary
of the Grant Date.
5. Exercise of Purchase Rights.
(a) Subject to the provisions of Section 4 of this Warrant
Agreement, the purchase rights represented by this Warrant Agreement are
exercisable by the Warrant Holder, in whole or in part, at any time, or from
time to time during the period set forth in Section 3 above, by tendering to the
Company at its principal office a duly completed and executed notice of exercise
in the form attached hereto as Exhibit A (the "Notice of Exercise"), the
Warrants and the Exercise Price. Upon receipt of such items, the Company shall
issue to the Warrant Holder a certificate for the number of shares of Common
Stock purchased. The Warrant Holder, upon exercise of the Warrants, shall be
deemed to have become the holder of the Shares represented thereby (and such
Shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which the Warrants are exercised. In the
event of any exercise of the rights represented by the Warrants, certificates
for the Shares so purchased shall be delivered to the Warrant Holder or its
designee as soon as practical and in any event within ten (10) business days
after receipt of such notice and, unless the Warrants have been fully exercised
or expired, new Warrants representing the remaining portion of the Warrants and
the underlying Shares, if any, with respect to which this Warrant Agreement
shall not then have been exercised shall also be issued to the Warrant Holder as
soon as possible and in any event within such ten-day period.
(b) Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising the Warrants for cash, the Warrant Holder may elect to
receive shares equal to the value (as determined below) of the Warrants (or
portion thereof being canceled) by surrender of the Warrants at the principal
office of the Company together with the duly executed Notice of Exercise in
which event the Company shall issue to the Warrant Holder a number of shares of
Common Stock computed using the following formula: X=Y(A-B)/ A WHERE X= the
number of shares of Common Stock to be issued to the Warrant Holder; Y= the
number of shares of the Common Stock purchasable under the Warrants or, if only
a portion of the Warrants is being exercised, the portion of the Warrants being
canceled (at the date of such calculation); A= the fair market value of one
share of the Company's Common Stock (at the date of such calculation); and B=
Exercise Price (at the date of such calculation). For purposes of the above
calculation, fair market value of one share of the Common Stock shall be equal
to the closing trading price of the Company's Common Stock on the day
immediately prior to the date the Notice of Exercise is tendered to the Company.
6. Reservation of Shares. The Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for the
exercise of the rights to purchase the Shares as provided in this Warrant
Agreement. All of the Shares shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and nonassessable, and free and
clear of all preemptive rights.
-4-
<PAGE>
7. No Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant Holder's
rights to purchase the Shares.
8. No Rights as Shareholder. This Warrant Agreement does not entitle the
Warrant Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise of the Warrant Holder's rights to purchase the
Shares as provided for herein.
9. Redemption. The Warrants represented by this Warrant Agreement are not
redeemable by the Company.
10. Adjustment Rights. The Exercise Price and the number of shares of
Common Stock purchasable hereunder are subject to adjustment from time to time,
as follows:
(a) Merger. If at any time there shall be a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as part of such merger or consolidation, lawful
provision shall be made so that the holder of the Warrants evidenced hereby
shall thereafter be entitled to receive upon exercise of rights herein granted,
during the period specified herein and upon payment of the aggregate Exercise
Price, the number of shares of stock or other securities or property of the
successor corporation resulting from such merger or consolidation, to which a
holder of the stock deliverable upon exercise of the rights granted in this
Warrant Agreement would have been entitled in such merger or consolidation if
such rights had been exercised immediately before such merger or consolidation.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interests of
the holder after the merger or consolidation. The Company will not effect any
such merger or consolidation unless, prior to the consummation thereof, the
successor corporation shall assume, by written instrument reasonably
satisfactory in form and substance to the Warrant Holder, the obligations of the
Company under the Warrants.
(b) Reclassification, Etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant Agreement
exist into the same or a different number of securities of any other class or
classes, this Warrant Agreement shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to the purchase
rights under this Warrant Agreement immediately prior to such subdivision,
combination, reclassification or other change.
(c) Split, Subdivision or Combination of Shares. If the Company at
any time shall split or subdivide its Common Stock, the Exercise Price shall be
proportionately decreased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately increased. If the Company at any time
shall combine or reverse split its Common Stock, the Exercise Price shall be
proportionately increased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately decreased.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in Common Stock, then the Exercise Price shall be adjusted, from and
after the date of determination of stockholders entitled to receive such
dividend, to that price determined by multiplying the Exercise Price in effect
immediately prior to such date of determination by a fraction (i) the numerator
of which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend and (ii) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after such
dividend. The Warrant Holder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Common
Stock (calculated to the nearest whole share) obtained by multiplying (i) the
Exercise Price in effect immediately prior to such adjustment by (ii) the
-5-
<PAGE>
number of shares of Common Stock issuable upon the exercise hereof immediately
prior to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
(e) Other Changes. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provisions of this
Section 10 are not strictly applicable or if strictly applicable, would not
fairly protect the purchase rights of the Warrant Holder in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number of and class of shares available under the Warrants, the Exercise
Price or the application of such provisions, so as to protect the purchase
rights of the Warrant Holder. The adjustment shall be such as will give the
Warrant Holder upon exercise for the same aggregate Exercise Price the total
number, class and kind of shares or other property as the Warrant Holder would
have owned had the Warrants been exercised prior to the event and had the
Warrant Holder continued to hold such shares until after the event requiring
adjustment.
(f) Notice of Adjustments; Notices. Whenever the Exercise Price or
number of shares purchasable hereunder shall be adjusted pursuant to Section 10
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer or Chief Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the holder of this Warrant. The Company shall give written notice to the Warrant
Holder at least 10 days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions. The Company shall also give written notice to the Warrant Holder
at least 30 business days prior to the date on which a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation shall take place.
(g) No Change of Warrant Necessary. Irrespective of any adjustment
in the Exercise Price or in the number or kind of securities issuable upon
exercise of the Warrant, unless the Warrant Holder otherwise requests, this
Warrant Agreement may continue to express the same price and number and kind of
shares of Common Stock as are stated in this Warrant Agreement as initially
executed.
11. Representations and Warranties of the Warrant Holder.
The Warrant Holder hereby represents and warrants to the Company as
follows:
(a) Existence and Power. The Warrant Holder is a (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and (ii) has the corporate power and
authority to execute, deliver and perform its obligations under this Warrant
Agreement.
(b) Authorization; No Contravention. The execution, delivery and
performance by the Warrant Holder of this Warrant Agreement and the transactions
contemplated hereby (i) have been duly authorized by all necessary corporate
action of the Warrant Holder and (ii) do not contravene the terms of the
Certificate of Incorporation or By-laws of the Warrant Holder, each as amended
as of and through the Issue Date.
(c) Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption or authorization of any governmental authority or
agency, or of any other person or entity, is necessary or required in connection
with the execution, delivery or performance by, or enforcement against, the
Warrant Holder of this Warrant Agreement or the transactions contemplated
hereby.
(d) Binding Effect. This Warrant Agreement has been duly executed
and delivered by the Warrant Holder and constitutes the valid and binding
obligations of the Warrant Holder, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the
-6-
<PAGE>
enforcement of creditors' rights generally or by equitable principles relating
to enforceability (regardless of whether considered in a proceeding at law or in
equity).
(e) Purchase for Own Account. The Warrants issued to the Warrant
Holder pursuant to this Warrant Agreement, and the Shares to be issued upon
vesting and exercise thereof, are being or will be acquired for the Warrant
Holder's own account and with no intention of distributing or reselling such
securities or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state.
(f) Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants, will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act and that reliance of the Company on such
exemption is predicated in part on such Warrant Holder's representations set
forth herein. The Warrant Holder represents that it is experienced in evaluating
companies such as the Company, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment and has the ability to suffer the total loss of the investment. The
Warrant Holder further represents that it has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Warrants, the business of the Company, and to obtain
additional information to such Warrant Holder's satisfaction.
(g) Accredited Investor. The Warrant Holder is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the Securities
Act, as presently in effect.
12. Compliance with Securities Act; Transferability of Warrant or Shares
of Common Stock.
(a) Compliance with Securities Act. The Warrant Holder, by
acceptance hereof, agrees that the Warrants, and the shares of Common Stock to
be issued upon exercise of the Warrants, are being acquired for investment and
that such Warrant Holder will not offer, sell or otherwise dispose of the
Warrants, or any shares of Common Stock to be issued upon exercise of the
Warrants except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any applicable
state securities laws. The Warrants and all shares of Common Stock issued upon
exercise of the Warrants (unless registered under) the Securities Act and any
applicable state securities laws) shall be stamped or imprinted with a legend in
substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION."
-7-
<PAGE>
(b) Exchange, Transfer, Assignment. The Warrants cannot be exchanged,
transferred or assigned otherwise than in accordance with applicable law. Upon
compliance with applicable law and surrender of the Warrants to the Company with
the Assignment Form annexed hereto as Exhibit B duly executed, and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant Agreement in the name of the heir, devisee or assignee
named in such instrument of assignment and this Warrant Agreement shall promptly
be canceled. Subject to the terms hereof, the Warrants may be assigned in whole
or in part.
13. Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants, will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act based on the representations of the warrant
Holder set forth herein. The Warrant Holder represents that it is experienced in
evaluating companies such as the Company, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to suffer the total loss of the
investment. The Warrant Holder further represents that it has had the
opportunity to ask questions of and receive answers from the Company concerning
the terms and conditions of the Warrants, the business of the Company, and to
obtain additional information to such Warrant Holder's satisfaction. The Warrant
Holder is an "Accredited Investor" within the meaning of Rule 501 of Regulation
D under the Securities Act, as presently in effect.
14. Registration Rights. Upon the parties' execution of this Warrant
Agreement and the Acknowledgment and Agreement to the Amended and Restated
Registration Rights Agreement attached hereto as Exhibit C, Warrant Holder shall
be made a party to that certain Amended and Restated Registration Rights
Agreement, dated as of December 8, 1998, by and among the Company, the
stockholders of the Company named therein and such other stockholders and
warrant holders of the Company made a party thereto. In addition, within 30 days
of the execution of this Warrant Agreement, the Company agrees to enter into an
agreement with Warrant Holder, in form and substance reasonably satisfactory to
Warrant Holder, which shall grant Warrant Holder the right to transfer its
registration rights pursuant to such Amended and Restated Registration Rights
Agreement dated as of December 8, 1998 to any assignee or assignees of all or
any part of this Warrant or the Shares issuable upon exercise hereof, which
assignees, upon their execution and delivery of an Acknowledgment and Agreement
to the Amended and Restated Registration Rights Agreement substantially in the
form of Exhibit C hereto (with appropriate changes therein) shall each have all
the rights and obligations of a Demand Stockholder (as defined in such
Agreement) under such Agreement; provided that no registration statement with
respect to less than a minimum of 250,000 Shares shall be required to be
effected by the Company thereunder for the benefit of any such assignee.
15. Miscellaneous.
(a) No Consequential Damages. No party hereto shall be entitled to
consequential damages as a result of any breach of a covenant, representation or
warranty contained herein.
(b) Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Company, to:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy: (203) 595-8345
Attention: Melissa M. Taub, Esq.
-8-
<PAGE>
and to:
Skadden, Arps, Slate, Meagher, & Flom, L.L.P.
One Rodney Square
Wilmington, DE 19801
Telecopy: (302) 651-3001
Attention: Patricia Moran Chuff, Esq.
(ii) if to the Warrant Holder, to:
Northwest Airlines, Inc.
5101 Northwest Drive
Saint Paul, Minnesota 55111-3034
Attention:
Title:
Phone:
Fax: 612-726-0771
and to:
Northwest Airlines, Inc.
5101 Northwest Drive
St. Paul, Minnesota 55111-3034
Telephone:
Telecopy: 612-726-0771
Attention:
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) business days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
(d) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. No person, other than the parties
hereto and their successors and permitted assigns, is intended to be a
beneficiary of this Agreement.
(e) Amendment and Waiver.
(i) No failure or delay on the part of the Company, or the
Warrant Holder in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company and the Warrant Holder at law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or to any
provision of this Warrant Agreement, any waiver of any provision of this Warrant
Agreement, and any consent to any departure by the Company or the Warrant Holder
from the terms of any provision of this Agreement, shall be effective only if it
is made or given in writing and signed by the Company and the Warrant Holder.
-9-
<PAGE>
(f) Counterparts. This Warrant Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Warrant Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(i) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
(j) Entire Agreement. This Warrant Agreement, together with the
exhibits hereto is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Warrant Agreement, together with the exhibits hereto,
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Publicity. Except as may be required by law, none of the parties
hereto shall issue a publicity release or public announcement or otherwise make
any disclosure concerning this Warrant Agreement or the transactions
contemplated hereby, without prior approval by the other party (which approval
shall not be unreasonably withheld); provided, however, that nothing in this
Warrant Agreement shall restrict the Warrant Holder from disclosing information
(a) that is already publicly available and (b) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with the Warrant Holder's investment or participation in the
Company. If any announcement is required by law to be made by any party hereto
concerning this Warrant Agreement or the transactions contemplated hereby, prior
to making such announcement such party will deliver a draft of such announcement
to the other parties and shall give the other parties an opportunity to comment
thereon.
(l) Charges; Taxes and Expenses. Issuance of certificates for shares
upon the exercise of the Warrants shall be made without charge to the Warrant
Holder for any issue or transfer tax or other incidental expense in respect of
the issuance of such certificates, all of which taxes and expenses shall be paid
by the Company.
(m) Saturdays, Sundays, Holidays, Etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or a legal holiday.
(n) Lost Warrants. The Company covenants to the Warrant Holder that,
upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant Agreement and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation, upon
surrender and cancellation of this Warrant Agreement, the Company will make and
deliver a new Warrant Agreement of like tenor, in lieu of the lost, stolen,
destroyed or mutilated document.
-10-
<PAGE>
(o) Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any governmental authority or
any other person, and otherwise fulfilling, or causing the fulfillment of, the
various obligations made herein), as may be reasonably required or desirable to
carry out or to perform the provisions of this Warrant Agreement and to
consummate and make effective as promptly as possible the transactions
contemplated by this Warrant Agreement.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and delivered
by the authorized officers of each of the undersigned.
PRICELINE.COM INCORPORATED
By:__________________________________
Name:
Title:
NORTHWEST AIRLINES, INC.
By:__________________________________
Name:
Title:
-11-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: priceline.com Incorporated
1. ___ The undersigned hereby elects to purchase __________ shares
of the Common Stock of priceline.com Incorporated pursuant to the terms of the
Participation Warrant Agreement, dated as of _________________, 1999, by and
between priceline.com Incorporated and the undersigned (the "Warrant
Agreement"), and tenders herewith payment of the purchase price of such shares
in full.
___ The undersigned hereby elects to convert ___________ percent
(____%) of the value of the Warrants pursuant to the provisions of Section 5(b)
of the Warrant Agreement.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned.
NORTHWEST AIRLINES, INC.
By:________________________________
___________________________________
(Print Name of Signatory)
___________________________________
(Title of Signatory)
Date:_____________________
-12-
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
TO: priceline.com Incorporated
The undersigned hereby assigns and transfers unto _____________________________
of _________________________________________________________________
(Please typewrite or print in block letters)
the right to purchase ____________ shares of the common stock of priceline.com
Incorporated subject to the Participation Warrant Agreement, dated as of
________________, 1999, by and between priceline.com Incorporated and the
undersigned (the "Warrant Agreement").
This assignment complies with the provisions of Section 12(b) of the Warrant
Agreement and is accompanied by funds sufficient to pay all applicable transfer
taxes.
NORTHWEST AIRLINES, INC.
By:________________________________
___________________________________
(Print Name of Signatory)
___________________________________
(Title of Signatory)
Date:_____________________
<PAGE>
Exhibit C
ACKNOWLEDGMENT AND AGREEMENT
TO THE AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
WHEREAS, pursuant to a Participation Warrant Agreement, the undersigned
received a warrant to purchase 500,000 shares of common stock, par value $.008
per share (the "Shares"), of priceline.com Incorporated, a Delaware corporation
(the "Company"); and
WHEREAS, the undersigned wishes to receive certain registration rights with
respect to such Shares; and
WHEREAS, the undersigned has reviewed a copy of that certain Amended and
Restated Registration Rights Agreement, dated as of December 8, 1998 (the
"Agreement"), among the Company, General Atlantic Partners 48, L.P., GAP
Coinvestment Partners, L.P., General Atlantic Partners 50, L.P. and the
stockholders named therein and has been given a copy of the Agreement and
afforded ample opportunity to read and to have counsel review it, and the
undersigned is thoroughly familiar with its terms.
NOW, THEREFORE, in consideration of the mutual premises contained herein
and in the Agreement and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned hereby
acknowledges and agrees that (i) the undersigned has been given a copy of the
Agreement and afforded ample opportunity to read and to have counsel review it,
and the undersigned is thoroughly familiar with its terms, (ii) the Shares are
subject to terms and conditions set forth in the Agreement, (iii) the
undersigned does hereby agree fully to be bound by the Agreement as a "Demand
Stockholder" (as therein defined), and upon the execution and delivery of this
Acknowledgment and Agreement by the Company, the undersigned shall have all the
rights and obligations under the Agreement as a Demand Stockholder, and (iv) the
undersigned does hereby name _________________to serve as their representative
under the Agreement.
This 17th day of November, 1999.
Acknowledged and agreed:
PRICELINE.COM INCORPORATED NORTHWEST AIRLINES, INC.
By: _____________________________ By:_________________________
Name: Name:
Title: Title:
-2-
[**] = Confidential Treatment requested for redacted portion
Exhibit 10.28
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE WARRANT ISSUED PURSUANT TO THIS PARTICIPATION WARRANT AGREEMENT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. IT MAY
NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED TO EFFECTUATE SUCH TRANSACTION.
PARTICIPATION WARRANT AGREEMENT
To Purchase Shares of Common Stock
Dated as of November 17, 1999
PRICELINE.COM INCORPORATED
a Delaware Corporation
Issue Date: November 17, 1999
THIS CERTIFIES THAT, America West Airlines, Inc. (the "Warrant Holder"), with a
place of business at 4000 East Sky Harbor Boulevard, Phoenix, Arizona 85034, for
value received, is entitled, upon the terms and subject to the conditions of
this Participation Warrant Agreement (this "Warrant Agreement"), to subscribe
for and purchase fully-paid and non-assessable shares of common stock, par value
$.008 per share (the "Common Stock"), of priceline.com Incorporated, a Delaware
corporation (the "Company").
1. Issuance of Warrants. On the Issue Date, the Company will issue to the
Warrant Holder warrants (the "Warrants") to acquire Five Hundred Thousand
(500,000) shares of the Common Stock (the "Shares"), subject to adjustment as
hereinafter provided pursuant to Section 10 herein.
2. Exercise Price. The Warrants have an exercise price of $59.93 per share
of Common Stock, as adjusted pursuant to the provisions of Section 10 of this
Warrant Agreement (the "Exercise Price").
3. Term. The Warrants are fully vested on the Issue Date. Except as
otherwise provided herein, the term of the Warrants and the right to purchase
Shares as granted herein shall be exercisable on the fifth (5th) anniversary of
the Issue Date; provided, further, that if any of the Warrants first become
exercisable on the fifth (5th) anniversary of the Issue Date, the Warrant Holder
will have an additional six months thereafter to exercise its purchase rights in
respect of those Warrants (the end of such five year period and additional six
months, if applicable, being referred to herein as the "Termination Date").
4. Exercise Events.
(a) General. Unless otherwise exercisable at an earlier date, in
accordance with this Section 4, all of the Warrants shall be fully exercisable
commencing of the fifth anniversary of the Issue Date.
(b) Early Exercise Rights. Subject to the provisions of Section 4(d)
hereof, Warrant Holder shall have the following early exercise rights:
(i) The Warrant Holder will have the right at any time
during the first Measuring Period (as defined in Section
4(c) below), to exercise Warrants, subject to adjustment
as provided in Section 10 hereof, equal to [**]% or
[**]% of the Shares, as applicable, provided that,
except as otherwise provided in Sections 4(b)(iii) and
4(b)(iv) hereof, (i) the right to exercise Warrants for
[**]% of the Shares shall not accrue unless
-1-
<PAGE>
and until the Company has, on an aggregated basis during
the first Measuring Period, received at least $[**]
million of Net Revenues (as also defined in Section 4(c)
below) from tickets sold during such Measuring Period
for travel on the Warrant Holder, its subsidiaries
and/or on the Warrant Holder's code share partners using
Warrant Holder's code (collectively, "Warrant Holder and
its Code Share Partners"), and (ii) the right to
exercise Warrants for [**]% of the Shares shall not
accrue unless and until the Company has, on an
aggregated basis during the first Measuring Period,
received at least $[**] million of Net Revenues from
tickets sold during such Measuring Period for travel on
the Warrant Holder and its Code Share Partners.
(ii) The Warrant Holder will have the right at any time
during the second Measuring Period and all remaining
Measuring Periods thereafter, to exercise Warrants,
subject to adjustment as provided in Section 10 hereof,
equal to [**]% or [**]% of the Shares, as applicable, or
such lesser percentage of the Shares as shall constitute
all of the remaining Shares not then exercisable;
provided that (i) the right to exercise Warrants for
[**]% of such Shares shall not accrue unless and until
the Company has, on an aggregated basis during the
applicable Measuring Period, received at least $[**]
million of Net Revenues from tickets sold during such
Measuring Period for travel on the Warrant Holder and
its Code Share Partners, and (ii) the right to exercise
Warrants for [**]% of such Shares shall not accrue
unless and until the Company has, on an aggregated basis
during the applicable Measuring Period, received at
least $[**] million of Net Revenues from tickets sold
during such Measuring Period for travel on the Warrant
Holder and its Code Share Partners.
(iii) Notwithstanding the Net Revenue benchmarks specified in
clauses (i) and (ii) of this Section 4(b) for the early
exercisability of Warrants, if, in any Measuring Period,
the Company fails to achieve the minimum Net Revenues
from ticket sales for travel on Warrant Holder and its
Code Share Partners necessary to enable Warrant Holder
to exercise Warrants for the [**]% or [**]% portion of
Shares that would otherwise become exercisable if such
benchmarks were achieved during such Measuring Period,
then, effective on the last day of such Measuring Period
and thereafter, Warrant Holder (i) shall have the right
to exercise Warrants for the [**]% portion of Warrants
that would otherwise become exercisable upon achieving
the corresponding Net Revenue benchmark for such
Measuring Period, if Warrant Holders and its Code Share
Partners' percentage of the aggregate of all ticket sale
revenues (calculated using the same methodology used to
calculate Net Revenue hereunder) received by the Company
for U.S. originating O&D's for such Measuring Period
equals or exceeds [**]% of Warrant Holder's Fair Share
(as defined in Section 4(c) below) (the "[**]% Fair
Share Threshold"), and (ii) shall have the right to
exercise Warrants for the [**]% portion of Warrants that
would otherwise become exercisable upon achieving the
corresponding Net Revenue benchmark for such Measuring
Period, if Warrant Holder's and its Code Share Partners'
percentage of the aggregate of all ticket sale revenues
received by the Company for U.S. originating O&D's for
such Measuring Period equals or exceeds [**]% of Warrant
Holder's Fair Share (the "[**]% Fair Share Threshold").
-2-
<PAGE>
(iv) In the event that the Company does not achieve the $83.3
million Net Revenue benchmark specified in clauses (i)
of this Section 4(b) and Warrant Holder does not achieve
the [**]% Fair Share Threshold specified in clause (iii)
of this Section 4(b) for the early exercisability of
Warrants for the first Measuring Period, Warrant Holder
shall have the right upon completion of the first
Measuring Period and thereafter to exercise Warrants for
the [**]% portion of Warrants that would otherwise
become exercisable upon the Company's achieving the
$[**] million Net Revenue benchmark or Warrant Holder's
achieving the [**]% Fair Share Threshold for such
Measuring Period, if, during the entire term of the
first Measuring Period, Warrant Holder does not
voluntarily participate in any name-your-price airline
ticket service other than the Company's and its
affiliates' airline ticket services.
(c) Measuring Periods and Net Revenue.
(i) As used in this Warrant Agreement, the term "Measuring
Period" shall mean a 12-month period, with the first
such Measuring Period commencing on the Date the Warrant
Holder first provides tickets for sale by the Company
following the Grant Date (the "First Ticket Date").
Subsequent Measuring Periods will expire on the second,
third, fourth and fifth anniversary of the First Ticket
Date, respectively, except that the fifth Measuring
Period shall end on the fifth (5Th) anniversary of the
Issue Date.
(ii) As used in this Warrant Agreement, the term "Net
Revenue" shall mean the total ticket revenue received by
the Company from tickets sold for travel on the Warrant
Holder and its Code Share Partners, net of federal
excise and segment taxes, passenger facility charges and
related fees. The parties acknowledge that credit card
processing fees, and any processing fees or similar fees
charged by the Company to the consumer in connection
with the sale of a ticket shall not be included in the
calculation of Net Revenue..
(iii) As used in this Warrant Agreement, the term "Fair Share"
shall mean Warrant Holder's domestic market share
calculated as a fraction, the numerator of which shall
be Warrant Holder's RPM's for U.S. originating O&D's
only, and the denominator of which shall be the total
RPM's for U.S. originating O&D's only of all of the
Company's participating airlines.
(d) Warrant Holder's right to early exercise under Section 4(b) is
contingent upon Airline's participating exclusively in the
Company's leisure airline ticket service as the only "demand
collection system" for Warrant Holder's sale of airline
tickets over the Internet. For purposes of this Section 4(d),
"demand collection system" is narrowly defined as an airline
ticket service that (i) enables a consumer to name the price
the consumer willing to pay for one or more airline tickets
(ii) enables the seller to bind requires the consumer to the
consumer's offer price upon the seller's acceptance of the
consumer's offer, and (iii) does not permit the consumer to
specify the exact airline on which the consumer is willing to
fly. In order for
-3-
<PAGE>
Warrant Holder to be entitled to the early exercise rights
specified in Section 4(b), Warrant Holder must not at any time
between the date hereof and the date exercises an early
exercise of Warrants in accordance with Section 4(b)
participate in any "demand collection system" other than the
Company's for the sale of airline tickets over the Internet.
For example, if in the first Measuring Period, the Company
achieves Net Revenues to that would entitle the Warrant Holder
to exercise Warrants for [**]% of the Shares, the Warrant
Holder will be entitle to exercise such Warrants at all time
thereafter so long as the Warrant Holder at all times from the
date hereof though the date of such exercise has not
participated in another "demand collection system" for the
sale of airline tickets over the Internet. If at any time from
the date hereof though to the fifth 5th anniversary of the
Grant Date, the Warrant Holder participates in another "demand
collection system" for the sale of airline ticket over the
Internet, the Warrant Holder's early exercise rights will
terminate and be of no further force or effect, and such
Warrants will become exercisable on the fifth 5th anniversary
of the Grant Date.
5. Exercise of Purchase Rights.
(a) Subject to the provisions of Section 4 of this Warrant
Agreement, the purchase rights represented by this Warrant Agreement are
exercisable by the Warrant Holder, in whole or in part, at any time, or from
time to time during the period set forth in Section 3 above, by tendering to the
Company at its principal office a duly completed and executed notice of exercise
in the form attached hereto as Exhibit A (the "Notice of Exercise"), the
Warrants and the Exercise Price. Upon receipt of such items, the Company shall
issue to the Warrant Holder a certificate for the number of shares of Common
Stock purchased. The Warrant Holder, upon exercise of the Warrants, shall be
deemed to have become the holder of the Shares represented thereby (and such
Shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which the Warrants are exercised. In the
event of any exercise of the rights represented by the Warrants, certificates
for the Shares so purchased shall be delivered to the Warrant Holder or its
designee as soon as practical and in any event within ten (10) business days
after receipt of such notice and, unless the Warrants have been fully exercised
or expired, new Warrants representing the remaining portion of the Warrants and
the underlying Shares, if any, with respect to which this Warrant Agreement
shall not then have been exercised shall also be issued to the Warrant Holder as
soon as possible and in any event within such ten-day period.
(b) Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising the Warrants for cash, the Warrant Holder may elect to
receive shares equal to the value (as determined below) of the Warrants (or
portion thereof being canceled) by surrender of the Warrants at the principal
office of the Company together with the duly executed Notice of Exercise in
which event the Company shall issue to the Warrant Holder a number of shares of
Common Stock computed using the following formula: X=Y(A-B)/ A WHERE X= the
number of shares of Common Stock to be issued to the Warrant Holder; Y= the
number of shares of the Common Stock purchasable under the Warrants or, if only
a portion of the Warrants is being exercised, the portion of the Warrants being
canceled (at the date of such calculation); A= the fair market value of one
share of the Company's Common Stock (at the date of such calculation); and B=
Exercise Price (at the date of such calculation). For purposes of the above
calculation, fair market value of one share of the Common Stock shall be equal
to the closing trading price of the Company's Common Stock on the day
immediately prior to the date the Notice of Exercise is tendered to the Company.
6. Reservation of Shares. The Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for the
exercise of the rights to purchase the Shares
-4-
<PAGE>
as provided in this Warrant Agreement. All of the Shares shall be duly
authorized and, when issued upon such exercise, shall be validly issued, fully
paid and nonassessable, and free and clear of all preemptive rights.
7. No Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant Holder's
rights to purchase the Shares.
8. No Rights as Shareholder. This Warrant Agreement does not entitle the
Warrant Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise of the Warrant Holder's rights to purchase the
Shares as provided for herein.
9. Redemption. The Warrants represented by this Warrant Agreement are not
redeemable by the Company.
10. Adjustment Rights. The Exercise Price and the number of shares of
Common Stock purchasable hereunder are subject to adjustment from time to time,
as follows:
(a) Merger. If at any time there shall be a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as part of such merger or consolidation, lawful
provision shall be made so that the holder of the Warrants evidenced hereby
shall thereafter be entitled to receive upon exercise of rights herein granted,
during the period specified herein and upon payment of the aggregate Exercise
Price, the number of shares of stock or other securities or property of the
successor corporation resulting from such merger or consolidation, to which a
holder of the stock deliverable upon exercise of the rights granted in this
Warrant Agreement would have been entitled in such merger or consolidation if
such rights had been exercised immediately before such merger or consolidation.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interests of
the holder after the merger or consolidation. The Company will not effect any
such merger or consolidation unless, prior to the consummation thereof, the
successor corporation shall assume, by written instrument reasonably
satisfactory in form and substance to the Warrant Holder, the obligations of the
Company under the Warrants.
(b) Reclassification, Etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant Agreement
exist into the same or a different number of securities of any other class or
classes, this Warrant Agreement shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to the purchase
rights under this Warrant Agreement immediately prior to such subdivision,
combination, reclassification or other change.
(c) Split, Subdivision or Combination of Shares. If the Company at
any time shall split or subdivide its Common Stock, the Exercise Price shall be
proportionately decreased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately increased. If the Company at any time
shall combine or reverse split its Common Stock, the Exercise Price shall be
proportionately increased and the number of Shares issuable pursuant to this
Warrant Agreement shall be proportionately decreased.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in Common Stock, then the Exercise Price shall be adjusted, from and
after the date of determination of stockholders entitled to receive such
dividend, to that price determined by multiplying the Exercise Price in effect
immediately prior to such date of determination by a fraction (i) the numerator
of which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend and (ii) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after such
dividend. The Warrant Holder shall thereafter be entitled to purchase, at the
Exercise Price resulting
-5-
<PAGE>
from such adjustment, the number of shares of Common Stock (calculated to the
nearest whole share) obtained by multiplying (i) the Exercise Price in effect
immediately prior to such adjustment by (ii) the number of shares of Common
Stock issuable upon the exercise hereof immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
(e) Other Changes. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provisions of this
Section 10 are not strictly applicable or if strictly applicable, would not
fairly protect the purchase rights of the Warrant Holder in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number of and class of shares available under the Warrants, the Exercise
Price or the application of such provisions, so as to protect the purchase
rights of the Warrant Holder. The adjustment shall be such as will give the
Warrant Holder upon exercise for the same aggregate Exercise Price the total
number, class and kind of shares or other property as the Warrant Holder would
have owned had the Warrants been exercised prior to the event and had the
Warrant Holder continued to hold such shares until after the event requiring
adjustment.
(f) Notice of Adjustments; Notices. Whenever the Exercise Price or
number of shares purchasable hereunder shall be adjusted pursuant to Section 10
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer or Chief Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the holder of this Warrant. The Company shall give written notice to the Warrant
Holder at least 10 days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions. The Company shall also give written notice to the Warrant Holder
at least 30 business days prior to the date on which a merger or consolidation
of the Company with or into another corporation when the Company is not the
surviving corporation shall take place.
(g) No Change of Warrant Necessary. Irrespective of any adjustment
in the Exercise Price or in the number or kind of securities issuable upon
exercise of the Warrant, unless the Warrant Holder otherwise requests, this
Warrant Agreement may continue to express the same price and number and kind of
shares of Common Stock as are stated in this Warrant Agreement as initially
executed.
11. Representations and Warranties of the Warrant Holder.
The Warrant Holder hereby represents and warrants to the Company as
follows:
(a) Existence and Power. The Warrant Holder is a (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and (ii) has the corporate power and
authority to execute, deliver and perform its obligations under this Warrant
Agreement.
(b) Authorization; No Contravention. The execution, delivery and
performance by the Warrant Holder of this Warrant Agreement and the transactions
contemplated hereby (i) have been duly authorized by all necessary corporate
action of the Warrant Holder and (ii) do not contravene the terms of the
Certificate of Incorporation or By-laws of the Warrant Holder, each as amended
as of and through the Issue Date.
(c) Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption or authorization of any governmental authority or
agency, or of any other person or entity, is necessary or required in connection
with the execution, delivery or performance by, or enforcement against, the
Warrant Holder of this Warrant Agreement or the transactions contemplated
hereby.
(d) Binding Effect. This Warrant Agreement has been duly executed
and delivered by the Warrant Holder and constitutes the valid and binding
obligations of the Warrant Holder, enforceable
-6-
<PAGE>
against it in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
(e) Purchase for Own Account. The Warrants issued to the Warrant
Holder pursuant to this Warrant Agreement, and the Shares to be issued upon
vesting and exercise thereof, are being or will be acquired for the Warrant
Holder's own account and with no intention of distributing or reselling such
securities or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state.
(f) Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants, will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act and that reliance of the Company on such
exemption is predicated in part on such Warrant Holder's representations set
forth herein. The Warrant Holder represents that it is experienced in evaluating
companies such as the Company, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment and has the ability to suffer the total loss of the investment. The
Warrant Holder further represents that it has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Warrants, the business of the Company, and to obtain
additional information to such Warrant Holder's satisfaction.
(g) Accredited Investor. The Warrant Holder is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the Securities
Act, as presently in effect.
12. Compliance with Securities Act; Transferability of Warrant or Shares
of Common Stock.
(a) Compliance with Securities Act. The Warrant Holder, by
acceptance hereof, agrees that the Warrants, and the shares of Common Stock to
be issued upon exercise of the Warrants, are being acquired for investment and
that such Warrant Holder will not offer, sell or otherwise dispose of the
Warrants, or any shares of Common Stock to be issued upon exercise of the
Warrants except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any applicable
state securities laws. The Warrants and all shares of Common Stock issued upon
exercise of the Warrants (unless registered under) the Securities Act and any
applicable state securities laws) shall be stamped or imprinted with a legend in
substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION."
-7-
<PAGE>
(b) Exchange, Transfer, Assignment. The Warrants cannot be exchanged,
transferred or assigned otherwise than in accordance with applicable law. Upon
compliance with applicable law and surrender of the Warrants to the Company with
the Assignment Form annexed hereto as Exhibit B duly executed, and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant Agreement in the name of the heir, devisee or assignee
named in such instrument of assignment and this Warrant Agreement shall promptly
be canceled. Subject to the terms hereof, the Warrants may be assigned in whole
or in part.
13. Restricted Securities. The Warrant Holder understands that the
Warrants and the Shares issuable upon vesting and exercise of the Warrants, will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act based on the representations of the warrant
Holder set forth herein. The Warrant Holder represents that it is experienced in
evaluating companies such as the Company, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to suffer the total loss of the
investment. The Warrant Holder further represents that it has had the
opportunity to ask questions of and receive answers from the Company concerning
the terms and conditions of the Warrants, the business of the Company, and to
obtain additional information to such Warrant Holder's satisfaction. The Warrant
Holder is an "Accredited Investor" within the meaning of Rule 501 of Regulation
D under the Securities Act, as presently in effect.
14. Registration Rights. Upon the parties' execution of this Warrant
Agreement and the Acknowledgment and Agreement to the Amended and Restated
Registration Rights Agreement attached hereto as Exhibit C, Warrant Holder shall
be made a party to that certain Amended and Restated Registration Rights
Agreement, dated as of December 8, 1998, by and among the Company, the
stockholders of the Company named therein and such other stockholders and
warrant holders of the Company made a party thereto. In addition, within 30 days
of the execution of this Warrant Agreement, the Company agrees to enter into an
agreement with Warrant Holder, in form and substance reasonably satisfactory to
Warrant Holder, which shall grant Warrant Holder the right to transfer its
registration rights pursuant to such Amended and Restated Registration Rights
Agreement dated as of December 8, 1998 to any assignee or assignees of all or
any part of this Warrant or the Shares issuable upon exercise hereof, which
assignees, upon their execution and delivery of an Acknowledgment and Agreement
to the Amended and Restated Registration Rights Agreement substantially in the
form of Exhibit C hereto (with appropriate changes therein) shall each have all
the rights and obligations of a Demand Stockholder (as defined in such
Agreement) under such Agreement; provided that no registration statement with
respect to less than a minimum of 250,000 Shares shall be required to be
effected by the Company thereunder for the benefit of any such assignee.
15. Miscellaneous.
(a) No Consequential Damages. No party hereto shall be entitled to
consequential damages as a result of any breach of a covenant, representation or
warranty contained herein.
(b) Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Company, to:
priceline.com Incorporated
Five High Ridge Park
Stamford, CT 06905
Telecopy: (203) 595-8345
Attention: Melissa M. Taub, Esq.
-8-
<PAGE>
and to:
Skadden, Arps, Slate, Meagher, & Flom, L.L.P.
One Rodney Square
Wilmington, DE 19801
Telecopy: (302) 651-3001
Attention: Patricia Moran Chuff, Esq.
(ii) if to the Warrant Holder, to:
America West Airlines, Inc.
4000 East Sky Harbor Boulevard
Phoenix, Arizona 85034
Attention: Mr. Douglas Parker
Title:
Phone: 602-693-5261
Fax:
and to:
America West Airlines, Inc.
4000 East Sky Harbor Boulevard
Phoenix, Arizona 85034
Telephone:
Telecopy: 602-693-5932
Attention: Linda M. Mitchell, Esq.
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) business days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
(d) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. No person, other than the parties
hereto and their successors and permitted assigns, is intended to be a
beneficiary of this Agreement.
(e) Amendment and Waiver.
(i) No failure or delay on the part of the Company, or the
Warrant Holder in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company and the Warrant Holder at law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or to any
provision of this Warrant Agreement, any waiver of any provision of this Warrant
Agreement, and any consent to any departure by the Company or the Warrant Holder
from the terms of any provision of this Agreement, shall be effective only if it
is made or given in writing and signed by the Company and the Warrant Holder.
-9-
<PAGE>
(f) Counterparts. This Warrant Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Warrant Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(i) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
(j) Entire Agreement. This Warrant Agreement, together with the
exhibits hereto is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Warrant Agreement, together with the exhibits hereto,
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Publicity. Except as may be required by law, none of the parties
hereto shall issue a publicity release or public announcement or otherwise make
any disclosure concerning this Warrant Agreement or the transactions
contemplated hereby, without prior approval by the other party (which approval
shall not be unreasonably withheld); provided, however, that nothing in this
Warrant Agreement shall restrict the Warrant Holder from disclosing information
(a) that is already publicly available and (b) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with the Warrant Holder's investment or participation in the
Company. If any announcement is required by law to be made by any party hereto
concerning this Warrant Agreement or the transactions contemplated hereby, prior
to making such announcement such party will deliver a draft of such announcement
to the other parties and shall give the other parties an opportunity to comment
thereon.
(l) Charges; Taxes and Expenses. Issuance of certificates for shares
upon the exercise of the Warrants shall be made without charge to the Warrant
Holder for any issue or transfer tax or other incidental expense in respect of
the issuance of such certificates, all of which taxes and expenses shall be paid
by the Company.
(m) Saturdays, Sundays, Holidays, Etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or a legal holiday.
(n) Lost Warrants. The Company covenants to the Warrant Holder that,
upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant Agreement and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation, upon
surrender and cancellation of this Warrant Agreement, the Company will make and
deliver a new Warrant Agreement of like tenor, in lieu of the lost, stolen,
destroyed or mutilated document.
-10-
<PAGE>
(o) Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any governmental authority or
any other person, and otherwise fulfilling, or causing the fulfillment of, the
various obligations made herein), as may be reasonably required or desirable to
carry out or to perform the provisions of this Warrant Agreement and to
consummate and make effective as promptly as possible the transactions
contemplated by this Warrant Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and delivered
by the authorized officers of each of the undersigned.
PRICELINE.COM INCORPORATED
By:__________________________________
Name:
Title:
AMERICA WEST AIRLINES, INC.
By:__________________________________
Name:
Title:
-12-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: priceline.com Incorporated
1. ___ The undersigned hereby elects to purchase __________ shares
of the Common Stock of priceline.com Incorporated pursuant to the terms of the
Participation Warrant Agreement, dated as of _________________, 1999, by and
between priceline.com Incorporated and the undersigned (the "Warrant
Agreement"), and tenders herewith payment of the purchase price of such shares
in full.
___ The undersigned hereby elects to convert ___________ percent
(____%) of the value of the Warrants pursuant to the provisions of Section 5(b)
of the Warrant Agreement.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned.
AMERICA WEST AIRLINES, INC.
By:________________________________
___________________________________
(Print Name of Signatory)
___________________________________
(Title of Signatory)
Date:_____________________
-13-
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
TO: priceline.com Incorporated
The undersigned hereby assigns and transfers unto _____________________________
of _________________________________________________________________
(Please typewrite or print in block letters)
the right to purchase ____________ shares of the common stock of priceline.com
Incorporated subject to the Participation Warrant Agreement, dated as of
________________, 1999, by and between priceline.com Incorporated and the
undersigned (the "Warrant Agreement").
This assignment complies with the provisions of Section 12(b) of the Warrant
Agreement and is accompanied by funds sufficient to pay all applicable transfer
taxes.
AMERICA WEST AIRLINES, INC.
By:________________________________
___________________________________
(Print Name of Signatory)
___________________________________
(Title of Signatory)
Date:_____________________
<PAGE>
Exhibit C
ACKNOWLEDGMENT AND AGREEMENT
TO THE AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
WHEREAS, pursuant to a Participation Warrant Agreement, the undersigned
received a warrant to purchase 500,000 shares of common stock, par value $.008
per share (the "Shares"), of priceline.com Incorporated, a Delaware corporation
(the "Company"); and
WHEREAS, the undersigned wishes to receive certain registration rights with
respect to such Shares; and
WHEREAS, the undersigned has reviewed a copy of that certain Amended and
Restated Registration Rights Agreement, dated as of December 8, 1998 (the
"Agreement"), among the Company, General Atlantic Partners 48, L.P., GAP
Coinvestment Partners, L.P., General Atlantic Partners 50, L.P. and the
stockholders named therein and has been given a copy of the Agreement and
afforded ample opportunity to read and to have counsel review it, and the
undersigned is thoroughly familiar with its terms.
NOW, THEREFORE, in consideration of the mutual premises contained herein
and in the Agreement and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned hereby
acknowledges and agrees that (i) the undersigned has been given a copy of the
Agreement and afforded ample opportunity to read and to have counsel review it,
and the undersigned is thoroughly familiar with its terms, (ii) the Shares are
subject to terms and conditions set forth in the Agreement, (iii) the
undersigned does hereby agree fully to be bound by the Agreement as a "Demand
Stockholder" (as therein defined), and upon the execution and delivery of this
Acknowledgment and Agreement by the Company, the undersigned shall have all the
rights and obligations under the Agreement as a Demand Stockholder, and (iv) the
undersigned does hereby name _________________to serve as their representative
under the Agreement.
This 17th day of November, 1999.
Acknowledged and agreed:
PRICELINE.COM INCORPORATED AMERICA WEST AIRLINES, INC.
By: _____________________________ By:_________________________
Name: Name:
Title: Title:
-2-
[**] = Confidential Treatment requested for redacted portion
Exhibit 10.26
CONTINUING EMPLOYMENT AGREEMENT
This Continuing Employment Agreement ("Agreement ") is made effective as
of December 16, 1999 between priceline.com, Incorporated, a Delaware corporation
having an office located at Five High Ridge Park, Stamford, Connecticut 06905
(the "Company"), Walker Digital Corporation, a Connecticut corporation, having
an office located at One High Ridge Park, Stamford, Connecticut 06905 ("Walker
Digital") (the Company and Walker Digital are sometimes referred to herein
collectively as the "Companies"), and Melissa M. Taub, residing at 90 Pumping
Station Road, Ridgefield, Connecticut 06877 (the "Employee").
In consideration of the covenants and promises set forth below, the
Companies and the Employee, intending to be bound legally, agree as follows:
1. Resignation of Officer Positions and Change of Duties.
(a) The Employee hereby resigns as an officer and director of the Companies and
each subsidiary of the Companies effective as of the date hereof. The Company
acknowledges that the Employee shall not be considered an officer of the Company
for purposes of the Securities Exchange Act of 1934, as amended, including
Section 16(b) thereof, after the date hereof.
(b) The Companies and the Employee have mutually agreed that the Employee's
employment relationship with the Company shall continue from the date hereof and
shall terminate as of December 16, 2000 (the "Termination Date").
(c) For the period commencing on December 17, 1999 and ending on the Termination
Date, the Employee shall continue to serve as a non-officer employee of the
Companies. During this period, the Employee's duties as an employee will be only
those which are mutually agreed between her and the Companies, with the
Companies' decision as to such duties to be determined solely by Paul Francis.
As a result, the Companies agree that notwithstanding any of the provisions of
the Employment Letter dated September 10, 1998 (the "Employment Letter"), the
Employee's employment with the Companies will not be terminated by the Companies
prior to the Termination Date.
2. Consideration. In exchange for a waiver and release, as set forth on Exhibit
A hereto, of any claims that the Employee has or may have against the Companies
and vice versa which the Employee and the Companies will deliver upon
<PAGE>
execution of this Agreement, and in lieu of any other benefits to which the
Employee is or may be entitled under the Company's employment and severance
policies or under the Employment Letter, the Companies and the Employee have
agreed that Employee shall continue employment with the Company on the terms and
conditions set forth herein. As additional consideration for her continued
employment with the Company hereunder, the Companies and the Employee hereby
agree to execute an identical waiver and release with respect to the Company as
of the Termination Date.
(a) Salary Continuation. The Employee shall be entitled to continuation of base
salary of $200,000 per year, payable in accordance with the Company's regular
payroll practices, through the Termination Date, subject to Section 2(i) hereof.
(b) Bonus. The Employee shall be entitled to receive a bonus for fiscal year
1999, in the amount of $22,700, which bonus shall be paid by the Company no
later than December 31, 1999.
(c) Stock Options. The Employee currently holds unexercised options ("Employee
Options") to purchase an aggregate of 200,000 shares of Common Stock of the
Company ("Underlying Common Stock") granted pursuant to the priceline.com LLC
1997 Omnibus Plan ("1997 Omnibus Plan"), and in accordance with the
priceline.com LLC Non-Qualified Option Agreement Pursuant to the 1997 Omnibus
Plan, dated as of July 18, 1998 ("Option Agreement"). Notwithstanding anything
else to the contrary including the provisions of the 1997 Omnibus Plan or the
Option Agreement:
(i) 116,667 of the Employee Options are fully vested as of the date of
this Agreement Date (the "Current Vested Options");
(ii) 83,333 of the Employee Options will fully vest on June 1, 2000
without any risk of forfeiture (the "Future Vested Options").
Vesting of the Future Vested Options will occur simply with the
passage of time and the Future Vested Options will be fully vested
on June 1, 2000.
(iii) the Employee shall be entitled to exercise the Current Vested
Options, in whole or in part and from time to time, during the
period commencing with the date hereof and ending 90 days after the
Termination Date;
<PAGE>
(iv) the Employee shall be entitled to exercise the Future Vested
Options, in whole or in part and from time to time, during the
period commencing on June 1, 2000 and ending 90 days after the
Termination Date;
(v) the Executive's execution and compliance with the terms of this
Agreement shall be deemed to constitute compliance with the
provisions of paragraphs 6(b), (c) and (d) of the Option Agreement
and any similar provisions of the 1997 Omnibus Plan;
(vi) subject to the limitations set forth in the letter between the
Employee and the Company dated July 18, 1999 (the "Lock-Up Letter")
and any policy of the Company in effect during the term of this
Agreement with respect to the sale by its employees of its Common
Stock, the Employee shall be entitled upon exercise of the Employee
Options to sell the Underlying Common Stock to the public pursuant
to the S-8 Registration Statement (Registration No. 333-83233) ("S-8
Registration Statement"), or another such Registration Statement
covering option shares which supercedes the S-8 Registration
Statement;
(vii) the Company agrees that Employee shall not be required to enter into
a new lock-up agreement after the expiration of the Lock-Up Letter;
(viii) the Company agrees that it will keep the S-8 Registration Statement
effective for the benefit of the Employee for the same period of
time as the same is kept effective for the benefit of any other
employee of the Company;
(ix) the Company agrees that it shall withhold from the number of shares
otherwise to be delivered upon exercise of the Employee Options a
number of shares of Underlying Common Stock having a fair market
value equal to or less than the Company's aggregate withholding tax
obligation with respect to exercise of the Employee Options;
(x) the Company agrees it will permit a cashless exercise of the
Employee Options, which means that assuming a simultaneous exercise
of the Employee Options and sale of some or all of the Underlying
Common Stock, Employee may deliver to the Company out of the sale
proceeds a sum equal to the exercise price and withholding tax
obligation for all Employee Options exercised.
<PAGE>
Except as modified by this Agreement, the Employee shall be entitled to all the
other rights and benefits relating to the Employee Options which are set forth
in the 1997 Omnibus Plan and the Option Agreement.
(d) Walker Digital Options. The Employee shall be granted as of the date hereof
non-qualified stock options for 25,000 shares of Walker Digital common stock
pursuant to the Walker Digital 1999 Stock Option Plan (the "Walker Digital
Option Plan") at an exercise price per share of $1.00. Such options shall be
fully vested on grant and shall terminate on December 16, 2009 notwithstanding
anything else to the contrary in the Walker Digital Option Plan, and shall
otherwise have such terms and conditions as are set forth in the Walker Digital
Option Plan and any related stock option agreement.
(e) Medical and Dental Plans. The Employee shall be entitled to continuation of
group health benefits (medical and dental) as well as life and disability
insurance pursuant to the Company's standard programs as in effect from time to
time, in accordance with the terms of such plans as applicable to employees
generally, until the Termination Date. Thereafter, the Employee shall be
entitled to continuation of such benefits under the Company's standard programs
as in effect from time to time (or continuation of substantially similar
benefits, through a third party carrier, at the Company's election) for a period
of up to 18 months (or in the case of health benefits, such longer period as may
be required by COBRA), provided that the Employee makes any necessary conversion
and pays the full cost of the premium.
(f) Other Benefits. The Employee shall be entitled to continued participation in
all other employee and Employee benefits plans of the Company (other than the
right to participate in the Company's stock and option plans, except as
otherwise set forth in this Agreement) until the earlier of (i) the Termination
Date and (ii) such date that Employee accepts alternative employment with any
employer other than the Company or Walker Digital providing similar benefits.
Such benefits include without limitation the right to participate in the
Company's 401(k) plan, and workers' compensation and unemployment programs.
(g) Company Equipment. Notwithstanding the terms of the Confidentiality
Agreement referenced in Section 3 below, the Employee may keep her
Company-issued home computer, fax printer and cellular telephone (with continued
telephone service after the Termination Date at the Employee's cost). The
Employee will return any other Company equipment to the Company on or before the
Termination Date.
<PAGE>
(h) Continued Indemnification and Insurance. As a former officer and employee of
the Companies, Employee shall continue to be entitled to the benefit of the
indemnification provisions contained in the Certificates of Incorporation and
By-Laws of the Companies with respect to any acts or omissions that occurred
during her tenure as an officer and employee. In addition, the Employee shall
continue to be entitled to the benefit of coverage under all director and
officer and professional risk/liability (legal malpractice) insurance policies,
maintained by the Company with respect to any acts or omissions that occurred
during her tenure as an officer and employee. At a minimum, the Company agrees
to keep and maintain such policies in full force and effect (and on terms no
less favorable then the terms now in effect) until such time as the Employee has
no legal or other liability for any acts or omissions that occurred during her
tenure as an officer and employee.
(i) Potential Loss of Salary. Notwithstanding the salary continuation set forth
in paragraph 2(a) above, the Employee agrees that if the Employee performs
services for any entity other than any of the Companies or is self-employed
during the period from June 16, 2000 to December 16, 2000, any amounts received
by the Employee that are recognized as income to the Employee for such period
from such other entity or from self-employment (other than income resulting from
the exercise of stock options, the grant or vesting of other equity awards or
other similar events, including the sale of Underlying Common Stock) will offset
on a dollar-for-dollar basis the Company's obligation to continue to make salary
payments to the Employee pursuant to paragraph 2(a). The Employee is under no
obligation to mitigate or seek employment prior to the Termination Date.
(j) No Severance or Other Benefits. The Company and the Employee agree that the
Employee will be entitled to no severance or other benefits except as expressly
set forth herein.
3. Confidentiality Agreement. The Employee acknowledges that the Employee's
obligations to the Company set forth in the Employee's Confidentiality
Agreement, dated September 10, 1998, remain in full force and effect and are not
diminished in any way by this Agreement. Any time periods contained in such
agreement for post-termination obligations shall be deemed to commence as of the
Termination Date.
4. Non-Disclosure. The Company and the Employee agree not to disclose the
provisions of this Agreement to any person or entity, with the exception of
counsel, accounting and tax advisors, Employee's immediate family, or as
required by applicable law. However, since the fact of Employee's resignation as
an officer of the Company requires public disclosure and the filing of a form
8-K report
<PAGE>
with the Securities and Exchange Commission, the Company and the Employee agree
to cooperate in all such public disclosure and in the making of such 8-K filing,
with Employee to have approval authority over the content of such disclosure and
filing. In addition, the Employee shall have the right to approve communications
to personnel of the Companies and all other third parties concerning the
Employee's termination of employment with the Companies.
5. Mutual Non-Disparagement. The Employee and the Companies agree not to make
any statement, written or verbal, to any party reasonably likely to be harmful
to the other party or to be injurious to the goodwill, reputation or business
standing of the other party at any time in the future; provided, however, that
this non-disparagement clause shall not preclude any party or its agents or
representatives from any good faith response to any inquiries under oath or in
response to governmental inquiry.
6. Mutual Release of Claims with Respect to the Company. The Employee and the
Companies agree to deliver the Mutual Release of Claims and Waiver of Rights
document in the form attached hereto as Exhibit A both (i) on or prior to
December 16, 1999, to be effective as of such date and (ii) on or prior to the
Termination Date, to be effective as of such date.
7. Merger and Integration. Except as expressly set forth herein, all prior
understandings and agreements between the parties are merged into this
Agreement, which collectively with the Mutual Release of Claims and Waiver of
Rights, express the complete understanding and agreement between the parties.
8. Advice of Counsel. The Employee acknowledges and represents that the Employee
has had the opportunity to obtain the advice of counsel, and is entering into
this Agreement after carefully considering the legal ramifications thereof. The
Employee acknowledges and represents that the Employee is entering into these
agreements voluntarily, knowingly of the Employee's own free will, and without
undue influence or duress.
9. Headings. The section headings contained in this Agreement are for
convenience of reference only, are not intended to be a part of this Agreement
and shall not be construed to define, modify, alter or describe the scope or
intent of any of the terms, covenants or conditions of this Agreement.
10. Severability. If any term or provision of this Agreement or the application
thereof to any person, entity or circumstance shall to any extent be determined
by a court of competent jurisdiction to be invalid or unenforceable, the
<PAGE>
remainder of this Agreement, or the application of such terms or provision to
such person, entity or circumstance other than those that are held invalid or
unenforceable, shall not be affected thereby, and each other term and provision
shall be valid and enforced to the fullest extent permitted by law. The parties
authorize the court to reduce in scope or modify, if possible, all invalid or
unenforceable provisions, so that they become valid or enforceable.
11. Successors. This Agreement shall be binding upon, and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of Connecticut as they apply to contracts
entered into and wholly to be performed within such state by residents thereof.
13. Authorization.
(a) The Companies have full power and authority to execute and deliver this
Agreement and the Mutual Release of Claims and Waiver of Rights and to
consummate the transactions contemplated hereby. All actions required to be
taken by the Companies, including obtaining the approval by the Boards of
Directors and the Option Committees of the respective Companies, in order to
authorize the Companies to execute this Agreement and the Mutual Release of
Claims and Waiver of Rights and to perform their obligations hereunder and to
consummate the transactions contemplated hereby have been duly and properly
taken. When executed and delivered by the appropriate officers of the Companies
this Agreement and the Mutual Release of Claims and Waiver of Rights shall
constitute the legal and binding obligations of the Companies enforceable in
accordance with its terms.
(b) This Agreement and the Mutual Release of Claims and Waiver of Rights do not
violate any provision of the Certificate of Incorporation or By-laws or the
Operating Agreement of the Companies, nor does it violate any material provision
of, or result in any material default or acceleration of any material
obligations under, result in the creation or imposition of any material lien
pursuant to, or require any consent under any material agreement to which the
Companies are a party or by which the Companies are bound.
(c) The Employee has full power and authority to execute and deliver this
Agreement and the Mutual Release of Claims and Waiver of Rights and to
consummate the transactions contemplated hereby. When executed and delivered by
the Employee, this Agreement and the Mutual Release of Claims and Waiver of
<PAGE>
Rights shall constitute the legal and binding obligations of the Employee
enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the 16th
day of December, 1999.
The Companies
priceline.com, Incorporated
(THE COMPANY)
By:
__________________________________
its ______________________________
Walker Digital Corporation
(WALKER DIGITAL)
By:
__________________________________
its ______________________________
The Employee
__________________________________
DATE SIGNED: _______________
State of Connecticut
ss.
County of
Personally appeared ______________________, the signer and sealer of the
foregoing Agreement, who acknowledged the same to be his free act and deed
before me.
<PAGE>
Notary Public
My Commission Expires:
<PAGE>
Exhibit A
MUTUAL RELEASE OF CLAIMS AND WAIVER OF RIGHTS
1. Mutual Release of Claims. (a) Melissa M. Taub (the "Employee"), on behalf of
the Employee and the Employee's heirs, executors, administrators,
representatives, successors and assigns (such other persons being collectively
referred to for the purposes of this document as the "Employee Persons"), in
consideration of the terms and conditions set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, hereby remises, releases and forever discharges priceline.com,
Incorporated (the "Company") and Walker Digital Corporation ("Walker Digital")
(the Company and Walker Digital are sometimes referred to herein collectively as
the "Companies") and their respective parents, subsidiaries, affiliated
corporations, successors and assigns and their respective officers, directors,
shareholders, employees and agents (such other persons being collectively
referred to for the purposes of this document as the "the Company Persons"), and
(b) the Companies, on behalf of themselves and the Company Persons, in
consideration of the terms and conditions set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, hereby remise, release and forever discharge the Employee and the
Employee Persons, in each case, from any and all claims, damages, actions,
causes of action, losses, liabilities, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, judgments, extents,
executions, costs and expenses of any nature whatsoever, except for the
obligations set forth in the Continuing Employment Agreement dated as of
December 16, 1999 between the Employee and the Companies ("Continuing Employment
Agreement"), but including, without limitation, court costs and attorneys' fees,
whether or not now known, claimed or suspected, fixed or contingent, in law or
in equity (hereinafter collectively referred to as "Claims") which the
respective releasing party (in each case, the "Releasor") now has, has ever had,
has ever claimed to have had or may have against the respective released party
(in each case, the "Releasee") from the beginning of the world to the date of
the execution of this Mutual Release of Claims, including without limitation:
any and all Claims for violation of the common law, including, but not limited
to, wrongful discharge of employment, breach of contract -- express or implied,
negligent or intentional infliction of emotional distress, negligent or
intentional misrepresentations, negligence, slander, defamation or
self-defamation; any and all Claims that Employee may have to acquire any
securities of the Company; any and all Claims for violation of any federal,
state, local or municipal rule, regulation or statute, including, but not
limited to, the Age Discrimination in Employment Act of
<PAGE>
1967, 29 U.S.C.ss.621 et seq. (the "ADEA"), Title VII of the Civil Rights Act of
1964, 42 U.S.C.ss.2000 et seq., the Americans with Disabilities Act of 1990, 42
U.S.C.ss.12101, et seq., the Family and Medical Leave Act of 1993, 29 U.S.C.ss.
2601, et seq., the Equal Pay Act of 1963, the Fair Labor Standards Act of 1938,
29 U.S.C. ss.201, the Civil Rights Act of 1991, the Employee Retirement Income
Security Act of 1974, 29 U.S.C.ss.201 et seq., the Connecticut Fair Employment
Practices Act, Conn. Gen Stat. 46a-60 et seq., and the Connecticut Wage and Hour
Law, Conn. Gen. Stat. 31-70 et seq., each as amended; any and all Claims for
violation of any public policy having any bearing whatsoever on the terms or
conditions of the Employee's employment or cessation of employment with the
Companies; any and all Claims arising directly or indirectly out of the
Employee's employment by the Companies; and any and all Claims for attorneys'
fees and costs. Each Releasor further agrees that she or it will not seek or be
entitled to any personal recovery in any Claim whatsoever against any Releasee
for any of the matters set forth in this paragraph.
Except with respect to the specific obligations of the parties specified
in the Continuing Employment Agreement, all prior understandings and agreements
between the parties are merged into this Agreement, which constitutes the
complete understanding and agreement between the parties.
Each Releasor acknowledges that certain states provide that a general
release of claims does not extend to claims which the Releasor does not know or
suspect to exist in the Releasor's favor at the time of executing the release
which, if known by the Releasor may have materially affected the Releasor's
entering into the release of claims. Being aware that such statutory protection
may be available to the Releasor, each Releasor expressly, voluntarily and
knowingly waives any arguable benefit or protection of any such statute in
executing this Mutual Release of Claims, known or unknown.
Each Releasor further acknowledges that the Releasor's signature below
signifies that the Releasor is entering into this Mutual Release of Claims
freely, knowingly and voluntarily with a full understanding of its terms.
This Release may not be changed orally.
2. Waiver of Rights. The Employee understands that there are various state,
federal and local laws that prohibit employment discrimination on the basis of,
among other things, age, sex, race, national origin, religion and disability and
that these laws are enforced by various government agencies. The Employee
intends to waive and hereby does waive any right that the Employee may have to
seek or be entitled to any personal recovery against the Companies under the Age
Discrimination in Employment Act of 1967 as amended (the "ADEA"), and under
<PAGE>
any other laws regarding employment discrimination with respect to her
employment with the Companies. The Employee acknowledges and understands that
the release of claims under the ADEA is subject to special waiver protections
under 29 U.S.C. 626(f). In accordance with that section, the Employee
specifically agrees that the Employee is knowingly and voluntarily releasing and
waiving any rights or claims of discrimination under the ADEA. The Employee
specifically acknowledges that the waiver of rights contained herein and the
Mutual Release of Claims fully comply with 29 U.S.C. ss. 626(f) in that:
(i) the waiver and Release of Claims are part of an Agreement between
the Employee and the Company and are fully understood by the
Employee;
(ii) the waiver and Release of Claims specifically refer to rights or
claims arising under the ADEA;
(iii) this waiver and the Release of Claims do not apply to any rights
arising after the date of execution of this Agreement;
(iv) the Employee is waiving rights or claims for age discrimination
under the ADEA in exchange for the consideration described in the
Continuing Employment Agreement, which provides additional value
relative to anything of value to which the Employee already is
entitled;
(v) the Employee has been advised in writing to consult with an attorney
prior to executing this Agreement and has in fact consulted with an
attorney of her choice;
(vi) the parties agree that the Employee has had at least twenty-one (21)
days within which to consider this Agreement;
(vii) this Agreement provides the Employee with a period of 7 days
following the execution of this Agreement to revoke the Agreement;
and
(viii) this Agreement will not become effective until the revocation
period set forth in the preceding clause (vii) shall have expired.
3. Rescission Period; Effective Date.
THIS AGREEMENT SHALL NOT BECOME EFFECTIVE AND ENFORCEABLE UNTIL THE EIGHTH DAY
AFTER THE DATE THIS AGREEMENT IS
<PAGE>
EXECUTED BY THE EMPLOYEE. THE PARTIES UNDERSTAND AND AGREE THAT THE EMPLOYEE MAY
REVOKE THIS AGREEMENT AFTER HAVING EXECUTED IT BY SO ADVISING THE COMPANIES IN
WRITING, PROVIDED SUCH WRITING IS RECEIVED BY THE COMPANIES BY 11:59 P.M. ON THE
SEVENTH DAY AFTER THE DATE OF EXECUTION OF THIS AGREEMENT. SUCH NOTICE OF
REVOCATION MUST BE DELIVERED TO THE ATTENTION OF _____________________ AT
_____________________.
IF THE EMPLOYEE DOES NOT ELECT TO REVOKE THIS AGREEMENT WITHIN THE SEVEN DAY
REVOCATION PERIOD REFERRED TO IN THE PRECEDING PARAGRAPH, THIS RELEASE OF CLAIMS
SHALL BECOME EFFECTIVE AND ENFORCEABLE AT 12:00 A.M. ON THE EIGHTH DAY AFTER THE
DATE THAT THE EMPLOYEE EXECUTES THIS AGREEMENT (SUCH DATE OF EFFECTIVENESS BEING
REFERRED TO AS THE "EFFECTIVE DATE").
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Mutual Release
of Claims and Waiver of Rights as of the 16th day of December, 1999.
The Companies
priceline.com, Incorporated
(THE COMPANY)
By:
__________________________________
its ______________________________
Walker Digital Corporation
(WALKER DIGITAL)
By:
__________________________________
its ______________________________
The Employee
__________________________________
DATE SIGNED: _______________
State of Connecticut
ss.
County of
Personally appeared ____________, the signer and sealer of the foregoing
Agreement, who acknowledged the same to be his free act and deed before me.
Notary Public
My Commission Expires:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Mutual Release
of Claims and Waiver of Rights as of the 16th day of December, 1999.
The Companies
priceline.com, Incorporated
(THE COMPANY)
By:
__________________________________
its ______________________________
Walker Digital Corporation
(WALKER DIGITAL)
By:
__________________________________
its ______________________________
The Employee
__________________________________
DATE SIGNED: _______________
State of Connecticut
ss.
County of
Personally appeared ____________, the signer and sealer of the foregoing
Agreement, who acknowledged the same to be his free act and deed before me.
Notary Public
My Commission Expires:
6
Exhibit 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Period From
July 18, 1997
(Inception) to
December 31, Year Ended December 31,
1997 1998 1999
---------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net loss $ (2,513) $ (112,243) $(1,055,090)
Plus fixed charges -
Interest expense 1 85 84
----------- ----------- -----------
Adjusted earnings (loss) (2,512) (112,158) (1,055,006)
Fixed charges 1 85 84
----------- ----------- -----------
Deficiency of earnings
available to cover fixed charges $ (2,513) $ (112,243) $(1,055,090)
=========== =========== ===========
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-83233 on Form S-8 of our report dated January 27, 2000 (March 17, 2000 as to
Note 15) incorporated by reference in the Annual Report on Form 10-K of
priceline.com, Incorporated for the year ended December 31, 1999.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PRICELINE.COM INCORPORATED FOR THE YEAR ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 133,172
<SECURITIES> 38,771
<RECEIVABLES> 23,250
<ALLOWANCES> (1,960)
<INVENTORY> 0
<CURRENT-ASSETS> 211,739
<PP&E> 35,415
<DEPRECIATION> (7,409)
<TOTAL-ASSETS> 411,886
<CURRENT-LIABILITIES> 39,250
<BONDS> 0
0
0
<COMMON> 1,311
<OTHER-SE> 401,325
<TOTAL-LIABILITY-AND-EQUITY> 441,886
<SALES> 482,410
<TOTAL-REVENUES> 482,410
<CGS> 424,579
<TOTAL-COSTS> 424,579
<OTHER-EXPENSES> 1,120,041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,055,090)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,055,090)
<EPS-BASIC> (7.90)
<EPS-DILUTED> (7.90)
</TABLE>
