-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C5l00/SC9ozRgFF5HZATs2vJpQ5wG84K1pUBs10LIVlg5wyASRkgE9vxkOMV5JXH MD2ZUBCaM/DiqCsk9f7LLw== /in/edgar/work/20000814/0000950172-00-001459/0000950172-00-001459.txt : 20000921 0000950172-00-001459.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950172-00-001459 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICELINE COM INC CENTRAL INDEX KEY: 0001075531 STANDARD INDUSTRIAL CLASSIFICATION: [7373 ] IRS NUMBER: 061528493 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25581 FILM NUMBER: 700266 BUSINESS ADDRESS: STREET 1: 800 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06854 BUSINESS PHONE: 2037053000 10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission File Number 0-25581 priceline.com INCORPORATED - --------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 06-1528493 ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 800 Connecticut Avenue Norwalk, Connecticut 06854 ------------------------------------------------------------------- (Address of principal executive offices) (203) 299-8000 ------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A ------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed, since last report.) 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 . --- --- Number of shares of Common Stock outstanding at August 10, 2000: Common Stock, par value $0.008 per share 166,633,201 - ---------------------------------------------- ------------------- (Class) (Number of Shares) priceline.com Incorporated Form 10-Q For the Quarter Ended June 30, 2000 PART I - UNAUDITED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets at June 30, 2000 and December 31, 1999............................................3 Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2000 and 1999...........................4 Consolidated Statement of Changes in Stockholders' Equity For the Six Months Ended June 30, 2000...............................5 Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2000 and 1999.........................................6 Notes to Unaudited Consolidated Financial Statements... ......................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................10 Item 3. Quantitative and Qualitative Disclosures About Market Risk..........29 PART II - OTHER INFORMATION Item 1. Legal Proceedings....................................................29 Item 2. Changes in Securities and Use of Proceeds............................29 Item 6. Exhibits and Reports on Form 8-k.....................................30 SIGNATURES...................................................................31 Part I - UNAUDITED FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS priceline.com Incorporated CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 2000 1999 ---- ---- ASSETS (unaudited) Current assets: Cash and cash equivalents.......................... $95,434 $133,172 Short-term investments............................. 43,273 38,771 Accounts receivable, net of allowance for doubtful accounts of $3,761 and $1,961... 38,993 21,289 Related party receivable........................... 3,771 508 Prepaid expenses and other current assets.......... 27,182 17,999 ------ ------ Total current assets............................... 208,653 211,739 Property and equipment, net........................ 41,592 28,006 Related party receivable........................... 15,789 8,838 Warrants to purchase common stock of licensees..... 192,250 189,000 Other assets....................................... 34,554 4,303 ------ ----- Total assets....................................... $492,838 $441,886 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................... $73,292 $24,302 Preferred stock dividends payable.................. 7,191 Accrued expenses................................... 15,998 13,695 Other current liabilities.......................... 4,454 1,253 ----- ----- Total current liabilities.......................... 100,935 39,250 ------- ------ Mandatorily redeemable convertible preferred stock, $0.01 par value, authorized 6,000 shares; issued 6,000 and 0 shares, respectively.. 359,580 ------- ------ Stockholders' equity: Common stock, $0.008 par value, authorized 1,000,000 shares; issued 172,549 and 163,867 shares, respectively............................. 1,380 1,311 Treasury stock, at cost, 6,000 and 0 shares, respectively....................................... (359,580) Additional paid-in capital......................... 1,593,961 1,581,708 Accumulated other comprehensive income............. 2,224 Accumulated deficit................................(1,205,662) (1,180,383) ----------- ----------- Total stockholders' equity......................... 32,323 402,636 ------ ------- Total liabilities and stockholders' equity......... $492,838 $441,886 ======== ======== See notes to consolidated financial statements.
priceline.com Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share data) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues.................................... $ 352,095 $ 111,564 $ 665,893 $ 160,975 Cost of revenues: Product costs............................... 296,919 100,664 561,690 144,323 Supplier warrant costs...................... 381 381 762 762 --------- -------- ------- -------- Total cost of revenues.................... 297,300 101,045 145,085 562,452 Gross profit................................ 54,795 10,519 103,441 15,890 --------- -------- ------- -------- Operating expenses: Sales and marketing........................ 37,617 17,733 78,066 34,871 General and administrative................. 15,222 5,503 27,926 9,170 Payroll expense on employee stock options.................................... 2,507 8,414 Systems and business development............ 6,695 3,469 12,563 5,653 ----- ----- ------ ----- Total operating expenses................... 62,041 26,705 126,969 49,694 ------ ------ ------- ------ Operating loss.............................. (7,246) (16,186) (23,528) (33,804) Interest income, net........................ 2,725 1,929 5,440 2,387 ----- ----- ----- ----- Net loss.................................... (4,521) (14,257) (18,088) (31,417) Preferred stock dividend.................... (7,191) (7,191) Accretion on preferred stock............... (8,354) ----- ----- ----- ----- Net loss applicable to common stockholders.... $ (11,712) $(14,257) $ (25,279) $(39,771) ========== =========== ========== ========= Net loss applicable to common stockholders per basic and diluted common share........... $ (0.07) $ (0.10) $ (0.15) $ (0.29) ========== ========== ========= ========= Weighted average number of basic and diluted common shares outstanding.................... 165,399 142,320 166,051 137,436 ========== ========== ========= ========= See notes to consolidated financial statements.
priceline.com Incorporated CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AS OF JUNE 30, 2000 (unaudited) (In thousands) ADDITIONAL OTHER PAID-IN ACCUMULATED COMPREHENSIVE TREASURY STOCK COMMON STOCK CAPITAL DEFICIT INCOME TOTAL -------------- -------------- ------- ------- ------ ----- SHARES AMOUNT SHARES AMOUNT ------ ------- ------ ------- Balance, January 1, 2000.... 163,867 $1,311 $1,581,708 $(1,180,383) $402,636 Purchase of treasury shares..................... 6,000 $(359,580) (359,580) Exercise of warrants and options to purchase common stock.............. 8,682 69 12,253 12,322 Comprehensive loss........ Net loss applicable to common stockholders........ (25,279) (25,279) Unrealized gain on investments............... $2,224 2,224 ------ ------ ----- Total comprehensive loss.................... $(25,279) $2,224 (23,055) ------ ------- ------ ------- ------- --------- ------- -------- Balance, June 30, 2000...... 6,000 $(359,580) 172,549 $1,380 $1,593,961 $(1,205,662) $2,224 $32,323 ===== ========== ======= ====== ========== ============ ====== =======
See notes to consolidated financial statements.
priceline.com Incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands) SIX MONTHS ENDED JUNE 30, 2000 1999 ---- ---- OPERATING ACTIVITIES: Net loss.......................................................... $(18,088) $(31,417) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization..................................... 6,249 1,912 Provision for uncollectible accounts.............................. 1,800 1,401 Warrant costs..................................................... 762 762 Changes in assets and liabilities: Accounts receivable........................................... (19,504) (19,909) Related party receivables.................................... (10,214) (5,790) Prepaid expenses and other current assets..................... (9,945) (3,382) Accounts payable and accrued expenses......................... 51,293 23,703 Other ....................................................... 1,652 (1,030) ----- ------- Net cash provided by (used in) operating activities............. 4,005 (33,750) ----- -------- INVESTING ACTIVITIES: Additions to property and equipment............................ (19,843) (11,285) Purchase of convertible notes and warrants of licensees......................................................... (24,706) Purchase of equity investments................................ (5,000) Purchase of short term investments............................ (4,502) (9,308) -------- ------- Net cash used in investing activities.......................... (54,051) (20,593) -------- -------- FINANCING ACTIVITIES: Payment of long-term debt and capital lease obligations.... (14) (1,012) Issuance of common stock........................................ 12,322 144,565 ------ ------- Net cash provided by financing activities............. 12,308 143,553 ------ ------- Net (decrease) increase in cash and cash equivalents.............. (37,738) 89,210 Cash and cash equivalents, beginning of period.................... 133,172 53,593 ------- ------ Cash and cash equivalents, end of period.......................... $95,434 $142,803 ======= ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for interest........................ $1 $50 ======= =========
See notes to consolidated financial statements. priceline.com Incorporated Notes to Unaudited Consolidated Financial Statements 1. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included in the accompanying unaudited financial statements. Operating results for the three months and six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2000. For a summary of significant accounting policies see the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 2. 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. 3. NEW ACCOUNTING POLICY In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. In June 2000, the SEC issued SAB No. 101B to defer for three quarters the effective date of implementation of SAB No. 101 with earlier application encouraged. The Company is required to adopt SAB 101 in the fourth quarter of 2000. In July 2000, the Emerging Issues Task Force reached a consensus with respect to EITF 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent" ("EITF 99-19"). The Task Force addressed whether a company should report revenue based on the gross amount billed to a customer because it has earned revenue from the sale of the goods or services or the net amount retained (that is, the amount billed to the customer less the amount paid to a supplier) because it has earned a commission or fee. The accounting principles in EITF 99-19 are consistent with the requirements of SAB 101. The Company does not expect the adoption of SAB 101 or EITF 99-19 to have a material effect on its financial position, results of operations or presentation of its operating results. 4. OTHER ASSETS Other assets consist of the following as of June 30, 2000: Equity investments in publicly traded companies $ 9,224 Convertible notes of licensees 21,456 Other 3,874 -------- Total $34,554 ======= The Company has entered into several transactions with internet businesses. The equity investments in two of these businesses, Lastminute.com plc. and LendingTree.com, Inc., the stock of each of which is publicly traded, are recorded at the closing market price of the shares as of the balance sheet date. The cumulative unrealized gain of $2.2 million on these investments is included in accumulated other comprehensive income. The convertible notes of $11.1 million, $6.7 million and $3.6 million, issued by Hutchison-Priceline Limited, MyPrice Pty. Ltd. and Alliance Capital Partners, respectively, are recorded at cost. The warrants to purchase shares of Priceline WebHouse Club, Inc. and priceline.com europe Ltd. are carried at cost, $189 million and $3.2 million, respectively, which the Company believes is less than fair value at June 30, 2000. Neither the warrants nor the underlying shares are publicly traded. 5. COMPREHENSIVE INCOME Following are components of the Company's comprehensive income: THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2000 JUNE 30, 2000 ------------- -------------- Net loss applicable to common stockholders $(11,712) $(25,279) Other comprehensive income: Unrealized gain (loss) on investments (3,745) 2,224 ----------- ----- Total comprehensive loss $(15,457) $(23,055) ========= ========= 6. PREFERRED STOCK In February 2000, the Board of Directors authorized an amendment to the Company's certificate of incorporation to allow the Company to issue a new series of preferred stock designated as Series A Convertible Redeemable PIK Preferred Stock. The total number of Series A Preferred shares which the Company is authorized to issue is six million shares, par value $.01 per share. The Series A Preferred Stock has special voting powers and preferences. Specifically, the Series A Preferred Stock has a liquidation preference of $59.93 per share plus an amount equal to any dividends accrued or cumulated but not paid. The Series A Preferred Stock accrues dividends payable in shares of the Company's common stock at a rate of 8% per annum commencing April 1, 2000. Dividends on the Series A Preferred Stock are payable semi-annually on October 1st and April 1st of each year starting October 1, 2000. Subject to certain limitations, payment of the first six semi-annual dividend payments is assured. The Series A Preferred Stock may be redeemed at the option of the Company in whole or in part at any time after April 1, 2003 at $59.93 per share in cash, plus accrued but unpaid dividends. The Series A Preferred Stock is subject to mandatory redemption on April 1, 2010. The Series A Preferred Stock is convertible at the option of the holder into shares of the Company's common stock on a one-for-one basis at any time prior to redemption, subject to certain anti-dilution adjustments. Holders of the Series A Preferred Stock vote together with holders of common stock on all matters and in certain limited circumstances are entitled to a separate class vote. Holders of Series A Preferred Stock are entitled to specified cash payments in the event of certain business combination transactions involving the Company. On June 30, 2000, the Company exchanged six million shares of the Company's common stock held by Delta Air Lines, Inc. for six million shares of the Series A Preferred Stock. The six million shares of common stock received by the Company from Delta are included in Treasury Stock on the Company's balance sheet. 7. COMMITMENTS AND CONTINGENCIES On January 6, 1999, we 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 our U.S. Patent 5,794,207. We are currently 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 us, among others. On February 22, 1999, Marketel filed an amended and supplemental complaint. On March 15, 1999, Marketel filed a second amended complaint. On May 9, 2000, Marketel filed a third amended complaint against us and Priceline Travel, Inc. The third amended complaint alleges causes of action for misappropriation of trade secrets, conversion, false advertising and for correction of inventorship of U.S. Patent 5,794,207. In its third 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 third 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, February 10 and March 31, 1999, we filed answers respectively, to the complaint, amended complaint and second amended complaint, in which we denied the material allegations of liability. On May 19, 2000, we filed a motion to dismiss the third amended complaint for failure to state a complaint upon which relief can be granted. We strongly dispute the material legal and factual allegations contained in Marketel's third amended complaint and believe that the amended complaint is without merit. In addition, on July 13, 2000, we filed a motion for summary judgment alleging that Marketel has not identified legally protectable trade secrets. On August 1, 2000, the Court ordered that Marketel's oppositions to our motions will be due after discovery, and that our motions will be heard on November 16, 2000. We intend 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 us harmless for damages, liabilities and legal expenses incurred in connection with the Marketel litigation. On October 13, 1999, we 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 our U.S. Patent 5,794,207 by operating the defendants' "Hotel Price Matcher" service, and that the defendants' conduct toward us 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 our motion to supplement the complaint to expressly include defendant's "Flight Price Matcher" service. On July 14, 2000, we 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., alleging that defendants infringe our U.S. Patent 6,085,169 by operating the "Hotel Price Matcher" and "Flight Price Matcher" services. In the lawsuit, we are seeking declaratory relief, permanent injunctive relief and actual and punitive damages. Walker Digital has agreed to reimburse us for a portion of the legal expenses incurred in connection with the Microsoft litigations. On June 6, 2000, Pannell-Christ Incorporated, an Indiana corporation, filed a lawsuit against us in the United States District Court for the District of Indiana under the caption Pannell-Christ Incorporated v. priceline.com Incorporated, IP 00-0810 CT/G. The complaint alleges federal and state common law service mark infringement based on Pannell-Christ's federal trademark registration for "Name Your Price!" for educational services and common law trademark rights. The complaint seeks injunctive relief and damages. On June 29, 2000, we filed an Answer and Counterclaim in which we denied the material allegations of liability in the complaint and counterclaimed for cancellation of Pannell-Christ's federal trademark registration. We strongly dispute the material legal and factual allegations contained in the complaint and believe the complaint is without merit. From time to time, we have been and expect 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 us. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources and could adversely affect our stock price. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW We have 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 PriceSM - 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 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. Our business model and brand are currently supporting several products and service offerings, including the following: o leisure airline tickets, provided by 10 domestic and 25 international airline participants; o hotel rooms, in substantially all major United States markets with more than 20 leading national hotel chains as participants; o rental cars, in substantially all major United States markets with five leading rental car chains as participants; o new automobiles, in substantially all major United States markets; o home financing services, in substantially all major United States markets, which includes home mortgage services, home equity loans and refinancing services; o long distance telephone service, provided by three carriers, in substantially all United States markets. Subsequent to the end of the second quarter, we announced the addition of a new product offering for travel insurance. In addition, we plan to offer Name Your Own PriceSM automobile insurance through our web site starting in early 2001. We also are currently planning an expansion of our core Name Your Own PriceSM business model to other areas of e-commerce, including Business to Business, cruises and vacation packages. We measure our "bind" rate as the percentage of unique offers that we ultimately fulfill. For the quarter ended June 30, 2000, our bind rate was 49.6%, 45.3% and 40.0% for all unique airline ticket, hotel room and rental car offers, respectively. For the quarter ended March 31, 2000, our bind rate was 44.0%, 47.0% and 41.6% for all unique airline ticket, hotel room and rental car offers, respectively. 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 our "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 the introduction of the checkstatus feature, each initial offer and any resubmitted offers are treated as a single offer - a unique 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. We have announced several transactions pursuant to which third parties license the priceline.com name and demand collection system to offer a particular product or service or to offer a number of products or services in a distinct international region. Pursuant to the licensee transactions, we generally receive a royalty under the license and may also receive fees for services and reimbursement of certain expenses. We also hold convertible securities or warrants entitling us to acquire a significant percentage of such licensee's equity securities upon the occurrence of certain events. Unless such securities or warrants are converted or exercised, the results of our licensees will not be included in our financial results. In June 2000, we entered into definitive agreements with subsidiaries of Hutchison Whampoa Limited to introduce our services to several Asian markets. Under the terms of the agreements, we will license our business model and provide our expertise in technology, marketing and operations to Hutchison-Priceline Limited. Hutchison-Priceline Limited will pay us an annual licensing fee to use our intellectual property. In addition, we have purchased a convertible note allowing us to take up to a 50% equity stake in Hutchison-Priceline Limited. In June 2000, we entered into definitive agreements with affiliates of General Atlantic Partners, LLC, to introduce our services to several European markets. Under the terms of the agreements, we will license our business model and provide our expertise in technology, marketing and operations to priceline.com europe Ltd., which will pay us an annual licensing fee to use our intellectual property. In addition, we purchased a warrant allowing us under certain conditions to take a majority equity stake in priceline Europe Holdings, N.V., the parent of priceline.com europe Ltd. Currently, priceline.com europe Ltd. plans to begin offering products and services starting in the fourth quarter 2000. In July 2000, we entered into a non-binding letter of intent with SoftBank E-Commerce Corp. to introduce our services in Japan. We intend to license our business model and provide our expertise in technology, marketing and operations to priceline.com Japan, an entity to be formed under the laws of Japan. priceline.com Japan will pay us an annual licensing fee to use our intellectual property. Under the terms of the proposed agreement, we will purchase a convertible security allowing us to take a significant equity position in priceline.com Japan under certain conditions. The transaction is subject to the negotiation and execution of definitive agreements and to certain other conditions. The actual launch date for airline ticketing services is subject to successful negotiation with airline companies as well as compliance with certain governmental regulations. We believe that our continued growth will depend in large part on our 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. We intend to continue to invest heavily in marketing and promotion, technology and personnel. Our goal is to reduce operating losses and improve gross margins in an effort to achieve profitability. Our limited operating history makes the prediction of future results of operations difficult, and accordingly, we cannot assure you that we will achieve or sustain revenue growth or profitability. Results of Operations Revenues Quarter Ended % Six Month Ended % June 30, Change June 30, Change -------- ------ -------- ------ ($000) ($000) 2000 1999 2000 1999 ---- ---- ---- ---- REVENUES...... $352,095 $111,564 216% $665,893 $160,975 314% Revenues for the three and six months ended June 30, 2000 consisted primarily of: (1) transaction revenues representing the selling price of airline tickets, hotel rooms, rental cars and long distance telephone service; and (2) fee based revenue. Fee based revenue was comprised primarily of: (a) Worldspan reservation booking fees and customer processing fees; (b) fee income from marketing programs offered in connection with our product offerings; (c) fees from our long distance telephone suppliers; and (d) fee income from our home financing and auto programs. Revenues for the three and six months ended June 30, 1999 consisted primarily of: (1) transaction revenues representing the selling price of airline tickets and hotel rooms; and (2) fee income from marketing programs offered in connection with our product offerings. Revenues increased during the three and six months ended June 30, 2000 primarily as a result of the substantial development of our unique customer base, to which we added 1.5 million and 3.0 million new customers during the three and six months ended June 30, 2000, respectively. In addition, we generated approximately 964,000 and 1.8 million repeat customer offers during the three and six months ended June 30, 2000, respectively. As of June 30, 2000, we had a base of approximately 6.8 million unique customers, compared to approximately 2.0 million unique customers at June 30, 1999. A unique customer is defined as someone who has made a guaranteed offer for at least one of our products. We believe our customer base grew during the three and six months ended June 30, 2000 as a result of our advertising campaign during the first half of 2000, and due to the availability of additional product inventory generated from adding three additional domestic air carriers during the fourth quarter of 1999 and two additional major rental cars companies during the second quarter of 2000. The growth in our customer base is also attributable to our continued expansion of our service into new vertical markets. During the three and six months ended June 30, 2000, we generated transactional revenues from our long distance telephone service, launched during the second quarter. In addition, we received fee income from our long distance telephone, auto and financial products introduced in the first quarter of 2000. These services were not offered during the same periods of 1999. Travel products, particularly airline tickets, continue to account for the majority of our revenue. Seasonal variations in our travel business, where the third and fourth calendar quarters are typically weaker than the first two quarters, have historically and are expected to continue to impact revenue growth from travel products. Fee revenues for the three and six months ended June 30, 2000 increased as a result of volume driven increases in Worldspan reservation booking fees and customer processing fees in the airline and hotel room and rental car services. The processing fees for the airline and hotel room services were introduced during the second quarter of 1999. Fee-based income represented 7.3% and 8.4% of total revenues for the quarters ended June 30, 2000 and 1999, respectively, and 7.8% and 10.0% for the six months ended June 30, 2000 and 1999, respectively. The decrease as a percentage of total revenues is due to the rapid expansion of transactional revenues throughout 1999 and the first half of 2000 and in the second quarter of 2000 due to a reduction in fee revenue from adaptive marketing programs. Cost of Revenues and Gross Profit Quarter Ended % Six Month Ended % June 30, Change June 30, Change -------- ------ -------- ------ ($000) ($000) 2000 1999 2000 1999 ---- ---- ---- ---- Total Cost of Revenues........ $297,300 101,045 194% $562,452 145,085 288% % of Revenues........ 84% 91% 84% 90% Gross Profit.... $54,795 $10,519 421% $103,441 $15,890 551% Gross Margin.... 15.6% 9.4% 15.5% 9.9% Cost of revenues consists of product costs and supplier warrant costs. For the three and six months ended June 30, 2000, product costs consisted 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; (3) the cost of rental cars from our suppliers; and (4) in the second quarter of 2000, the cost of long distance telephone service provided by our suppliers. During the three and six months ended June 30, 1999, our 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; and (2) the cost of hotel rooms from our suppliers, net of hotel tax. Our supplier warrant costs for the three and six month periods in both years were approximately $381,000, and $762,000, respectively, which represent a non-cash expense related to the issuance of common stock warrants to one of our airline program participants in January 1999. We will recognize additional supplier warrant costs in the amount of approximately $381,000 in each of the next two quarters. Gross profit consists of revenues less the cost of revenues. For the three and six months ended June 30, 2000, gross profit increased over the same periods in 1999 as a result of increased transactional sales volume, increased Worldspan reservation booking and customer service fee revenues, and increased fee-based revenues from our long distance telephone, auto and financial services products. In addition to increasing transactional volume, we also have increased the average margin on air tickets and hotel rooms as compared to the same periods of 1999. Because fee-based revenues do not involve separate costs, these revenues have had a disproportionately positive impact on total gross profit. Fee-based revenues represented approximately 46% and 83% of total gross profit for the three months ended June 30, 2000 and 1999, respectively, and 50% and 94% of total gross profit for the six months ended June 30, 2000. For the three and six months ended June 30, 2000, gross margin increased from the same period of 1999 as a result of increased average margin on air tickets and hotel rooms, increased Worldspan and customer fees, and as a result of the introduction and expansion of additional products for long distance telephone, financial services and autos during 2000. OPERATING EXPENSES Sales and Marketing Quarter Ended % Six Month Ended % June 30, Change June 30, Change -------- ------ -------- ------ ($000) ($000) 2000 1999 2000 1999 ---- ---- ---- ---- Advertising........$13,826 $ 8,980 54% $34,164 $20,776 64% Sales & Marketing.......... 23,791 8,753 172% 43,902 14,095 211% ------ ----- --- ------ ------ Total..............$37,617 $17,733 112% $78,066 $34,871 124% % Of Revenues........... 10.7% 15.9% 11.7% 21.7% Sales and marketing consists of advertising expenses and other sales and marketing expenses. Advertising expenses consist primarily of: (1) television and radio advertising; (2) agency fees and production costs for television and radio commercials; and (3) on-line and print advertisements. For the three and six months ended June 30, 2000, advertising expenses increased over the same period in 1999 primarily due to substantial expenses related to the television advertising campaign launched in January 2000. We intend to continue to pursue an advertising and branding campaign in order to continue to attract new users. Sales and marketing expenses consist primarily of: (1) credit card processing fees; (2) fees paid to third-party service providers that operate our call centers; (3) provisions for customer credit card charge-backs; and (4) compensation for our sales and marketing personnel. For the three and six months ended June 30, 2000, sales and marketing expenses increased over the same periods in 1999 due to increased costs to run our customer service call centers, increased credit card processing fees, and increased payroll and related expenses resulting from growing our employee base. The increases in sales and marketing expenses were driven by substantial increases in customer offers and revenue. General and Administrative Quarter Ended % Six Month Ended % June 30, Change June 30, Change -------- ------ -------- ------ ($000) ($000) 2000 1999 2000 1999 ---- ---- ---- ---- General & Administrative... $15,222 $5,503 177% $27,926 $9,170 205% Payroll Expense On Employee Stock Options.... 2,507 N/A 8,414 N/A ----- ------ ----- ------- Total............ $17,729 $5,503 222% $36,340 $9,170 296% % OF REVENUES... 5.0% 4.9% 5.5% 5.7% General and administrative expenses consist primarily of: (1) compensation for personnel; (2) fees for outside professionals; (3) telecommunications costs; and (4) occupancy expenses. General and administrative expenses increased during the three and six months ended June 30, 2000 over the same periods in 1999 as a result of increased headcount and resulting payroll and overhead costs associated with the expansion of our product offerings and increases in our revenue base. In addition, for the three and six months ended June 30, 2000, we incurred charges of $2.5 and $8.4 million, respectively, for payroll taxes relating to options exercised in accordance with our employee stock option plans. There was no related expense in the three or six months ending June 30, 1999. Pursuant to agreements we have entered into with our licensees and Walker Digital, during the second quarter, we were reimbursed $7.1 million by our licensees and Walker Digital for costs we incurred in connection with providing information technology and other services to them and for reimbursement by Walker Digital of certain legal expenses associated with patent litigations. Such reimbursement amounts totaled $3.8 million for the first quarter of 2000. General and administrative expenses in the first and second quarter also included the cost of providing such services. Systems and Business Development Quarter Ended % Six Month Ended % June 30, Change June 30, Change -------- ------ -------- ------ ($000) ($000) 2000 1999 2000 1999 ---- ---- ---- ---- Systems & Busines Development......... $6,695 $3,469 93% $12,563 $5,653 122% % of Revenues............ 1.9% 3.1% 1.9% 3.5% Systems and business development expenses for all periods consist primarily of: (1) payments to outside contractors, (2) depreciation and amortization on computer hardware and software, (3) compensation to our information technology and product development staff, and (4) data communications and other expenses associated with operating our internet site. For the three and six months ended June 30, 2000, systems and business development expenses increased over the same periods in 1999 due to increased staffing requirements and resulting consulting, payroll and overhead costs related to the expansion of our product offerings and technological infrastructure. In addition, we recognized increased depreciation and amortization expenses resulting primarily from capital expenditures and increased internal software development costs incurred in past and current quarters. INTEREST INCOME, NET Quarter Ended % Six Month Ended % June 30, Change June 30, Change -------- ------ -------- ------ ($000) ($000) 2000 1999 2000 1999 ---- ---- ---- ---- INTEREST INCOME, NET...$2,725 $1,929 41% $5,440 $2,387 128% For the three months ending June 30, 2000, interest income on cash and marketable securities increased from the prior year due to higher interest rates realized on cash balances as compared to the prior year, and as a result of interest income on a loan we made to MyPrice Pty. Ltd., our Australian licensee, which was subsequently repaid. For six months ending June 30, 2000, interest income on cash and marketable securities increased primarily due to higher balances resulting from our initial public offering of common stock in April of 1999 and our follow-on public offering of common stock in August of 1999. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2000, we had approximately $138.7 million in cash, cash equivalents and short-term investments. We generally invest excess cash, cash equivalents and short-term investments predominantly in debt instruments that are highly liquid, of high-quality investment grade, and predominantly have maturities of less than one year with the intent to make such funds readily available for operating purposes. Net cash provided by operating activities was $4.0 million for the six months ended June 30, 2000. Net cash provided by operating activities during 2000 was primarily attributable to expanding gross margin on increasing revenues, which was partially offset by increasing operating expenses. Net cash used in operating activities was $33.8 million for the six months ended June 30, 1999. Net cash used in operating activities during 1999 was primarily attributable to net losses from operations. Net cash used in investing activities was $54.1 million and $20.6 million for the six months ended June 30, 2000 and 1999, respectively. Net cash used in investing activities was primarily related to purchases of property and equipment and, in the first half of 2000, to purchase convertible notes and warrrants in certain licensees and to purchase certain equity investments, described more fully below. In February 2000, we made an equity investment of $5.0 million in Last Minute.com, a U.K. based e-commerce company. In February 2000, we purchased a $3.6 million convertible secured note in an affiliate of Alliance Capital Partners, pursuant to our agreement with Alliance. During the second quarter, we purchased convertible notes in the amounts of $11.1 million and $6.7 million in Hutchison-Priceline Limited and MyPrice Pty. Ltd., respectively, pursuant to our agreements to develop our products in certain Asian and Australian markets. In addition, we purchased a warrant in the amount of $3.2 million from priceline.com europe Ltd. pursuant to our agreements to develop our products in Europe. We have certain commitments for capital expenditures as part of our ongoing business cycle. None of these commitments are material to our financial position either individually or in the aggregate. As a result of our rapid growth, we expect to continue to increase capital expenditures for purchased computer hardware, internally developed software, other equipment and leasehold improvements. Net cash provided by financing activities was $12.3 million for the six months ended June 30, 2000, primarily as a result of cash inflow related to the exercise of employee stock options. Net cash provided by financing activities was $143.6 million for the six months ended June 30, 1999, primarily as a result of proceeds from our initial public offering. In the second quarter of 2000, we made a loan to an executive officer aggregating $3.0 million, which bears interest at 6.4%. 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 due after five years, but are forgiven under certain circumstances if the executive remains employed by us at that time. We are subject to employer payroll taxes on employee exercises of non-qualified stock options. Using the closing price of our common stock on August 8, 2000, which was $28.00 per share, employer payroll taxes on unrealized gains related to in-the-money vested and unvested non-qualified stock options would be approximately $4.5 million and $844,000, respectively. These employer payroll taxes would be recorded as a charge to operations in the period such options are exercised based on actual gains realized by employees. Net proceeds that we would receive upon the exercise of such vested and unvested stock options would approximate $19.8 million and $3.7 million, respectively. In addition, we would receive tax deductions for gains realized by employees on the exercise of non-qualified stock options. Our quarterly results of operations and cash flows could vary significantly depending on the periods in which the stock options are exercised by employees and, consequently, the amount of employer payroll taxes assessed. We believe that our existing cash balances and liquid resources will be sufficient to fund our operating activities, capital expenditures and other obligations through at least the next twelve months. However, if during that period or thereafter, we are not successful in generating sufficient cash flow from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, we may be required to reduce our planned capital expenditures and scale back the scope of our business plan, either of which could have a material adverse effect on our projected financial condition or results of operation. If additional funds were raised through the issuance of equity securities, the percentage ownership of our then current stockholders would be diluted. We cannot assure you that we will generate sufficient cash flow from operations in the future, that anticipated revenue growth will be realized or that future borrowings or equity contributions will be available in amounts sufficient to make anticipated capital expenditures or finance our business plan. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS The following risk factors and other information included in this Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected. 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 May Continue to Incur Losses As of June 30, 2000, we had an accumulated deficit of $1.2 billion, of which $1.08 billion related to certain non-cash charges arising from equity issuances to a number of participating airlines, our Chairman 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, Priceline WebHouse Club, Inc. We have not achieved profitability and may continue to incur losses. A substantial portion of our revenues to date have been derived from airline, hotel and rental car products. As our business model evolves, we 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. Potential Fluctuations in Our Financial Results Make 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, it may be difficult to 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 almost 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 us 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, our 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 and the six months ended June 30, 2000. 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% and 84%, respectively, of airline ticket revenue for the year ended December 31, 1999 and the six months ended June 30, 2000, respectively. As a result, currently we are substantially 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 35 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. Moreover, the airlines could attempt to establish their own buyer-driven commerce service or participate or invest in other similar services being established 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 The priceline.com service is based on a novel and relatively new business model. We will be successful only if consumers and sellers continue to 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 collection system over the Internet. Therefore, it is impossible to predict the degree to which consumers and sellers will continue to 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 place 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 PriceSM 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 Priceline WebHouse Club, Inc., a privately held independent start-up company affiliated with Walker Digital, Inc., 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. Priceline WebHouse Club, Inc. recently expanded its service to include gasoline. In addition, we have licensed our name and business model to Alliance Capital Partners in connection with our home financing services and to other third parties in connection with other products. 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 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 continue, among other things, to 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. Our failure to effectively manage our rapid growth could have a material adverse effect on our business, results of operations and financial condition. 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. We depend on the continued services and performance of our executive officers and other key personnel. We do not have "key person" life insurance policies. If we do not succeed in attracting new employees or retaining and motivating current and future employees or executive officers, our business could suffer significantly. We Rely on Third-Party Systems We rely on certain third-party computer systems and 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 systems or 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 and, as a result, our business and results of operations could be materially and adversely affected. Intense Competition Could Reduce Our Market Share and Harm Our Financial Performance We compete with both online and traditional sellers of the products and services offered on priceline.com. Current and new competitors can launch new sites at a relatively low cost. In addition, the traditional retail industry for the products and services we offer is intensely competitive. We currently or potentially compete with a variety of companies with respect to each product or service we offer. With respect to travel products, these competitors include: o Internet travel agents such as Microsoft's Expedia; o traditional travel agencies; 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. Our current or potential competitors with respect to the arrangement and sale of new automobiles in the online marketplace, include, among others, Auto-by-Tel, Carsdirect.com, Autoweb.com, Greenlight.com and CarPoint.com. To some extent, we compete for new car shoppers' attention with retail new car dealers, many of which offer online shopping capabilities. With respect to financial service products, our competitors include: o banks and other financial institutions; o online and traditional mortgage and insurance brokers, including Quicken Mortgage, E-Loan and iOwn, Inc.; and o insurance companies. Our 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, our current or potential competitors include long distance providers, local exchange providers that may be entering the long distance market and Internet Protocol telephone services. We potentially face 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 us 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 us. 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 our business, results of operations and financial condition. Many of our 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 we have. Some of these competitors may be able to secure products and services on more favorable terms than we can. 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 our brand. There can be no assurance that we will be able to compete successfully against current and future competitors or that competition will not have a material adverse effect on our business, results of operations and financial condition. Our Success Depends on Our Ability to Protect Our Intellectual Property We regard our intellectual property as critical to our success, and we rely on trademark, copyright and patent law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to protect our proprietary rights. If we are not successful in protecting our intellectual property, there could be a material adverse effect on our business. While we believe that our issued patents and pending patent applications help to protect our business, there can be no assurance that: o any patent can be successfully defended against challenges by third parties; o 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 us that are not covered by our 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 us from practicing features of our business or will require us 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. We cannot anticipate what effect, if any, the new process will have on our pending patent applications. We pursue the registration of our trademarks and service marks in the U.S. and internationally. However, effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are made available online. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. These licensees may take actions that might diminish the value of our proprietary rights or harm our reputation. Legal Proceedings We are a party to the legal proceedings described in Item 1 of Part II "Legal Proceedings." An adverse outcome in any of the actions described in Item 1 of Part II could have a material adverse effect on our business, results of operation and financial condition. 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 scaleable. 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, 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, 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 have experienced significant interruptions as a result of improper direction of excess traffic to those sites, and computer viruses have substantially disrupted e-mail and other functionality in a number of countries, including the United States. 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 analysts 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; 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 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. We have historically interpreted the tax regulations as requiring that the tax be computed based on the amount charged by the airline to us for the airline ticket and participating airlines have collected and remitted the tax based on this amount. We applied for a ruling from the Internal Revenue Service confirming this interpretation. In December 1999, the Internal Revenue Service indicated to us that it was unlikely that a favorable ruling would be issued. We subsequently withdrew our ruling request because of the uncertainty of the outcome. Because we anticipated the possibility of an adverse ruling on this issue, we accrued approximately $1.9 million relating to the balance of the tax liability for tickets sold prior to that date. We believe 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 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. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS Sections of this Form 10-Q may contain forward-looking statements. Expressions of future goals and similar expressions including, without limitation, "may," "will," "should," "could," "expects," "does not currently expect," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," reflecting something other than historical fact are intended to identify forward-looking statements. The following factors, among others, could cause our actual results to differ materially from those described in the forward-looking statements: inability to successfully expand our business model both horizontally and geographically; management of our rapid growth; adverse changes in our relationships with airlines and other product and service providers; systems-related failures; our ability to protect our intellectual property rights; the effects of increased competition; losses by us and our licensees; legal and regulatory risks and the ability to attract and retain qualified personnel. These factors and others are described in more detail above in "Additional Factors That May Affect Future Results." ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK priceline.com currently has no floating rate indebtedness, holds no derivative instruments, 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 and effect the value of our investments in our foreign licensees. 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. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Please see Note 7 to the Notes to Unaudited Consolidated Financial Statements included in the Form10-Q and Part I, Item 3 of priceline.com's Annual Report on Form 10-K for the year ended December 31, 1999. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On June 30, 2000, we issued six million shares of Series A Convertible Redeemable PIK Preferred Stock to Delta Air Lines, Inc. in exchange for six million shares of our common stock held by Delta. The exchange was part of an agreement between priceline.com and Delta in which Delta agreed to restructure its existing equity in priceline.com in order to facilitate the entrance of additional airlines into the priceline.com program. We relied upon Section 3(a)(9) of the Securities Act of 1933, as amended, to provide an exemption from registration for the issuance. No commission or other remuneration was paid by us to any financial advisors for the solicitation of such exchange. The preferred stock is convertible, at the holder's option, into shares of our common stock on a one-for-one basis at any time prior to redemption, subject to certain anti-dilution adjustments. On April 1, 1999, priceline.com completed an initial public offering in which it sold 10,000,000 shares of its common stock, $0.008 par value. 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. A portion of the net offering proceeds received on April 1, 1999 from the initial public offering were used in the second quarter for general corporate purposes, including working capital to fund anticipated operating losses, expenses associated with priceline.com's advertising campaigns, brand-name promotions and other marketing efforts and capital expenditures. Priceline has applied all of the offering proceeds. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS Exhibit Number Description - ------ ----------- 3.3 Certificate of Designation, Preferences and Rights of Series A Convertible Redeemable PIK Preferred Stock of priceline.com Incorporated. 10.1.3 priceline.com Incorporated 1999 Omnibus Plan, as amended. 10.31 Amended and Restated Promissory Note, dated May 18, 2000, between priceline.com Incorporated and Daniel H. Schulman. 10.32 Amendment to Employment Agreement, dated June 12, 2000, between priceline.com Incorporated and Richard Braddock. 10.33 Lease, dated as of May 1, 2000, between the parties listed therein, as Landlord, and priceline.com Incorporated, as Tenant. 10.34 Convertible Note, dated June 27, 2000, between Hutchison-Priceline Limited, as obligor, and PCLN Asia, Inc., as holder. 27.1 Financial Data Schedule. (b) Reports On Form 8-K On June 30, 2000, we filed a report on Form 8-K announcing the launch of priceline.com europe and the issuance of Series A Convertible Redeemable PIK Preferred Stock. On July 26, 2000, we filed a report on Form 8-K announcing our second quarter 2000 financial results that included unaudited balance sheets at June 30, 2000 and December 31, 1999 and statements of operations for the three and six months ended June 30, 2000. SIGNATURES Pursuant to the requirements 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 (Registrant) Date: August 14, 2000 By: /S/ Heidi G. Miller ----------------------------- Name: Heidi G. Miller Title: Executive Vice President, Strategy, Planning & Administration, and Chief Financial Officer EX-3 2 0002.txt EXHIBIT 3.3 - CERTIFICATE OF DESIGNATION EXHIBIT 3.3 CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE REDEEMABLE PIK PREFERRED STOCK OF PRICELINE.COM INCORPORATED - ------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - ------------------------------------------------------------------------------- The undersigned, Daniel Schulman, Chief Executive Officer, President and Chief Operating Officer of priceline.com Incorporated (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware (the "GCL"), pursuant to Section 151(g) of the GCL and in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That, pursuant to the authority conferred upon the Board of Directors of the Company (the "Board of Directors") by the Amended and Restated Certificate of Incorporation of the Company, the Board of Directors on February 9, 2000 adopted the following resolution creating a series of six million (6,000,000) shares of preferred stock, par value $.01 per share, of the Company, designated as Series A Convertible Redeemable PIK Preferred Stock: RESOLVED, that, pursuant to the authority vested in the Board of Directors in accordance with the provisions of the Amended and Restated Certificate of Incorporation of the Company, a series of preferred stock of the Company be, and it hereby is, created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are as set forth herein. 1. Designation and Number of Shares. There is hereby created and established, out of the authorized and unissued Preferred Stock (as hereinafter defined) of the Company, a series of Preferred Stock designated as "Series A Convertible Redeemable PIK Preferred Stock" (the "Series A Preferred Stock"). The authorized number of shares of Series A Preferred Stock shall be six million (6,000,000). The Series A Preferred Stock shall have a liquidation preference of $59.93 per share (the "Series A Stated Amount"), plus an amount equal to any dividends accrued or cumulated but not paid on the Series A Preferred Stock pursuant to Section 4 hereof, whether or not declared, to the date fixed for Liquidation (as hereinafter defined) of the Company (the "Series A Liquidation Preference"). 2. Rank. The Series A Preferred Stock shall, with respect to the right to receive dividends and distributions of assets and rights upon the Liquidation of the Company, rank (x) senior to the common stock, par value $0.008 per share, of the Company ("Common Stock"), and each other class or series of capital stock of the Company hereafter created which expressly ranks junior to the Series A Preferred Stock (together with the Common Stock, the "Junior Securities"), and (y) pari passu with all other series of Preferred Stock of the Company, whether now in existence or created after the date hereof, which do not expressly rank junior to the Series A Preferred Stock ("Parity Securities"). The respective definitions of Junior Securities and Parity Securities shall also include any rights or options exercisable for or convertible into any of the Junior Securities and Parity Securities, as the case may be. 3. Liquidation Preference. A. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company (a "Liquidation"), each of the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount in cash equal to the Series A Liquidation Preference with respect to each share of Series A Preferred Stock held by such holder on the date fixed for Liquidation, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of Junior Securities. If the assets of the Company available for distribution to the holders of Series A Preferred Stock and Parity Securities shall be insufficient to permit payment in full to such holders of the sums which such holders are entitled to receive in a Liquidation, then all of the assets available for distribution to the holders of Series A Preferred Stock and Parity Securities shall be distributed among and paid to such holders ratably in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full. Immediately prior to a Liquidation of the Company, to the extent funds of the Company are legally available for the payment of dividends, the Company shall declare for payment all accrued and unpaid dividends with respect to the Series A Preferred Stock and any Parity Securities ratably in accordance with the respective amounts that would be payable on such shares of Series A Preferred Stock and any such other Parity Securities if all amounts payable thereon were paid in full. After payment in full of the Series A Liquidation Preference, the holders of the Series A Preferred Stock will not be entitled to any further participation in any distribution of assets by the Company. B. Upon any such Liquidation, after the holders of Series A Preferred Stock shall have been paid in full the Series A Liquidation Preference, the remaining assets of the Company shall be distributed to the holders of the Junior Securities. C. For the purposes of this Section 3, neither (i) the voluntary sale, lease, conveyance, exchange or transfer (for cash, shares, securities or other consideration) of all or substantially all of the property or assets of the Company nor (ii) the merger or other business combination of the Company with one or more Persons shall be deemed to be a Liquidation. 4. Dividends. A. Each holder of Series A Preferred Stock shall be entitled to receive, out of the funds of the Company legally available therefor, cumulative dividends, payable in accordance with this Section 4. B. Dividends on each outstanding share of Series A Preferred Stock (the "Series A Dividend") shall be payable semi-annually in arrears on October 1st and April 1st of each year commencing October 1, 2000 or, if any such date is not a Business Day (as hereinafter defined), on the next succeeding Business Day (each, a "Dividend Payment Date" and each such semi-annual period being a "Dividend Period"), at a rate of 8% of the Series A Stated Amount per annum. The amount of Series A Dividends payable on the Series A Preferred Stock for each full Dividend Period shall be computed by dividing the annual dividend rate by two. Series A Dividends payable on the Series A Preferred Stock for any period less than a full Dividend Period shall be computed on the basis of twelve 30-day months and a 360-day year. C. Subject to subsection D below, Series A Preferred Dividends shall be paid by the issuance of shares of Common Stock having an aggregate Fair Market Value (as hereinafter defined) on the record date relating to the Dividend Period in which such Series A Dividend accrued equal to the amount of the Series A Dividend that otherwise would have been payable if the Series A Dividend were payable in cash and had been declared and paid on such record date. In the event that, between the record date relating to the Dividend Period in which any Series A Preferred Dividend accrued and the payment date of such Series A Preferred Dividend, any of the events set forth in Section 9 requiring an adjustment to the Conversion Rate shall occur, the number of shares of Common Stock to be issued as payment of any Series A Preferred Dividends shall be adjusted in a manner equivalent to that provided for in Section 9 with respect to the Conversion Rate, such that on the date of payment the holder of Series A Preferred Stock will receive the number of shares of Common Stock such holder would then own if the Series A Preferred Dividend had been paid on the record date occurring in the Dividend Period in which such Series A Preferred Dividend accrued. D. In the event that during a Dividend Period the Company pays one or more dividends to holders of Common Stock in cash, then each holder of shares of Series A Preferred Stock shall have the right to demand that the Company pay in cash, on the date such cash dividend is paid to the holders of Common Stock, a dividend per share of Series A Preferred Stock equal to the lesser of the (i) amount of such cash dividends payable per share of Common Stock, adjusted to reflect any modifications to the Conversion Rate pursuant to Section 9 hereof, and (ii) the amount of the Series A Dividend. Such cash dividend shall be in lieu of that portion of the shares of Common Stock payable pursuant to Section C above on the Dividend Payment Date next following the date of payment of such cash dividend, equal to the amount of such cash dividend, but not any such shares of Common Stock in excess of the amount of such cash dividend or any accrued or cumulated dividends relating to a prior Dividend Period. E. Series A Dividends shall accrue and be cumulative from April 1, 2000, whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of such Series A Dividends on any Dividend Payment Date or at any time during any Dividend Period and whether or not Series A Dividends are declared or paid. Notwithstanding any other provision hereof, in the event Series A Dividends are not paid on the applicable Dividend Payment Date, the Company shall nonetheless determine the number of shares of Common Stock to be issued, pursuant to Section C above, to holders of Series A Preferred Stock on the date such Series A Dividend is actually paid, by measuring the Fair Market Value of the Common Stock as of the record date relating to the Dividend Period in which such Series A Dividend accrued as set forth in Section F below. F. Series A Dividends shall be paid to the holders of record of shares of Series A Preferred Stock as each appears in the stock register of the Company at the close of business on the record date therefor. As used herein, the term "record date" means, with respect to Series A Dividends payable on October 1st or April 1st , respectively, of each year, the immediately preceding September 15th or March 15th, respectively. G. So long as any shares of the Series A Preferred Stock are outstanding, no dividend, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on any Parity Securities, nor shall any Parity Securities be redeemed, purchased or otherwise acquired for any consideration (or moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company, directly or indirectly, unless in each case full cumulative dividends have been or contemporaneously are declared and paid or declared and consideration sufficient for the payment thereof set apart for such payment on the Series A Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of the dividend on such class or series of Parity Securities or the redemption, purchase or other acquisition thereof. When dividends are not paid in full or consideration sufficient for such payment is not set apart, as aforesaid, all dividends declared upon shares of the Series A Preferred Stock and all dividends declared upon any other class or series of Parity Securities shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series A Preferred Stock and accumulated and unpaid on such Parity Securities. H. So long as any shares of the Series A Preferred Stock are outstanding, no dividends (other than dividends or distributions paid in shares of, or to effectuate a stock split on, or options, warrants or rights to subscribe for or purchase shares of, Junior Securities) shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Securities, nor shall any Junior Securities be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of any employee incentive or benefit plan of the Company or any subsidiary, upon exercise of options issued pursuant thereto or upon the withholding of shares upon exercise of warrants by the holders thereof) (any such dividend, distribution, redemption or purchase being hereinafter referred to as a "Junior Securities Distribution") for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company, directly or indirectly (except by conversion into or exchange for Junior Securities), unless, in each case, the full cumulative dividends on all outstanding shares of the Series A Preferred Stock and accrued and unpaid dividends on any other Parity Securities shall have been paid or set apart for payment for all past Dividend Periods with respect to the Series A Preferred Stock and all past dividend periods with respect to such Parity Securities. 5. Voting Rights. A. The holders of Series A Preferred Stock shall be entitled to vote on all matters submitted to a vote of stockholders of the Company at all stockholders meetings and in all actions by written consent of stockholders of the Company. Each holder of Series A Preferred Stock shall be entitled to (i) such number of votes as such holder would be entitled to cast if such holder had converted all of its shares of Series A Preferred Stock into Common Stock pursuant to Section 7 hereof immediately prior to the record date for such stockholders meeting or action by written consent and (ii) notice of any stockholders meeting in accordance with the Certificate of Incorporation and By-laws of the Company. Except as otherwise required herein or by law, shares of Series A Preferred Stock shall vote together with shares of Common Stock, as a single class. B. So long as any shares of Series A Preferred Stock are outstanding, the written consent or affirmative vote at a meeting called for that purpose of the holders of a majority of the shares of Series A Preferred Stock then outstanding, voting together as a single class, shall be necessary to amend, alter or repeal the Certificate of Incorporation of the Company or of any provision thereof (including the adoption of a new provision thereof), whether by merger or otherwise, which amendment, alteration or repeal would (A) increase or decrease the aggregate number of authorized shares, or the par value, of the Series A Preferred Stock or (B) alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely; provided, however, that the holders of Series A Preferred Stock shall not be entitled to vote pursuant to this Section 5(B) in connection with (i) any Business Combination wherein the holders of Series A Preferred Stock receive the consideration to which they are entitled pursuant to Section 8(A)(i) or (ii) hereof, as the case may be, as such Section is in effect as of immediately prior to such Business Combination or (ii) any other transaction in which the provisions of Section 9(B) or (D) hereof are applicable and the adjustments referred to in Section 9(B) or (D) are made, as such Section is in effect as of immediately prior to such transaction. 6. Redemption. A. Optional Redemption. The outstanding shares of Series A Preferred Stock, subject to Section E below, may be redeemed at the option of the Company (the "Optional Redemption"), in whole or in part, at any time and from time to time after April 1, 2003, out of funds legally available therefor. The Company may redeem the Series A Preferred Stock by payment in cash, for each share of Series A Preferred Stock to be redeemed, in an amount (the "Series A Redemption Amount") equal to the Series A Stated Amount, plus an amount equal to any Series A Dividends that have accrued or cumulated through the Series A Redemption Date (as hereinafter defined), but have not been paid as of such date. The date on which the Series A Redemption Amount is payable is referred to herein as the "Series A Redemption Date". If less than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the Company shall either (i) redeem a pro rata portion of the shares of Series A Preferred Stock held by each holder, based on the number of shares held by each holder, or (ii) select the shares to be redeemed by lot. Any redemption pursuant to this Section 6(A) shall be made upon prior written notice (which notice shall comply with the provisions of Section 6(C) hereof). B. Mandatory Redemption. Except as may be, and solely to the extent, prohibited by any instrument relating to indebtedness of the Company then outstanding (a "Loan Agreement"), on April 1, 2010, or as soon thereafter as not prohibited by any such Loan Agreement (the "Mandatory Redemption Date"), the Company shall redeem, out of funds legally available therefor, all of the then outstanding shares of Series A Preferred Stock. Notice of the redemption pursuant to this Section 6(B) shall comply with the provisions of Section 6(C) hereof mailed to each holder of Series A Preferred Stock at such holder's address as shown in the stock register of the Company. The redemption price for each share of Series A Preferred Stock redeemed pursuant to this Section 6(B) shall be equal to the Series A Stated Amount per share plus an amount equal to any accrued or cumulated Series A Dividends thereon through the Mandatory Redemption Date, but have not been paid as of such date (the "Mandatory Redemption Payment"). C. Notice of redemption shall be given not less than 30 days nor more than 60 days prior to the Series A Redemption Date or the Mandatory Redemption Date, as the case may be, to each holder of record of the Series A Preferred Stock on the record dated fixed for such redemption, mailed by first-class mail, postage prepaid, to such holder's address as shown in the stock register of the Company; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any Series A Preferred Stock to be redeemed, except as to the holder to whom the Company has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state: (i) the Series A Redemption Date or the Mandatory Redemption Date, as the case may be; (ii) the Series A Redemption Amount or the Mandatory Redemption Payment, as the case may be; (iii) the number of shares of Series A Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of shares to be redeemed from such holder; and (iv) the place or method for payment of the Series A Redemption Amount or the Mandatory Redemption Payment, as the case may be. D. Notice having been given as aforesaid, from and after the Series A Redemption Date or the Mandatory Redemption Date, as the case may be (unless default shall be made by the Company in providing funds for the payment of the Series A Redemption Amount or the Mandatory Redemption Payment, as the case may be), all rights of the holders of Series A Preferred Stock (in such capacity) as stockholders of the Company (except the right to receive the Series A Redemption Amount or the Mandatory Redemption Payment, as the case may be) shall cease. Series A Dividends shall cease to accrue as of the Series A Redemption Date or the Mandatory Redemption Date, as the case may be, with respect to the shares of Series A Preferred Stock to be redeemed. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state), such Series A Preferred Stock shall be redeemed by the Company at the Series A Redemption Amount or the Mandatory Redemption Payment, as the case may be. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. E. Each holder of Series A Preferred Stock shall have the right, but not the obligation, within 30 days following the date of delivery of a Redemption notice, to convert, pursuant to Section 7 hereof, some or all of the shares of Series A Preferred Stock to be redeemed, by delivering written notice thereof in accordance with Section 7(A) hereof. If such conversion right is timely exercised, the Company shall not have the right to redeem such shares of Series A Preferred Stock to be converted. F. Notwithstanding the foregoing provisions of this Section 6, the Company shall not have the right to redeem or call for redemption any shares of the Series A Preferred Stock unless full cumulative dividends (whether or not declared) on all outstanding shares of Series A Preferred Stock shall have been paid or contemporaneously are declared and set apart for payment for all Dividend Periods terminating on or prior to the applicable redemption date. G. Prior to any Redemption Date, the Company shall deposit with a paying agent (or, if the Company is acting as its own paying agent, segregate and hold in trust) an amount of consideration sufficient to pay the Series A Redemption Amount of all the shares of Series A Preferred Stock that are to be redeemed on that date. If any share of Series A Preferred Stock called for redemption is converted, any consideration deposited with the paying agent or so segregated and held in trust for the redemption of such share of Series A Preferred Stock shall be paid or delivered to the Company upon its order or, if then held by the Company, shall be discharged from such trust. 7. Conversion at the Option of the Holder. A. Each holder of Series A Preferred Stock shall have the right, at its option, at any time and from time to time following the date of issuance of the Series A Preferred Stock but prior to the redemption of such shares of Series A Preferred Stock, to convert (the "Conversion") any or all of such holder's Series A Preferred Stock into duly authorized, validly issued, fully paid and nonassessable shares of Common Stock at a rate of one (1) share of Common Stock for each share of Series A Preferred Stock (the "Conversion Rate"), subject to adjustment pursuant to Section 9 hereof. Such conversion right shall be exercised by the surrender of certificate(s) representing the Series A Preferred Stock to be converted to the Company at any time during usual business hours at its principal place of business (or such other office or agency of the Company as the Company may designate by notice in writing to the holders of Series A Preferred Stock), accompanied by written notice that the holder elects to convert such Series A Preferred Stock and specifying the name or names (with address) in which a certificate or certificates for Common Stock are to be issued and (if the shares issuable upon conversion are to be issued in a different name as the name in which such shares of Series A Preferred Stock are registered) by a written instrument or instruments of transfer in form reasonably satisfactory to the Company duly executed by the holder or its duly authorized legal representative and transfer tax stamps or funds therefor, if required pursuant to Section 7(D) hereof. All certificates representing Series A Preferred Stock surrendered for conversion shall be delivered to the Company for cancellation and canceled by it. B. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of Series A Preferred Stock shall have been surrendered and such notice received by the Company as aforesaid, and the person in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder of record of the shares of Common Stock represented thereby at such time on such date and such conversion shall be into a number of shares of Common Stock equal to the product of the number of shares of Series A Preferred Stock surrendered times the Conversion Rate in effect at such time on such date. All shares of Common Stock delivered upon conversion of the Series A Preferred Stock will upon delivery be validly issued and fully paid and nonassessable, free of all liens and charges created by the Company and not subject to any preemptive rights. (i) Upon delivery to the Company by a holder of shares of Series A Preferred Stock of a notice of election to convert, the right of the Company to redeem such shares of Series A Preferred Stock shall terminate as provided in Section 6(E). (ii) Upon the surrender of certificates representing shares of Series A Preferred Stock, such shares shall no longer be deemed to be outstanding and all rights of a holder with respect to such shares surrendered for conversion shall immediately terminate except the right to receive the Common Stock and other amounts payable pursuant to this Section 7(B). (iii) From the date of delivery by a holder of shares of Series A Preferred Stock of such notice of election to convert, in lieu of dividends on such Series A Preferred Stock pursuant to Section 4, such Series A Preferred Stock shall participate ratably with the holders of shares of Common Stock in all dividends on the Common Stock for which the record date is on or before the date of such delivery as if such shares of Series A Preferred Stock had been converted to shares of Common Stock at the time of such delivery. (iv) If a notice of election to convert is delivered by a holder of shares of Series A Preferred Stock to the Company before the receipt of any notice of redemption thereof or any Business Combination Notice, such holder shall be entitled to receive the number of shares of Common Stock issuable upon such conversion, as set forth in Section 7(A), plus a number of shares of Common Stock equal to the amount of accrued or cumulated Series A Dividends through the last Dividend Payment Date preceding the date on which such notice of election to convert is delivered (but excluding any dividends for the period from the last Dividend Payment Date to the date of delivery of the notice of election to convert) (collectively, the "Conversion Amount"). (v) If, after receipt by a holder of shares of Series A Preferred Stock of a notice of redemption pursuant to Section 6(A) or a Business Combination Notice pursuant to Section 8(B), such holder delivers to the Company a notice of election to convert as provided in Section 6(E) or Section 8(E), respectively, such Series A Preferred Stock shall be entitled to receive the number of shares of Common Stock issuable upon such conversion as set forth in Section 7(A), plus a number of shares of Common Stock equal to the amount of accrued or cumulated dividends through the last preceding Dividend Payment Date (together with any Series A Dividends for the period from the last Dividend Payment Date to the date of delivery of the notice of election to convert) (collectively, the "Post-Redemption Conversion Amount"). C. The Company shall at all times reserve and keep available out of its authorized and unissued shares of Common Stock, solely for issuance upon the Conversion as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall be issuable upon the Conversion. D. The issuance or delivery of certificates for Common Stock upon the conversion of Series A Preferred Stock shall be made without charge to the converting holder of Series A Preferred Stock for such certificates or for any tax in respect of the issuance or delivery of such certificates or the securities represented thereby, and such certificates shall be issued or delivered in the respective names of, or (subject to compliance with the applicable provisions of federal and state securities laws) in such names as may be directed by, the holders of Series A Preferred Stock converted; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of Series A Preferred Stock converted, and the Company shall not be required to issue or deliver such certificate unless or until the Person or Persons requesting the issuance or delivery thereof shall have paid to the Company the amount of such tax or shall have established to the reasonable satisfaction of the Company that such tax has been paid. 8. Business Combinations. A. (i) In the event the Company consummates a Business Combination (as hereinafter defined) wherein the holders of the Company's Common Stock receive consideration and some or all of such consideration is other than Capital Stock of the acquiring entity or the surviving corporation in a merger (or, as applicable, its ultimate parent), in connection with such Business Combination, each holder of shares of Series A Preferred Stock shall have the right to receive, prior to or at the closing of such Business Combination in accordance with the procedures set forth in Section 8(B) hereof, at the option of such holder, either (x) an amount in cash equal to the Series A Stated Amount per share, plus the amount of any accrued or cumulated dividends thereon (including pro rata dividends for the period from the last Dividend Payment Date to the Business Combination Date), and, if the Business Combination Date is prior to April 1, 2003, the amount of all Series A Dividends to be accrued on or before the April 1, 2003 Dividend Payment Date that have not already been paid as of the Business Combination Date, or (y) an amount of cash equal to the product of (1) the number of shares of Common Stock into which such Series A Preferred Stock is then convertible, plus the number of shares of Common Stock issuable in respect of accrued or cumulated but unpaid dividends on the Series A Preferred Stock as of the Business Combination Date, including, if the Business Combination Date is prior to April 1, 2003, the number of shares of Common Stock that would be issuable to the holder on or before the Business Combination Date if all Series A Dividends to be accrued on or before the April 1, 2003 Dividend Payment Date that have not already been paid as of the Business Combination Date, were paid, times (2) the Fair Market Value of the per share consideration to be received by the holders of Common Stock in the Business Combination. (ii) In the event of a Business Combination wherein the holders of the Company's Common Stock receive consideration that consists solely of Capital Stock of the acquiring entity or the surviving corporation in a merger (or, as applicable, its ultimate parent), the Series A Preferred Stock shall, in connection with such Business Combination, be assumed by and shall become preferred stock of such acquiring entity (or, as applicable, its ultimate parent), having in respect of such entity substantially the same (and not less favorable) powers, preferences and special rights that the Series A Preferred Stock had immediately prior to such Business Combination, except that after such Business Combination each share of Series A Preferred Stock shall be convertible, on the terms and conditions provided in Section 7 hereof, into the number of shares of the acquiring entity's (or, as applicable, its ultimate parent's) common stock receivable in such Business Combination by a holder of the number of shares of Common Stock into which such share of Series A Preferred Stock is convertible immediately prior to such Business Combination (such number of shares of Common Stock to include an amount equal to all accrued or cumulated but unpaid dividends on the Series A Preferred Stock). The rights of the Series A Preferred Stock as preferred stock of such acquiring entity (or, as applicable, its ultimate parent) shall successively be subject to adjustments pursuant to Section 9 after such Business Combination as nearly equivalent as practicable to the adjustment provided for by such section prior to such Business Combination. B. At least ten (10) days and not more than sixty (60) days prior to the date fixed for the consummation of a Business Combination (the "Business Combination Date"), a written notice (the "Business Combination Notice") of such Business Combination shall be mailed by first-class mail, postage prepaid, to each holder of record of shares of Series A Preferred Stock addressed to such holder at such holder's mailing address as it appears in the stock register of the Company. Each such Business Combination Notice shall contain all instructions and materials necessary to enable such holder of Series A Preferred Stock to submit such holder's shares pursuant to the Business Combination and shall state: (i) the parties to the Business Combination and the terms and timing of the Business Combination; (ii) the aggregate and per share amount of all cash, securities or other property to be paid pursuant to such Business Combination to holders of the outstanding shares of Series A Preferred Stock assuming that none of such holders elect to receive payment of the Series A Stated Amount in connection with such Business Combination; (iii) that holders of Series A Preferred Stock shall be required, within thirty days following the date of such Business Combination Notice, to elect the form of consideration they wish to receive in such Business Combination, pursuant to Section 8(A) hereof; (iv) that holders of Series A Preferred Stock will be required to surrender the certificate or certificates representing such shares, together with an appropriate form letter of transmittal to be mailed to the holders with such Business Combination Notice, to the Company at the address specified in the Business Combination Notice prior to the close of business on the day specified in the Business Combination Notice; and (v) such other information as the Company, in its sole discretion, deems appropriate. C. In the event of a change in the parties to, or any material change in the terms or the timing of, any Business Combination, the Company shall give the holders of the Series A Preferred Stock written notice in accordance with Section 8(B) hereof describing such change at least ten (10) Business Days prior to the consummation of the Business Combination. D. Each holder of Series A Preferred Stock shall have the right, but not the obligation, within 30 days following the date of delivery of a Business Combination Notice, to convert, pursuant to Section 7 hereof, some or all of the shares of Series A Preferred Stock held by such holder, by delivering written notice thereof in accordance with Section 7(A) hereof. If such conversion right is timely exercised, the shares specified in such conversion notice shall not be treated in accordance with this Section 8. 9. Antidilution Adjustments. A. Distribution, Subdivision, Combination or Reclassification of Common Stock. In the event that the Company shall at any time or from time to time, prior to Conversion of the Series A Preferred Stock, (i) make a distribution (other than a distribution made to holders of Series A Preferred Stock) on the outstanding Common Stock payable in any Capital Stock or other securities of the Company, (ii) subdivide the outstanding Common Stock into a larger number of shares, (iii) combine the outstanding Common Stock into a smaller number of shares or (iv) issue any shares of Capital Stock in a reclassification of the Common Stock (other than any such event (x) for which an adjustment is made pursuant to another clause of this Section 9 or (y) that is a Business Combination subject to Section 8 hereof), then, and in each such case, the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock into which the Series A Preferred Stock shall be Converted shall be adjusted (and any other appropriate actions shall be taken by the Company) so that the holder of any Series A Preferred Stock thereafter surrendered for Conversion shall be entitled to receive upon Conversion the number of shares of Common Stock or other securities of the Company that such holder would have owned or would have been entitled to receive upon or by reason of any of the events described above, had such shares of Series A Preferred Stock been Converted immediately prior to, as applicable, the date of, or the record date for, such event. An adjustment made pursuant to this Section 9 shall become effective retroactively to the close of business on the day upon which such action becomes effective. B. Certain Distributions. In case the Company shall at any time or from time to time, prior to Conversion of the Series A Preferred Stock, distribute to all holders of Common Stock (including any such distribution made in connection with a merger or consolidation in which the Company is the resulting or surviving Person and the Common Stock is not changed or exchanged) cash, evidences of indebtedness of the Company or another issuer, securities of the Company or another issuer or other assets (excluding (i) distributions paid or made to holders of Series A Preferred Stock, or in which holders of such shares participate equally with holders of Common Stock, (ii) distributions payable in Common Stock for which adjustment is made under another Section of this Section 9, (iii) distributions in connection with an Excluded Transaction, (iv) distributions in connection with a Business Combination in respect of which the provisions of Section 8(A) are applicable, and (v) distributions of rights or warrants to subscribe for or purchase securities of the Company (provided such rights or warrants are issued with a subscription or exercise price equal to the fair market value of such securities as of the date such rights or warrants are issued)), then, and in each such case, (x) the Conversion Rate then in effect shall be adjusted (and any other appropriate actions shall be taken by the Company) so that the holder of any Series A Preferred Stock thereafter surrendered for Conversion shall, in addition to the consideration provided for in Section 7 hereof, be entitled to receive upon Conversion cash, evidences of indebtedness, securities or other assets that such holder would have owned or would have been entitled to receive upon or by reason of any of the events described above, had such Series A Preferred Stock been Converted immediately prior to, as applicable, the date of, or the record date for, such event and (y) other than pursuant to (x) above, the powers, preferences and special rights of the Series A Preferred Stock shall not be amended or altered (whether by merger or otherwise) as a result of any of the events described above. An adjustment made pursuant to this Section shall become effective retroactively to the close of business on the day upon which such action becomes effective. C. Other Changes. In case the Company at any time or from time to time, prior to the Conversion of the Series A Preferred Stock, shall take any action affecting its Common Stock similar to or having an effect similar to any of the actions described in Section 9(A), (B) or (D) hereof (but not including any action described in any such Section) and the Board of Directors in good faith determines that it would be equitable in the circumstances to adjust the Conversion Rate as a result of such action, then, and in each such case, the Conversion Rate shall be adjusted in such manner and at such time as the Board of Directors in good faith determines would be equitable in the circumstances (such determination to be evidenced in a resolution, a certified copy of which shall be mailed to the holders of the Series A Preferred Stock). D. Reorganization, Reclassification. In case of any merger of the Company or any capital reorganization, reclassification or other change of outstanding Common Stock (each, a "Transaction"), other than a Business Combination in respect of which the provisions of Section 8(A) are applicable, the Company shall execute and deliver to each holder of Series A Preferred Stock, at least ten (10) Business Days prior to effecting such Transaction, a certificate stating that either (i) the Series A Preferred Stock shall remain outstanding following such Transaction without any amendment or alteration (whether by merger or otherwise) that would adversely affect the powers, preferences and special rights of the Series A Preferred Stock, or (ii) the holder of each share of Series A Preferred Stock shall have the right to receive in such Transaction, in exchange for each share of Series A Preferred Stock, a security with powers, preferences and special rights substantially similar to (and not less favorable than) the Series A Preferred Stock (provided, that, in the case of (i) and (ii) above, the conversion rate of such security shall be equal to the Conversion Rate in effect immediately prior to such Transaction, adjusted, if applicable, such that the holder of any shares of Series A Preferred Stock or such substantially similar security thereafter surrendered for Conversion shall be entitled to receive upon Conversion the number of shares of Common Stock or other securities that such holder would have owned or would have been entitled to receive upon or by reason of such Transaction, had such holder's shares of Series A Preferred Stock been converted immediately prior to, as applicable, the date of, or the record date for, such Transaction, assuming such holder of Common Stock of the Company (x) is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such recapitalization, sale or transfer was made, as the case may be (a "constituent person"), or an affiliate of a constituent person and (y) failed to exercise any rights of election as to the kind or amount of securities, cash and other property receivable upon such reclassification, change, consolidation, merger, recapitalization, sale or transfer (provided, that if the kind or amount of securities, cash and other property receivable upon such reclassification, change, consolidation, merger, recapitalization, sale or transfer is not the same for each share of Common Stock of the Company held immediately prior to such reclassification, change, consolidation, merger, recapitalization, sale or transfer by other than a constituent person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this Section 9(D) the kind and amount of securities, cash and other property receivable upon such reclassification, change, consolidation, merger, recapitalization, sale or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares)). Provision shall be made therefor in the agreement, if any, relating to such Transaction. Each such certificate shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 9. The provisions of this Section and any equivalent thereof in any such certificate similarly shall apply to successive transactions. E. Notwithstanding any other provisions of this Section 9, until the effective date of the Conversion, the Company shall not be required to make any adjustment to the number of shares of Common Stock issuable upon Conversion unless such adjustment (plus any adjustments not previously made by reason of this Section (E)) would require an increase or decrease of at least one percent (1%) in the number of shares of Common Stock into which each share of Series A Preferred Stock is then convertible. Any lesser adjustment shall be carried forward and shall be made (i) no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) or (ii) at the effective date of the Conversion, whichever is earlier. All adjustments shall be carried out to five decimal places. F. Whenever one or more adjustments to the Conversion Rate are required by the provisions of this Section 9, the Company shall forthwith place on file with the Secretary of the Company, a statement stating the adjustment. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing each such adjustment. Promptly after each adjustment, the Company shall mail, by first-class mail, postage prepaid, a notice thereof to each holder of Series A Preferred Stock containing a brief description of the transaction causing such adjustment and the resulting number of shares of Common Stock issuable upon Conversion. 10. Reports. So long as any shares of the Series A Preferred Stock are outstanding, the Company will furnish the holders thereof with the quarterly and annual financial reports, and current reports on Form 8-K, that the Company is required to file with the Securities and Exchange Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, or, in the event the Company is not required to file such reports, reports containing the same information as would be required in such reports. 11. Certain Definitions. For purposes of this Certificate, the following terms shall have the meanings set forth below: "Affiliate" means, when used with reference to any Person, any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with that Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Business Combination" means the occurrence of any of the following events: (a) any Person or Group is or becomes the beneficial owner (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except, notwithstanding the provisions of such Rules, that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire only upon exercise of such right), directly or indirectly, of more than 50% of the total Voting Stock of the Company; or (b) the Company sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person or Group (other than by way of merger or consolidation); or (c) any transaction or series of related transactions if, immediately following such transaction or series of related transactions the holders of the Common Stock outstanding immediately prior to such transaction or series of related transactions own 50% or less of the outstanding Voting Stock of the surviving or transferee corporation (and its ultimate parent corporation). "Business Day" means any day other than a Saturday, a Sunday, any day on which the New York Stock Exchange is closed or any other day on which banking institutions in New York, New York are authorized or required by law to be closed. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting and/or non-voting) of such Person's Capital Stock, and any and all rights, warrants or options exchangeable for or convertible into such Capital Stock. "Common Stock Equivalent" means any security or obligation which is by its terms convertible into shares of Common Stock or another Common Stock Equivalent, and any option, warrant or other subscription or purchase right with respect to Common Stock. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder. "Excluded Transaction" means (a) any issuance by the Company to employees, consultants or directors of the Company of Common Stock or Common Stock Equivalents pursuant to a stock option plan or other employee benefit arrangement approved by the Board of Directors (and the issuance of Common Stock upon the exercise of such Common Stock Equivalents); and (b) any issuance of Common Stock (i) upon the conversion or exercise of Common Stock Equivalents, and (ii) as a dividend on shares of Series A Preferred Stock. "Fair Market Value" shall mean, (a) with respect to any securities, the average of the closing sales price of such securities as reported on the principal exchange on which such securities are then listed, which for these purposes includes the NASDAQ Stock Market, during each of the twenty (20) consecutive trading days ending on the trading day that is five (5) trading days immediately prior to the applicable measurement date, or, if such securities are not than reported on a securities exchange, such value as determined by the Company's Board of Directors in good faith, and (b) with respect to property other than securities, such value as determined by the Company's Board of Directors in good faith, provided that with respect to any determination of Fair Market Value by the Company's Board of Directors pursuant to clause (a) or (b) above, if the holders of 25% of the Series A Preferred Stock shall object to any such determination, the Board of Directors shall retain an independent appraiser reasonably satisfactory to such holders to determine such Fair Market Value. "Group" means a group within the meaning of Section 13(d)(3) of the Exchange Act. "Person" means any individual, partnership, corporation, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" means the preferred stock, par value $.01 per share, of the Company. "Subsidiary" means, with respect to any Person, any corporation, limited or general partnership, limited liability company, trust, association or other business entity of which an aggregate of 50% or more of the outstanding capital stock or other interests entitled to vote in the election of the board of directors of such corporation (irrespective of whether, at the time, Capital Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency), managers, trustees or other controlling Persons, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more Affiliates of such Person. "Voting Stock" means, with respect to any Person, the Capital Stock of any class or kind ordinarily having the power to vote for the election of directors or other members of the governing body of such Person. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does affirm the foregoing as true this 29th day of June, 2000. By: /s/ Daniel Shulman ----------------------------- Daniel Shulman Chief Executive Officer, President and Chief Operating Officer EX-10 3 0003.txt EXHIBIT 10.1.3 - 1999 OMNIBUS PLAN EXHIBIT 10.1.3 PRICELINE.COM INCORPORATED 1999 OMNIBUS PLAN 1. Establishment and Purpose. There is hereby adopted the priceline.com Incorporated 1999 Omnibus Plan (the "Plan"). The Plan is in tended to promote the interests of priceline.com Incorporated (the "Company") by providing employees of the Company with appropriate incentives and rewards to en courage them to enter into and continue in the employ of the Company and to acquire a proprietary interest in the long-term success of the Company; and to reward the performance of individual officers, other employees, consultants and directors in fulfilling their responsibilities for long-range achievements. 2. Definitions. As used in the Plan, the following definitions apply to the terms indicated below: (a) "Affiliate" means an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (b) "Agreement" shall mean the written agreement between the Company and a Participant evidencing an Award. (c) "Award" means any Option, Restricted Stock or Other Stock-Based Award granted under the Plan. (d) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (e) "Board" shall mean the Board of Directors of the Company. (f) "Cause" shall mean (1) the willful and continued failure by the Participant substantially to perform his or her duties and obligations to the Company (other than any such failure resulting from his or her incapacity due to physical or mental illness); (2) the willful engaging by the Participant in misconduct which is materially injurious to the Company; (3) the commission by the Participant of a felony; or (4) the commission by the Participant of a crime against the Company which is materially injurious to the Company. For purposes of this Section 2(f), no act, or failure to act, on a Participant's part shall be considered "willful" unless done, or omitted to be done, by the Participant in bad faith and without reasonable belief that his or her action or omission was in the best interest of the Company. Determination of Cause shall be made by the Committee in its sole discretion. (g) "Change in Control" means the occurrence of any one of the following events: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stock holders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving or parent entity out standing immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person, directly or indirectly, acquired 25% or more of the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates); or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. (h) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (i) "Committee" means (1) with respect to the application of this Plan to employees and consultants, a committee established by the Board, which committee shall be intended to consist of two or more non-employee directors, each of whom shall be a "non-employee director" as defined in Rule 16b-3 of the Exchange Act and an "outside director" as defined under Section 162(m) of the Code and (2) with erspect to the application ofthis Plan to Non-Employee Dirctors, the Board. (j) "Company" means priceline.com Incorporated, a corporation organized under the laws of the State of Delaware, or any successor corporation. (k) "Director" shall mean a member of the Board. (l) "Disability" shall mean: (1) any physical or mental condition that would qualify a Participant for a disability benefit under the long-term disability plan maintained by the Company and applicable to him or her; (2) when used in connection with the exercise of an Incentive Stock Option following termination of employment, disability within the meaning of Section 22(e)(3) of the Code, or (3) such other condition as may be determined in the sole discretion of the Committee to constitute Disability. (m) "Effective Date" shall mean the effective date of the Initial Public Offering, provided that the Plan had been approved by the stockholders of the Company prior to the Initial Public Offering. (n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (o) "Executive Officer" shall have the meaning set forth in Rule 3b-7 promulgated under the Exchange Act. (p) The "Fair Market Value" of a share of Stock as of a particular date shall mean the closing sales price per share of Stock on the national securities exchange on which the Stock is principally traded, for the last preceding date on which there was a sale of such Stock on such exchange. (q) "Incentive Stock Option" shall mean an Option that is an "incentive stock option" within the meaning of Section 422 of the Code, or any successor provision, and that is designated by the Committee as an Incentive Stock Option. (r) "Initial Public Offering" shall mean the initial public offering of shares of Stock of the Company, as more fully described in the preliminary Registration Statement on Form S-1 in tended to be filed with the Securities and Exchange Commission on or about December 23, 1998, as such Registration Statement may be amended from time to time. (s) "Issue Date" shall mean the date established by the Company on which certificates representing Restricted Stock shall be issued by the Company pursuant to the terms of Section 8(e). (t) "Non-Employee Director" shall mean a member of the Board who is not and has never been an employee of the Company. (u) "Non-Qualified Option" shall mean an Option other than an Incentive Stock Option. (v) "Option" shall mean an option to purchase a number of shares of Stock granted pursuant to Section 7. (w) "Other Stock-Based Award" shall mean an award granted pursuant to Section 9 hereof. (x) "Partial Exercise" shall mean an exercise of an Award for less than the full extent permitted at the time of such exercise. (y) "Participant" shall mean (1) an employee, consultant or Non-Employee Director of the Company to whom an Award is granted hereunder and (2) any such persons successors, heirs, executors and administrators, as the case may be, in such capacity. (z) "Performance Goals" means performance goals based on one or more of the following criteria: (i) pre-tax income or after-tax income, (ii) operating profit, (iii) return on equity, as sets, capital or investment, (iv) earnings or book value per share, (v) sales or revenues, (vi) operating expenses, (vii) Stock price appreciation and (viii) implementation or completion of critical projects or processes. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company, a Subsidiary or Affiliate, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no vesting will occur, levels of performance at which specified vesting will occur, and a maximum level of performance at which full vesting will occur. Each of the foregoing Performance Goals shall be determined in accordance with generally accepted accounting principles and shall be subject to certification by the Committee; provided that the Committee shall have the authority to make equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any Subsidiary or Affiliate or the financial statements of the Company or any Subsidiary or Affiliate, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles. (aa) "Person" shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (1) the Company, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (3) an underwriter temporarily holding securities pursuant to an offering of such securities or (4) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of shares of Stock of the Company. (bb) "Plan" means the priceline.com 1999 Omnibus Plan, as amended from time to time. (cc) "Reload Option" shall mean a Non-Qualified Stock Option granted pursuant to Section 7(c)(5). (dd) "Restricted Stock" shall mean a share of Stock which is granted pursuant to the terms of Section 8 hereof and which is subject to the restrictions set forth in Section 8(c). (ee) "Rule 16b-3" shall mean the Rule 16b-3 promulgated under the Exchange Act, as amended from time to time. (ff) "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. (gg) "Stock" means shares of the common stock, par value $.01 per share, of the Company. (hh) "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company if, at the time of granting of an Award, each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. (ii) "Vesting Date" shall mean the date established by the Committee on which Restricted Stock may vest. 3. Stock Subject to the Plan. The maximum number of shares of Stock reserved for the grant or settlement of Awards under the Plan shall be 25,375,000 shares, subject to adjustment as provided herein. No more than 7,500,000 shares of Stock may be awarded in respect of Options, no more than 2,500,000 shares of Stock may be awarded in respect of Restricted Stock and no more than 5,000,000 shares of Stock may be awarded in respect of Other Stock-Based Awards to a single individual in any given year during the life of the Plan, which amounts shall be subject to adjustment as provided herein. Determinations made in respect of the limitation set forth in the preceding sentence shall be made in a manner consistent with Section 162(m) of the Code. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise. If any shares subject to an Award are forfeited, canceled, exchanged or surrendered or if an Award otherwise terminates or expires without a distribution of shares to the holder of such Award, the shares of Stock with respect to such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for Awards under the Plan. Except as provided in an Award Agreement, in the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Stock, or other property), recapitalization, Stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of holders of Awards under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (i) the number and kind of shares of Stock or other property (including cash) that may thereafter be issued in connection with Awards, (ii) the number and kind of shares of Stock or other property (including cash) issued or issuable in respect of outstanding Awards, (iii) the exercise price, grant price, or purchase price relating to any Award; provided that, with respect to Incentive Stock Options, such adjustment shall be made in accordance with Section 424(h) of the Code, (iv) the Performance Goals and (v) the individual limitations applicable to Awards. 4. Administration of the Plan. The Plan shall be administered by the Committee. The Committee shall have the authority in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, with out limitation, the authority to grant Awards; to determine the persons to whom and the time or times at which Awards shall be granted; to determine the type and number of Awards to be granted, the number of shares of Stock to which an Award may relate and the terms, conditions, restrictions and Performance Goals relating to any Award; to determine whether, to what extent, and under what circumstances an Award may be settled, canceled, forfeited, exchanged, or surrendered; to make adjustments in the Performance Goals in recognition of unusual or non-recurring events affecting the Company or the financial statements of the Company (to the extent not inconsistent with Section 162(m) of the Code, if applicable), or in response to changes in applicable laws, regulations, or accounting principles; to construe and interpret the Plan and any Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of Agreements; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee may, in its absolute discretion, without amendment to the Plan, (a) accelerate the date on which any Option granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option, (b) accelerate the Vesting Date or waive any condition imposed hereunder with respect to any Restricted Stock and (c) otherwise adjust any of the terms applicable to any Award; provided, however, in each case, that in the event of the occurrence of a Change in Control, the provisions of Section 10 hereof shall govern vesting and exercisability schedule of any Award granted hereunder. No member of the Committee shall be liable for any action, omission or determination relating to the Plan, and the Company shall indemnify (to the extent permitted under Delaware law) and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any action, omission or determination relating to the Plan, unless, in either case, such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company. 5. Eligibility. Incentive Stock Options shall be granted only to key employees (including officers and directors who are also employees) of the Company, its parent or any of its Subsidiaries. All other Awards may be granted to officers, independent contractors, key employees and non-employee directors of the Company or of any of its Subsidiaries and Affiliates. 6. Awards Under the Plan; Non-Employee Director Grants (a) Grants. The Committee may grant Options, Restricted Stock and Other Stock-Based Awards to Participants in such amounts and on such terms and conditions, not inconsistent with the Plan, as the Committee shall determine in its sole and absolute discretion. (b) Non-Employee Director Grants. Unless determined otherwise by the Committee in its sole and absolute discretion, and without further action by the Board or the stockholders of the Company, each Non-Employee Director shall, subject to the terms of the Plan, be granted a Non-Qualified Option to purchase (1) 20,000 shares of Stock as of the date the Non-Employee Director begins service as a Non-Employee Director and (2) an additional Option to purchase 10,000 shares of Stock as of the first business day following each annual meeting of stockholders of the Company, provided that the individual is a Non-Employee Director on such date. Unless otherwise determined by the Committee at the time of grant, each such Option shall be for a ten (10) year term, shall become exercisable as to one-third of the shares subject to the Option on the first anniversary of the date of grant and as to the balance monthly in equal installments over the next twenty-four months following such first anniversary, shall be granted at a per share exercise price equal to the Fair Market Value and otherwise be in accordance with Section 7 of this Plan. (c) Agreements. Each Award granted under the Plan shall be evidenced by an Agreement that shall contain such provisions as the Committee may, in its sole and absolute discretion, deem necessary or desirable. By accepting an Award, a Participant thereby agrees that the Award shall be subject to all terms and provisions of the Plan and the applicable Agreement. (d) Notwithstanding the above, no grants under Section (b) above shall be made to the extent it would exceed the limitations set forth in Section 3 of the Plan with any grants then due being cut back pari passu and such non-made grants automatically being made at such time as they may be made under Section 3 (other than as a result of an amendment thereof). 7. Options. (a) Identification of Options. Each Option shall be clearly identified in the applicable Agreement as either an Incentive Stock Option or a Non-Qualified Option. (b) Exercise Price. Each Agreement with respect to an Option shall set forth the exercise price per share of Stock payable by the grantee to the Company upon exercise of the Option. The exercise price per share of Stock shall be determined by the Committee; provided, however, that in no case shall an Option have an exercise price per share of Stock that is less than the Fair Market Value of a share of Stock on the date the Option is granted. (c) Term and Exercise of Options. (1) Unless the applicable Agreement provides otherwise, an Option shall become cumulatively exercisable as to 33 1/3% percent of the Units covered thereby on each of the first, second and third anniversaries of the date of grant. The Committee shall determine the expiration date of each Option; provided, however, that no Option shall be exercisable more than 10 years after the date of grant. Unless the applicable Agreement provides otherwise and except in the event of a Change in Control, no Option shall be exercisable prior to the first anniversary of the date of grant. (2) An Option may be exercised for all or any portion of the Stock as to which it is exercisable, provided that no Partial Exercise of an Option shall be for an aggregate exercise price of less than $100.00. The Partial Exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof. (3) An Option shall be exercised by delivering notice to the Company's principal office, to the attention of its Secretary. Such notice shall be accompanied by the applicable Agreement, shall specify the number of shares of Stock with respect to which the Option is being exercised and the effective date of the proposed exercise and shall be signed by the Participant or other person then having the right to exercise the Option. Payment for Stock purchased upon the exercise of an Option shall be made on the effective date of such exercise by one or a combination of the following means: (i) in cash or by personal check, certified check, bank cashier's check or wire transfer; (ii) subject to the approval of the Committee, in Stock owned by the Participant for at least six months prior to the date of exercise and valued at their Fair Market Value on the effective date of such exercise; or (iii) subject to the approval of the Committee, by such other provision as the Committee may from time to time authorize. (4) Certificates for Stock purchased upon the exercise of an Option shall be issued in the name of the Participant or other per son entitled to receive such Stock, and delivered to the Participant or such other person as soon as practicable following the effective date on which the Option is exercised. (5) The Committee shall have the authority to specify, at the time of grant or, with respect to Non-Qualified Options, at or after the time of grant, that a Participant shall be granted a new Non-Qualified Option (a "Reload Option") for a number of shares of Stock equal to the number of shares of Stock surrendered by the Participant upon exercise of all or a part of an Option in the manner described in Section 7(c)(3)(ii) above, subject to the availability of Stock under the Plan at the time of such exercise; provided, however, that no Reload Option shall be granted to a Non-Employee Director. Reload Options shall be subject to such conditions as may be specified by the Committee in its discretion, subject to the terms of the Plan. (d) Limitations on Incentive Stock Options. (1) To the extent that the aggregate Fair Market Value of Stock of the Company with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and any other option plan of the Company (or any Subsidiary) shall exceed $100,000, such Options shall be treated as Non-Qualified Options. Such Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted. (2) No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant; such individual owns (or is attributed to own by virtue of the Code) Stock possessing more than ten (10) percent of the total combined voting power of all classes of stock of the Company or any Subsidiary unless (i) the exercise price of such Incentive Stock Option is at least 110 percent of the Fair Market Value of a share of Stock at the time such Incentive Stock Option is granted and (ii) such Incentive Stock Option is not exercisable after the expiration of five years from the date such Incentive Stock Option is granted. (e) Effect of Termination of Employment. (1) Unless the applicable Agreement provides otherwise, in the event that the employment, directorship or consultancy (together, hereinafter referred to as "employment") of a Participant with the Company shall terminate for any reason other than Cause, Disability or death, (i) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable until the date that is 90 days after such termination, on which date they shall expire, and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The 90 day period described in this Section 7(e)(1) shall be extended to one year from such termination, in the event of the Participant's death during such 90 day period. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term. (2) Unless the applicable Agreement provides otherwise, in the event that the employment of a Participant with the Company shall terminate on account of the Disability or death of the Participant, (i) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the first anniversary of such termination, on which date they shall expire, and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no Option shall be exercisable after the expiration of its term. (3) In the event of the termination of a Participant's employment for Cause, all out standing Options granted to such Participant shall expire as of the commencement of business on the date of such termination. 8. Restricted Stock. (a) Issue Date And Vesting Date. At the time of the grant of Restricted Stock, the Committee shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such shares of Restricted Stock. The Committee may divide such shares of Restricted Stock into classes and assign a different Issue Date and/or Vesting Date for each class. If the grantee is employed by the Company on an Issue Date (which may be the date of grant), the specified number of shares of Restricted Stock shall be issued in accordance with the provisions of Section 8(e). Provided that all conditions to the vesting of Restricted Stock imposed pursuant to Section 8(b) are satisfied, and except as provided in Section 8(g), upon the occurrence of the Vesting Date with respect to Restricted Stock, such Restricted Stock shall vest and the restrictions of Section 8(c) shall lapse. (b) Conditions to Vesting. At the time of the grant of Restricted Stock, the Committee may impose such restrictions or conditions to the vesting of such Restricted Stock as it, in its absolute discretion, deems appropriate, including the attainment of Performance Goals. (c) Restrictions on Transfer Prior to Vesting. Prior to the vesting of any Restricted Stock, no transfer of a Participant's rights with respect to such Restricted Stock, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such Restricted Stock, and all of the rights related thereto, shall be forfeited by the Participant. (d) Dividends on Restricted Stock. The Committee in its discretion may require that any dividends or distributions paid on Restricted Stock be held in escrow until all restrictions on such Restricted Stock has lapsed. (e) Issuance of Certificates. (1) Reasonably promptly after the Issue Date with respect to Restricted Stock, the Company shall cause to be issued a certificate, registered in the name of the Participant to whom such shares of Restricted Stock were granted, evidencing such shares of Restricted Stock; provided that the Company shall not cause such a certificate to be issued unless it has received a power of attorney duly endorsed in blank with respect to such shares of Restricted Stock. Each such certificate shall bear the following legend: THE TRANSFERABILITY OF THIS CERTIFICATE AND THE STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS AND CONDITIONS (INCLUDING FORFEITURE PROVISIONS AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE PRICELINE.COM 1999 OMNIBUS PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER OF SUCH STOCK AND PRICELINE.COM. A COPY OF THE 1999 OMNIBUS PLAN AND AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY. Such legend shall not be removed until such Stock vests pursuant to the terms hereof. (2) Each certificate issued pursuant to this Section 8(e), together with the powers relating to the Restricted Stock evidenced by such certificate, shall be held by the Company unless the Committee determines otherwise. (f) Consequences of Vesting. Upon the vesting of any Restricted Stock pursuant to the terms hereof, the restrictions of Section 8(c) shall lapse with respect to such Restricted Stock. Reasonably promptly after any Restricted Stock vests, the Company shall cause to be delivered to the Participant to whom such shares of Restricted Stock were granted a certificate evidencing such Stock, free of the legend set forth in Section 8(e). (g) Effect of Termination of Employment. Subject to such other provision as the Committee may set forth in the applicable Agreement, and to the Committee's amendment authority pursuant to Section 4, upon the termination of a Participant's employment for any reason other than Cause, any and all Stock to which restrictions on transferability apply shall be immediately forfeited by the Participant and transferred to, and reacquired by, the Company; provided that if the Committee, in its sole discretion, shall within thirty (30) days after such termination of employment notify the Participant in writing of its decision not to terminate the Participant's rights in such shares of Stock, then the Participant shall continue to be the owner of such shares of Stock subject to such continuing restrictions as the Committee may prescribe in such notice. In the event of a forfeiture of Stock pursuant to this section, the Company shall repay to the Participant (or the Participant's estate) any amount paid by the Participant for such shares of Stock. In the event that the Company requires a return of Stock, it shall also have the right to require the return of all dividends or distributions paid on such Stock, whether by termination of any escrow arrangement under which such dividends or distributions are held or otherwise. (1) In the event of the termination of a Participant's employment for Cause, all shares of Restricted Stock granted to such Participant which have not vested as of the date of such termination shall immediately be returned to the Company, together with any dividends or distributions paid on such shares of Stock, in return for which the Company shall repay to the Participant any amount paid by the Participant for such shares of Stock. (h) Special Provisions Regarding Awards. Notwithstanding anything to the contrary contained herein, Restricted Stock granted pursuant to this Section 8 to Executive Officers may be based on the attainment by the Company (or a Subsidiary or division of the Company if applicable) of Performance Goals pre-established by the Committee. 9. Other Stock-Based Awards. Other forms of Awards valued in whole or in part by reference to, or otherwise based on, shares of Stock ("Other Stock-Based Awards") may be granted either alone or in addition to other Awards under the Plan. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock-Based Awards shall be granted, the number of shares of Stock to be granted pursuant to such Other Stock-Based Awards and all other conditions of such Other Stock-Based Awards, including the attainment of Performance Goals. 10. Change in Control. Notwithstanding anything in the Plan to the contrary, upon the occurrence of a Change in Control, any Award issued prior to April 25, 2000 carrying a right to exercise that was not previously exercisable and vested, shall become fully exercisable and vested and the restriction and forfeiture conditions applicable to any other such Award shall lapse and such Award shall be deemed fully vested. In the case of any Award made on or after the aforesaid date, no acceleration of exercisability, vesting or lapsing shall occur on a Change in Control except to the extent, if any, provided in the specific Award Agreement or as otherwise determined by the Committee or the Board. Notwithstanding anything in the Plan to the contrary, upon the occurrence of a Change in Control, the purchaser(s) of the Company's assets or stock may, in his, her, or its discretion, deliver to the holder of an Award the same kind of consideration that is delivered to the stockholders of the Company as a result of such sale, conveyance or Change in Control, or the Board may cancel all outstanding Options in exchange for consideration in cash or in kind which consideration in both cases shall be equal in value to the higher of (i) the Fair Market Value of those shares of Stock or other securities the holder of such Option would have received had the Option been exercised and no disposition of the shares acquired upon such exercise been made prior to such sale, conveyance or Change in Control, less the exercise price there for, and (ii) the Fair Market Value of those shares of Stock or other securities the holder of the Option would have received had the Option been exercised and no disposition of the shares acquired upon such exercise been made immediately following such sale, conveyance or Change in Control, less the exercise price therefor. Upon dissolution or liquidation of the Company, all Options and other Awards granted under this Plan shall terminate, but each holder of an Option shall have the right, immediately prior to such dissolution or liquidation, to exercise his or her Option to the extent then exercisable. 11. Rights as a Stockholder. No person shall have any rights as a stockholder with respect to any shares of Stock covered by or relating to any Award until the date of issuance of a certificate with respect to such shares of Stock. Except as otherwise expressly provided in Section 3(b), no adjustment to any Award shall be made for dividends or other rights prior to the date such certificate is issued. 12. No Special Employment Rights; No Right to Award. Nothing contained in the Plan or any Agreement shall confer upon any Participant any right with respect to the continuation of employment by the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Participant. No person shall have any claim or right to receive an Award hereunder. The Committee's granting of an Award to a participant at any time shall neither require the Committee to grant any other Award to such Participant or other person at any time or preclude the Committee from making subsequent grants to such Participant or any other person. 13. Securities Matters. (a) The Company shall be under no obligation to effect the registration pursuant to the Securities Act of any interests in the Plan or any Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing Stock pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Stock are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing shares of Stock pursuant to the terms hereof, that the recipient of such shares of Stock make such agreements and representations, and that such certificates bear such legends, as the Committee, in its sole discretion, deems necessary or desirable. (b) The transfer of any shares of Stock hereunder shall be effective only at such time as counsel to the Company shall have determined that the issuance and delivery of such shares of Stock is in compliance with all applicable laws, regulations of governmental authority, the requirements of any securities exchange on which shares of Stock are traded. The Committee may, in its sole discretion, defer the effectiveness of any transfer of Stock hereunder in order to allow the issuance of such Stock to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Committee shall inform the Participant in writing of its decision to defer the effectiveness of a transfer. During the period of such deferral in connection with the exercise of an Option, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto. 14. Withholding Taxes. Whenever shares of Stock are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. With the approval of the Committee, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of Stock having a value equal to the amount of tax to be withheld. Such shares of Stock shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is deter mined (the "Tax Date"). Fractional shares of Stock amounts shall be settled in cash. Such a withholding election may be made with respect to all or any portion of the Stock to be delivered pursuant to an Award. 15. Notification of Election Under Section 83(b) of the Code. If any Participant shall, in connection with the acquisition of Stock under the Plan, make the election permitted under Section 83(b) of the Code (i.e., an election to include in gross income in the year of transfer the amounts specified in Section 83(b)), such Participant shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service, in addition to any filing and a notification required pursuant to regulation issued under the authority of Section 83(b) of the Code. 16. Notification Upon Disqualifying Disposition Under Section 421(b) of the Code. Each Participant shall notify the Company of any disposition of Stock issued pursuant to the exercise of an Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within 10 days of such disposition. 17. Amendment or Termination of the Plan. The Board may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that stockholder approval shall be required if and to the extent the Board determines that such approval is appropriate for purposes of satisfying Section 162(m) or 422 of the Code or is otherwise required by law or applicable stock exchange requirements. Awards may be granted under the Plan prior to the receipt of such approval but each such grant shall be subject in its entirety to such approval and no award may be exercised, vested or otherwise satisfied prior to the receipt of such approval. Nothing herein shall restrict the Committee's ability to exercise its discretionary authority pursuant to Section 4, which discretion may be exercised without amendment to the Plan. No action hereunder may, without the consent of a Participant, reduce the Participant's rights under any outstanding Award. 18. Transfers Upon Death; Nonassignability. Upon the death of a Participant, outstanding Awards granted to such Participant may be exercised only by the executor or administrator of the Participant's estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution. No transfer of an Award by will or the laws of descent and distribution shall be effective to bind the Company unless the Committee shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Award that are or would have been applicable to the Participant and to be bound by the acknowledgments made by the Participant in connection with the grant of the Award. During a Participant's lifetime, the Committee may permit the transfer, assignment or other encumbrance of an outstanding Option unless (y) such Option is an Incentive Stock Option and the Committee and the Participant intend that it shall retain such status, or (z) such Option is meant to qualify for the exemptions available under Rule 16b-3, nontransferability is necessary under Rule 16b-3 in order for the award to so qualify and the Committee and the Participant intend that it shall continue to so qualify. Subject to any conditions as the Committee may prescribe, a Participant may, upon providing written notice to the Secretary of the Company, elect to transfer any or all Options granted to such Participant pursuant to the Plan to members of his or her immediate family, including, but not limited to, children, grandchildren and spouse or to trusts for the benefit of such immediate family members or to partnerships in which such family members are the only partners; provided, however, that no such transfer by any Participant may be made in exchange for consideration. 19. Expenses and Receipts. The expenses of the Plan shall be paid by the Company. Any proceeds received by the Company in connection with any Award will be used for general corporate purposes. 20. Failure to Comply. In addition to the remedies of the Company elsewhere provided for herein, failure by a Participant (or beneficiary) to comply with any of the terms and conditions of the Plan or the applicable Agreement, unless such failure is remedied by such Participant (or beneficiary) within ten days after notice of such failure by the Committee, shall be grounds for the cancellation and forfeiture of such Award, in whole or in part, as the Committee, in its absolute discretion, may determine. 21. Effective Date and Term of Plan. The Plan became effective on the Effective Date and, unless earlier terminated by the Board, the right to grant Awards under the Plan will terminate on the tenth anniversary of the Effective Date. Awards outstanding at Plan termination will remain in effect according to their terms and the provisions of the Plan. 22. Applicable Law. Except to the extent preempted by any applicable federal law, the Plan will be construed and administered in accordance with the laws of the State of Delaware, without reference to its principles of conflicts of law. 23. Participant Rights. No Participant shall have any claim to be granted any award under the Plan, and there is no obligation for uniformity of treatment for Participants. Except as provided specifically herein, a Participant or a transferee of an Award shall have no rights as a stockholder with respect to any shares of Stock covered by any award until the date of the issuance of a certificate or certificates to him or her for such shares of Stock. 24. Unfunded Status of Awards. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Agreement shall give any such Participant any rights that are greater than those of a general creditor of the Company. 25. Beneficiary. A Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, the executor or administrator of the Participant's estate shall be deemed to be the grantee's beneficiary. 26. Interpretation. The Plan is designed and intended to comply with Rule l6b-3 and, to the extent applicable, with Section 162(m) of the Code, and all provisions hereof shall be construed in a manner to so comply. 27. Severability. If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan. EX-10 4 0004.txt EXHIBIT 10.31 - PROMISSORY NOTE EXHIBIT 10.31 PROMISSORY NOTE $3,000,000.00 May 18, 2000 Norwalk, Connecticut FOR VALUE RECEIVED, the undersigned, DANIEL H. SCHULMAN, an individual residing at 27 Valleyview Road, Warren, New Jersey 07059 (the "Borrower"), hereby promises to pay to the order of PRICELINE.COM INCORPORATED, a Delaware corporation with an office located at 800 Connecticut Avenue, Norwalk, Connecticut 06854 (the "Company"), the aggregate principal amount of THREE MILLION and 00/100 DOLLARS ($3,000,000.00), together with interest on the unpaid principal amount hereunder accruing annually at 6.4%. Subject to any prepayment obligations hereunder, interest shall be payable in full on the Maturity Date (as defined below). The unpaid principal amount hereunder, together with all accrued but unpaid interest, shall be due and payable in full on July 2, 2004 (the "Maturity Date"). Payment of principal and interest shall be made to the Company at the address indicated above, or at such other address as the Company may specify in writing to the Borrower. The Borrower shall pay to the Company a mandatory prepayment of accrued interest hereunder and principal upon the exercise, at any time on or prior to July 2, 2004, of one or more Company stock options granted pursuant to the Employment Agreement dated June 14, 1999, by and between the Company and Borrower (the "Employment Agreement") or granted to the Borrower thereafter under the Company's 1999 Omnibus Plan, or any options granted in exchange, replacement or substitution therefor, in an amount equal to fifty percent (50%) of Borrower's pretax profits. Within ten (10) Business Days (as hereinafter defined) following each date that the Borrower shall exercise options referred to above, Borrower shall deliver a mandatory prepayment in reduction of the accrued interest and outstanding principal balance of this Note in an amount required by the first sentence of this paragraph. Each prepayment, as provided herein, shall be applied first against accrued but unpaid interest under this Note and then in reduction of the outstanding principal amount hereof until the indebtedness of this Note is paid in full. "Business Day" shall mean any day on which NASDAQ is not authorized or required to close and trading of securities is permitted. The Borrower shall have the right to prepay this Note in whole or in part at any time, without premium or penalty, but with interest accrued on the principal being paid to the date of such prepayment. Notwithstanding anything contained herein to the contrary, the Borrower shall be released of the outstanding debt evidenced by this Note, including all accrued but unpaid interest, and the same shall be forgiven and extinguished upon a "Change in Control", or the death, "Termination for Disability", "Termination without Cause", or "Termination for Good Reason" of the Borrower (each such term being used as defined and used in the Employment Agreement), or immediately following expiration of the Maturity Date provided that the Borrower's employment with the Company has not been terminated for "Cause" or by the Borrower without "Good Reason" prior thereto (each such term being used as defined in the Employment Agreement). The Borrower shall be obligated to prepay this Note in whole, plus accrued interest, on the date 30 days following the termination of Borrower's employment by the Company for "Cause" or by the Borrower voluntarily without "Good Reason". In the event of the default in the payment of principal or interest due hereunder when the same shall be due and payable and such default shall continue for thirty (30) days after receipt by the Borrower of written notice thereof (a "Default"), then, the Company or any subsequent holder of this Note, at its option, may, by written notice to the borrower, declare the entire then unpaid principal amount of this Note and the interest accrued and unpaid thereon to be immediately due and payable. If a Default occurs, the Company or any subsequent holder of this Note, may proceed to protect and enforce its rights either by suit in equity and/or by action at law, or by other appropriate proceedings. Notwithstanding anything to the contrary set forth in the Employment Agreement and provided that no issue is present as to the basis of any termination of employment by the Borrower with the Company, the Borrower promises to pay the Company's reasonable attorneys' fees and other costs of collection of this Note or any portion thereof, including the costs of suit if a suit shall be instituted upon this Note and the Company shall prevail in such suit. No delay or omission of the Company or any subsequent holder of this Note, to exercise any right hereunder, whether before or after the happening of a Default, shall impair any such right or shall operate as a waiver thereof or of a Default hereunder nor shall any single or partial exercise thereof preclude any other or further exercise thereof, or the exercise of any other right. The Borrower hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement hereof and consents that no indulgence, and no substitution, release or surrender of collateral, and no discharge or release of any other party primarily or secondarily liable hereon, shall discharge or otherwise affect the liability of the Borrower. Anything herein contained to the contrary notwithstanding, the maximum rate of interest payable with respect to the unpaid principal amount hereof shall not exceed the maximum rate allowable under such provisions of applicable law. The rights and benefits of the Company hereunder shall inure to the benefit of its successors and assigns. This Note shall be construed and interpreted in accordance with the laws of the State of Delaware. Except as otherwise provided in this Note, any dispute arising under this Note shall be resolved in accordance with the terms and procedures set forth in Section 15 of the Employment Agreement. /s/ Daniel H. Schulman ---------------------- DANIEL H. SCHULMAN EX-10 5 0005.txt EXHIBIT 10.32 - AMENDMENT TO EMPLOYMENT EXHIBIT 10.32 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated June 12, 2000 ("Amendment"), to the Amended and Restated Employment Agreement, dated as of August 15, 1998 ("Employment Agreement") between priceline.com Incorporated, a Delaware corporation ("priceline") and Richard Braddock ("Employee"). WHEREAS, priceline and Employee desire to amend the Employment Agreement to reflect certain changes in Employee's status and duties, as approved by priceline's Board of Directors. NOW THEREFRE, intending to be legally bound thereby, the parties agree as follows: 1. Sections 1 and 2 of the Employment Agreement are hereby amended to read in their entirety as follows: "1. Employment. (a) priceline hereby agrees to employ the Employee, and the Employee hereby agrees to serve, as the Chairman of the Board of Directors of priceline upon the terms subject to the conditions set forth herein. (b) During the Term (as defined herein), the Employee shall serve as the Chairman of the Board of Directors of priceline, shall be an employee of priceline and shall have such responsibilities, duties and authority consistent with such position as may from time to time be determined by the Board of Directors of priceline. (c) During the Term, the Employee shall diligently and faithfully serve priceline and shall devote a substantial portion of his working time and efforts to the business and affairs of priceline at a location in the greater New York metropolitan area. Priceline agrees that the Employee may retain his current position and responsibilities as non-executive Vice Chairman of Walker Digital LLC and may also serve as non-executive Chairman of affiliates of Walker Digital LLC from time to time. 2. Term. Subject to Section 4 hereof, the term of employment by priceline of the Employee pursuant to this Agreement (the "Term") is for a period commencing on August 15, 1998 and terminating on the third anniversary thereof; provided, that the Term shall automatically be extended on the third anniversary and each anniversary thereafter for successive one year terms unless either party gives not less than 180 days' prior notice of termination of the Agreement effective on the next such anniversary." 2. This Amendment shall be effective as of the date hereof and the Employment Agreement, as so amended shall remain in full force and effect. The Employment Agreement, as amended hereby, the Option Agreement and the Confidentiality Agreement (each as defined in the Employment Agreement) constitute the sole and exclusive agreements of the parties with respect to Employee's continuing employment with and obligations to priceline and supersede all prior agreements or arrangements of the parties, whether written or oral, relating to Employee's employment with and obligations to priceline. IN WITNESS WHREOF, the parties hereto have executed this Amendment as of the date first above written. EMPLOYEE /s/ Richard Braddock ------------------------- Richard Braddock PRICELINE.COM INCORPORATED /s/ Daniel H. Schulman ------------------------- Daniel H. Schulman President EX-10 6 0006.txt EXHIBIT 10.33 - AGREEMENT OF LEASE EXHIBIT 10.33 L E A S E AGREEMENT OF LEASE, made as of May 1, 2000, between RICHARD A. BANKS of the Town of Wilton, County of Fairfield and State of Connecticut, RUTH BANKS and FIRST UNION TRUSTEES u/w of ROBERT O. BANKS, of the Town of Wilton, County of Fairfield and State of Connecticut, KIMBERLY BANKS FAWCETT, of the Town of Ridgewood, County of Bergen and State of New Jersey and the RAU FAMILY LIMITED PARTNERSHIP, acting herein by KAREN STEINHAUS, General Partner, of the Town of New Canaan, County of Fairfield and State of Connecticut, LANDLORD, and PRICELINE.COM INCORPORATED, a Delaware corporation with offices at 800 Connecticut Avenue, Norwalk, Connecticut, acting herein by Marlene Beeler, its Senior Vice President of Operations, duly authorized, TENANT. WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the premises consisting of approximately 47,211 square feet which Tenant hereby confirms ("Building" or "Premises") located at 141 Danbury Road, Wilton, Connecticut ("Real Property"), as shown on Exhibit A annexed hereto (collectively referred to as "Demised Premises" ) for the term of ten (10) years (or until such term shall sooner cease and expire as hereinafter provided) to commence on the 1st day of May, 2000 ("Lease Commencement Date"), and to end on the 30th day of April, 2010 ("Term"), for the total Term base rent as stated in paragraph 42 of the Rider to Lease annexed hereto and made a part hereof which Tenant agrees to pay in monthly installments in advance each and every month during said term without any set off or deduction whatsoever, at the office of the Landlord or at such other place as the Landlord may designate, as follows: Banks-Rau Realty c/o Richard A. Banks 9 Banks Drive Wilton, CT 06897 The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenant as follows: 1. USE AND OCCUPANCY: Tenant may use and occupy the Demised Premises for general office use, information technology, computer center and research and development and for no other purpose without the written consent of Landlord which consent will not be unreasonably withheld, conditioned or delayed. Tenant will not at any time use or occupy the Demised Premises in violation of any certificate of occupancy which may have been issued for the building of which the demised premises form a part. In the event that any department, agency, commission or board of any state or locality shall hereafter at any time declare by notice, violation, order or in any other official manner whatsoever that the premises hereby demised are used for a purpose which is a violation of such certificate of occupancy, or should Tenant allow said premises to be used for any illegal or immoral purposes, or should he do, or suffer to be done, in or about said premises any act or thing which may be a nuisance, or damage to the Landlord or Landlord's tenants, the occupants of adjoining property or the neighborhood, then Tenant shall, upon thirty (30) days' written notice from Landlord, immediately discontinue any such use of said premises. Failure by Tenant to discontinue such use after such notice shall be considered a default in the fulfillment of a covenant of this lease and Landlord shall have the right to exercise any and all rights and privileges and remedies given to Landlord, in this lease. If alterations or additions are needed to permit lawful conduct of Tenant's business or to comply with the certificate of occupancy, the same shall be made by and at the sole expense of Tenant. 2. ALTERATIONS: Tenant may make alterations, installations, additions or improvements in or to the demised premises, or in or to the building of which they form a part, including, but not limited to, an air conditioning or cooling system unit or part thereof or other apparatus of like or other nature, provided Tenant obtains Landlord's prior written consent (except as otherwise provided in this Lease), which will not be unreasonably withheld, and then only by contractors or mechanics licensed in the State of Connecticut, provided they are bonded. Such consent shall not be required by Landlord if such improvements are non-structural in nature and would not cost in excess of $75,000.00 provided that Tenant gives prior written notice to Landlord of such work. All other improvements, which are submitted to Landlord shall be approved within twenty (20) days or such approval shall be deemed made. Landlord agrees to approve any such alterations provided they do not materially, adversely affect the structure or systems of the building or diminish the gross area of the building or violate any existing laws or regulations. Any denial shall include a detailed reason for said denial. All horizontal and vertical penetrations to roof or walls shall require Landlords written approval, however, Landlord shall be deemed to have consented to all penetrations that are done in compliance with Exhibit B annexed hereto and made a part hereof. Landlord agrees to cooperate with Tenant in seeking any necessary permits and to provide its written authorization for any governmental submissions or applications based on plans approved by Landlord pursuant to this paragraph. All alterations, decorations, installations, additions or improvements upon demised premises, made by Tenant, including all paneling, decorations, partitions, railings and the like, shall be done at Tenant's sole expense and, become the property of Landlord, (except trade fixtures not a part of the premises or as otherwise provided herein) and shall remain up and be surrendered with, said premises, as part thereof, at the end of the term or renewal term, as the case may be. Notwithstanding the above, Tenant shall be permitted to remove, at the end of its lease term, its generator installed by Tenant, raised computer flooring installed by Tenant and other computer or telecommunications equipment, and any equipment ancillary thereto provided however any damage caused by said removal shall be repaired and restored at Tenant's expense to its original condition and floors shall be recarpeted. Landlord has not conveyed to Tenant any rights in or to the outer side of the outside walls of the building of which the demised premises form a part, except as otherwise provided herein. During the term of this Lease, Tenant, at its sole cost and expense, shall have the right to install, maintain, use, repair and replace satellite antennas and related equipment and cabling on the roof of the Building in a location mutually agreeable to Landlord and Tenant, provided however, the location must be one where the satellite antennas can transmit and receive without interference. Tenant shall also have the right to install, maintain, use, repair and replace cabling for the satellite antennas throughout the chases and shafts of the Building. Upon the expiration or earlier termination of this Lease, Tenant shall remove all satellite antennas from the roof and repair any punctures or other damage caused to the roof as a result thereof. Tenant shall submit drawings and specifications of a licensed engineer certifying installation procedure including details of all penetrations through roof and/or walls. Upon written request to Landlord, Tenant, at Tenant's cost, shall have the right to cause the Building to be identified as the "priceline.com" building or such other name as may from time to time reflect its or any tenant's corporate identity, provided that the design, dimension, construction and location of such signage shall be in compliance with all applicable laws and regulations. The Tenant shall not suffer or permit any mechanics' or artisans' or other liens to be filed or placed or exist against the fee of the demised premises nor against the Tenant's leasehold interest in said premises by reason of work, labor, services or materials supplied or claimed to have been supplied to the Tenant or anyone holding the demised premises or any part thereof through or under the Tenant, and nothing in this lease contained shall be deemed or construed in any way as constituting the consent or request of the Landlord, expressed or implied by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishings of any materials for any specific improvements, alteration or repair of or to the demised premises or any part thereof, nor as giving the Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any mechanics' or other liens against the fee of the demised premises. If any such mechanic's lien shall at any time be filed against the demised premises, the Tenant shall cause the same to be discharged of record or bonded within thirty (30) days after the date of Tenant's notice of the filing of same, at Tenant's expense, or, in addition to any other right or remedy of the Landlord, the Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit in Court or bonding. Tenant shall repay to Landlord within fifteen (15) days of demand, all sums disbursed or deposited by Landlord pursuant to the provisions of this paragraph, including Landlord's costs and expenses, incurred in connection therewith including reasonable attorney's fees. 3. REPAIRS AND MAINTENANCE OF THE PROPERTY: Tenant shall take good care of the demised premises and the fixtures, heating, air conditioning, plumbing and electric systems, and repair any damage it causes the roof subject to subsection (a) below, exterior of the premises including painting and repointing of masonry and appurtenances located within the demised premises or its ceiling, and at its sole cost and expense maintain and repair and replace the same as and when needed to preserve them in good working order and condition. Landlord represents that the HVAC system shall be in good working order on the Occupancy Date. The Tenant shall redecorate, paint the interior of the Premises, and renovate the said premises as may be necessary to keep them in repair and good appearance. All damage or injury to the demised premises and to its fixtures, appurtenances and equipment or to the building of which the same form a part caused by the Tenant, or resulting from fire, explosion, air-conditioning unit or system, short circuits, flow or leakage of water, steam or by frost or by bursting or leaking of pipes or plumbing works, caused by the Tenant, or any damage or injury caused by the Tenant in moving in or out of the building, or installing or removing any of the Tenant's property or fixtures, or from any other cause of any other kind or nature whatsoever due to carelessness, omission, neglect, improper conduct or other cause of Tenant, its servants, employees, agents or licensees shall be repaired and restored promptly by Tenant at its sole cost and expense to the reasonable satisfaction of Landlord. If Tenant fails to make such repairs and restorations, same may be made by Landlord at Tenant's expense after thirty (30) days notice and cure period has expired. Provided that (i) Landlord exercises all reasonable efforts to minimize inconvenience to Tenant in connection therewith and (ii) no action taken by Landlord under this provision shall impede access to, reduce the size or otherwise diminish the utility of the Premises in any material respect, including any services provided thereto. There shall be no liability on the part of Landlord by reason of inconvenience, annoyance, or injury to business arising from Landlord, Tenant or others making any repairs, alterations or improvements in or to any portion of the building, or in or to fixtures, appurtenances, or equipment thereof, and no liability upon Landlord for failure of Landlord or others to make any repairs, alterations, additions, or improvements in or to any portion of the Building or of demised premises, or in or to the fixtures, appurtenances or equipment thereof except for Landlord's gross negligence and except as otherwise provided in this Lease. The Tenant further agrees to keep said premises and all parts thereof in a clean and sanitary condition and free from trash, inflammable material and other objectionable matter. Landlord covenants to make all necessary repairs and replacements to (i) the roof (unless caused by Tenant); (ii) all structural portions of the Building unless caused by Tenant's alterations or modifications to the Building or any other act of Tenant; (iii) any part of the Building if necessitated by Landlord's gross negligence. (a) Landlord agrees to make structural repairs and replacements required under the terms of this Lease and as follows: (i) If Landlord fails to undertake and commence the repairs or replacements required under this Lease, Tenant shall immediately notify Landlord in writing of the required and outstanding repairs. (ii) Landlord shall undertake and commence the required repairs or replacements within thirty (30) days after receipt of written notice from Tenant and shall make all diligent efforts to complete such replacements in a timely manner. (iii) If Landlord fails to fulfill its obligations as set forth herein, Tenant may undertake said repairs or replacements upon receipt by Landlord of a second notice from Tenant advising of its intent to commence or complete the required repairs or replacements. (iv) Anything in this Lease to the contrary notwithstanding, Landlord agrees that in the event of an emergency which: (A) poses the threat of imminent, severe damage to Tenant, Tenant's employees, Tenant's business or Tenant's property; and (B) necessitates prompt maintenance, repair, or replacement of items which are otherwise required by this Lease to be maintained, repaired, or replaced by Landlord, then Tenant may at its option proceed forthwith to make repairs, if Landlord is notified and fails to take required action within 48 hours. (b) (i) If Landlord fails to reimburse Tenant for such repair or replacement costs incurred by Tenant within twenty (20) days after written request from Tenant therefor (which request must be supported by paid receipts), Tenant may deduct the cost thereof from the rent otherwise payable hereunder. 4. COMPLIANCE WITH LAWS AND REGULATIONS: Tenant at its sole expense shall 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 with respect to demised premises or the use or occupation thereof. Tenant shall not do or permit to be done any act or thing upon said premises, which will invalidate or be in conflict with fire insurance policies covering the building of which demised premises form a part, and fixtures and property therein, and shall not do, or permit to be done, any act or thing upon said premises which shall or might subject Landlord to any liability or responsibility for injury to any person or persons or to property by reason of any business or operation being carried on upon said premises or from any other reason. Tenant at its sole expense shall comply with all rules, orders, regulations or requirements of the Board of Fire Underwriters, or any other similar body, and shall not do, or permit anything to be done, in or upon said premises, or bring or keep anything therein, except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization, or other authority having jurisdiction and then only in such quantity and manner of storage as not to solely and directly increase the rate for fire insurance applicable to the building, or use of the premises in a manner which solely and directly shall increase the rate of fire insurance on the building of which demised premises form a part, or on property located therein, over that in effect prior to this lease. If solely by reason of failure of Tenant to comply with the provisions of this paragraph, or by the Tenant's use and occupancy of the premises, or by reason of any act or omission on the part of the Tenant, the fire insurance rate shall be higher than it otherwise would be, then Tenant shall reimburse Landlord, as additional rent hereunder, for that part of all fire insurance premiums thereafter paid by Landlord, which shall have been charged because of such failure or use by Tenant and shall make such reimbursement upon the first day of the month following such outlay by Landlord. Landlord represents and warrants to Tenant that it has full right and authority to enter into this Lease and it has a current, valid certificate of occupancy for the Building and the Premises permitting Tenant's use as contemplated herein. Landlord represents that to the best of its knowledge, the Premises are in compliance with all current material laws, ordinances, rules, regulations, requirements and directives of federal, state and municipal government entities. 5. SUBORDINATION: This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises form a part, and to all renewals modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative and no further instrument or subordination shall be required by any mortgagee. In confirmation of such subordination, Tenant shall execute promptly any certificate that Landlord may request. In consideration of, and as an express condition precedent to, Tenant's agreement to permit its interest pursuant to this Lease to be subject and subordinate to the lien of any mortgage, Landlord shall deliver to Tenant or any subtenant provided the subtenant is paying at least the same base rent per square foot as the Tenant at the time of the subletting, a subordination, non-disturbance and attornment agreement executed and delivered by each of Landlord's mortgagees for the benefit of Tenant or by Landlord for the benefit of any subtenant and in recordable form reasonably satisfactory to Tenant and Tenant agrees to execute and deliver any such subordination, non-disturbance and attornment agreement. Any non-disturbance issued to a subtenant may provide that if subtenant is leasing less than entire building and Tenant is in default beyond any applicable notice and cure period giving Landlord the right to terminate this Lease, Landlord may terminate such sublease on 60 days written notice unless subtenant cures Tenant's default within sixty (60) days of the end of such notice period or if the default is a non-monetary default, subtenant commences a cure within such sixty (60) day period if such cure cannot be completed within said period. If Landlord elects not to request such subordination, non-disturbance and attornment agreement or fails to obtain such subordination, non-disturbance and attornment agreement, then this Lease shall not be subject and subordinate to such mortgage. Landlord agrees that neither the foreclosure of a mortgage, nor the institution of any suit, action, summary or other proceeding against the Landlord, or any successor to the Landlord, nor any foreclosure brought by any of Landlord's mortgagees to recover possession of the premises covered thereby, shall by operation of law or otherwise result in cancellation or termination of this Lease or the obligations of the Tenant hereunder. Upon Tenant's attornment to a successor Landlord, this Lease shall continue in full force and effect as a direct Lease between the successor in interest to Landlord ("Successor Landlord") and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease. Successor Landlord shall be liable for any previous act or omission of Landlord under this Lease and be subject to any offset not expressly provided in this Lease, which theretofore shall have accrued to Tenant against Landlord and shall be bound by any previous modification of this Lease or by any previous prepayment of rent. 6. LANDLORD'S LIABILITY: Except for Landlord's gross negligence, Landlord or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of building, nor for the loss or damage to any property of Tenant. Except for Landlord's gross negligence, Landlord or its agents shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, electricity, water, rain or snow or leaks from any part of said building or from the pipes, appliances or plumbing works or from the roof, street, or sub-surface or from any other place or by dampness or by any other cause of whatsoever nature, nor shall Landlord or its agents be liable for any such damage caused by other tenants or persons in said building or caused by operations in construction of any private, public or quasi-public work; nor shall Landlord be liable for any latent defect or any existing or future condition in the demised premises or in the building of which they form a part; nor shall the Landlord be liable by reason of inconvenience, annoyance or injury to business arising from the Landlord, the Tenant or others making any repairs, alterations or improvements in or to any portion of the building or in or to fixtures, appurtenances, or equipment thereof. Tenant shall reimburse and compensate Landlord as additional rent within five (5) days after rendition of a statement for all expenditures made by or damages or fines sustained or incurred by Landlord due to non-performance or non-compliance with or breach or failure to observe any term, covenant or condition of this lease upon Tenant's part to be kept, observed, performed or complied with. Tenant shall give immediate notice to Landlord in case of fire or accidents in the demised premises or in the building or defects therein or in any fixtures or equipment. 7. INSURANCE: The Tenant further agrees to purchase and keep in full force and effect, during the entire lease term hereof, at the Tenant's sole expense, public liability insurance and worker's compensation insurance in companies acceptable to the Landlord with an A rating or better, to protect both the Landlord and the Tenant against any liability for damages or injuries to persons or property incident to the use of or resulting from any accident in or about said premises, from any cause whatsoever, including any elevators, in the amounts of $l,000,000/$3,000,000, together with proper plate glass insurance, if available, it being the Tenant's responsibility hereunder to replace at its own expense any and all glass which may become broken in and on the demised premises. Certificates of all insurance policies required by any of the terms of this lease shall be promptly furnished to the Landlord naming the Landlord as an additional insured, and at Landlord's request, its mortgagees as an additional insured, and the Tenant shall submit to Landlord annually, in the anniversary date of this lease, copies of all paid premiums for any such insurance policies. The Tenant is to obtain a written obligation on the part of the insurance carriers to notify the Landlord in writing prior to any cancellation of insurance, and the Tenant agrees that if the Tenant does not keep such insurance in full force and effect the Landlord may take out the necessary insurance and pay the premium and the repayment thereof shall be after notice and thirty (30) day cure period deemed to be part of the rental and payable as such on the next day upon which the rent becomes due. Tenant agrees that it shall keep its fixtures, merchandise and equipment insured against loss or damage by fire with the usual extended coverage endorsements. It is understood and agreed that Tenant assumes all risk of damage to its own property arising from any cause whatsoever, including, without limitation, loss by theft or otherwise. Except for Landlord's, it's agents or employees gross negligence, Tenant further agrees to indemnify, and save harmless, the Landlord and its officers, directors, agents and employees from and against all liability (statutory or otherwise), claims, suits, demands, judgments, costs, interest and expenses, including reasonable counsel fees and disbursements incurred in the defense thereof to which the Landlord or any such officer, director, agent or employee may be subject or suffer whether by reason of, or by reason of any claim for, injury to, or death of, any person or persons or damage to property (including any loss of use thereof) or otherwise arising from or in connection with the use of, or from any work or thing whatsoever done in, any part of the premises during the terms of this lease with respect to such part or during the period of time, if any, prior to the commencement of such term that the Tenant may have been given access to such part for the purpose of doing work or otherwise, or arising from any condition of the premises due to or resulting from any default by the Tenant in the keeping, observance or performance of any covenant, agreement, term, provision or condition contained in this lease or from any act or negligence of the Tenant or any of its officers, directors, agents, contractors, servants, employees, licensees or invitees, whether the Landlord may be legally liable therefore or not. Landlord shall maintain during the term of this Lease a policy or policies of insurance insuring the Building against loss or damage due to fire and other casualties covered within the classification of fire and extended coverage and malicious mischief, sprinkler leakage, water damage and special extended coverage on the Building in amounts sufficient to provide for the guaranteed replacement of the Building. Each party hereto waives all rights of recovery against the other or the other's agents, employees or other representatives, for any loss, damages, or injury of any nature whatsoever to the demised premises, property therein or persons for which the other is insured or should have been insured pursuant to the terms contained herein. Each party shall obtain from its insurance carrier and will deliver to the other, waivers of the subrogation rights under the respective policies, provided same will not result in any additional charge. 8. DAMAGES TO PREMISES: If the demised premises shall be partially damaged by fire or other cause, the damages shall be repaired by and at the expense of Landlord within one hundred twenty (120) days of such damage and the rent until such repairs shall be made shall be apportioned according to the part of the demised premises which is usable by Tenant. In the event of partial damage, the rent shall be apportioned according to the percentage of area that is rendered substantially untenantable. If the demised premises are substantially damaged or are rendered substantially untenantable by fire or other cause, and if Landlord's engineer certifies within sixty (60) days of such casualty that it cannot restore or rebuild the same within 180 days, or if the building shall be so damaged that Landlord shall decide to demolish it or to rebuild it, then or in any of such events Landlord may, within ninety (90) days after such fire or other cause, give Tenant a notice in writing of such decision, and thereupon the term of this lease shall expire thirty (30) days thereafter and Tenant shall vacate the demised premises and surrender the same to Landlord. If Tenant shall not be in default under this lease then, upon the termination of this lease under the conditions provided for in the sentence immediately preceding, Tenant's liability for rent shall cease as of the day following the casualty. The demised premises shall be deemed to be "substantially damaged" or "rendered substantially untenantable" for the purposes of this paragraph if the loss by fire or other cause exceeds thirty (30%) percent of the value of said premises. 9. CONDEMNATION: If the whole of the demised premises shall be acquired or condemned for any public or quasi public use or purpose then, at the option of the Landlord or Tenant, the term of this lease shall cease and terminate from the date of title vesting in such proceedings, and the Tenant shall have no claim for any portion or part of the Landlord's award. PROVIDED, HOWEVER, that the Tenant shall have the right to assert a claim for the unamortized value of its tenant improvements, and furniture, fixtures and equipment and to any additional or specific award to which it might be entitled by virtue of the other terms of this lease, providing the same results in no diminution of the Landlord's award and shall not be any part thereof. In the event of a partial taking of the Building pursuant to which 15% or more of the Building is taken or 15% of the Parking Lot servicing the Tenant is taken so as to render impossible the conduct of Tenant's business at the Premises, as determined by the parties in their reasonable discretion, then Tenant shall have the right to terminate this Lease by giving written notice of such termination to Landlord within 180 days after the date of such taking. Upon the giving of such written notice, the Termination Date under this Lease shall be the last day of the calendar month in which such notice is given. 10. ASSIGNMENT BY TENANT: Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Landlord in each instance which consent will not be unreasonably withheld. If the Tenant desires to assign this Lease or sublet all or any part of the demised premises, it shall first notify the Landlord of such desire in writing. The Landlord shall thereupon have the right to terminate this Lease within ten (10) business days and retake possession of the portion of the premises proposed to be sublet or assigned. In such event the Tenant shall be released from its obligations under this Lease upon vacating the premises and paying all sums due Landlord under this Lease up to the time of such vacating. If Landlord elects not to terminate the Lease, the Tenant shall have the right with Landlord's written consent, which will not be unreasonably withheld to sublet all or any portion of the Demised Premises to any unrelated subtenant who has a net worth in excess of two million ($2,000,000.00) dollars. If Tenant so assigns or sublets at a rate of rent and any other charges in excess of the rate of rent and other charges being paid by Tenant to Landlord for the spaced involved, after deducting Tenant's subletting costs, including the unamortized costs of leasehold improvements excluding computer floor and generator, brokerage commissions and reasonable attorney's fees, the Tenant shall pay Landlord 60% of such excess. Any such assignment or sublet shall be only for the use permitted on this Lease. The Tenant shall remain liable on this Lease in the event of such assignment or sublet. Tenant shall be responsible for Landlord's reasonable attorney's fees involved in said assignment or sublet. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, as a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Landlord to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting. In the event that the Tenant is a corporation, a transfer of the controlling stock interest of the Tenant shall not constitute an assignment of lease requiring the written consent of the Landlord. In the event that the Landlord grants such consent in writing to any such assignment, or underletting, Tenant shall provide Landlord, with an executed counterpart of the instrument of assignment or sublease which shall contain provisions regarding the obligations of such assignee or sublessee satisfactory to Landlord. Notwithstanding the above, Tenant may sublease or assign all portions of the demised premises to a wholly-owned affiliate or subsidiary or in connection with a merger, acquisition, sale or consolidation without the consent of Landlord and Landlord shall not, under those circumstances have the right to recapture the demised premises. Tenant shall however, be required to notify Landlord within ten (10) days of such event and provide Landlord with a copy of such sublease or assignment and Tenant shall continue to remain fully liable under the terms of this Lease. Notwithstanding anything to the contrary to this Lease, Tenant may assign or sublet this Lease without Landlord's consent or right to recapture to Digital Restaurant Solutions, LLC, Priceline WebHouse Club, Inc., Walker Digital Corporation, Perfect YardSale, Inc., and Synapse Group, Inc. In addition, Tenant may permit any corporation or other business entities which, directly or indirectly control, are controlled by, or are under common control with Tenant or any of the above enumerated entities (herein referred to as a "Related Entity") to sublet all or part of the Premises for any of the purposes permitted to Tenant, or receive an assignment of this Lease provided that (i) Tenant shall not be in default in the performance of any of its material obligations under this Lease beyond the expiration of applicable notice and cure periods and (ii) ten (10) days prior to such subletting or assignment, Tenant furnishes Landlord with the name of any such Related Entity, together with a certification of Tenant, and such other proof as Landlord may reasonably request, that such subtenant/assignee is a Related Entity of Tenant. For the purposes hereof, "control" shall be deemed to mean direct or indirect ownership of not less than a majority of all of the voting stock of such corporation or a majority of the legal and equitable interest in any other business entities, or the power to direct the operation or management of such corporation or entity, by contract or otherwise. Notwithstanding any assignment or sublet, Tenant shall remain fully liable for all of the terms and conditions contained herein. 11. LANDLORD'S RIGHTS OF ENTRY: To comply with Landlord's obligations hereunder, after prior notice of not less than 24 hours, Landlord or Landlord's agents shall have the right to enter the demised premises under Tenant's escort at all reasonable times to examine the same, and to show them to prospective purchasers or lessees of the buildings, and to make such structural repairs or replacements as Landlord may deem necessary to comply with its obligations under the terms of this Lease and Landlord shall be allowed to take all material into and upon said premises that may be required therefor without the same constituting an eviction of Tenant in whole or in part and, except as otherwise provided herein, the rent reserved shall in no wise abate while said repairs, alterations, improvements or additions are being made, by reason of loss or interruption of business of Tenant, or otherwise, provided that (i) Landlord exercises all reasonable efforts to minimize inconvenience to Tenant in connection therewith and (ii) no action taken by Landlord under this provision shall impede access to, reduce the size or otherwise diminish the utility of the Premises in any material respect, including any services provided thereto. Except to comply with Landlord's obligations in this Lease, nothing herein contained shall imply or impose any duty on the Landlord to perform such work. During the one year prior to the expiration of the terms of this lease, or any renewal term, Landlord may place upon said premises the usual notices "To Let" or "For Sale". If, during the last month of term, Tenant shall have removed all or substantially all of Tenant's property therefrom, Landlord, with Tenant's written consent, may immediately enter and alter, renovate and redecorate the demised premises, without elimination or abatement of rent, or incurring liability to Tenant for any compensation, and such acts shall have no effect upon this lease. If Tenant shall not be personally present to open and permit an entry into said premises, when for any reason an entry therein shall be necessary in case of an emergency, Landlord or Landlord's agents may enter the same by a master key, or in case of emergency, 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), and without in any manner affecting the obligations and covenants of this lease except for Landlord's gross negligence. Except as otherwise provided in the Lease, nothing herein contained, however, shall be deemed or construed to impose upon Landlord any obligation, responsibility or liability at any time, without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor, to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets, parking areas or other public parts of the premises and to change the name, number or designation by which the building is commonly known. 12. DEFAULT: If the demised premises become vacant or deserted for thirty (30) days or more and Tenant is not monitoring the Building on a daily basis, or if Tenant fails to pay any of the rents due hereunder, or if Tenant sells, assigns, or mortgages this lease without the Landlord's consent, except as otherwise permitted herein, or if the Tenant shall file a petition in bankruptcy or be adjudicated bankrupt, which petition is not withdrawn or dismissed within 90 days, or make an assignment for the benefit of credits, or file any petition for any composition or plan for reorganization, or take advantage of any insolvency act, or fail to pay and discharge all taxes and assessments which shall during the terms of this lease be charged, laid, levied, assessed or imposed upon or become a lien upon the personal property of the Tenant used in the operation of the demised premises, or in connection with the Tenant's business conducted on said premises, or if the Tenant defaults in fulfilling any other material covenant of this lease, the Landlord may, at its sole option, without notice, terminate this lease, reenter the demised premises, after a notice to quit and completion of a summary process action, dispossess the Tenant or its legal representative or any occupant of the demised premises and remove their effects, or to institute legal proceedings to that end and the Landlord shall have all remedies herein set forth. In the event of a monetary default, Tenant shall have a fifteen (15) day grace period after written demand by Landlord to cure such default. Tenant shall only be entitled to two (2) written notices to cure a monetary default per calendar year. In the event of a non-monetary default, Tenant shall have a thirty (30) day grace period after written demand from Landlord to cure such default. In the event of a non-monetary default which cannot be cured within said thirty (30) day period, Tenant shall not be deemed in default if it shall have commenced the cure thereof within such thirty (30) day period and thereafter proceeds diligently to complete the cure thereof. 13. REMEDIES FOR DEFAULT: In case of any such default, after the expiration of any applicable notice and cure period, reentry, expiration and/or dispossess by summary proceedings or otherwise, (a) the total of all rents due under this lease shall immediately thereupon become due and payable without credits or offsets and damages shall be payable as provided below in this paragraph; (b) Landlord shall use all reasonable efforts to re-let the premises or any part or parts thereof, either in the name of Landlord or otherwise for a term which may at Landlord's reasonable judgment be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant reasonable concessions or free rent. The failure or refusal of Landlord to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such damages there shall be added to the above sums and deficiency such expenses as Landlord may incur in connection with re-letting, such as legal expenses, attorney's fees, brokerage and for keeping the demises premises in good order and for preparing the same for re-letting. Landlord may make such alterations, repairs, replacements and/or decorations in the demised premises as Landlord in Landlord's sole judgment considers advisable or desirable for the purpose of re-letting the demises premises which shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Except for Landlord's gross negligence, Landlord shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting. In the event of a material breach by Tenant of any of the material covenants or provisions hereof, after the expiration of any applicable notice and cure period, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law to sue for rent or other charges due either on a monthly basis or otherwise, or in equity; (c) Tenant shall be liable for and shall pay to Landlord, as damages, any deficiency between (i) the Annual Rent and Additional Rent payable hereunder for the period which would have constituted the unexpired portion of the Term (conclusively presuming the Additional Rent to be the same as was payable for the year immediately preceding such termination or re-entry) and (ii) the net amount, if any, of rent ("Net Rent") collected under any reletting effected pursuant to the provisions of paragraph 13(b) for any part of such period (first deducting from the rents collected under any such reletting all of Landlord's reasonable expenses in connection with the termination of this Lease or Landlord's re-entry upon the Premises and in connection with such reletting as set forth in (b) above. In addition, the Landlord shall be entitled to interest at the rate of eleven (11%) percent per annum on the total amounts due under this Section from the date payment was due until the date of payment; (d) Only if Landlord shall not have collected any monthly deficiencies as aforesaid, Landlord shall at its sole option, be entitled to recover from Tenant, and Tenant shall pay Landlord, on demand, as and for liquidated and agreed final damages, a sum equal to the amount by which the Annual Rent and Additional Rent payable hereunder for the period which otherwise would have constituted the unexpired portion of the Term (conclusively presuming the Additional Rent to be the same as was payable for the year immediately preceding such termination of re-entry) exceeds the then fair and reasonable rental value of the Premises for the same period, both discounted to the then due date at the rate of five (5%) percent per annum. If, before presentation of proof of such liquidated damages to any court, commission or tribunal, the Premises, or any part thereof, shall have been relet by Landlord for the period which otherwise would have constituted the unexpired portion of the Term, or any part thereof, the amount of rent upon such reletting shall be deemed, prima facie, to be the fair and reasonable rental value for the part or the whole of the Premises so relet during the term of the reletting; (e) In no event (i) shall Tenant be entitled to receive any excess of such Net Rent over the sums payable by Tenant to Landlord hereunder, or (ii) shall Tenant be entitled in any suit for the collection of damages pursuant to this Section to a credit in respect of any Net Rent from a reletting except to the extent that such Net Rent is actually received by Landlord prior to the commencement of such suit. If the Premises or any part thereof should be relet in combination with other space, then proper apportionment on a square foot area basis shall be made of the rent received from such reletting and of the expenses of reletting. 14. INDEMNIFICATION: If Tenant shall be in default in the observance 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 which shall not have been cured within the grace period provided in this Lease, Landlord may immediately or at any time thereafter and with notice perform the same for the account of Tenant, including the prosecution or defense of any action or proceeding, all at Tenant's expense. In the event that the Tenant is in arrears in payment of any sums due under this lease, the Tenant waives the Tenant's right, if any, to designate the items against which any payments made by the Tenant are to be credited, and the Landlord may apply any payments made by the Tenant to any items the Landlord sees fit, irrespective of and notwithstanding any designation or request by the Tenant as to the items against which any such payment shall be credited. In no event shall any advisor, beneficiary, director, officer, shareholder or employee (collectively, the "Tenant's Parties"), be liable for the performance of Tenant's obligations under this Lease. Landlord shall look solely to Tenant to enforce Tenant's obligations hereunder and shall not seek any damages against any of the Tenant's parties. Landlord shall indemnify and hold harmless Tenant and its respective partners, directors, officers, agents and employees from and against any and all claims, together with all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon, including, without limitation, attorney's fees and expenses, arising from or in connection with: (i) any material breach or default by Landlord in the full and prompt payment and performance of Landlord's obligations under this Lease; and (ii) any wrongful act or omission or the gross negligence of Landlord or any of its partners, directors, officers, agents, or employees occurring on the Real Property. 15. REPRESENTATIONS: Landlord or Landlord's agents have made no representations or promises with respect to the said building or demised premises except as herein expressly set forth in this Lease or to induce the Tenant to rent the said premises or to enter into this lease. Except as otherwise provided in this Lease, nothing herein contained shall be construed as warranting that said premises are in good condition or fit or suitable for the use and purposes for which they are hereby let, and the Tenant herewith agrees that it has examined the premises and is fully satisfied with the physical condition thereof and will make all alterations and repairs necessary for its use of the premises. Except as otherwise provided herein, the taking possession of the demised premises by Tenant shall be conclusive evidence as against Tenant that it accepts same "as is" and that said premises and the building of which the same forms a part were in good and satisfactory condition at the time such possession was so taken. Notwithstanding anything to the contrary contained in the Lease, Landlord hereby represents and warrants to Tenant as follows: A. Landlord is the sole fee simple owner of the Real Property; B. The Building is not subjected to control or tax by any improvement, utility, beautification or similar private district or association; C. There is currently no lease or mortgage superior in right to this Lease. D. The Building can be used for general office use and is approximately 47,211 square feet. 16. CONDITION ON TERMINATION: Prior to the expiration of the term of this lease, Tenant shall quit and surrender to Landlord the demised premises, broom clean, in good order and condition, ordinary wear excepted, and Tenant shall remove all of its personal property. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this lease. If Landlord elects to treat Tenant as a hold-over from month to month, any concession of rent or agreement in respect of decorations or the like in the initial term shall not apply to such hold-over term or terms. If Tenant fails to remove all personal property from the premises, either upon the termination of its possession of the premises or upon the termination of this lease, the Landlord, at its option, may remove the same in any manner that the Landlord may choose after notice and ten (10) days opportunity to cure and may elect to store or otherwise dispose of the said effects without liability to the Tenant for loss thereof, at Tenant's expense; or, the Landlord, at its option, without notice, may sell such effects, or any of the same, at private sale and without legal process, for such prices as Landlord may obtain, and apply the proceeds of such sale against any amounts due under this lease from the Tenant to the Landlord and against the expense incident to the removal and sale of such effects, rendering the surplus, if any, to the Tenant. 17. HOLDING OVER: In the event that the Tenant shall remain in the demised premises after the expiration of the term of this lease without having executed a new written lease with the Landlord, such holding over shall not constitute a renewal or extension of this lease. Any holding over after the expiration of the term of this Lease or any renewal term shall be construed to be a tenancy at will at 150% the fixed and any additional or percentage rents herein specified for the last month of the term or any renewal term and shall otherwise be on the terms herein specified so far as applicable. 18. PEACEFUL POSSESSION: Landlord covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the material, terms, covenants and conditions, on Tenant's part to be observed and performed within any applicable notice and cure period, Tenant may peaceably and quietly enjoy the premises hereby demised subject, nevertheless, to the terms and conditions of this lease. 19. DELAY OF POSSESSION: If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease, Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, conditions and provisions of this lease, except as to the covenant to pay rent, which shall be as set forth herein for the month of April, at the rate of $47,211.00 for the month. 20. OBLIGATION TO PAY RENT: Except as otherwise provided herein, this lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on the part of Tenant to be performed shall in no wise be affected, impaired or excused and Landlord shall have no responsibility or liability because Landlord does not fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making repairs, additions, alterations, or decorations or does not supply or is delayed in supplying any equipment or fixtures if Landlord does so because of strike or labor troubles or any outside cause whatsoever including, but not limited to accidents, repairs, government preemption or by reason of any law, rule, recommendation, request, order or regulation of any department or subdivision thereof of any government authority, agency or subdivision, or by reason of the conditions of supply and demand which have been or are affected by any emergency, shortage or crisis, or in the event of any business interruption due to measures taken by the federal, state, county or municipal authorities, including, but not being limited to, highway or street repair, changes or restrictions in the flow of traffic or in parking provisions, and condemnation or razing of adjacent buildings or because of the breakdown of any equipment or any other cause beyond the Landlord's control. 21. UTILITIES AND REPAIRS: After notice to Tenant and with Tenant's reasonable consent, Landlord reserves the right to temporarily stop the heating, plumbing and electric systems, when necessary, by reason of accident, or emergency, or for prompt repairs, alterations, replacements or improvements until same have been completed, in order to comply with its Lease obligations hereunder. 22. SECURITY: Tenant has deposited with Landlord an irrevocable letter of credit drawn on a bank in Fairfield County, Connecticut in the sum of $173,107.00 as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this lease. Said letter of credit shall be automatically renewed during the term of this lease and any renewal periods. Tenant shall provide Landlord with renewal at least thirty (30) days prior to the expiration of the term of the letter of credit. If Tenant fails to do so, Landlord at its option can draw down the letter of credit and hold cash as security in accordance with the terms of this paragraph 22. It is agreed that in the event Tenant defaults in respect of any of the material, terms, provisions and conditions of this lease, including, but not limited to, the payment of rent and additional rent, beyond any applicable notice and cure period Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum the Landlord is entitled to hereunder. In the event that Tenant shall have fully and faithfully complied with all of the terms, provisions, covenants and conditions of this lease, the security shall be returned to Tenant within thirty (30) days after the date fixed as the end of the Lease and after delivery of the entire possession of the demised premises to Landlord, in accordance with the terms hereof. In the event of a sale of the Real Property and Building or leasing of the Building, of which the Demised Premises form a part, Landlord shall have the right to transfer the security to the vendee or lessee and upon such transferee's acceptance of the security and notice thereof to Tenant, Landlord shall thereupon be released by Tenant from all liability for the return of such security. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. 23. NON RECOURSE AS TO LANDLORD: Anything contained in this Lease to the contrary notwithstanding, Tenant shall look solely to the estate and property of Landlord in the Premises for the collection of any judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord with respect to any of the terms, covenants and conditions of this Lease to be observed and performed by Landlord, subject, however, to the prior rights of the holder or holders of any mortgage or mortgages covering the Premises, and no other assets of Landlord or any partner, member, trustee, fiduciary, shareholder or joint venturer comprising Landlord or related to Landlord shall be subject to levy, execution or other judicial process for the satisfaction of Tenant's claims. In the event Landlord conveys or transfers its interest in the Premises or in this Lease, except as collateral security for a loan, upon such conveyance or transfer, Landlord (and in the case of any subsequent conveyances or transfers, the then grantor or transferor) shall be entirely released and relieved from all liability with respect to the performance of any terms, covenants and conditions on the part of Landlord to be performed hereunder from and after the date of such conveyance or transfer, provided that any amounts then due and payable to Tenant by Landlord (or by the then grantor or transferor) or any other obligations then to be performed by Landlord (or by the then grantor or transferor) for Tenant under any provisions of this Lease, shall either be paid or performed by Landlord (or by the then grantor or transferor) or such payment or performance assumed by the grantee or transferee; it being intended hereby that the covenants and obligations on the part of Landlord to be performed hereunder shall be binding on Landlord, its successors and assigns only during and in respect of their respective periods of ownership of an interest in the Premises or in this Lease. 24. SIGNS AND ADVERTISEMENTS: The Tenant may place any signs, advertisement, illumination, monument or projection of any kind whatsoever in or about the windows, or any part of the said Building or Real Property of such size, design and color as shall be in compliance with all applicable laws. The Tenant agrees to seek all necessary approvals and pay all permit and license fees which may be required for the erection and maintenance of any and all such signs. 25. CHANGES AND WAIVER: This lease or any covenant, agreement or conditions contained herein cannot be terminated, altered, waived or modified in any way on behalf of the Landlord or Tenant except by an instrument in writing. Receipt of rent shall not be deemed or construed to be a waiver of any other rent or charges due or of the rights of the Landlord under a breach of any covenants or conditions herein contained, nor shall any waiver be claimed as to any provisions of this lease unless the same be in writing. Acceptance of the keys shall not be tantamount to or evidence of a surrender. 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 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. 26. UTILITY BILLS: The Tenant will pay all charges for fuel, electricity, water, heat, air conditioning, ventilation, garbage and refuse removal unless publicly removed at no cost and other utilities, unless otherwise expressly set forth. The Tenant will pay all charges for electricity as billed by utility companies directly to Tenant based on actual usage from Tenant's electric meter. Payment of all utilities shall be considered additional rent. 27. ADDITIONAL RENT: A. Except as otherwise expressly provided for herein, the rent hereinbefore specified shall be net, net, net to the Landlord. Throughout the entire term and any extensions or renewal thereof, Tenant shall be responsible for and shall pay as additional rent, its proportionate share which is agreed to be one hundred (100%) percent of all costs, expenses and obligations of every kind except as otherwise provided in this Lease relating to the demised premises including but not limited to all operating costs, expenses, and obligations of every kind relating to the operating and maintenance of the building, all utilities, building supplies, janitorial services, maintenance and repairs, reasonable fire, hazard, liability and other insurance(s), all of which except for this lease would have been chargeable against the premises and payable by the Landlord, real estate taxes, personal property taxes, assessments, water charges and other governmental levies and charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature whatever, (all of which real estate taxes, personal property taxes, assessments, water charges, and other governmental levies and charges are hereinafter sometimes referred to as "Imposition"), which are assessed, levied, confirmed, imposed or become a lien upon the demised premises or any part thereof, or the personal property of the Tenant or become payable with respect thereto, it being the intention of the parties hereto that the rents reserved herein shall be received and enjoyed by Landlord as a net sum. If, by law, an Imposition is payable, or may at the option of the taxpayer be paid, in installments (whether or not interest shall accrue on the unpaid balance or such imposition), Tenant may pay the same (and any accrued interest on the unpaid balance of such imposition) in installments as the same respectively become due, provided, however, that such Imposition and interest thereon shall be fully paid by Tenant no later than one (1) month prior to the expiration of the term. The definition of "Imposition" shall exclude any and all income, estate, inheritance, death, succession, franchise, partnership, corporate or capital stock taxes of Landlord. B. If any Impositions are required by Landlord's mortgagee to be escrowed in advance with said mortgagee, payments for said Impositions shall be made to the Landlord in the manner provided for the payment of rental, otherwise Tenant shall pay said impositions directly and provide Landlord with true and accurate copies and receipt of all such payments upon request. C. With respect to the Impositions billed directly to Tenant, Tenant agrees to furnish to Landlord a true copy of each official receipt of the appropriate taxing authority or other proof satisfactory to Landlord, evidencing the payment thereof, upon request. If any Impositions which are the responsibility of the Tenant are assessed or billed to the Landlord, the Landlord shall immediately deliver any such bill or statement therefor to the Tenant and the Tenant shall pay same when due and payable or if paid by Landlord, within fifteen (15) days thereof. D. The Landlord shall take such steps as are necessary in order to authorize the Tenant to make all payments to be made by the Tenant pursuant to any provision of this Lease to persons or entities other than the Landlord, so that all such persons or entities shall accept such payments from the Tenant. Tenant shall have the right to take an appeal of any tax assessment on the Real Property or Building, if Landlord fails to do so. E. Tenant shall pay all expenses, disbursements, outlays, advances, costs and attorneys fees which the Landlord may incur in effecting or enforcing any of the terms of this Lease or the Tenants obligations hereunder. Any such expenses, disbursements, outlays, advances, costs and attorney's fees, together with interest at the rate of ten (10%) percent per annum, shall be paid by Tenant to Landlord within fifteen (15) days of the rendition of any bill or statement to Tenant therefor. 28. PARKING AREAS: The Tenant shall have the exclusive use of all of the parking areas at the Real Property. The Landlord shall pay for all capital improvements to the parking areas such as repaving, however, Tenant shall be responsible for repaving if parking area is damaged as a result of Tenant's use (i.e., caused by snow plows or trucks). The Tenant shall pay all costs for the care, operations, maintenance and repair of the parking areas including, but not limited to, snow plowing, sanding, police and/or security protection. 29. USE OF COMMON AREAS: Tenant's use of common areas, if any, shall comply with all applicable laws, and the rules and regulations of all governmental authorities having jurisdiction thereof. Tenant shall further pay the cost of the care, maintenance and cleaning of such common areas. Tenant shall maintain all landscaping, including plantings, shrubs, flower beds and grounds located in both the interior and exterior of the Building and common areas. 30. SIDEWALK: The Tenant, at its sole cost and expense, shall keep and maintain the sidewalk adjacent to the leased premises clear of obstructions, ice and snow and shall use reasonable efforts to keep the said sidewalk free of dirt, debris and other unsightly materials. 31. GARBAGE: Tenant shall pay the cost of removal of any of Tenant's refuse and rubbish. 32. WAIVER OF JURY TRIAL: Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on or in respect to any matter whatsoever arising out of or in any way connected with this Lease or the relationship of Landlord and Tenant hereunder, the Tenants use or occupancy of the Demised Premises and/or any claim of injury or damage. 33. RECORDING: Tenant shall not record this lease without the written consent of Landlord. However, upon the request of either party hereto the other party shall join in the execution of a memorandum or so-called "short form" notice of this lease for the purposes of recordation. Said memorandum or notice of this lease shall describe the parties, the leased premises and the term of this lease and shall incorporate this lease by reference. 34. CONSENT TO JURISDICTION: This agreement shall be deemed to have been made in the State of Connecticut, and shall be interpreted, and the rights and liabilities of the parties here determined, in accordance with the laws of that State and as part of the consideration for the Landlord's executing this lease. Tenant hereby agrees that all actions or proceedings arising directly or indirectly from this lease shall be litigated only in the Courts of the State of Connecticut and Tenant hereby consents to the jurisdiction of any court located within that State. 35. WORD USAGE: As used in this indenture of lease and when required by the context, each number (singular or plural) shall include all numbers, and each gender shall include all genders; and unless the context otherwise requires, the word "person" shall include "corporation, firm or association". 36. CHANGES TO BE IN WRITING: No changes or other modification of this lease shall be binding upon a party to this lease unless in writing and signed by a duly authorized officer or agent of the party to be charged therewith. 37. INVALIDITY OF PARTICULAR PROVISIONS: If any term or provision of this lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this lease, or the application of such term or provision of this lease shall be valid and be enforced to the fullest extent permitted by law. 38. PROVISIONS BINDING, ETC.: Except as herein otherwise expressly provided, the terms and provisions hereof shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, successors and assigns, respectively, of Landlord and Tenant. 39. NOTICES: All notices and demands, legal or otherwise, incidental to this lease, or the occupation of the demised premises, shall be in writing. Any notice or demand shall be sufficient if sent by registered or certified mail, addressed to the Tenant at the demised premises, and to the address listed below, or to the Landlord at the place for payment of rent. If Notice to Tenant: Priceline.com, Incorporated 800 Connecticut Avenue Norwalk, CT ATTN: General Counsel copy to: Frank L. Baker, Esq. Robinson & Cole, LLP P.O. Box 10305 Stamford, CT 06904-2305 If Notice to Landlord, copy to: Jamie K. Gerard, Esq. Tom Adams, Esq. Nevas, Nevas & Capasse Gregory & Adams 246 Post Road East 190 Old Ridgefield Road P.O. Box 791 Wilton, CT 06897 Westport, CT 06881-0791 40. LATE PAYMENT: If Tenant fails to pay when due any rent, additional rent or other amounts or charges which Tenant is obligated to pay under the terms of this Lease, the unpaid amounts shall bear interest at the rate of ten (10%) percent. Tenant acknowledges that the late payment of any monthly installment of rent, additional rent will cause the Landlord to lose the use of that money and incur costs and expenses not contemplated under this Lease, including without limitation, administrative and collection costs and processing and accounting expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to interest, if any such installment is not received by Landlord within ten (10) days from the date it was due, Tenant shall pay Landlord a late charge equal to five (5%) percent of such installment. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any interest or late charge shall not constitute a waiver of Tenant's default with respect to such nonpayment nor prevent Landlord from exercising any other rights or remedies available to Landlord under this Lease. RIDERS: Attached hereto and fully made a part hereof are the following Riders: RIDER Dated and sealed the day and year first above written. WITNESSES: - --------- (L.S.) - ------------------------------- --------------------------- Richard A. Banks - ------------------------------- (L.S.) - ------------------------------- ----------------------------- Ruth Banks, Trustee u/w of Robert O. Banks - ------------------------------- FIRST UNION TRUSTEE U/W OF ROBERT O. BANKS - ------------------------------- By: (L.S.) --------------------------- Its - ------------------------------- - ------------------------------- (L.S.) --------------------------- Kimberly Banks Fawcett - ------------------------------- RAU FAMILY LIMITED PARTNERSHIP - ------------------------------- By: (L.S.) --------------------------- Karen Steinhaus General Partner - -------------------------------- PRICELINE.COM, INCORPORATED - ------------------------------- By: (L.S.) --------------------------- Marlene Beeler Its Senior Vice President of Operations Tenant - ------------------------------- RIDER I. The Lease is amended by the addition of the following provisions: 41. BROKER. Tenant and Landlord warrant and represent that each party has not had or dealt with any broker, Realtor or agent, in connection with the negotiation of this Lease, except CB Richard Ellis, Stamford, Connecticut, and each party agrees to indemnify (including costs of suit and reasonable attorney's fees) the other party for any compensation, commission or charges claimed by any Realtor, broker or agent except CB Richard Ellis, Stamford, Connecticut, with respect to this Lease, renewal options and the negotiation thereof. 42. RENT SCHEDULE. COMMENCING ANNUAL RENT MONTHLY RENT May 1, 2000 - April 30, 2002 $1,038,642.00 $ 86,553.50 1. For the purpose of this Lease, the term "Rental Year" shall mean each consecutive lease year commencing on May 1, 2000. Tenant agrees to pay to Landlord as fixed annual rent (the "Base Rent") for the Demised Premises the amount of One Million Thirty Eight Thousand Six Hundred Forty Two ($1,039,642.00) Dollars, subject to increase as set forth below. (a) With respect to the Third Rental year, Tenant shall pay to Landlord as Base Rent an amount equal to the product obtained by multiplying the Base Rent hereunder for the Second Rental Year by a fraction, the numerator of which is the CPI-U for November 1, 2000, and the denominator of which the CPI-U for the calendar month which is March 1, 2002. (b) With respect to each Rental Year following the Third Rental Year of the term of this Lease, Tenant shall pay to Landlord as Base Rent during each such Rental Year an amount equal to the product obtained by multiplying the Base Rent hereunder for the immediately preceding Rental Year by a fraction, the numerator of which is the CPI-U for the calendar month which is three calendar months prior to the first calendar month of the Third Rental Year and each subsequent rental year, as the case may be, and the denominator of which is the CPI-U for the calendar month which is three calendar months prior to the first calendar month of the immediately preceding Rental Year. As an example, if the Base Rent for the Rental Year beginning May 1, 2002 was $1,000.00; the CPI-U for March 1, 2002 was 100; and the CPI-U for March 2003 was 105, then the Base rent for the Rental Year beginning May 1, 2003 would be 105/100 x $1,000.00 = $1,050.00. (c) The CPI-U is the "Consumer Price Index - Seasonally Adjusted U.S. City Average For All Items For All Urban Consumers (1982-84 = 100)" published monthly in the "Monthly Labor Review" by the Bureau of Labor Statistics of the U.S. Department of Labor. (d) If the CPI-U is discontinued, the "Consumer Price Index - Seasonally Adjusted U.S. City Average For All Items for Urban Wage Earners and Clerical Workers (1982-84=100)," published monthly in the "Monthly Labor Review" by the Bureau of Labor Statistics of the United States Department of Labor ("CPI-W"), shall be used for making the computations in subsection (a) above. If the CPI-W is discontinued, comparable statistics on the purchasing power of the consumer dollar published by the Bureau of Labor Statistics of the United States Department of Labor shall be used for making the above computations. If the Bureau of Labor Statistics shall no longer maintain statistics on the purchasing power of the consumer dollar, comparable statistics published by a financial periodical of recognized authority selected by Landlord shall be used for making the above computations. If the applicable statistics are no longer published on a monthly basis, appropriate adjustments shall be made in performing the above computation in order to carry out the intent of the parties hereunder. If the base year "(1982-84=100)" or other base year used in computing the CPI-U or CPI-W, as the case may be, is changed, the figures used in making the adjustment in subsection (1) shall be changed accordingly, so that all increases in the CPI-U or CPI-W, as the case may be, are taken into account notwithstanding any such change in the base year. (e) Once Landlord has determined the Base Rent payable by Tenant with respect to the third and each subsequent Rental Year, as the case may be, Landlord shall notify Tenant in writing of the same ("Revised Rent Notice"), which notice (notwithstanding anything to the contrary in this Lease) may be by means of ordinary first-class mail. The Revised Rent Notice shall contain reasonable details as to the method of calculating the Base Rent set forth therein. Until Tenant's receipt of the Revised Rent Notice with respect to a particular Rental year, Tenant shall continue to pay Base Rent at the rate in effect prior to the receipt of the respective Revised Rent Notice. As of the first day of the calendar month following the month in which Tenant receives a particular Revised Rent Notice, Tenant shall commence the payment of monthly installments of Base Rent at the rate set forth in such notice. The first such installment shall include an additional amount equal to the difference between the Base Rent theretofore paid by Tenant for the respective Rental year, and the revised Base Rent for such year as set forth in the Revised Rent Notice for such year. (f) In no event shall the Base Rent for any Rental Year be less than the Base Rent for the previous Rental year. (g) The maximum increase in the Base Rent in any year from the prior year shall be four (4%) percent per annum, except for the increase in the Third Rental Year, which shall not be greater than six (6%) percent per annum from the prior year. 43. RIGHT TO TERMINATE. Notwithstanding a lease term of ten (10) years, provided Tenant is not in default of the terms of the Lease beyond any applicable cure period, Tenant shall have a unilateral right to terminate this lease at the beginning of the 4th and 7th years therein. In order to exercise its right to terminate, Tenant must provide Landlord with at least one year's written notice of its intent to terminate this lease. Time shall be of the essence with respect to the right to terminate. Together with the written notice, tenant shall provide Landlord with a non-refundable termination fee equivalent to five (5) months of the then current base rent. In addition, Tenant shall reimburse Landlord for any unamortized portion of Landlord's attorney's fees for the preparation and negotiation of this Lease as well as Landlord's reasonable legal expenses involved in the termination of the Lease. Landlord shall provide Tenant with a detailed statement of same, within forty-five (45) days of incurring such costs. 44. RIGHT OF FIRST REFUSAL. In the event the Landlord decides to sell the Demised Premises to a third party who is not a current owner during the term of this Lease or any renewals or extensions thereof and provided the Tenant is not in default under any of the terms or conditions of this Lease, beyond any applicable notice and cure period, Landlord shall first give written notice to the Tenant of any bona fide offer setting forth each of the material terms and conditions of the offer ("Offer"), together with a copy thereof, in writing, and the Tenant shall have the right of first refusal to purchase the premises on the same conditions contained in any Offer. If the Tenant desires to exercise this right of first refusal, it must do so within fifteen (15) days from receipt of the copy of the Offer from the Landlord. Time shall be of the essence with respect to the exercise of this right. This right is personal to Tenant only. The Tenant shall exercise the right of first refusal by notifying the Landlord, in writing, by registered mail, return receipt requested, with payment of one (1%) percent of the purchase price which shall not be refundable, and the remaining nine (9%) percent to be paid upon execution of the contract within 5 business days and the balance of the purchase price to be paid upon the same terms and conditions and within the same time as provided for in the Offer. This right of first refusal shall terminate upon the termination of this Lease and any renewals thereof. If Landlord fails to close on said Offer within one year of Landlord's original written notice, any new offer shall be subject to the terms of this paragraph. 45. OPTION TO RENEW. Provided that the Tenant is then in possession of the premises and not in default under any of the terms of its Lease, the Landlord grants to the Tenant two (2) five year options to renew this Lease, upon all of the same terms and conditions except as to base rental, the first option commencing on the first day of May 2010 and terminating on the 30th day of April, 2015 and the second option commencing on the first day of May 2015 and terminating on the 30th day of April 2020. The base rental for the first year of the First Renewal Term shall be the greater of: (a) 95% of the fair market rental value of the Premises as of May 1, 2009 for comparable buildings in the area in which the Building is located, leased on terms comparable to this lease as of May 1, 2009 or (b) the base rental in effect on the last month of the original Lease Term. Such fair market rental value shall be determined by written agreement between Landlord and Tenant. If Landlord and Tenant are unable to agree within 30 days after Tenant's exercise of the option, Landlord and Tenant shall each appoint a certified commercial real estate appraiser with a minimum of ten (10) years experience. The two appraisers shall jointly agree on the fair market rental value for the Premises within 30 days. If they are unable to agree, they shall jointly select a third appraiser who meets the qualifications described above. A decision of a majority of the appraisers shall be binding on the parties. Each party shall bear the cost of its own appraiser and they shall share the cost of the third appraiser, if necessary. The base rental for the first year of the second option term shall be 100% of the fair market rental value of the Premises as of May 1, 2014 but in no event less than the base rental paid for the last year of the first option term and shall be determined in the same manner as set forth herein above. The base rental for the 12th through 15th years and 17th through 20th years shall be determined by cost of living increases as set forth in paragraph 46, Rental Schedule Renewal Term. Said right shall be exercised if at all by the Tenant delivering to the Landlord in writing its exercise of said right on or before May 1, 2009 and May 1, 2014, for the first and second renewal terms, respectively. Failure to exercise the right in writing in the above manner prior to May 1, 2009, and May 1, 2014 shall cause the right to terminate without further act by either party. The parties covenant and agree that time shall be of the essence in the exercise of this right. 46. RENTAL SCHEDULE RENEWAL TERM. 1. For the purpose of the First and Second Renewal Terms of this Lease, the term "Rental Year" shall mean each consecutive lease year commencing on May 1, 2010 and 2015, respectively. (a) With respect to each Rental Year following the initial Rental Year of the First and Second Renewal Terms of this Lease, Tenant shall pay to Landlord as Base Rent during each such Rental Year an amount equal to the product obtained by multiplying the Base Rent hereunder for the immediately preceding Rental Year by a fraction, the numerator of which is the CPI-U for the calendar month which is three calendar months prior to the first calendar month of the Second Rental Year of the renewal term and each subsequent rental year, as the case may be, and the denominator of which is the CPI-U for the calendar month which is three calendar months prior to the first calendar month of the immediately preceding Rental Year of the renewal term. As an example, if the Base Rent for the Rental Year beginning May 1, 2010 was $1,000.00; the CPI-U for March 1, 2010 was 100; and the CPI-U for March 2011 was 105, then the Base rent for the Rental Year beginning May 1, 2011 would be 105/100 x $1,000.00 = $1,050.00. (b) The CPI-U is the "Consumer Price Index - Seasonally Adjusted U.S. City Average For All Items For All Urban Consumers (1982-84 = 100)" published monthly in the "Monthly Labor Review" by the Bureau of Labor Statistics of the U.S. Department of Labor. (c) If the CPI-U is discontinued, the "Consumer Price Index - Seasonally Adjusted U.S. City Average For All Items for Urban Wage Earners and Clerical Workers (1982-84=100)," published monthly in the "Monthly Labor Review" by the Bureau of Labor Statistics of the United States Department of Labor ("CPI-W"), shall be used for making the computations in subsection (a) above. If the CPI-W is discontinued, comparable statistics on the purchasing power of the consumer dollar published by the Bureau of Labor Statistics of the United States Department of Labor shall be used for making the above computations. If the Bureau of Labor Statistics shall no longer maintain statistics on the purchasing power of the consumer dollar, comparable statistics published by a financial periodical of recognized authority selected by Landlord shall be used for making the above computations. If the applicable statistics are no longer published on a monthly basis, appropriate adjustments shall be made in performing the above computation in order to carry out the intent of the parties hereunder. If the base year "(1982-84=100)" or other base year used in computing the CPI-U or CPI-W, as the case may be, is changed, the figures used in making the adjustment in subsection (1) shall be changed accordingly, so that all increases in the CPI-U or CPI-W, as the case may be, are taken into account notwithstanding any such change in the base year. (d) Once Landlord has determined the Base Rent payable by Tenant with respect to the second and each subsequent Rental Year, during the First and Second renewal terms, respectively as the case may be, Landlord shall notify Tenant in writing of the same ("Revised Rent Notice"), which notice (notwithstanding anything to the contrary in this Lease) may be by means of ordinary first-class mail. The Revised Rent Notice shall contain reasonable details as to the method of calculating the Base Rent set forth therein. Until Tenant's receipt of the Revised Rent Notice with respect to a particular Rental year, Tenant shall continue to pay Base Rent at the rate in effect prior to the receipt of the respective Revised Rent Notice. As of the first day of the calendar month following the month in which Tenant receives a particular Revised Rent Notice, Tenant shall commence the payment of monthly installments of Base Rent at the rate set forth in such notice. The first such installment shall include an additional amount equal to the difference between the Base Rent theretofore paid by Tenant for the respective Rental year, and the revised Base Rent for such year as set forth in the Revised Rent Notice for such year. (e) In no event shall the Base Rent for any Rental Year be less than the Base Rent for the previous Rental year. (f) The maximum increase in the Base Rent in any year from the prior year shall be four (4%) percent per annum. 47. RECYCLING. Tenant is responsible for separation and recycling of all recyclable materials generated by Tenant. No recyclable materials may be placed in the buildings' common refuse container. If Landlord provides receptacles for recyclable materials Tenant shall use those receptacles and follow all instructions pertaining thereto. Tenant shall pay for all costs for recycling . Payment for recycling shall be considered additional rent. 48. ENVIRONMENTAL MATTERS. Tenant shall not cause Hazardous Materials to be stored, used or spilled, or otherwise deposited on the Real Property, except in material compliance with all environmental laws. Tenant shall be solely responsible for the remediation of any release of Hazardous Materials to the satisfaction of the proper authorities. Tenant shall indemnify and hold Landlord harmless from any and all claims made by third parties arising from any release of Hazardous Materials by Tenant. In the event, at the termination of the within Lease (or prior thereto), the Landlord causes a professional engineering company to test the land for spillage of Hazardous Materials and the same is found to be caused by the Tenant, then in that event on immediate written notice from the Landlord to the Tenant, the Tenant is to rid the property of all Hazardous Materials deposited by it. In the event the Tenant fails to commence clean up of said Hazardous Materials within ten (10) days of Notice, then, in that event, the Landlord may commence to rid the property of said Hazardous Materials, with the understanding, however, that the Tenant will be liable for the cost thereof. The costs of said engineering tests to determine whether or not spillage has been made shall be the Landlord's unless spillage is found, in which case it shall be added to the cost of clean up. 49. ASSIGNMENT BY LANDLORD. Landlord reserves the right to convey title to the Real Property known as 141 Danbury Road, Wilton, Connecticut, to a limited liability company formed and controlled by the Landlord known as Banks-Rau Realty, LLC and to assign this Lease to said limited liability company, at no cost to Tenant. 50. COMPLIANCE WITH ENVIRONMENTAL LAWS. A. Landlord shall, at Landlord's expense keep and maintain the Real Property, in compliance with all Environmental Laws (as hereinbelow defined). Landlord represents and warrants to Tenant that no Environmental Permits (as hereinafter defined) are necessary to operate and/or own the Real Property as an office building. B. Landlord represents to the best of its knowledge that there are no environmental conditions on the Real Property that require remediation or notification to governmental authorities. C. Landlord hereby indemnifies and holds harmless Tenant from any and all claims, liabilities, losses, damages or costs (including, without limitation, reasonable attorney's fees) arising out of or related to any and all Environmental Conditions (as hereinafter defined) or Environmental Compliance Liability (as hereinafter defined), except those resulting from Tenant's acts or omissions. D. For purposes of this Lease, these following terms shall have the respective meanings: (i) "Environmental Conditions" shall mean all circumstances with respect to soil, surface waters, groundwater, ponds, stream sediment, air, building materials, and similar environmental media, both on-site and off-site of the Real Property that may require remedial action and/or that may result in claims and/or demands and/or liabilities to third parties including, but not limited to governmental entities. (ii) "Environmental Compliance Liability" means any and all liabilities arising under, or related to, compliance with any Environmental Law applicable to the Real Property or any operations or assets associated with the Real Property, including without limitation, the Premises, which may result in claims and/or demands by and/or liabilities to third parties, including but not limited to, governmental entities. (iii) "Environmental Laws" means any and all federal, State of Connecticut, local or municipal written and published laws, rules, orders, regulations, statutes, ordinances, codes, or requirements of any governmental authority regulating or imposing standards of liability or standards of conduct (including common law) concerning air, water, solid waste, Hazardous Materials and other environmental concerns. (iv) "Hazardous Materials" means any petroleum, petroleum products, fuel oil, waste oil, explosives, reactive materials, ignitable materials, corrosive materials, hazardous chemicals, hazardous wastes, hazardous substances, extremely hazardous substances, toxic substances, toxic chemicals, radioactive materials, pollutants, toxic pollutants, herbicides, fungicides, rodenticides, insecticides, contaminant, or pesticides and including, but not limited to any other element, compound, mixture, solution or substance which may pose a present or potential hazard to human health or the environment. (v) "Release" means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, ejecting, escaping, leaching, disposing, seeping, infiltrating, draining or dumping, or as otherwise defined under Environmental Laws. This term shall be interpreted to include both the present, past and future tense, as appropriate. (vi) "Environmental Permits" means all permits, approvals or registrations required to be issued to Landlord by any governmental authority, or made by the Landlord to any governmental authority, under any Environmental Laws on account of any or all of the Landlord's ownership or operation at the Real Property. 51. APPROVALS. All approvals or consents required by Landlord pursuant to this Lease shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the above, any violation of this provision shall not be the basis for an award of damages or give rise to any right of setoff, but may be the basis for a declaratory judgment or specific injunction with respect to the matter in question. 52. UTILITY CONNECTIONS. Tenant shall have the right to connect with any telephone, telex and/or any other company's service supplying data information over telephone lines without interference from the Landlord. Tenant shall have the right to use all electrical and plumbing risers and branch work located in the Building for purposes of connecting its systems. Landlord represents that the current life/safety system, including, without limitation, the sprinkler system in the Premises is or will be in compliance with law for purposes of an office use in the Premises. 53. GENERATOR. Tenant shall have the right to install a generator and fuel source on the existing concrete pad outside the Building and may modify the same, provided that the use and installation of such generator shall be in compliance with all applicable laws. Tenant shall submit drawings and specification of a licensed engineer certifying as to installation procedure, including details for penetration through roof and/or walls. 54. UNAVOIDABLE DELAYS. The provisions of this paragraph shall be applicable if there shall occur, on or after the date hereof, any strikes, lockouts or labor disputes, inability to obtain labor or materials or reasonable substitutes therefor or acts of God, governmental action, civil commotion, riot or insurrection, fire or other casualty or other events beyond the reasonable control of the party obligated to perform. If Landlord or Tenant, as a result of any of the aforementioned events, shall fail punctually to perform any term, covenant or condition on its part to be performed under this Lease, then such failure shall be excused and not be a breach of this Lease by the party in question, but only to the extent and for the time occasioned by such event. Notwithstanding anything to the contrary herein contained, however, the provisions of this paragraph shall not be applicable to Tenant's obligations to pay, when due and payable, the rents, additional rent or other sums reserved hereunder. ---------------------------------------- Richard A. Banks ---------------------------------------- Ruth Banks, Trustee u/w of Robert O. Banks FIRST UNION, TRUSTEE u/w of ROBERT O. BANKS By: ------------------------------------ ---------------------------------------- Kimberly Banks Fawcett RAU FAMILY LIMITED PARTNERSHIP By: ------------------------------------ Karen Steinhaus General Partner PRICELINE.COM, INCORPORATED By: ------------------------------------ Marlene Beeler Senior Vice President of Operations EX-10 7 0007.txt EXHIBIT 10.34 - CONVERTIBLE NOTE Exhibit 10.34 Execution Copy HUTCHISON-PRICELINE LIMITED 6% CONVERTIBLE NOTE US$11,110,000 JUNE 27, 2000 Hutchison-Priceline Limited, a company organized under the laws of the Cayman Islands with its registered office at the offices of Maples and Calder, Attorneys-at-Law, Ugland House, P.O. Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies ("Obligor", which term, as used herein, shall include any successor thereto), for value received, hereby executes and delivers this 6% Convertible Note in favor of PCLN Asia, Inc., a corporation organized under the laws of the State of Delaware, United States of America ("Holder") and a wholly owned subsidiary of priceline.com Incorporated ("Priceline"), and hereby promises to pay to Holder, its designees or its successors and permitted assigns, the principal sum of Eleven Million One Hundred and Ten Thousand Dollars (US$11,110,000) (the "Principal Amount") on the Maturity Date (as defined below), together with accrued and unpaid interest through and including such date as herein provided at a rate per annum of 6%, compounded semiannually on each June 30 and December 31 occurring through the Maturity Date. This Convertible Note is issued in connection with the transactions described in that certain Note Purchase Agreement, dated as of the date hereof, between Obligor and Holder (the "Purchase Agreement"). Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in Section 14. 1. Maturity Date. The then outstanding Principal Amount, together with accrued and unpaid interest thereon as set forth above (subject to Section 7), shall become due and payable on the fifth anniversary of the Issue Date (the "Maturity Date"). 2. Acceleration. Notwithstanding any provision hereof to the contrary, the obligations of Obligor hereunder shall forthwith mature and immediately accelerate and shall be immediately due and payable on the Default Date (as hereinafter defined) in the event that (i) the business of Obligor is discontinued, sold, liquidated or otherwise disposed of, whether by liquidation or dissolution, or (ii) Obligor shall take, or intends to take, or, as far as Obligor is aware, any other person shall receive a judgment, order or decree from a court of competent jurisdiction, in each case, for the Obligor's winding up, liquidation, dissolution, merger or consolidation that is not pursuant to an agreement between Obligor and Holder, or for the appointment of a receiver in relation to any or all of Obligor's assets, or Obligor shall admit in writing its inability to pay its debts as they become due or shall commit any other act of insolvency (each a "Default Event"). The date on which any Default Event occurs is referred to herein as the "Default Date." 3. No Prepayments. Neither the Principal Amount nor any interest accrued on this Convertible Note may be prepaid by Obligor, except as provided in Section 7. 4. Method of Payment. Obligor shall pay all amounts payable under this Convertible Note in cash by wire transfer of immediately available funds to an account designated by Holder or, if no account has been designated, by certified check delivered to Holder at such place as Holder shall designate to Obligor in writing. 5. Presentment Waived. Obligor hereby expressly waives presentment for payment, demand, notice of dishonor, protest and notice of protest. Acceptance by Holder of any payment that is less than the full amount then due and owing hereunder shall not constitute a waiver of Holder's right to receive payment in full at such time or at any prior or subsequent time. 6. Subordination. Prior to the Maturity Date, except for the obligations of Obligor upon any conversion of the Principal Amount in accordance with the terms of this Convertible Note, all indebtedness evidenced by this Convertible Note (the "Subordinated Indebtedness") shall be subordinated to all other indebtedness of Obligor, whether existing as of the Issue Date or incurred at any time after the Issue Date (the "Senior Indebtedness"), and in that connection, prior to the Maturity Date, except for the obligations of Obligor upon any conversion of the Principal Amount in accordance with the terms of this Convertible Note: (a) the payment of the Subordinated Indebtedness shall be subordinated to all and any rights, claims and actions which any other person may now or hereafter have against Obligor in respect of the Senior Indebtedness; (b) the Subordinated Indebtedness shall not become capable of being subject to any right of set-off or counterclaim; and (c) except upon the Maturity Date, upon the acceleration pursuant to Section 2, or upon the conversion of the Principal Amount in accordance with the terms of this Convertible Note, Holder shall not claim, request, demand, sue for, take or receive (whether by way of set-off or in any other manner and whether from Obligor or any other person) any money or other property in respect of the Subordinated Indebtedness or any part thereof. 7. Conversion Rights. (a) Optional Conversion. At any time prior to the Maturity Date, at the option of Holder in its sole discretion, all or any portion of the then outstanding Principal Amount of this Convertible Note may be converted (an "Optional Conversion") into a number of Shares (the "Optional Conversion Shares") equal to the amount of the then outstanding Principal Amount to be converted divided by the Conversion Price. Notwithstanding the foregoing, Holder shall be entitled to a total of three (3) Optional Conversions, each in an amount of not less than $3,000,000. In order to exercise the right of Optional Conversion, Holder shall surrender this Convertible Note at the principal office of Obligor and shall give written notice of such exercise, substantially in the form of Exhibit A attached hereto (the "Optional Conversion Notice"), to Obligor at such office. Such Optional Conversion shall be deemed to have been effected at the close of business on the date on which such Optional Conversion Notice, duly completed and executed, shall have been given as aforesaid, and, subject to the last sentence of this Section 7(a), at such time such portion of the Principal Amount as is subject to such Optional Conversion shall be applied by Obligor in full payment of the Optional Conversion Shares to be issued in consequence of the Conversion and that application shall discharge Obligor from all liability in respect of such portion of the Principal Amount converted, and Holder shall be deemed for all purposes to have become the holder of the Optional Conversion Shares. As promptly as practicable, but in no event later than seven (7) Business Days, after an Optional Conversion, Obligor, at its expense, shall cause (i) the Optional Conversion Notice presented by Holder to Obligor, and any other documents necessary for such Optional Conversion to be effected, to be stamped by the office of the Inland Revenue Department and as appropriate under the laws of the Cayman Islands, (ii) Holder's name to be entered in the register of the members of Obligor in respect of the Optional Conversion Shares, (iii) to be paid to Holder all accrued and unpaid interest through and including the date of the Optional Conversion on that portion of the Principal Amount subject to such Optional Conversion and (iv) to be delivered to Holder a convertible note, in form and substance identical to this Convertible Note, for the remaining outstanding Principal Amount if such Optional Conversion was not for the entire portion of the then outstanding Principal Amount. Notwithstanding any provision of this Convertible Note to the contrary, no Optional Conversion shall be deemed to have occurred unless and until Obligor shall have complied with the obligations set forth in the immediately preceding sentence, whereupon such Optional Conversion shall be deemed to have been effective as of the date the Optional Conversion Notice is given to Obligor; provided, however, that no failure by Obligor to so comply with such obligations shall prohibit Holder from exercising its rights as the holder of the Optional Conversion Shares. (b) Mandatory Conversion. Immediately prior to consummation of the Initial Public Offering, the entire then outstanding Principal Amount of this Convertible Note shall be automatically converted (the "Mandatory Conversion" and, together with any Optional Conversion, a "Conversion") into a number of Shares (the "Mandatory Conversion Shares" and, together with the Optional Conversion Shares, "Conversion Shares") equal to the then outstanding Principal Amount divided by the Conversion Price. The Mandatory Conversion shall be effected by Obligor applying the entire then outstanding Principal Amount of this Convertible Note in full payment of the Mandatory Conversion Shares to be issued in consequence of the conversion and that application shall discharge Obligor from all liability in respect of the entire then outstanding Principal Amount of this Convertible Note. As promptly as practicable, but in no event later than seven (7) Business Days, after a Mandatory Conversion, Obligor, at its expense, shall cause (i) the Mandatory Conversion Notice presented by Holder to Obligor, and any other documents necessary for such Mandatory Conversion to be effected, to be stamped by the office of the Inland Revenue Department and as appropriate under the laws of the Cayman Islands, (ii) Holder's name to be entered in the register of the members of Obligor in respect of the Mandatory Conversion Shares and (iii) to be paid to Holder all accrued and unpaid interest through and including the date of the Mandatory Conversion on that portion of the Principal Amount subject to such Mandatory Conversion. Notwithstanding any provision of this Convertible Note to the contrary, no Mandatory Conversion shall be deemed to have occurred unless and until Obligor shall have complied with the obligations set forth in the immediately preceding sentence, whereupon such Mandatory Conversion shall be deemed to have been effective as of the date of the Initial Public Offering; provided, however, that no failure by Obligor to so comply with such obligations shall prohibit Holder from exercising its rights as the holder of the Mandatory Conversion Shares. 8. Anti-Dilution Provisions. The Conversion Price shall be subject to appropriate adjustment so as to protect the rights of Holder upon the occurrence on or after the Issue Date and prior to the Initial Public Offering of any stock dividend, stock split, reverse stock split, recapitalization, reclassification, merger, combination, consolidation or other similar transaction. Upon each occurrence of any event described in the immediately preceding sentence, the Conversion Price in effect immediately prior to such event shall be adjusted (and any other appropriate actions shall be taken by Obligor, including, upon the occurrence of any merger, combination, consolidation or other similar transaction, the issuance to Holder of any securities into which this Convertible Note shall be converted by operation of law or pursuant to the express terms of such transaction provided that such transaction has been approved by the Board of Obligor, which approval shall include the affirmative vote of at least one PCLN Director and one TH Director), so that Holder, upon any Conversion, shall be entitled to receive the number of Shares or other property, including cash or securities, that Holder would have owned or would have been entitled to receive upon or by reason of any of the events described above, had this Convertible Note been converted immediately prior to the date of such event, or if such event has a record date, then the record date applicable to such event. An adjustment made pursuant to the immediately preceding sentence shall become effective retroactively to the close of business on the day upon which such event is effected. 9. Certain Approvals. Prior to the Initial Public Offering, in addition to any approval required under applicable law or under Section 3.07 of the Securityholders' Agreement, the prior approval of the Holder of the Convertible Note shall be required for Obligor to: (a) (i) merge, combine or consolidate with, or agree to merge, combine or consolidate with, or purchase, or agree to purchase, all or substantially all of the stock of, any Person or (ii) purchase, or agree to purchase, all or substantially all of the assets and properties of, or otherwise acquire, or agree to acquire, all or any portion of, any Person, in each case with respect to this clause (ii), having a value in excess of US$250,000, including assets and assumed liabilities; (b) sell all or substantially all of the assets and properties of Obligor; (c) liquidate or dissolve Obligor, effect any recapitalization or reorganization of Obligor, or any stock split or reverse stock split, or, in each case, obligate itself to do so; (d) amend or propose to amend the organizational documents of Obligor; (e) issue any Ordinary Shares, or securities exercisable or exchangeable for, or convertible into, Ordinary Shares, for consideration per Ordinary Share (or an exercise, exchange or conversion price per Ordinary Share) in an amount less than the Conversion Price; or (f) adopt or amend any equity incentive plan for directors, officers or employees, including the Option Plan, to permit the grant of, or otherwise grant, options or any other rights to acquire Ordinary Shares in excess of the Option Limit. 10. Covenants of Obligor. (a) Obligor shall maintain financial statements in accordance with International Accounting Standards applied on a consistent basis, with a reconciliation to United States generally accepted accounting principles included in the footnotes; (b) Prior to the Initial Public Offering, Holder shall have reasonable rights to inspect the books and records of Obligor and shall have reasonable access to the legal, tax, accounting and other personnel of Obligor; (c) Prior to the Initial Public Offering, Obligor shall deliver to Holder the following documents: (i) Annual audited consolidated financial statements within ninety (90) days after the end of each fiscal year and quarterly unaudited consolidated financial statements within forty-five (45) days after the end of each fiscal quarter, in each case, of Obligor and its subsidiaries; (ii) Monthly financial reports furnished to senior management of Obligor, contemporaneously with delivery to senior management; and (iii) Copies of reports, if any, submitted to Obligor by independent accountants in connection with each annual or interim audit of the books and records of Obligor made by such accountants. 11. Treatment of Note. Obligor will treat, account and report this Convertible Note as debt and not equity for accounting and tax (with respect to any returns filed with federal, state, local or foreign tax authorities) purposes. 12. Miscellaneous. (a) Actions by Obligor. Prior to the Initial Public Offering, any right, option, discretion, obligation, notice, approval, consent, authorization or other action required or permitted to be exercised, performed, given or taken by Obligor or the Board under this Convertible Note in order to enforce Obligor's rights under this Convertible Note shall be exercised, performed, given or taken only pursuant to a resolution duly adopted by the Board with the affirmative vote of at least one director designated by TH and at least one director designated by Holder. (b) Specific Performance. Obligor and Holder acknowledge and agree that in the event of any breach of this Convertible Note, the non-breaching party would be irreparably harmed and could not be made whole solely by monetary damages. Obligor and Holder hereby agree that in addition to any other remedy to which any party may be entitled at law or in equity, to the extent permitted by applicable law, Obligor and Holder shall be entitled to obtain an injunction or compel specific performance of this Convertible Note in any action instituted in any Court. (c) Interpretation. The headings and captions in this Convertible Note are for convenience of reference only and shall not control or affect the meaning or construction of any provisions hereof. When used in this Convertible Note, (i) the symbol "US$" shall refer to the lawful currency of the United States of America and (ii) the words "including" and "include" shall be deemed followed by the words "without limitation." (d) Notices. All notices and other communications required or permitted to be given hereunder shall be in writing and shall be (i) delivered by hand, (ii) delivered by a reputable commercial overnight delivery service, or (iii) transmitted by facsimile, in each case, sent to the address or telecopier number set below. Such notices shall be effective: (i) in the case of hand deliveries, when received; (ii) in the case of an overnight delivery service, when received; and (iii) in the case of facsimile transmission, when electronic confirmation of receipt is received by the sender. Any party may change its address and telecopy number by written notice to another party in accordance with this provision, provided that such notice shall be effective only upon receipt. If to Obligor, to: Hutchison-Priceline Limited Unit 2007, 20th Floor 2 Harbour Front 18 Tak Fung Street Hunghom, Kowloon, Hong Kong Telecopy: 011-852-2189-7207 Attention: Chief Executive Officer with a copy to: A.S. Watson & Company, Limited Watson House 1-5 Wo Liu Hang Road Fo Tan, Shatin, New Territories, Hong Kong Telecopy: 011-852-2693-4404 Attention: Managing Director If to Holder, to: PCLN Asia, Inc. In care of priceline.com Incorporated 800 Connecticut Avenue Norwalk, CT 06854 Telecopy: + 1-203-299-8915 Attention: General Counsel With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square P.O. Box 636 Wilmington, DE 19899-0636 Telecopy: + 1-302-651-3001 Attention: Patricia Moran Chuff, Esquire (e) Governing Law; Forum; Service of Process. This Convertible Note shall be governed by and construed in accordance with the laws of England and Wales (without giving effect to conflicts of law principles) as to all matters, including validity, construction, effect, performance and remedies of and under this Convertible Note. Venue in any and all suits, actions and proceedings between the parties hereto and relating to the subject matter of this Convertible Note shall be in the courts located in and for England and Wales (the "Courts"), which shall have exclusive jurisdiction for such purpose, and Holder and Obligor hereby irrevocably submit to the exclusive jurisdiction of such Courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding. Service of process may be made in any manner recognized by such Courts. Holder and Obligor each hereby irrevocably waives its right to a jury trial arising out of any dispute in connection with this Convertible Note or the transactions contemplated hereby. (f) Severability. The invalidity, illegality or unenforceability of one or more of the clauses or provisions of this Convertible Note in any jurisdiction shall not affect the validity, legality or enforceability of this Convertible Note in such jurisdiction or the validity, legality or enforceability of this Convertible Note, including any such clause or provision in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. (g) Successors; Assigns; Third-Party Beneficiaries. The provisions of this Convertible Note shall be binding upon the parties hereto and their respective heirs, successors and permitted assigns. Neither this Convertible Note nor the rights or obligations of Obligor may be assigned by Obligor without the prior written consent of Holder. Holder may assign its rights or obligations hereunder to any Affiliate of Priceline, provided that any assignment to an Affiliate of Priceline which is not a wholly owned subsidiary of Priceline shall be subject to the prior written consent of Obligor which consent shall not be unreasonably withheld or delayed. Any attempted assignment in contravention of this Convertible Note shall be null and void and of no effect. This Convertible Note is for the sole benefit of the parties hereto and their respective heirs, successors and permitted assigns and no provision hereof, whether express or implied, is intended, or shall be construed, to give any other Person any rights or remedies, whether legal or equitable, hereunder. (h) Amendments. This Convertible Note may not be amended, modified or supplemented except in a writing signed by Obligor and Holder. (i) Waiver. Any waiver (whether express or implied) of any default or breach of or by any party to this Convertible Note shall be effective unless evidenced by a writing signed by the party against which such waiver is sought to be enforced. No such waiver for any purpose shall constitute a waiver of any other or subsequent default or breach, or for any other purpose. (j) Counterparts. This Convertible Note may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Convertible Note. 13. Definitions. As used in this Convertible Note, the following terms shall have the following meanings: "Affiliate" has the meaning specified in Rule 12b-2 promulgated under the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Board" means the board of directors of Obligor. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in the City of New York, State of New York, United States of America or Hong Kong are required or authorized to be closed. "Conversion Price" means US$1.25 per share, as may be adjusted pursuant to Section 8. "Convertible Note" means this 6% Convertible Note and all amendments made hereto in accordance with the provisions hereof. "Court" has the meaning specified in Section 12(e). "Default Date" has the meaning specified in Section 2. "Holder" has the meaning specified in the Preamble. "Initial Public Offering" means the first Public Offering of Shares resulting in aggregate net proceeds (after expenses and underwriting commissions and discounts) to Obligor, if such Public Offering occurs in the United States of America, of at least US$50 million, or, if such Public Offering does not occur in the United States of America, an amount, denominated in the currency of the jurisdiction in which such Public Offering occurs, equivalent to US$50 million at then applicable exchange rate. "Issue Date" means the date of first issuance of this Convertible Note as first set forth above. "Mandatory Conversion" has the meaning specified in Section 7(b). "Mandatory Conversion Certificates" has the meaning specified in Section 7(b). "Mandatory Conversion Shares" has the meaning specified in Section 7(b). "Maturity Date" has the meaning specified in Section 1. "Obligor" has the meaning specified in the Preamble. "Option Limit" means a number of Shares issuable upon exercise of options or any other rights to acquire Ordinary Shares granted under the Option Plan not to exceed 10% of the outstanding Shares of Obligor on a fully diluted basis, including after giving effect to the issuance of Shares upon exercise of such options or such other rights and the conversion of the Convertible Note. "Option Plan" means the stock option plan for directors, officers and employees of Obligor on terms to be approved by the Board, provided that the Option Plan shall limit the number of Shares issuable upon the exercise of options granted thereunder to the Option Limit. "Optional Conversion" has the meaning specified in Section 7(a). "Optional Conversion Certificates" has the meaning specified in Section 7(a). "Optional Conversion Notice" has the meaning specified in Section 7(a). "Optional Conversion Shares" has the meaning specified in Section 7(a). "PCLN Director" means a director of Obligor designated by Holder. "Person" means any individual, firm, corporation, proprietary, public or private company, partnership, limited liability company, public liability company, trust or other entity, and shall include any successor (by merger or otherwise) of such entity. "Priceline" means priceline.com Incorporated, a corporation organized under the laws of the State of Delaware, United States of America. "Principal Amount" has the meaning specified in the Preamble. "Public Offering" means a public offering of Shares pursuant to a prospectus, an effective registration statement or listing agreement in compliance with the laws, rules and regulations in such jurisdiction as may be approved by the Board to be the jurisdiction for the primary listing and trading of Obligor's securities. "Purchase Agreement" has the meaning specified in the Preamble. "Securityholders' Agreement" means the Securityholders' Agreement, dated as of the date hereof, among Obligor, Holder and TH. "Services Agreement" means the Services Agreement, dated as of the date hereof, between Priceline and Obligor. "Shares" means the ordinary shares of Obligor. "TH" means Trio Happiness Limited, a company organized under the laws of the British Virgin Islands and a wholly owned subsidiary of Hutchison Whampoa Limited. "TH Director" means a director of Obligor designated by TH. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, Obligor has caused this Convertible Note to be duly executed and delivered as of the date first set forth above. HUTCHISON-PRICELINE LIMITED By: ------------------------------ Name: Title: IN WITNESS WHEREOF, Obligor has caused this Convertible Note to be duly executed as a deed as of the date first set forth above. EXECUTED AS A DEED for and on behalf of HUTCHISON-PRICELINE LIMITED By: ------------------------------ Name: Title: In the presence of : -------------------------- --------------------------------------------- Witness EXHIBIT A TO CONVERTIBLE NOTE CONVERSION NOTICE To: Hutchison-Priceline Limited The undersigned registered holder of the attached 6% Convertible Note, dated as of June ___, 2000, originally executed by Hutchison-Priceline Limited, a company organized under the laws of the Cayman Islands ("Obligor"), in favor of PCLN Asia, Inc. ("Convertible Note") hereby irrevocably exercises the option to convert US$_________ of the Principal Amount outstanding under the Convertible Note into the Conversion Shares in accordance with the terms of the Convertible Note, and directs that the Certificates representing the Conversion Shares issuable and deliverable upon such conversion be issued and delivered to the registered holder hereof unless a different name has been indicated below. Capitalized terms used in this Conversion Notice and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Convertible Note. Dated: ------------------------- -------------------------------- -------------------------------- Signature(s) EX-27 8 0008.txt EXHIBIT 27.1 - FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PRICELINE.COM INCORPORATED FOR THE PERIOD ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 95,434 43,273 42,754 (3,761) 0 208,653 55,259 (13,667) 492,838 100,935 0 359,580 0 1,380 491,458 492,838 665,893 665,893 562,452 562,452 126,969 0 0 (18,088) 0 0 0 0 0 (18,088) (0.15) (0.15)
-----END PRIVACY-ENHANCED MESSAGE-----