-----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, HFkiV1Wx+6t8IHKReYaRJZY/D1tM6Mpd9ZhbAe9eZHlZP02tVqq9uNtqTzNDvtm4 +7uLH0Zu4gL8V51XDV8Ntw== 0001047469-99-006277.txt : 19990217 0001047469-99-006277.hdr.sgml : 19990217 ACCESSION NUMBER: 0001047469-99-006277 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICELINE COM INC CENTRAL INDEX KEY: 0001075531 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-69657 FILM NUMBER: 99543368 BUSINESS ADDRESS: STREET 1: FIVE HIGH RIDGE PARK CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2037053000 S-1/A 1 FORM S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1999 REGISTRATION NO. 333-69657 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PRICELINE.COM INCORPORATED (Exact Name of Registrant as Specified in Its Charter) DELAWARE 4541 06-1528493 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification Incorporation or Organization) No.)
------------------------------ FIVE HIGH RIDGE PARK STAMFORD, CONNECTICUT 06905 (203) 705-3000 (Address, Including Zip Code, and Telephone Number, including Area Code, of Registrant's Principal Executive Offices) ------------------------------ MELISSA M. TAUB, ESQ. SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY PRICELINE.COM INCORPORATED FIVE HIGH RIDGE PARK STAMFORD, CONNECTICUT 06905 (203) 705-3000 (Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent For Service) ------------------------------ COPIES TO: PATRICIA MORAN CHUFF, ESQ. ALAN DEAN, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM DAVIS POLK & WARDWELL LLP 450 LEXINGTON AVENUE ONE RODNEY SQUARE NEW YORK, NEW YORK 10017 WILMINGTON, DELAWARE 19801 (212) 450-4000 (302) 651-3000 ------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement number for the same offering. / / ______ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ______ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ______ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS (SUBJECT TO COMPLETION) ISSUED FEBRUARY 16, 1999 SHARES PRICELINE.COM INCORPORATED COMMON STOCK --------------------- PRICELINE.COM INCORPORATED IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. ------------------------ PRICELINE.COM INCORPORATED HAS APPLIED FOR QUOTATION OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "PCLN." ------------------------ INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 2. --------------------- PRICE $ A SHARE ---------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS COMPANY ---------------- ---------------- ---------------- PER SHARE................................................. $ $ $ TOTAL..................................................... $ $ $
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PRICELINE.COM INCORPORATED HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES OF COMMON STOCK TO PURCHASERS ON , 1999. ------------------------ MORGAN STANLEY DEAN WITTER BANCBOSTON ROBERTSON STEPHENS DONALDSON, LUFKIN & JENRETTE MERRILL LYNCH & CO. , 1999 [PHOTOS] priceline.com and the priceline.com logo are service marks of priceline.com Incorporated. TABLE OF CONTENTS
PAGE --------- Prospectus Summary.............................. 1 Risk Factors.................................... 2 Special Note Regarding Forward-Looking Statements.................................... 19 Use of Proceeds................................. 20 Dividend Policy................................. 20 Capitalization.................................. 21 Dilution........................................ 22 Selected Combined Financial Data................ 23 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 24 Business........................................ 33 PAGE --------- Management...................................... 53 Certain Transactions............................ 68 Principal Stockholders.......................... 71 Description of Capital Stock.................... 73 Certain United States Federal Tax Consequences to Non-U.S. Investors......................... 75 Shares Eligible for Future Sale................. 77 Underwriters.................................... 79 Legal Matters................................... 83 Experts......................................... 83 Additional Information.......................... 84 Index to Financial Statements................... F-1
Our principal executive offices are located at Five High Ridge Park, Stamford, Connecticut 06905, and our telephone number is (203) 705-3000. Our World Wide Web site is www.priceline.com. The information in the web site is not incorporated by reference into this prospectus. In this prospectus, the terms "company," "priceline.com," "we," "us" and "our" refer to priceline.com Incorporated and unless the context otherwise requires, "common stock" refers to the common stock, par value $0.01 per share, of priceline.com. Our financial statements for all relevant periods are presented on a combined basis with the financial statements of Priceline Travel, Inc., a separate company owned by Mr. Jay S. Walker, our Founder and Vice Chairman. Priceline Travel owns our travel agency license and will be merged with and into priceline.com prior to the consummation of this offering. This prospectus includes statistical data regarding our company, the Internet and the industries in which we compete. Such data are based on our records or are taken or derived from information published or prepared by various sources, including International Data Corporation, a provider of market and strategic information for the information technology industry, and a market research organization that we retain from time to time to measure consumer awareness of our brand and services and of other leading Internet brands and their products. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that which is contained in this prospectus. We are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Until , 1999 (25 days after the date of this prospectus), all dealers that buy, sell or trade in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Unless otherwise indicated, all information in this prospectus (1) reflects the conversion of all outstanding shares of our convertible preferred stock into 31,126,184 shares of common stock upon the consummation of this offering; (2) reflects the consummation of the merger between priceline.com and Priceline Travel, Inc. prior to the consummation of this offering; and (3) assumes that the underwriters' over-allotment option will not be exercised. See "Description of Capital Stock" and "Underwriters." ii PROSPECTUS SUMMARY Priceline.com has pioneered a unique new type of e-commerce 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 price," we collect consumer demand, in the form of individual customer offers guaranteed by a credit card, for a particular product or service at a price set by the customer. We then either communicate that demand directly to participating sellers who determine whether to accept the customer's offer, or access participating sellers' private databases to determine whether we can fulfill the customer's offer on the basis of the pricing information and rules established by the sellers. Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers. Once fulfilled, offers cannot be canceled. By requiring consumers to be flexible with respect to brands, sellers and/or product features, we enable sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures. We commenced the priceline.com service on April 6, 1998 with the sale of leisure airline tickets and expanded the priceline.com service to include the sale of new automobiles, on a test basis, in July 1998, hotel room reservations in October 1998 and home mortgages in January 1999. With respect to airline and hotel reservation services, we determine whether to fulfill a customer's offer based upon the available fares, rules and inventory that have been provided by participating sellers in their private data bases. Upon completion of a successful transaction, we earn the spread between the customer's named price and the fare or rate charged by the seller. With respect to our automobile and mortgage services, a customer's offer is submitted directly to the participating sellers who determine whether to fulfill the offer. For these services, and for our adaptive marketing programs, we earn fees or other payments payable by the seller and/or the customer or by our adaptive marketing partners. During the period from launch through December 31, 1998, we collected guaranteed offers for approximately 1.9 million airline tickets, representing approximately $400.0 million in total consumer demand. This demand resulted in sales of approximately 134,878 airline tickets, representing approximately $30.4 million in revenue. We intend to continue to leverage the priceline.com brand over the next two years by expanding our product offerings to include other leisure travel products, other financial services products and a number of retail products. Our seller participants currently include 18 domestic and international airlines and several nationally recognized hotel chains. We believe that the priceline.com service already has achieved significant consumer acceptance and widespread brand awareness. THE OFFERING Common Stock offered U.S. offering................................................ shares International offering....................................... shares Total.................................................... shares Common Stock to be outstanding after the offering................ shares(a) Use of proceeds.................................................. For general corporate purposes, including capital expenditures and working capital. See "Use of Proceeds." Proposed Nasdaq National Market symbol........................... PCLN
SUMMARY COMBINED FINANCIAL INFORMATION
JULY 18, 1997 (INCEPTION) TO YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1998 ----------------- ------------------ COMBINED STATEMENT OF OPERATIONS DATA: Revenues................................................................................. $ -- $ 35,236,860 Cost of revenues......................................................................... -- 33,495,745 ----------------- ------------------ Gross profit........................................................................... -- 1,741,115 Expenses: Supplier start-up charges.............................................................. -- 38,960,000 Sales and marketing.................................................................... 441,479 24,388,061 General and adminstrative.............................................................. 1,011,600 18,004,585 Systems and business development....................................................... 1,060,091 11,131,650 ----------------- ------------------ Total expenses........................................................................... 2,513,170 92,484,296 ----------------- ------------------ Operating loss........................................................................... (2,513,170) (90,743,181) Interest income (expense), net........................................................... (312) 548,374 ----------------- ------------------ Net loss................................................................................. (2,513,482) (90,194,807) Accretion on preferred stock............................................................. -- (1,300,000) ----------------- ------------------ Net loss applicable to common shareholders............................................... $(2,513,482) $(91,494,807) ----------------- ------------------ ----------------- ------------------ Basic and diluted loss per common share.................................................. $ (0.06) $ (1.41) ----------------- ------------------ ----------------- ------------------ Weighted average common shares outstanding............................................... 40,667,005 64,985,140
AS OF DECEMBER 31, 1998 ------------------------------------- PRO FORMA ACTUAL AS ADJUSTED(B) ------------------ ----------------- COMBINED BALANCE SHEET DATA: Cash and cash equivalents................................................................ $ 53,593,026 Working capital.......................................................................... 49,922,000 Total assets............................................................................. 66,572,485 Total liabilities........................................................................ 11,296,640 Total stockholders' equity............................................................... 55,275,845
- ------------------------------ (a) Excludes shares of common stock issuable upon the exercise of outstanding options and warrants. See "Capitalization." (b) For a description of the assumptions reflected in the Pro Forma, as adjusted, presentation, see "Capitalization." RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN INVESTMENT DECISION. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. YOU ALSO SHOULD REFER TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, INCLUDING OUR COMBINED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS RELATE TO FUTURE EVENTS OR FUTURE FINANCIAL PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "COULD," "EXPECTS," "PLANS," "ANTICIPATES," "BELIEVES," "ESTIMATES," "PREDICTS," "POTENTIAL," OR "CONTINUE" OR THE NEGATIVE OF SUCH TERMS AND OTHER COMPARABLE TERMINOLOGY. THESE STATEMENTS ARE ONLY PREDICTIONS. IN EVALUATING THESE STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING THE RISKS OUTLINED BELOW. THESE FACTORS MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS." 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: - attract leading sellers and consumers to the priceline.com service; - maintain and enhance our brand, and expand our product and service offerings; - attract, integrate, retain and motivate qualified personnel; and - adapt to meet changes in our markets and competitive developments. We may not be successful in accomplishing these objectives. WE ARE NOT PROFITABLE AND EXPECT TO CONTINUE TO INCUR LOSSES We have incurred net losses of $48.2 million during the period from July 18, 1997 (inception) through December 31, 1998, before giving effect to $45.8 million of non-cash charges arising from equity issuances to a number of our participating airlines, our chief executive officer and other parties, which resulted in total net losses of $94.0 million for the period. We have not achieved profitability and expect to continue to incur losses for the foreseeable future. The principal causes of our losses are likely to continue to be significant brand development costs, marketing and promotion costs and technology and systems development costs. Almost all of our revenues to date have been derived from airline ticket sales and related adaptive marketing programs. In order to increase airline and adaptive marketing revenues, build a record of successful transactions and enhance the priceline.com brand, we have sold a substantial portion of our airline tickets below cost. In addition, as our business model evolves, we expect 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 make a profit. 2 WE ARE DEPENDENT ON ADAPTIVE MARKETING PROGRAMS Our adaptive marketing programs permit consumers to increase the amount of their offers at no additional cost by participating in sponsor promotions during the process of making an offer through the priceline.com service. The fees paid to us by sponsors offering the promotions generate significant revenues with high gross margins. A significant reduction in consumer acceptance of our adaptive marketing programs or any other material decline in such programs could result in a material reduction in our revenues and our gross profit. We may not be able to replace such revenues through other programs or through product sales. Currently, almost all of our adaptive marketing revenues are derived from fees paid by a third party credit card issuer for qualifying credit card applications submitted over the priceline.com service in connection with customer offers for airline tickets. We expect that revenues attributable to our adaptive marketing programs will increase significantly in future periods. Because the fees generated by our adaptive marketing program have high gross margins, adaptive marketing revenues have a disproportionate impact on our total gross margin. We experienced a positive total gross profit for the year ended December 31, 1998 due primarily to the contribution of our adaptive marketing programs to our revenues. We expect that, in the future, a substantial portion of our gross profit will continue to be attributable to our adaptive marketing programs. POTENTIAL FLUCTUATIONS IN OUR FINANCIAL RESULTS MAKES FINANCIAL FORECASTING DIFFICULT We expect our revenues and operating results to vary significantly from quarter to quarter. As a result, quarter to quarter comparisons of our revenues and operating results may not be meaningful. In addition, due to our limited operating history and our new and unproven business model, we cannot predict our future revenues or results of operations accurately. It is likely that in one or more future quarters our operating results will fall below the expectations of securities analysts and investors. If this happens, the trading price of our common stock would almost certainly be materially and adversely affected. Our business has no backlog and almost all of our net revenues for a particular quarter are derived from transactions that are both initiated and completed during that quarter. Our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. Accordingly, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, and any significant shortfall in revenues relative to our planned expenditures could have an immediate adverse effect on our business and results of operations. Our limited operating history and rapid growth makes it difficult for us to assess the impact of seasonal factors on our business. Nevertheless, we expect our business to be subject to seasonal fluctuations, reflecting a combination of seasonality trends for the products and services offered by the priceline.com service and seasonality patterns affecting Internet use. For example, with regard to our travel products, demand for leisure travel may increase over summer vacations and holiday periods, while Internet usage may decline during the summer months. Our results also may be affected by seasonal fluctuations in the inventory made available to the priceline.com service by participating sellers. Airlines, for example, typically enjoy high demand for tickets through traditional distribution channels for travel during Thanksgiving and the year-end holiday period. As a result, during those periods, airlines may have less excess inventory to offer through the priceline.com service at discounted prices. Our business also may be subject to cyclical variations for the products and services offered; for example, leisure travel and home mortgage financing tend to decrease in economic downturns. WE ARE DEPENDENT ON THE AIRLINE INDUSTRY AND CERTAIN AIRLINES Our near term, and possibly long term, prospects are significantly dependent upon our sale of leisure airline tickets. Sales of leisure airline tickets and revenues derived from related adaptive marketing programs represented essentially all of our revenues for the year ended December 31, 1998. 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 3 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 three largest airline suppliers accounted for approximately 95% of airline ticket revenue for the year ended December 31, 1998. As a result, currently we are substantially dependent upon the continued participation of these three airlines in the priceline.com service in order to maintain and continue to grow our total airline ticket revenues. We currently have agreements with 18 airlines for the supply of airline tickets. However, these agreements: - do not require the airlines to make tickets available for any particular routes; - do not require the airlines to provide any specific quantity of airline tickets; - do not require the airlines to provide particular prices or levels of discount; - do not require the airlines to deal exclusively with us in the public sale of discounted airline tickets; and - 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. In addition, our agreement with Delta Air Lines requires, subject to various exceptions, Delta's approval of the addition of new carriers to the priceline.com service and restricts both the volume of tickets that may be sold and the routes for which tickets may be offered by specified carriers through the priceline.com service. Accordingly, Delta could limit our ability to expand our business through the introduction of new carriers or the expansion of the routes for which we offer tickets. Due to our dependence on the airline industry, we could be severely affected by changes in that industry, and, in many cases, we will have no control over such changes or their timing. For example, if the Federal Aviation Administration grounded a popular aircraft model, excess seat capacity could be dramatically reduced and, as a result, our source of inventory could be significantly curtailed. In addition, given the concentration of the airline industry, particularly in the domestic market, major airlines that are not participating in the priceline.com service could exert pressure on other airlines not to supply us with tickets. Alternatively, the airlines could attempt to establish their own buyer-driven commerce service or other similar service to compete with us. We also could be materially adversely affected by the bankruptcy, insolvency or other material adverse change in the business or financial condition of one or more of our airline participants. OUR BUSINESS MODEL IS NOVEL AND UNPROVEN The priceline.com service is based on a novel and unproven business model. We will be successful only if consumers and sellers actively use the priceline.com service. Prior to the launch of the priceline.com service, consumers and sellers had never bought and sold products and services through a demand collection system over the Internet. Therefore, it is impossible to predict the degree to which consumers and sellers will use the priceline.com service. Many of the factors influencing consumers' and sellers' willingness to use the priceline.com service are outside our control. For example, a labor dispute that disrupts airline service or an airline accident could make consumers unwilling to use a service like priceline.com that does not permit the customer to designate the airline on which the customer purchases a ticket. In addition, a breach of security on the Internet, even if we were not involved, could make consumers unwilling to guarantee orders online with a credit card. Consequently, it is possible that consumers and sellers will never utilize the priceline.com service to the degree necessary for us to achieve profitability. 4 WE NEED TO SELL NEW PRODUCTS AND SERVICES We are unlikely to make significant profits unless we make new or complementary products and services and a broader range of existing products and services available through the priceline.com service. We will incur substantial expenses and use significant resources in trying to expand the type and range of the products and services that we offer. However, we may not be able to attract sellers to provide such products and services or consumers to purchase such products and services through the priceline.com service. In addition, if we launch new products or services and they are not favorably received by consumers, our reputation and the value of the priceline.com brand could be damaged. Almost all 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 or hotel room reservation has no value. The expiring nature of the inventory creates incentives for airlines and hotels to sell seats or room 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. OUR BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED We believe that broader recognition and a favorable consumer perception of the priceline.com brand are essential to our future success. Accordingly, we intend to continue to pursue an aggressive brand-enhancement strategy, which will include mass market and multimedia advertising, promotional programs and public relations activities. These initiatives will involve significant expense. If our brand enhancement strategy is unsuccessful, these expenses may never be recovered and we may be unable to increase future revenues. Successful positioning of the priceline.com brand will largely depend on: - the success of our advertising and promotional efforts; - an increase in the number of successful transactions on the priceline.com service; and - the ability to continue to provide high quality customer service. We believe that consumers currently associate the priceline.com brand primarily with the sale of discount airline tickets. To grow our business, we will need to expand awareness of the priceline.com brand to a wide range of products and services. Sales and marketing expense was $24.4 million during the year ended December 31, 1998. To increase awareness of the priceline.com brand and expand it to a wide range of products and services, we will need to continue to spend significant amounts on advertising and promotions. These expenditures may not result in a sufficient increase in revenues to cover such advertising and promotions expenses. In addition, even if brand recognition increases, the number of new users or the number of transactions on the priceline.com service may not increase. Also, even if the number of new users increases, those users may not use the priceline.com service on a regular basis. WE FACE POTENTIAL CONFLICTS OF INTEREST RELATING TO WALKER DIGITAL Because of our relationship with Walker Digital and our interlocking directors, officers and stockholders, we are likely to face potential conflicts of interest relating to Walker Digital. The priceline.com service and the business model and related intellectual property rights underlying the priceline.com service were developed in part by executives, employees and/or consultants associated with Walker Digital Corporation, a technology research and development company that was founded and is controlled by Mr. Jay S. Walker, who is the Founder and Vice Chairman of priceline.com. Such individuals assigned all of their intellectual property rights relating to the priceline.com service to Walker Digital's affiliate, Walker Asset Management Limited Partnership. Walker Asset Management, subsequently transferred the patent rights relating to the priceline.com service and other related intellectual 5 property rights to us. We, in turn, granted Walker Digital a perpetual, non-exclusive, royalty-free right and license to use certain intellectual property related to the priceline.com service for non-commercial internal research and development purposes. Walker Digital also provides us with, among other things, a right to purchase at fair market value any intellectual property that is in process or has been fully developed and that is owned and subsequently acquired, developed or discovered by Walker Digital or Walker Asset Management that will provide significant value in the use or commercial exploitation of the initially transferred patent and related intellectual property rights. Walker Digital also provides us with various services, including (1) research and development assistance; (2) patent and other intellectual property services; and (3) technical support. Walker Digital also subleases a portion of its Stamford, Connecticut facilities to us on a month-to-month basis. Priceline.com, in turn, provides Walker Digital with various management and administrative services. Certain of our executive officers and other key employees also are directors, officers or employees of Walker Digital and either own, or hold an option to purchase, equity securities of Walker Digital. Upon the consummation of this offering, Walker Digital also will own approximately % of our outstanding common stock. Accordingly, conflicts of interest may arise from time to time between us and Walker Digital, particularly with respect to the potential purchase by us of additional intellectual property rights at fair market value and the pursuit of overlapping corporate opportunities. We have not adopted any formal plan or arrangement to address such potential conflicts of interest and intend to review related-party transactions with Walker Digital on a case-by-case basis. Additionally, the option agreements for priceline.com options held by many other employees and consultants of priceline.com provide that options scheduled to vest as of the end of the current vesting period in which such employee or consultant terminates his or her employment or consulting relationship with priceline.com will not be forfeited if the employee or consultant leaves priceline.com to work for an entity in which Mr. Jay S. Walker is the controlling stockholder and maintains such employment until the end of such current vesting period. Because we have interlocking directors and officers with Walker Digital, there may be inherent conflicts of interest when such directors and officers make decisions related to transactions between us and Walker Digital. We could lose valuable management input from such conflicted directors and officers. Mr. Jay S. Walker, as the Founder of Walker Digital and as our Founder, has performed an essential role in the establishment and development of the priceline.com service. Mr. Walker also serves as Chairman of Walker Digital and as non-executive Chairman of NewSub Services, Inc., a direct marketing company also co-founded by him. Mr. Walker devotes, and expects to continue to devote, a substantial portion of his time to Walker Digital and a lesser portion of his time to NewSub Services. Mr. Walker has not committed to devote any specific percentage of his business time to us. In July 1998, Mr. Richard S. Braddock replaced Mr. Walker as our Chairman and Chief Executive Officer. As a result, Mr. Walker's role with priceline.com has been reduced, and we expect that Mr. Walker will continue to reduce his involvement with us over time. Mr. Walker's skills and experience have benefitted, and continue to benefit, us significantly. Priceline.com could lose valuable management expertise as Mr. Walker further reduces his day-to-day involvement with priceline.com. 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 attract, hire and retain highly skilled and motivated officers and employees and improve existing systems and/or implement new systems for: (1) transaction processing; (2) operational and financial management; and (3) training, integrating and managing our growing employee base. 6 IF WE LOSE OUR KEY PERSONNEL OR CANNOT RECRUIT ADDITIONAL PERSONNEL, OUR BUSINESS MAY SUFFER Competition for personnel with experience in Internet commerce is intense. If we do not succeed in attracting new employees or retaining and motivating our current and future employees, our business could suffer significantly. Since our formation in July 1997, we have expanded from 10 to 141 employees. We also have employed many key personnel since our launch in April 1998, including our Chief Executive Officer, and a number of key managerial, marketing, planning, financial, technical and operations personnel. In addition, we currently are engaged in recruiting a new chief operating officer. We expect to continue to add additional key personnel in the near future. We do not have "key person" life insurance policies on any of our key personnel. We believe our performance is substantially dependent on; - our ability to retain and motivate our senior management and other key employees; and - our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel. 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: - unanticipated disruptions in service; - slower response times; - decreased customer service and customer satisfaction; or - 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. We use internally developed systems to operate the priceline.com service, including transaction processing and order management systems that were designed to be scalable. However, if the number of users of the priceline.com service increases substantially, we will need to significantly expand and upgrade our technology, transaction processing systems and network infrastructure. We do not know whether we will be able to accurately project the rate or timing of any such increases, or expand and upgrade our systems and infrastructure to accommodate such increases in a timely manner. Our ability to facilitate transactions successfully and provide high quality customer service also depends on the efficient and uninterrupted operation of our computer and communications hardware systems. The priceline.com service has experienced periodic system interruptions, which we believe will continue to occur from time to time. Our systems and operations also are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. While we currently maintain redundant servers at our Stamford, Connecticut premises to provide limited service during system disruptions at our production site hosted by Exodus Communications, Inc., 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. 7 WE RELY ON THIRD-PARTY SYSTEMS We rely on certain third-party computer systems or third-party service providers, including; - the computerized central reservation systems of the airline and hotel industries to satisfy demand for airline tickets and hotel room reservations; - the computer systems of LendingTree, Inc. to satisfy offers for home mortgages; - Exodus Communications to host our systems infrastructure, web and database servers; and - CallTech Communications Incorporated to operate our call center. Any interruption in these third-party services, or a deterioration in their performance, could be disruptive to our business. We currently do not have any contractual arrangement with Exodus Communications and our agreements with CallTech Communications and LendingTree are terminable upon short notice. In the event our arrangement with any of such third parties is terminated, we may not be able to find an alternative source of systems support on a timely basis or on commercially reasonable terms. INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE The markets for the products and services offered on the priceline.com service are intensely competitive. We compete with both traditional distribution channels and online services. Increased competition could diminish our ability to become profitable or result in loss of market share and damage the priceline.com brand. 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: - Internet travel agents such as Travelocity, Preview Travel and Microsoft's Expedia.com; - traditional travel agencies; - consolidators and wholesalers of airline tickets and other travel products; - individual airlines, hotels, rental car companies, cruise operators and other travel service providers; and - operators of travel industry reservation databases such as Worldspan and Sabre. Our current or potential competitors with respect to new automobiles include traditional and online auto dealers, including newly developing auto superstores such as Auto Nation, Auto-by-Tel and Microsoft's CarPoint. With respect to financial service products, our competitors include: - banks and other financial institutions; - online and traditional mortgage and insurance brokers, including Quicken Mortgage, E-Loan and Home Shark; and - insurance companies. We also potentially face competition from a number of large online services that have expertise in developing online commerce and in facilitating Internet traffic. These potential competitors include America Online, Microsoft and Yahoo!, who could choose to compete with us either directly or indirectly through affiliations with other e-commerce companies. Other large companies with strong brand recognition, technical expertise and experience in online commerce and direct marketing could also seek to compete in the buyer-driven commerce market. While we face competition from all of these current or potential competitors, our business and financial position would be particularly at risk if the airlines chose to establish their own buyer-driven commerce system to sell excess inventory. 8 Many of our competitors have significant competitive advantages. For example, airlines, hotels, financial institutions and other suppliers also sell their products and services directly to consumers and have established Web sites. Internet directories, search engines and large traditional retailers have significantly greater operating histories, customer bases, technical expertise, brand recognition and/or online commerce experience than us. In addition, certain competitors may be able to devote significantly greater resources than us to: - marketing and promotional campaigns; - attracting traffic to their Web sites; - attracting and retaining key employees; and - Web site and systems development. OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY We have developed a comprehensive program for securing and protecting rights in patentable inventions, trademarks, trade secrets and copyrightable materials. If we are not successful in protecting our intellectual property, there could be a material adverse effect on our business. PATENTS We currently hold one issued United States patent directed to a unique Internet-based buyer-driven commerce method and system underlying our business model. We also hold one issued United States patent directed to a method and system for pricing and selling airline ticket options and one allowed patent application directed to methods and systems for generating airline-specified time tickets. In addition, we have pending eighteen United States and one international patent applications directed to different aspects of our technology and business processes. We also have instituted an invention development program to identify and protect new inventions and a program for international filing of selected patent applications. Nevertheless, it is possible that: - our core buyer-driven commerce patent and any other issued patents could be successfully challenged by one or more third parties, which could result in our loss of the right to prevent others from exploiting the buyer-driven commerce system claimed in the patent or the inventions claimed in any other issued patents; - because of variations in the application of our business model to each of our products and services, our core buyer-driven commerce patent may not 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; - our ability to practice our core buyer-driven commerce patent through offering one or more of our products or services could be successfully prevented if one or more third parties prevail in an interference action in the U.S. Patent and Trademark Office and thereby obtain priority of invention for the subject matter claimed in our core buyer-driven commerce patent; - our pending patent applications may not result in the issuance of patents; and - current and future competitors could devise new methods of competing with our business that are not covered by our issued patents or patent applications. While our core patent is directed to a unique buyer-driven commerce system and method, it does not necessarily prevent competitors from developing and operating Internet commerce businesses that use customer-offer based business models. It is possible for a competitor to develop and utilize a business model that appears similar to our patented buyer-driven commerce system, but which has sufficient distinctions that it does not fall within the scope of our patent. For example, we are aware of more than 9 one Internet travel services that appear to use a customer-offer based transaction model, but based on the information we have obtained to date, may not infringe our patent. PENDING INTERFERENCE ACTION 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 describing an electronic market for used and collectible goods and our core buyer-driven commerce patent. We have received a copy of a Petition for Interference from Woolston, the named inventor in at least three United States Patent applications titled "Consignment Nodes", one of which has issued as a patent (U.S. Patent Number: 5,845,265). We currently are awaiting information from the Patent Office regarding whether it will initiate an interference proceeding concerning Woolston's patent application and our core buyer-driven commerce patent. An interference is an administrative proceeding instituted in the Patent Office to determine questions of patentability and priority of invention between two or more parties claiming the same patentable invention. There is no statutory period within which the Patent Office must act on an interference request. If an interference is declared and proceeds through a final hearing in the Patent Office, a final judgment is made by the Patent Office as to inventorship. Following such final judgment, appeals could be made in Federal court. While there can be no certainty as to time periods, interference proceedings typically take years to resolve. As a threshold to the initiation of an interference proceeding, Woolston must show that his patent application supports claims that he copied from our core buyer-driven commerce patent. In order to make this showing, he would have to prove, among other things, that he invented the subject matter of the priceline.com claims before the inventors of the our patent. If the Patent Office were to find that Woolston's patent application supported the copied priceline.com claims, it would resolve the interference by awarding inventorship to the party with the earliest proven date of invention. Woolston recently announced an agreement to license his issued patent and pending patent applications to the owner of an Internet travel service that, according to such announcement, commenced on-line operations in the fourth quarter of 1998 and purports to compete with us. We believe that Woolston's claim is without merit. Among other things, we believe that the Woolston application does not disclose the inventions covered by the priceline.com patent claims. However, it is impossible to predict the outcome of an interference with certainty. While Woolston claims to have an earlier invention date by a period of approximately sixteen months, the final decision as to priority of invention would be made by the Patent Office after considering facts provided by each party during the interference proceeding. If an interference is declared and thereafter resolved in favor of Woolston, such resolution could result in an award of some or all of the disputed patent claims to Woolston. If, following such award, Woolston were successful in a patent infringement action against us, including prevailing over all defenses available to us such as those of non-infringement and invalidity, this could require us to obtain licenses from Woolston at a cost which could significantly adversely affect our business. If, in addition to prevailing in both an interference and an infringement action, Woolston were able to make the showings necessary to obtain an injunction, then we could be enjoined from conducting business through the priceline.com service to the extent covered by the patent claims awarded to Woolston. In addition, defense of the interference action may be expensive and may divert management attention away from our business. TRADEMARKS, COPYRIGHTS AND TRADE SECRETS We regard the protection of our copyrights, service marks, trademarks, trade dress and trade secrets as critical to our future success. We rely on a combination of laws and contractual restrictions, such as confidentiality agreements to establish and protect our proprietary rights. However, laws and contractual restrictions may not be sufficient to prevent misappropriation of our technology or deter others from developing similar technologies. We also attempt to register our trademarks and service marks in the United States and internationally. However, effective trademark, service mark, copyright and trade secret 10 protection may not be obtainable and/or available in every country in which our services are made available online. PENDING LITIGATION On January 19, 1999, a lawsuit was filed in the United States District Court for the Northern District of California by Marketel International, Inc., a California corporation, under the caption MARKETEL INTERNATIONAL INC. V. PRICELINE.COM ET. AL., No. C-99-1061 (N.D. CA 1999), against priceline.com, Priceline Travel, Walker Asset Management, Walker Digital, Mr. Jay S. Walker, our Founder and Vice Chairman, and Mr. Andre Jaeckle, an individual who made a $1.0 million loan to priceline.com bearing interest at a rate of 6% per year, and in connection therewith, received warrants to purchase 50,000 shares of our common stock. The complaint filed by Marketel alleges causes of action for, among other things, misappropriation of trade secrets, breach of contract, conversion, breach of confidential relationship, copyright infringement, fraud, unfair competition, and false advertising, and seeks injunctive relief and damages in an unspecified amount. In its complaint, Marketel alleges, among other things, that the defendants conspired to misappropriate Marketel's business model, which it describes as a buyer-driven electronic marketplace for travel services and its appurtenant techniques, market research, forms, plans and processes, and which an executive of Marketel allegedly provided to Messrs. Walker and Jaeckle in confidence approximately ten years ago. Based upon publicly available information, we believe that Marketel's fax and fee-based business was launched in 1991 and ceased operations seven months later. Our Internet-based model was independently developed by Walker Digital and practiced by priceline.com starting in 1998. Based on publicly available information and Marketel's complaint, we understand that Marketel operated a fax-based travel information service which offered consumers, travel agents and/or consolidators the opportunity to purchase specially printed forms. These forms, when accompanied by an additional non-refundable fee, allowed prospective ticket buyers to fax to Marketel credit-card guaranteed bids for airline travel at a bid price specified by the buyer. We believe that Marketel has not engaged in any regular commercial activities since ceasing operations in 1992. Based upon publicly available information, Marketel reactivated its active status as a corporation by satisfying its back-due tax obligations to the State of California shortly after the filing of its complaint. On February 5, 1999, the defendants filed their answer to the complaint, in which they denied the material allegations of liability in the complaint. We and all other defendants strongly dispute the material legal and factual allegations contained in Marketel's complaint and believe that the complaint is without merit. We intend to defend vigorously against the action. Defending the law suit may involve significant expense and, due to the inherent uncertainties of litigation, there can be no certainty as to the ultimate outcome. DOMAIN NAMES We currently hold the Internet domain name "priceline.com," as well as various other related names. Domain names generally are regulated by Internet regulatory bodies. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not acquire or maintain the "priceline.com" domain name in all of the countries in which we conduct business. The relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we could be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our trademarks and other proprietary rights. 11 LICENSES In the future, we may license portions of our intellectual property, including our issued patents, to third parties. To date, we have granted a small business providing online travel services immunity from suit under our core Internet-based buyer-driven commerce system patent, on the condition that the nature and scope of such business is not significantly changed. If the nature or scope of such immunity were disputed, we would need to institute proceedings to enforce our rights either under the immunity agreement or under the patent. 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 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 that historically have purchased through traditional means of commerce, such as a travel agent for airline tickets or visiting a branch of a bank for a home mortgage, 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 and 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. WE MAY NOT BE ABLE TO KEEP UP WITH THE 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. 12 YEAR 2000 RISKS MAY HARM OUR BUSINESS The risks posed by Year 2000 issues could adversely affect our business in a number of significant ways. Although we believe that our internally developed systems and technology are Year 2000 compliant, our information technology systems nevertheless could be substantially impaired or cease to operate due to Year 2000 problems. Additionally, we rely on information technology supplied by third parties, and our participating sellers also are heavily dependent on information technology systems and on their own third party vendors' systems. Year 2000 problems experienced by us or any of such third parties could materially adversely affect our business. Additionally, the Internet could face serious disruptions arising from the Year 2000 problem. We are evaluating our internal information technology systems and contacting our information technology suppliers and participating sellers to ascertain their Year 2000 status. However, we cannot guarantee that our own systems will be Year 2000 compliant in a timely manner, that any of our participating sellers or other Web site vendors will be Year 2000 compliant in a timely manner, or that there will not be significant interoperability problems among information technology systems. We also cannot guarantee that consumers will be able to visit our Web site without serious disruptions arising from the Year 2000 problem. Given the pervasive nature of the Year 2000 problem, we cannot guarantee that disruptions in other industries and market segments will not adversely affect our business. Moreover, the costs related to Year 2000 compliance could be significant. Moreover, participating sellers in priceline.com services might experience substantial slow-downs in business if consumers avoid products and services such as air travel both before and after January 1, 2000 arising from concerns about reliability and safety because of the Year 2000 issue. 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. A party that is able to circumvent our security systems could steal proprietary information or cause interruptions in our operations. 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 cannot guarantee that our security measures will prevent 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 LIKELY TO BE VERY VOLATILE Prior to this offering, you could not buy or sell our common stock publicly. Although the initial public offering price was determined based on several factors, the market price after the offering may vary from the initial offering price. The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as the following, some of which are beyond our control: - quarterly variations in our operating results; 13 - operating results that vary from the expectations of securities analysis and investors; - changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors; - changes in market valuations of other Internet or online service companies; - announcements of technological innovations or new services by us or our competitors; - announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; - loss of a major seller participant, such as an airline or hotel chain; - changes in the status of our intellectual property rights; - announcements by third parties of significant claims or proceedings against us; - additions or departures of key personnel; - future sales of our common stock; and - stock market price and volume fluctuations. Domestic and international stock markets often experience extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate or currency rate fluctuations, could adversely affect the market price of our common stock. The market prices for stocks of Internet-related and technology companies, particularly following an initial public offering, frequently increase to levels that bear no relationship to the operating performance of such companies. Such market prices generally are not sustainable and are subject to wide variations. If our common stock trades to such levels following this offering, it likely will thereafter experience a material decline. In the past, securities class action litigation has often 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. 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 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. TRAVEL SERVICES We are subject to the laws and regulations of a number of states governing the offer and/or sale of travel services. For example, Priceline Travel, Inc. is registered as a "seller of travel" under the California Seller of Travel Act and is a member of the Airline Reporting Corporation. Priceline.com also will be making similar filings for registration and membership prior to consummation of this offering. In addition, a number of state travel laws and regulations require compliance with specific disclosure, bond and/or other requirements. All travel registrations are presently held by Priceline Travel. To the extent that such registrations can be transferred by merger, we intend to succeed to all such registrations by merging with Priceline Travel prior to the consummation of this offering. We expect to obtain all other required travel related registrations prior to the consummation of this offering. 14 NEW CAR SALES A number of states have laws and regulations governing the registration and conduct of automobile dealers and brokers. Such laws generally provide that any person receiving direct or indirect compensation for selling automobiles or brokering automobile transactions must register as an automobile broker or dealer. Registration for automobile dealers/brokers may, among other things, require the registrant to maintain a physical office in the applicable state, a dealer lot zoned for automobile sales within the applicable state, and/or a franchise agreement with the manufacturers of the automobiles to be sold. We believe that we are not subject to such automobile dealer/broker laws because we are a car buying service, and not a seller or broker of automobiles, operating on behalf of customers and participating dealers. It is uncertain how automobile dealer and broker laws apply to the provision of automobile selling services offered through the Internet. We have been orally advised by representatives of a number of states that no enforcement action will be initiated against Internet companies generally for non-compliance with such laws until clearer regulatory or legislative guidance is provided. It is possible, however, that state regulatory bodies could take the view that we are subject to automobile broker and dealer laws, in which case they could attempt to require us to register as an automobile broker/dealer in the applicable states. Given the nature of our business, any requirement to register under such laws could severely interfere with the conduct of our business. HOME MORTGAGES Most states have laws and regulations governing the registration or licensing and conduct of persons providing mortgage brokerage services. Such laws and regulations also typically require certain consumer protection disclosures and compliance with loan solicitation procedures and a variety of other practices, throughout the various stages of the mortgage solicitation, application and approval process. In addition to state law, mortgage brokerage services are heavily regulated by federal law. For example, the Real Estate Settlement Procedures Act, prohibits the payment and receipt of mortgage loan referral fees. The act, however, does permit persons to be compensated for the fair market value of non- referral services actually rendered. We introduced our home mortgage service in January 1999. LendingTree serves as the mortgage broker and provides all mortgage brokerage services. We provide and are responsible for maintaining the home mortgage service on our Web site and develop and purchase all advertising. LendingTree will compensate us for the fair market value of our non-referral services. We believe that offering the home mortgage service does not require our registration under or compliance with the mortgage or similar brokerage laws of any jurisdiction. However, it is possible that one or more regulatory authorities could seek to enforce existing laws, or otherwise enact new legislation, requiring our registration and compliance and could scrutinize our compensation arrangement with LendingTree under the Real Estate Settlement Procedures Act or other federal or state laws. Such action could severely interfere with the conduct of our business. LendingTree provides the mortgage brokerage services offered through the home mortgage service on our Web site and is responsible for maintaining the necessary and appropriate state registrations and licenses associated with LendingTree's provision of those mortgage brokerage services. If a state or federal regulatory authority, or an aggrieved customer, should in the future claim that LendingTree has failed to comply fully with applicable state or federal law requirements pertaining to LendingTree's provision of mortgage brokerage services, our home mortgage service could be materially and adversely affected and we may be unable to continue to make our home mortgage service available. CONSUMER PROTECTION AND RELATED LAWS All of our services are subject to federal and state consumer protection laws and regulations prohibiting unfair and deceptive trade practices. We are also subject to related "plain language" statutes in 15 place in many jurisdictions, which require the use of simple, easy to read, terms and conditions in contracts with consumers. Although there are very few laws and regulations directly applicable to the protection of consumers in an online environment, it is possible that legislation will be enacted in this area and could cover such topics as permissible online content and user privacy, including the collection, use, retention and transmission of personal information provided by an online user. Furthermore, the growth and demand for online commerce could result in more stringent consumer protection laws that impose additional compliance burdens on online companies. Such consumer protection laws could result in substantial compliance costs and interfere with the conduct and growth of our business. BUSINESS QUALIFICATION LAWS Because our service is available over the Internet in multiple states, and because we sell to numerous consumers resident in such states, such jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each such state. We are qualified to do business in a limited number of states, and our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties for the failure to so qualify and limit our ability to conduct litigation in such states. INTERNATIONAL EXPANSION We intend to explore opportunities for expanding our business into international markets. It is possible, however, that the priceline.com demand collection system will not be readily adaptable to the regulatory environments of certain foreign jurisdictions. In addition, there are various other risks associated with international expansion. They include language barriers, unexpected changes in regulatory requirements, trade barriers, problems in staffing and operating foreign operations, changes in currency exchange rates, difficulties in enforcing contracts and other legal rights, economic and political instability and problems in collection. OUR BUSINESS IS SUBJECT TO TAX UNCERTAINTIES POTENTIAL FEDERAL AIR TRANSPORTATION TAX LIABILITY Currently, a federal air transportation tax is imposed upon the sale of airline tickets and generally is collected by the airlines selling the tickets. The tax is based upon a percentage of the cost of transportation, which was 9% for periods prior to October 1, 1998 and 8% thereafter. Because of the unique pricing structures employed in the priceline.com service, such as the amount paid by the customer for a ticket being different than the amount charged by the airline for the same ticket with the excess payment, if any, going to us as a charge for the use of our proprietary business method, it is not clear how this federal tax should be calculated when sales occur using the priceline.com service. We have been calculating this tax based on the price charged by the airline for a ticket, rather than the price paid by the customer. There is a possibility that current law requires computation of the tax based on the price paid by the customer to us. Due to the uncertainty of how the federal air transportation tax applies to sales of airline tickets using the priceline.com service, we have submitted a written request to the United States Internal Revenue Service seeking a determination of our federal air transportation tax obligations. Such determination may not be favorable and may require us to collect the federal air transportation tax on the total amount paid by consumers for air travel. If the determination of the Internal Revenue Service is unfavorable, we could owe approximately $111,000 in additional taxes as of December 31, 1998. We have accrued for such potential liability in our combined balance sheet as of December 31, 1998 and are providing for such potential liability on an ongoing basis. We have agreed to indemnify and hold harmless certain of our participating airlines from any liability with respect to such taxes, as well as to secure the payment of such taxes by a letter of credit. 16 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 recently 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. Currently, we do not pay any such taxes. 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. CONCENTRATED CONTROL COULD ADVERSELY AFFECT STOCKHOLDERS Upon consummation of this offering, Mr. Jay S. Walker, the Founder and Vice Chairman of priceline.com, and Mr. Richard S. Braddock, Chief Executive Officer of priceline.com, together with their respective affiliates, will beneficially own approximately and percent ( and percent, respectively, if the underwriters' over-allotment option is exercised in full), of our outstanding common stock, subject to certain adjustments. As a result, if Messrs. Walker and Braddock act together, they will have the ability to control the outcome on all matters requiring stockholder approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets, and the ability to control our management and affairs. Such control could discourage others from initiating potential merger, takeover or other change of control transactions. As a result, the market price of our common stock could be adversely affected. WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS Based on our current operating plan, we anticipate that the net proceeds of this offering, together with our available funds, will be sufficient to satisfy our anticipated needs for working capital, capital expenditures and business expansion for at least the next three years. After that time, we may need additional capital. Alternatively, we may need to raise additional funds sooner in order to fund more rapid expansion, to develop new or enhanced services, or to respond to competitive pressures. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our stockholders will be diluted. Furthermore, any new securities could have rights, preferences and privileges senior to those of the common stock. We currently do not have any commitments for additional financing. We cannot be certain that additional financing will be available when and to the extent required or that, if available, it will be on acceptable terms. If adequate funds are not available on acceptable terms, we may not be able to fund our expansion, develop or enhance our products or services or respond to competitive pressures. SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE Sales of a substantial number of shares of common stock after the offering could adversely affect the market price of the common stock by introducing a large number of sellers to the market. Given the likely 17 volatility that will exist for our shares, such sales could cause the market price of the common stock to decline. After this offering, we will have outstanding shares of common stock ( shares if the underwriters' over-allotment option is exercised in full), and we will have reserved an additional shares of common stock for issuance pursuant to outstanding stock options and warrants. All of the shares of common stock to be sold in this offering will be freely tradable without restriction or further registration under the federal securities laws unless purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act of 1933, as amended. The remaining shares of outstanding common stock, representing approximately of the outstanding common stock upon completion of this offering, will be "restricted securities" under the Securities Act subject to restrictions on the timing, manner and volume of sales of such shares. Our directors, executive officers, key employees and substantially all of our current stockholders have agreed, subject to certain limited exceptions, for a period of 180 days after the date of this prospectus, that they will not, without the prior written consent of Morgan Stanley & Co. Incorporated, directly or indirectly, offer to sell, sell or otherwise dispose of any shares of common stock. Subject to the foregoing lock-up agreements, holders of up to 115,329,306 shares of common stock and securities convertible into or exercisable for shares of common stock will have the right to request the registration of their shares under the Securities Act. Upon the effectiveness of such registration, all shares covered by such registration statement will be freely transferable. Following the consummation of this offering, we also intend to file a registration statement on Form S-8 under the Securities Act covering 19,100,000 shares of common stock reserved for issuance under the 1997 Omnibus Plan and 7,500,000 shares of common stock reserved for issuance under the 1999 Omnibus Plan; such registration statement will automatically become effective upon filing. Of the number of shares subject to outstanding options at February 12, 1999, 8,407,792 options have vested as of such date. However, none of the options issued or to be issued pursuant to the 1997 Omnibus Plan or the 1999 Omnibus Plan are exercisable until 180 days after the offering. Subject to the exercise of such options, shares registered under such registration statement will be available for sale in the open market immediately after the 180-day lock-up period expires. We cannot predict if future sales of our common stock, or the availability of our common stock for sale, will adversely affect the market price for our common stock or our ability to raise capital by offering equity securities. ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF CONTROL Provisions of our certificate of incorporation and by-laws and provisions of applicable Delaware law may discourage, delay or prevent a merger or other change of control that a stockholder may consider favorable. Our board of directors has the authority to issue up to 150 million additional shares of preferred stock par value $0.01 per share, of priceline.com and to determine the price and the terms, including preferences and voting rights, of those shares without stockholder approval. Although we have no current plans to issue additional shares of our preferred stock, any such issuance could: - have the effect of delaying, deferring or preventing a change in control of our company; - discourage bids for our common stock at a premium over the market price; or - adversely affect the market price of, and the voting and other rights of the holders of, our common stock. We are subject to certain Delaware laws that could have the effect of delaying, deterring or preventing a change in control of our company. One of these laws prohibits us from engaging in a business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder, unless certain conditions are met. In addition, certain provisions of our certificate of incorporation and by-laws, and the significant amount of common stock held by our executive 18 officers, directors and affiliates, could together have the effect of discouraging potential takeover attempts or making it more difficult for stockholders to change management. OUR MANAGEMENT HAS BROAD DISCRETION OVER USE OF THE PROCEEDS FROM THIS OFFERING The net proceeds of this offering are estimated to be approximately $ million (approximately $ million, if the Underwriters' over-allotment option is exercised in full) at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses. Our management will retain broad discretion as to the allocation of the proceeds of this offering. YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION The initial public offering price is expected to be substantially higher than the net tangible book value of each outstanding share of common stock. Purchasers of common stock in this offering will suffer immediate and substantial dilution. The dilution will be $ per share in the net tangible book value of the common stock from the expected initial public offering price. If outstanding options and warrants to purchase shares of common stock are exercised, there would be further dilution. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus constitute forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus. 19 USE OF PROCEEDS The primary purposes of this offering are to obtain additional capital, create a public market for the common stock and facilitate future access to public markets. The net proceeds to priceline.com from the sale of the shares of common stock offered hereby are estimated to be approximately $ million (approximately $ million, if the underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ per share and after deducting estimated offering expenses of $ and the underwriting discount payable by priceline.com. Priceline.com intends to use the remainder of the net proceeds, over time, for general corporate purposes, including working capital to fund anticipated operating losses, expenses associated with our advertising campaigns, brand-name promotions and other marketing efforts and capital expenditures. Priceline.com also could use a portion of the net proceeds, currently intended for general corporate purposes, to acquire or invest in businesses, technologies, products or services, although no specific acquisitions are planned and no portion of the net proceeds has been allocated for any acquisition. As of the date of this prospectus, priceline.com cannot specify with certainty the particular uses for the net proceeds to be received upon the consummation of this offering. Accordingly, priceline.com's management will have broad discretion in the application of the net proceeds. Pending such uses, priceline.com intends to invest the net proceeds from this offering in short-term, interest-bearing, investment-grade securities. See "Risk Factors -- We May Be Unable to Meet Our Future Capital Requirements" and "Risk Factors -- Our Management Has Broad Discretion Over Use of the Proceeds of this Offering." DIVIDEND POLICY Priceline.com has not declared or paid any cash dividends on its capital stock since its inception and does not expect to pay any cash dividends in the foreseeable future. Priceline.com currently intends to retain future earnings, if any, to finance the expansion of its business. 20 CAPITALIZATION Unless otherwise indicated, all information in this prospectus (1) reflects the conversion of all outstanding shares of our convertible preferred stock into 31,126,184 shares of common stock upon the consummation of this offering and (2) assumes that the underwriters' over-allotment option will not be exercised. See "Description of Capital Stock" and "Underwriters." The following table sets forth the capitalization of priceline.com as of December 31, 1998: (1) on an actual basis and (2) on a pro forma basis to reflect the consummation of the merger between priceline.com and Priceline Travel, Inc. prior to consummation of this Offering, as adjusted to reflect (a) the conversion of all outstanding shares of convertible preferred stock into common stock upon the consummation of this offering and (b) the receipt by priceline.com of the estimated net proceeds from the sale of the shares of common stock offered hereby at an assumed initial public offering price of $ per share (after deducting the estimated offering expenses and underwriting discount). This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the combined financial statements and related notes thereto included elsewhere in this prospectus.
AS OF DECEMBER 31, 1998 ---------------------------- PRO FORMA AS ACTUAL ADJUSTED ------------- ------------- Long-Term Debt--net................................................................ $ 989,018 $ 989,018 Capital Lease Obligations--net of current portion.................................. 26,074 26,074 ------------- ------------- Total debt..................................................................... 1,015,092 1,015,092 Stockholders' equity:(a) Common Stock, priceline.com, $0.01 par value--Authorized, 300,000,000 shares; issued and outstanding, 74,580,160 and , actual and pro forma, respectively; Priceline Travel, $1.00 par value--3,000 shares authorized, issued and outstanding, 3,000 actual and pro forma...................................... 748,802 Preferred Stock, Series A Convertible, $0.01 par value, $1.16 liquidation value--Authorized, 30,000,000 shares; issued and outstanding, 17,288,684 and 0, actual and pro forma, respectively............................................... 172,887 Preferred Stock, Series B Convertible, $0.01 par value, $4.00 liquidation value--Authorized, 13,837,500 shares; issued and outstanding, 13,837,500 and 0, actual and pro forma, respectively............................................... 138,375 Additional paid-in capital......................................................... 148,224,070 Accumulated deficit................................................................ (94,008,289) ------------- ------------- Total stockholders' equity..................................................... 55,275,845 ------------- ------------- Total capitalization......................................................... $ 56,290,937 $ ------------- ------------- ------------- -------------
- ------------------------ (a) Excludes (1) 18,050,375 shares of common stock issuable on exercise of options outstanding as of February 12, 1999, with a weighted average exercise price of approximately $1.20 per share; (2) 8,549,625 additional shares of common stock reserved for issuance under the 1997 Omnibus Plan and the proposed 1999 Omnibus Plan; (3) 14,895,522 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of approximately $1.16 per share; (4) 50,000 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of $1.00 per share; (5) 100,000 shares of common stock issuable upon exercise of outstanding warrants at no exercise price; (6) 750,000 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of $4.00 per share; and (7) 1,000,000 shares of common stock issuable upon exercise of warrants at an exercise price of $8.00 per share. 21 DILUTION The pro forma net tangible book value of priceline.com as of December 31, 1998 was $ , or $ per share. "Pro forma net tangible book value per share" is determined by dividing the pro forma number of outstanding shares of common stock into the net tangible book value of priceline.com (total tangible assets less total liabilities). Assuming the sale by priceline.com of the shares of common stock offered hereby at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses, the pro forma net tangible book value of priceline.com as of December 31, 1998 would have been approximately $ , or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares at the initial public offering price. The following table illustrates the per share dilution: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of December 31, 1998................................................ $ Increase in pro forma net tangible book value per share attributable to new investors........................... --------- Pro forma net tangible book value per share after the offering.................................................. --------- Dilution per share to new investors......................... $ --------- ---------
The following table summarizes as of December 31, 1998, on the pro forma basis described above, the number of shares of capital stock purchased from priceline.com, the total consideration paid to priceline.com and the average price per share paid by existing stockholders and by investors purchasing shares of common stock in this offering at an assumed initial public offering price of $ (before deducting the estimated underwriting discount and estimated offering expenses):
SHARES PURCHASED(A) TOTAL CONSIDERATION AVERAGE ------------------------ ----------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- ----------- ---------- ----------- ---------- Existing stockholders................... % $ % $ New investors........................... % $ % $ --- --- ---------- --- ---------- Total................................... % $ % $ --- --- ---------- --- ---------- --- --- ---------- --- ----------
- ------------------------ (a) Sale by priceline.com of additional shares of common stock upon exercise in full of the underwriters' over-allotment option will reduce the percentage of common stock held by existing stockholders to % of the total number of shares of common stock to be outstanding upon consummation of this offering and will increase the number of shares of common stock held by new investors to shares or % of the total number of shares of common stock to be outstanding upon consummation of this offering. See "Principal Stockholders." The foregoing discussion and tables exclude (1) 18,050,375 shares of common stock issuable on exercise of options outstanding as of February 12, 1999, with a weighted average exercise price of approximately $1.20 per share; (2) 8,549,625 additional shares of common stock reserved for issuance under the 1997 Omnibus Plan and the proposed 1999 Omnibus Plan; (3) 14,895,522 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of approximately $1.16 per share; (4) 50,000 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of $1.00 per share; (5) 100,000 shares of common stock issuable upon exercise of outstanding warrants at no exercise price; (6) 750,000 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of $4.00 per share; and (7) 1,000,000 shares of common stock issuable upon exercise of warrants at an exercise price of $8.00 per share. 22 SELECTED COMBINED FINANCIAL DATA The following selected combined financial data should be read in conjunction with the combined financial statements of priceline.com and Priceline Travel and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The combined statement of operations data for the year ended December 31, 1998 and the period July 18, 1997 (Inception) to December 31, 1997 and the combined balance sheet data as of December 31, 1998 are derived from the combined financial statements of priceline.com and Priceline Travel included elsewhere in this prospectus. Priceline.com's travel agency license is held by Priceline Travel and all of its airline ticket sales have been effected through Priceline Travel, which will be merged with and into priceline.com prior to the consummation of this offering. Accordingly, the financial statements of Priceline Travel are presented on a combined basis with priceline.com for all relevant periods.
JULY 18, 1997 (INCEPTION) TO YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1998 ----------------- ----------------- COMBINED STATEMENT OF OPERATIONS DATA: Revenues................................................................... $ -- $ 35,236,860 Cost of revenues........................................................... -- 33,495,745 ----------------- ----------------- Gross profit........................................................... -- 1,741,115 Expenses: Supplier start-up charges................................................ -- 38,960,000 Sales and marketing...................................................... 441,479 24,388,061 General and adminstrative................................................ 1,011,600 18,004,585 Systems and business development......................................... 1,060,091 11,131,650 ----------------- ----------------- Total expenses......................................................... 2,513,170 92,484,296 ----------------- ----------------- Operating loss............................................................. (2,513,170) (90,743,181) Interest income (expense), net............................................. (312) 548,374 ----------------- ----------------- Net loss................................................................... (2,513,482) (90,194,807) Accretion on preferred stock............................................... -- (1,300,000) ----------------- ----------------- Net loss applicable to common shareholders................................. $ (2,513,482) $ (91,494,807) ----------------- ----------------- ----------------- ----------------- Basic and diluted loss per common share.................................... $ (0.06) $ (1.41) ----------------- ----------------- ----------------- ----------------- Weighted average common shares outstanding................................. 40,667,005 64,985,140
AS OF DECEMBER 31, 1998 ------------------------------- ACTUAL PRO FORMA(A) --------------- -------------- COMBINED BALANCE SHEET DATA: Cash and cash equivalents........................................................ $ 53,593,026 Working capital.................................................................. 49,922,000 Total assets..................................................................... 66,572,485 Long-term debt and capital lease obligation...................................... 1,015,092 Total liabilities................................................................ 11,296,640 Total stockholders' equity....................................................... 55,275,845
- ------------------------------ (a) Reflects (1) the conversion of all outstanding shares of convertible preferred stock into 31,126,184 shares of common stock upon consummation of this offering, and (2) the receipt by priceline.com of the estimated net proceeds from the sale of the shares of common stock offered hereby at an assumed initial public offering price of $ per share (after deducting the estimated offering expenses and underwriting discount). 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS." THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PRICELINE.COM ALSO SHOULD BE READ IN CONJUNCTION WITH THE COMBINED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Priceline.com has pioneered a unique new type of e-commerce 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 price," priceline.com collects consumer demand, in the form of individual customer offers guaranteed by a credit card, for a particular product or service at a price set by the customer. Priceline.com then either communicates that demand directly to participating sellers who determine whether to accept the customer's offer, or accesses participating sellers' private databases to determine whether it can fulfill the customer's offer on the basis of the pricing information and rules established by the sellers. Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers. Once fulfilled, offers cannot be canceled. Priceline.com benefits consumers by enabling them to save money, while at the same time benefitting sellers by providing them with an effective revenue management tool capable of identifying and capturing incremental revenues. By requiring consumers to be flexible with respect to brands, sellers and product features, priceline.com enables sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures. Priceline.com was formed in July 1997 and its primary activities during the period prior to launch consisted of recruiting and training employees, developing its business model, implementing systems to support its business model, developing relationships with seller participants and developing the priceline.com brand. Priceline.com commenced operations in April 1998 with the sale of leisure airline tickets. Priceline.com's services were expanded to include the sale of new automobiles, on a test basis, in July 1998, hotel room reservations in October 1998 and home mortgages through a third party mortgage service in January 1999. The number of employees of priceline.com increased from 10 to 123 during the period from inception through the year ended December 31, 1998, and as of February 12, 1999 priceline.com had 141 employees. Priceline.com earns revenues upon the completion of successful transactions through the priceline.com service, which in certain cases includes revenues generated through adaptive marketing programs offered through the priceline.com service. The manner in which priceline.com earns revenues varies, however, depending on the product or service sold. With respect to airline and hotel reservation services, priceline.com earns the spread between the customer's named price and the fare or rate charged by the seller. With respect to the automobile service, it earns a fixed fee from both the customer and the seller after the transaction is consummated. With respect to the home mortgage service, it receives a payment equal to a percentage of the net revenue generated from the mortgage program, which is operated in conjunction with LendingTree, Inc. Priceline.com also generates revenues through adaptive marketing programs with third parties that pay priceline.com fees for marketing their customer acquisition programs. Revenues from adaptive marketing promotions currently consist primarily of fees paid by a third-party credit card issuer for qualifying credit card applications submitted through the priceline.com service in connection with offers for airline tickets. Consumer fees are payable only upon completion of successful transactions. The manner in which revenues are recognized differs depending on the product or service sold through the priceline.com service. With respect to airline ticket and hotel reservation services, revenues are generated by transactions with customers who make offers to purchase airline tickets and reserve hotel 24 rooms supplied by participating sellers. Offers are guaranteed by a customer credit card. Revenues and related costs are recognized if, and when, the customer's offer is accepted. Because priceline.com is the merchant of record in these transactions, revenue for these services includes the amount billed to the customer, net of certain transportation taxes and fees. Airline and hotel revenues also may include fees from third parties for adaptive marketing programs. With respect to automobile and mortgage services, fees or other payments payable by the seller and/or the customer are recognized as revenue. Because priceline.com acts as an intermediary between the customer and the seller in these transactions, revenues for these products and services is recorded at the amount of the fee received in connection with the transaction, and not on the value of the underlying transaction, when the transaction is completed. Automobile and mortgage services revenues may also include fees from third parties for adaptive marketing programs. During the period from launch through December 31, 1998, priceline.com collected guaranteed offers for approximately 1.9 million airline tickets, representing approximately $400.0 million in total consumer demand. This demand resulted in sales of approximately 134,878 airline tickets, representing approximately $30.4 million in revenue. Priceline.com believes that its offer fulfillment rate for airline tickets has been constrained by the availability of airline ticket inventory, which initially was limited by the inclusion of only Trans World Airlines and America West Airlines as participating domestic carriers. With the addition of Delta Air Lines on a test basis in September 1998 and on a full time basis in November 1998, and the addition of Northwest Airlines in October 1998, priceline.com has expanded its potential inventory breadth to cover more domestic markets and has increased the depth of potential inventory in markets that priceline.com currently serves. Priceline.com believes that it can increase the amount of ticket sales and improve its offer fulfillment rate as its business matures by (1) expanding the depth and breadth of airline ticket inventory, (2) demonstrating to airlines how they can utilize revenue management strategies to fulfill a larger share of reasonable offers, and (3) expanding adaptive marketing programs to help increase the number of completed transactions. Since its inception, priceline.com has incurred net losses in each fiscal quarter. Priceline.com incurred net losses of $48.2 million during the period from July 18, 1997 (inception) through December 31, 1998, before giving effect to $45.8 million of non-cash charges arising from equity issuances to a number of our participating airlines, our chief executive officer and other parties, as more fully described below. As of December 31, 1998, priceline.com had an accumulated deficit of $94.0 million. Priceline.com believes that its continued growth will depend in large part on its ability to continue to promote the priceline.com brand and to apply the priceline.com business model to a wide range of products and services. Accordingly, priceline.com intends to continue to invest heavily in marketing and promotion, technology and personnel. As a result, it expects to incur additional losses for the foreseeable future. See "Risk Factors -- We Are Not Profitable and Expect to Continue to Incur Losses." In addition, priceline.com's limited operating history makes the prediction of future results of operations difficult, and accordingly, there can be no assurance that it will achieve or sustain revenue growth or profitability. See "Risk Factors -- Potential Fluctuations in Our Financial Results Makes Financial Forecasting Difficult; Difficulty in Predicting Results of Operations." For the year ended December 31, 1998, priceline.com recorded aggregate non-cash charges of $45.8 million. Of this amount, $6.5 million related to the issuance of 6,500,000 shares of common stock to Mr. Richard S. Braddock, the Chairman and Chief Executive Officer of priceline.com and $39.3 million related to the issuance of an aggregate of 15,795,522 warrants to purchase common stock, including 15,645,522 warrants issued to a number of our participating airlines. In August 1998, priceline.com entered into a warrant agreement with Delta to purchase up to 15,114,083 shares of common stock at an exercise price of approximately $1.16 per share. Vesting was contingent upon achievement of certain predetermined performance thresholds. However, there was no penalty for failure to provide ticket inventory to satisfy these performance thresholds. Accordingly, no expense was recorded when the warrant was issued. On December 31, 1998, priceline.com amended its agreement with Delta to eliminate the vesting contingencies and fix the number of shares subject to the 25 warrant at 14,895,522. The amended warrant issued to Delta will vest at the earlier of seven years or upon the achievement of certain performance thresholds. However, the agreement does not require Delta to make any performance commitments, is non-exclusive and allows Delta to participate in other programs similar to the priceline.com service. Included in the non-cash charges described above is approximately $38.1 million reflecting the fair value of the Delta warrant on December 31, 1998. Priceline.com's travel agency license is held by Priceline Travel, a separate company owned by Mr. Jay S. Walker, priceline.com's Founder and Vice Chairman, and all of its airline ticket sales have been effected through Priceline Travel, which will be merged with and into priceline.com prior to the consummation of this offering. Accordingly, the financial statements of Priceline Travel are presented on a combined basis with priceline.com for all relevant periods. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 Priceline.com was formed in July 1997, but did not commence operations until April 1998. Because of priceline.com's limited operating history, comparisons with prior periods are not meaningful. REVENUES Total revenues for the year ended December 31, 1998 were $35.2 million. Since commencement of operations in April 1998, essentially all revenues consisted of airline ticket sales, hotel room reservations and related adaptive marketing programs. Approximately $4.0 million of total revenues were attributable to adaptive marketing programs, substantially all of which were attributable to priceline.com's third-party credit card marketing program. Priceline.com's automobile sales service, which was launched on a test basis in the New York metropolitan area in July 1998, did not contribute materially to revenues during the period. COST OF REVENUES AND GROSS PROFIT Cost of revenues for the year ended December 31, 1998 totaled $33.5 million. Cost of revenues represents the cost of airline tickets from priceline.com's suppliers, net of the federal air transportation tax, segment fees and passenger facility charges imposed in connection with the sale of airline tickets. Gross profit, which is comprised of revenues less cost of revenues, was $1.7 million for the year ended December 31, 1998. Priceline.com is able to manage the level of gross margins by controlling the price at which it will cause offers to be fulfilled. Priceline.com has chosen to sell a substantial number of tickets below its cost in order to increase airline and adaptive marketing revenues, build a record of successful transactions, and enhance the priceline.com brand. Because the fees generated by adaptive marketing programs have high gross margins, adaptive marketing revenues had a significant impact on priceline.com's total gross margin. Priceline.com experienced a positive total gross profit for the year ended December 31, 1998, due primarily to the contribution of its adaptive marketing programs to its gross profit. Priceline.com expects that, in the future, a substantial portion of its gross profit may continue to be attributable to adaptive marketing programs. As priceline.com matures, it expects to reduce the percentage of airline tickets sold below cost and continue to improve total gross margins. OPERATING EXPENSES SUPPLIER START-UP CHARGES. Supplier start up charges for the year ended December 31, 1998 totaled $39.0 million, or 110.6% of revenues. Supplier start up charges consist of a one-time non-cash charge representing the fair value of warrants issued to certain of our participating airlines in connection with securing the Company's relationship with those airlines. Priceline.com anticipates that it will recognize additional supplemental start-up charges in the amount of $438,500 in 1999 and $438,500 in 2000 in connection with additional warrants issued to a participating airline in January 1999. 26 SALES AND MARKETING. Sales and marketing expenses for the year ended December 31, 1998 totaled $24.4 million, or 69.3% of revenues. Approximately 50% of sales and marketing expenses were comprised of radio and newspaper advertising expenses. The balance was comprised of fees payable to a third party service provider, which operates priceline.com's call center, credit card "merchant" fees, compensation for priceline.com's sales and marketing personnel. SYSTEMS AND BUSINESS DEVELOPMENT. Systems and business development expenses for the year ended December 31, 1998 totaled $11.1 million, or 31.5% of revenues. Systems and business development expenses are comprised primarily of compensation to priceline.com's information technology and product development staff and payments to outside contractors, data communications and other expenses associated with operating priceline.com's Web site and, to a lesser extent, depreciation on computer hardware and licensing fees for computer software. GENERAL AND ADMINISTRATIVE. General and administrative expenses for the year ended December 31, 1998 totaled $18.0 million or 51.1% of revenues. General and administrative expenses consist primarily of compensation for personnel, fees for outside professionals, telecommunications and other overhead costs, including occupancy expense. Also included is a one-time non-cash charge of $6.5 million relating to the issuance to Mr. Richard S. Braddock of a profits interest with respect to 6.5 million units in priceline.com's predecessor, priceline.com LLC. These units were granted to Mr. Braddock in connection with his employment by priceline.com, and were subsequently converted into an equivalent number of shares of common stock. INTEREST INCOME (EXPENSE), NET Interest income (expense), net for the year ended December 31, 1998 totaled $548,374, reflecting approximately $633,000 of interest income earned by priceline.com on its cash balances, net of interest expense for the period. PERIOD ENDED DECEMBER 31, 1997 During the period from its formation in July 1997 through December 31, 1997, priceline.com was engaged in start-up activities and incurred $2.5 million of operating expenses. These operating expenses primarily consisted of investments in technology and personnel related expenses. No revenues were earned during the period. As of December 31, 1997, priceline.com had a cumulative net loss of $2.5 million. QUARTERLY RESULTS OF OPERATIONS The following table sets forth, for the periods presented, data regarding priceline.com's revenues, cost of revenues and gross profit (loss). Such data has been derived from priceline.com's unaudited combined financial statements which, in the opinion of priceline.com's management, have been prepared on substantially the same basis as the audited combined financial statements, subject to normal year end adjustments. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period.
QUARTER ENDED ----------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1998 1998 1998 1998 --------------- ------------ ------------- ------------- Revenue.............................. $ 0 $ 7,030,913 $ 9,212,820 $ 18,993,127 Cost of Revenues..................... 0 7,951,584 8,842,213 16,701,948 Gross Profit (Loss).................. 0 (920,671) 370,607 2,291,179 Gross Margin......................... 0% (13.1)% 4.0% 12.1%
Revenues increased in each quarter since the commencement of operations in April 1998. The increase in each quarter is primarily due to the increase in sales of airline tickets resulting from expanded inventory, improved fill rates and an expanded customer base due to increased market awareness and 27 acceptance of the priceline.com service. In addition to the foregoing trends, the increase in revenue in the fourth quarter of 1998 is due to the addition of a significant new airline partner and the inclusion for a full quarter of the Company's principal adaptive marketing program, as well as, to a lesser extent, the introduction of priceline.com's hotel reservation service in October 1998. Cost of revenues increased each quarter in conjunction with increases in total revenue. Cost of revenue is primarily associated with the amounts paid to the Company's airline partners for airline tickets. Gross profit, which is comprised of revenues less cost of revenues, has increased every quarter from $(920,671) for the quarter ended June 30, 1998 to $2.3 million for the quarter ended December 31, 1998. Gross profit margin has increased from (13.1)% during the quarter ended June 30, 1998 to 12.1% during the quarter ended December 31, 1998. The increase in gross margins during the fourth quarter resulted primarily from the contribution of adaptive marketing revenues which have high gross margins and, consequently, a significant impact on total gross margins. Priceline.com's quarterly operating results will be affected by a variety of factors, many of which are outside its control. Factors that may affect priceline.com's quarterly operating results include: - its ability to increase both consumers' and sellers' use of the priceline.com service; - its ability to attract new sellers of products and services to participate in the priceline.com service; - its ability to expand the products and services offered; - its ability to increase gross margins on products and services sold while still increasing sales; - the fulfillment rate of customers' offers; - the results of its adaptive marketing programs; - the announcement or introduction of new sites, services and products by its competitors; - the success of its brand building and marketing campaigns; - price competition in the sale of products and services offered over the priceline.com system; - its ability to upgrade and develop its systems and infrastructure to accommodate growth; - its ability to attract new personnel in a timely and effective manner; - the occurrence of technical difficulties or service interruptions; - the amount and timing of operating costs and capital expenditures relating to expansion of its business, operations and infrastructure; - changes in governmental regulation by federal or local governments; and - general economic conditions and economic conditions specific to the Internet and online commerce industries, as well as the individual industries, for the products and services sold through the priceline.com system. As a result of priceline.com's limited operating history and the emerging nature of the market for online commerce, it is difficult for priceline.com to forecast its revenues or earnings accurately. In addition, priceline.com has no backlog, with virtually all of its revenues for a particular quarter being derived from offers that are made and accepted during that quarter. Priceline.com's current and future expense levels are based largely on its investment plans and estimates of future revenues and are, to a large extent, fixed. Priceline.com may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues relative to priceline.com's planned expenditures would have an immediate adverse effect on its business, results of operations and financial condition. 28 Priceline.com's limited operating history and rapid growth makes it difficult for it to assess the impact of seasonal factors on its business. Nevertheless, priceline.com expects its business to be subject to seasonal fluctuations, reflecting a combination of seasonality trends for the products and services offered by the priceline.com service and seasonality patterns affecting Internet use. For example, with regard to priceline.com's travel products, demand for leisure travel may increase over summer vacations and holiday periods, while Internet usage may decline during the summer months. Priceline.com's 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, airlines may have less excess inventory to offer through priceline.com at discounted prices. Priceline.com's business also may be subject to cyclical variations for the products and services offered; for example, leisure travel and home mortgage financing tends to decrease in economic downturns. Due to the foregoing factors, priceline.com's quarterly revenues and operating results are difficult to forecast. Priceline.com believes that period-to-period comparisons of its operating results may not be meaningful and should not be relied upon as an indication of future performance. In addition, it is possible that in one or more future quarters priceline.com's operating results will fall below the expectations of securities analysts and investors. In such event, the trading price of the common stock would almost certainly be materially adversely affected. LIQUIDITY AND CAPITAL RESOURCES Since its inception, priceline.com has financed its operations primarily through the sale of equity securities. Net proceeds from financing activities since inception through December 31, 1998 totaled approximately $103.2 million. Priceline.com's initial equity capital of approximately $27.0 million was provided by Mr. Jay S. Walker, other high net worth individuals and a partnership affiliated with General Atlantic Partners, LLC, a private equity firm that invests worldwide in software and information technology companies. An additional $20.0 million was invested by two partnerships affiliated with General Atlantic in July 1998. On December 8, 1998, priceline.com received approximately $54.4 million in proceeds from the sale of equity securities in a private offering to a group of corporate and institutional investors and high net worth individuals, including two partnerships affiliated with General Atlantic; Vulcan Ventures, Incorporated; Liberty PL, Inc.; a wholly owned subsidiary of Liberty Media Corporation; Quantum Industrial Partners LDC, a fund managed by Soros Fund Management, LLC and Allen & Company, Incorporated. Allen & Company, Incorporated also has served as priceline.com's financial advisor. At December 31, 1998, priceline.com's principal source of liquidity was approximately $53.6 million in cash and cash equivalents. In April 1998, priceline.com received proceeds from a loan of $1.0 million for working capital from a high net worth individual who also was issued a warrant to purchase 50,000 shares of common stock at an exercise price of $1.00 per share. This loan expires on April 15, 2003 and bears interest at a rate of 6.0%. Prior to completion of the offering, priceline.com intends to make a loan to Mr. Richard S. Braddock in an amount sufficient to enable the payment of taxes related to the issuance to Mr. Braddock of 6,500,000 shares of common stock. The loan will bear interest at the applicable federal rate specified from time to time by the Internal Revenue Service. Principal and interest on the loan will be payable in January 2004. Net cash used in operating activities was $40.9 million for the year ended December 31, 1998. Net cash used in operating activities was primarily attributable to net losses. Net cash used in investing activities was $6.6 million for the year ended December 31, 1998. Net cash used in investing activities was primarily related to purchases of property and equipment. Net cash provided by financing activities was $101.1 million for the year ended December 31, 1998. Net cash provided by financing activities resulted primarily from the issuance of equity securities referred to above. 29 Priceline.com had no material commitments for capital expenditures at December 31, 1998 but expects such expenditures to be at least $5.0 million in 1999. Such expenditures will be primarily for computer equipment, leasehold improvements related to newly leased space and other property and equipment. Priceline.com believes that, based upon its current operating plan, its existing cash and cash equivalents, the net proceeds from this offering and any cash generated from operations will be sufficient to fund its operating activities, capital expenditures and other obligations through at least the next three years. However, if during that period or thereafter priceline.com is not successful in generating sufficient cash flow from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to priceline.com, these failures could have a material adverse effect on priceline.com's business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of its then-current stockholders would be diluted. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" was released. The statement requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the planned use of the derivative and the resulting designation. Priceline.com is required to implement the statement in the first quarter of fiscal 2000. Priceline.com has not used derivative instruments and believes the impact of adoption of this statement will not have significant effect on its financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, Accounting for Costs of Computer Software developed or obtained for internal use. This statement is effective for fiscal years beginning after December 15, 1998. This statement provides guidance on accounting for the cost of computer software developed or obtained for internal use. Priceline.com adopted this statement on January 1, 1999 and currently is in the process of evaluating its impact. TAX MATTERS NET OPERATING LOSS CARRYFORWARDS Through July 31, 1998, priceline.com operated as a limited liability company, and income taxes (benefits) accrued to its members. During the year ended December 31, 1998, priceline.com had a net loss, and since converting from a limited liability company to a corporation in July 1998, it has incurred a tax net operating loss of $9.3 million. Priceline.com's initial corporate tax return will be for the period August 1 through December 31, 1998. Priceline.com has provided a full valuation allowance on the deferred tax asset of $24.7 million because of the uncertainty regarding its realization. Priceline.com's accounting for deferred taxes under Statement of Financial Accounting Standards No. 109 involves the evaluation of a number of factors concerning the realizability of its deferred tax assets. In concluding that a full valuation allowance was required, management primarily considered such factors as priceline.com's history of losses from operations and expected future losses. See Notes 2 and 8 of Notes to Combined Financial Statements included elsewhere in this prospectus. FEDERAL AIR TRANSPORTATION TAX ON AIRLINE TICKET SALES Currently, a federal air transportation tax is imposed upon the sale of airline tickets and generally is collected by the airlines selling the tickets. The tax is based upon a percentage of the cost of transportation, which was 9% for periods prior to October 1, 1998 and 8% thereafter. Because of the unique pricing structures employed in the priceline.com service, such as the amount paid by the customer for a ticket being different than the amount charged by the airline for the same ticket with the excess payment, if any, going to priceline.com as a charge for the use of its proprietary business method, it is not clear how this federal tax should be calculated when sales occur using the priceline.com service. Priceline.com has been calculating this tax based on the fare paid to the airline for a ticket, rather than the price paid by the customer. There is a possibility that current law requires computation of the tax based on the price paid by 30 the customer to priceline.com. Due to the uncertainty of how the federal air transportation tax applies to sales of airline tickets using the priceline.com service, priceline.com has submitted a written request to the United States Internal Revenue Service seeking a determination of priceline.com's federal air transportation tax obligations. Such determination may not be favorable and may require priceline.com to collect federal air transportation tax on the total amount paid by consumers for air travel. If the determination of the Internal Revenue Service is unfavorable, priceline.com could owe $111,000 in additional taxes. Priceline.com has accrued for such potential liability in its combined balance sheet as of December 31, 1998 and is providing for such potential liability on an ongoing basis. Priceline.com has agreed to indemnify and hold harmless certain of our participating airlines from any liability with respect to such taxes as well as to secure the payment of such taxes by a letter of credit. NON-QUALIFIED STOCK OPTIONS Priceline.com currently has outstanding 18,050,375 non-qualified stock options issued to various employees, consultants and directors pursuant to the 1997 Omnibus Plan. Each option entitles its holder to purchase a share of common stock at a weighted average exercise price of approximately $1.20 per share, subject to adjustment in accordance with the 1997 Omnibus Plan. On exercise of an option, priceline.com will be entitled to an income tax deduction equal to the difference between the exercise price of the option and the then fair market value of the common stock. As the exercise of options is in the sole discretion of the holder of the options, the timing of the corresponding income tax deduction is outside the control of priceline.com. YEAR 2000 READINESS DISCLOSURE PRICELINE.COM'S STATE OF READINESS Priceline.com has defined Year 2000 compliance as follows: Information technology time and date data processes, including, but not limited to, calculating, comparing and sequencing data from, into and between the 20th and 21st centuries contained in our products and services offered through the priceline.com service, will function accurately, continuously and without degradation in performance and without requiring intervention or modification in any manner that will or could adversely affect the performance of such products or the delivery of such services as applicable at any time hereafter. Priceline.com's internal systems include both its information technology systems and non-information technology systems. Priceline.com has initiated an assessment of its proprietary information technology systems, and expects to complete any remediation and testing of all information technology systems during 1999. With respect to information technology systems provided by third-party vendors, priceline.com has sought assurances from such vendors that their technology is Year 2000 compliant. All of priceline.com's material information technology system vendors have replied to inquiry letters sent by priceline.com stating that they either are Year 2000 compliant or expect to be so in a timely manner. Priceline.com is evaluating its non-information technology systems for Year 2000 compliance. It has not, to date, discovered any material Year 2000 issues with respect to its non-information technology systems. Priceline.com is in the process of contacting its material seller participants whose products or services are sold through the priceline.com service to determine if they are Year 2000 compliant. To date, all such seller participants have stated that they are, or expect to be, Year 2000 compliant in a timely manner. Priceline.com's customers are individual Internet users, and, therefore, priceline.com does not have any individual customers who are material to an evaluation of Year 2000 compliance issues. THE COSTS TO ADDRESS YEAR 2000 ISSUES Priceline.com has expensed amounts incurred in connection with Year 2000 compliance since its formation through December 31, 1998. Such amounts have not been material. The additional costs to 31 make any other products or services Year 2000 compliant by mid-1999 will be expensed as incurred, but are not expected to be material. Priceline.com is not currently aware of any material operational issues or costs associated with preparing its systems for the Year 2000. Nonetheless, it may experience material unexpected costs caused by undetected errors or defects in the technology used in its systems or because of the failure of a material seller participant to be Year 2000 compliant. RISKS ASSOCIATED WITH YEAR 2000 ISSUES Notwithstanding priceline.com's Year 2000 compliance efforts, the failure of a material system or vendor, including a seller participant in the priceline.com service, or the Internet generally, to be Year 2000 compliant could harm the operation of the priceline.com service or prevent certain products and services being offered through the priceline.com service, or have other unforeseen, adverse consequences to the company. Finally, priceline.com also is subject to external Year 2000-related failures or disruptions that might generally affect industry and commerce, such as utility or transportation company Year 2000 compliance failures and related service interruptions. Moreover, participating sellers in priceline.com services might experience substantial slow-downs in business if consumers avoid products and services such as air travel both before and after January 1, 2000 arising from concerns about reliabilty and safety because of the Year 2000 issue. All of these factors could have a material adverse effect on our business, financial condition and results of operations. CONTINGENCY PLANS Priceline.com has not yet developed a contingency plan to address situations that may result if it is unable to achieve Year 2000 compliance. The cost of developing and implementing such a plan, if necessary, could be material. 32 BUSINESS OVERVIEW Priceline.com has pioneered a unique new type of e-commerce 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 price," priceline.com collects consumer demand, in the form of individual customer offers guaranteed by a credit card, for a particular product or service at a price set by the customer. Priceline.com then either communicates that demand directly to participating sellers who determine whether to accept the customer's offer, or accesses participating sellers' private databases to determine whether it can fulfill the customer's offer on the basis of the pricing information and rules established by the sellers. Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers. Once fulfilled, offers cannot be canceled. Priceline.com benefits consumers by enabling them to save money, while at the same time benefitting sellers by providing them with an effective revenue management tool capable of identifying and capturing incremental revenues. By requiring consumers to be flexible with respect to brands, sellers and product features, priceline.com enables sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures. Priceline.com commenced its service on April 6, 1998 with the sale of leisure airline tickets and, during the period from launch through December 31, 1998, collected guaranteed offers for approximately 1.9 million airline tickets, representing approximately $400.0 million in total consumer demand, resulting in sales of approximately 134,878 airline tickets, representing approximately $30.4 million in revenue. Priceline.com's services were expanded to include the sale of new automobiles, on a test basis, in July 1998, hotel room reservations in October 1998 and home mortgages from a third party mortgage lender in January 1999. Priceline.com intends to continue to leverage the priceline.com brand over the next two years by expanding its product offerings to include rental cars, cruises, time shares, vacation packages, insurance and other financial services and a limited number of retail products. Through the innovative use of "adaptive marketing programs," priceline.com also markets customer acquisition programs for third parties, which facilitate the completion of a higher percentage of successful transactions through the priceline.com service and generate significant fee income for the company. Priceline.com offers products and services that are provided by participating sellers, many of whom are leaders in their industries. Eighteen domestic and international airlines currently participate in priceline.com's leisure airline ticket service, including Delta, Northwest, TWA, America West and leading international carriers. Participants in the priceline.com hotel reservation service include Marriott, Renaissance, Sheraton, Westin and several other nationally recognized hotel chains, as well as several important real estate investment trusts, including Meristar, Patriot and Starwood. Priceline.com does not publicly advertise the names of its seller participants in its airline and hotel programs. Priceline.com's mortgage service, which is offered through a joint marketing arrangement with LendingTree, an Internet-based mortgage service provider, includes a network of over 20 mortgage lending institutions. Priceline.com earns revenues upon the completion of successful transactions through the priceline.com service and through adaptive marketing programs offered through the priceline.com service. The manner in which it earns revenues varies, however, depending on the product or service sold. With respect to airline and hotel reservation services, priceline.com determines whether to fulfill a customer's offer based upon the available fares, rules and inventory that have been provided by participating sellers through their private data bases. Upon completion of a successful transaction, priceline.com earns the spread between the customer's named price and the fare or rate charged by the seller. With respect to priceline's automobile and mortgage services, a customer's offer is submitted directly to the participating sellers who determine whether to fulfill the offer. For these services, and for its adaptive marketing programs, 33 priceline.com earns fees or other payments payable by the seller and/or the customer or by its adaptive marketing partner. Priceline.com believes that the priceline.com service already has achieved significant consumer acceptance and widespread brand awareness. Based upon the results of an independent research study conducted for priceline.com, the company believes that as of September 1998, among adult Americans, the priceline.com "name your price" business proposition was the second most recognized e-commerce brand among the 13 leading brands included in the survey and one of the six most recognized Internet brands among the 25 leading brands included in the survey. Based on the study, priceline.com also believes that, after only five months of operation, 62.5 million (or 32%) of all adult Americans were aware of the priceline.com "name your price" proposition. Priceline.com's strong brand awareness has been achieved without any affiliation with an Internet portal company such as Yahoo! or Excite or a proprietary online service such as America Online. Beyond mere name recognition, priceline.com also believes that it enjoys high levels of consumer satisfaction among users of its service who provide powerful word-of-mouth endorsements. In addition, priceline.com has been featured in hundreds of news stories in national publications such as THE NEW YORK TIMES, THE WALL STREET JOURNAL and USA TODAY. The priceline.com service also has been awarded a four-star rating by YAHOO! INTERNET LIFE magazine as the "most creative way to get a good deal" on leisure airline tickets. Priceline.com believes that priceline.com's unique business model can be applied to a broad range of products and services. Priceline.com believes that this broad applicability of its business model, its first mover advantage, the strength of the priceline.com brand, its network of seller participants, its proprietary software systems and its intellectual property strategies provide it with significant competitive advantages. INDUSTRY BACKGROUND THE GROWTH OF COMMERCE ON THE INTERNET The Internet has emerged as a significant interactive medium for conducting business. International Data Corporation, a market research firm, estimates that the number of Internet users worldwide exceeded 97 million in 1998 and will grow to over 319 million by the end of 2002. International Data Corporation also estimates that annual worldwide commerce over the Internet will increase from approximately $32.0 billion in 1998 to approximately $425.0 billion by 2002. The factors driving this growth include the increasing number of personal computers in homes and offices, the decreasing cost of personal computers, technological innovations providing easier, faster and cheaper access to the Internet, the proliferation of content and services being provided on the Internet and the increasing use of the Internet by businesses and consumers as a medium for conducting business. The increasing use of the Internet as a commercial medium has been accompanied by a diversification in the type of commerce that is conducted on the Internet and a proliferation in the types of products and services available on the Internet. The Internet possesses a number of unique and commercially powerful characteristics that differentiate it from traditional media: users communicate or access information without geographic or temporal limitations; users access dynamic and interactive content on a real-time basis; and users communicate and interact instantaneously with a single individual or a group of individuals at little or no cost. The Internet has created a dynamic and particularly attractive medium for commerce, empowering consumers to gather more comparative purchasing data than is feasible with traditional commerce systems, to shop in ways that can be more convenient for them and to interact with sellers in many new ways. As the Internet has become more accessible and widely used for transactions, it has emerged as a primary business channel alongside the telephone, paper-based communication and face-to-face interaction. LIMITATIONS OF TRADITIONAL PRICING MECHANISMS Under traditional retail pricing methods, sellers typically market products to consumers under brand names at fixed retail prices. Alternatively, prices can be established through auction processes. However, 34 each of these forms of seller-driven commerce have certain significant disadvantages for both sellers and consumers. For example, in the retail pricing model, sellers who discount prices to clear excess inventory, utilize excess capacity or increase sales velocity, risk disruption of their existing distribution channels and damage to their retail pricing structures. They also lose the opportunity to earn incremental revenue from "free-riders," that is, consumers who would have been prepared to pay the undiscounted price for the product or service, but nevertheless obtain the benefit of the discounted price. Moreover, none of these pricing methods allow sellers to consider the flexibility of potential buyers before setting prices. Similarly, consumers are often forced to pay a higher price when the seller is setting a fixed retail price for a product with added features or under a specific brand, which the customer would otherwise have been prepared to forgo for a lower price. Auctions force consumers to compete against each other for the benefit of the seller, which always results in the product being sold on the basis of the highest bid. While the Internet has become a significant medium for conducting business, commerce presently conducted on the Internet is largely based upon traditional pricing methods. Priceline.com believes that the vast information sharing and communications power of the Internet creates an opportunity for significant change in the way commerce or business is conducted. THE PRICELINE.COM SOLUTION Priceline.com has developed a demand collection system that uses the information sharing and communications power of the Internet to create a new way of pricing products and services. Priceline.com creates a new balance between the interests of buyers, who are willing to accept trade-offs in order to save money, and sellers, who are prepared to generate incremental revenue by selling products at below retail prices, provided that they can do so without disrupting their existing distribution channels or retail pricing structures. Priceline.com's demand collection system allows consumers to name the price they are prepared to pay when submitting an offer for a particular product or service within a specified range of substitutability. Priceline.com then either communicates such offers to multiple sellers who determine whether to accept the customer's offer or accesses participating sellers' private databases to determine whether it can fulfill the customer's offer on the basis of the pricing information and rules established by the sellers. Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers. Once fulfilled, offers generally cannot be canceled. This system uses the flexibility of buyers to enable sellers to accept a lower price in order to sell excess inventory or capacity or to increase sales velocity. Priceline.com believes that its demand collection system addresses the limitations inherent in traditional pricing mechanisms in a manner that offers substantial benefits to both buyers and sellers. The principal advantages of the priceline.com system include the following: - COST SAVINGS AND PREFERRED METHOD OF PURCHASING FOR CONSUMERS. Priceline.com's demand collection system allows consumers to save money in a simple and compelling way--"name your price." Buyers effectively trade off flexibility about brands, product features and/or sellers in return for prices that are lower than those that can be obtained at that time through traditional retail distribution channels. Priceline.com believes that in many cases, such as purchasing a new car or obtaining a home mortgage, naming your own price over the Internet represents a preferred purchasing method to traditional retail channels, which may involve comparison shopping among a complex array of alternative features, sometimes protracted negotiations and dealings with numerous brokers or sales representatives. Priceline.com also believes that naming your price over the Internet is a preferred purchasing method to auctions, which result in a product being sold on the basis of the highest bid. - INCREMENTAL REVENUE FOR SELLERS. Sellers use priceline.com as a revenue management tool to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures. Priceline.com requires consumers to be flexible with respect to brands, such as a willingness 35 to fly on any major airline; and/or product features, such as a willingness to fly at any time of the day; and/or seller, such as any BMW dealer in a specific geographic area. As a result, sellers' brands are not revealed to customers prior to the consummation of a transaction, thereby protecting their brand integrity. This shielding of brand identity enables sellers to accept offers at discounted prices through priceline.com without cannibalizing their own retail sales by publicly announcing discount prices and without competing against their own distributors. In effect, priceline.com serves as a discreet and insulated channel of distribution. Sellers are further protected by the fact that each transaction is independent and the prices at which offers are accepted are not revealed to subsequent users of the priceline.com service. Priceline.com gives sellers the ability to exercise a greater degree of pricing flexibility without trading high-margin sales for low-margin sales, thereby enabling sellers to expand their total revenues and, in some cases, gain market share at the expense of non-participating competitors. - PROPRIETARY SELLER NETWORKS. Priceline.com assembles proprietary networks of industry leading sellers that represent high quality brands, such as Delta, Northwest, TWA, America West, Marriott, Renaissance, Sheraton and Westin. By establishing attractive networks of seller participants with reputations for quality, scale and national presence, priceline.com fosters increased participation by both buyers and sellers. Each participant in these unique seller networks is willing to consider and accept consumer offers at prices that are below its retail prices. Moreover, by shielding the seller's brand and not revealing the final selling price to other consumers, priceline.com encourages participating sellers to be aggressive in their pricing. Priceline.com believes that as more and more sellers in an industry join the priceline.com service, other industry participants will want to join the system. - GUARANTEED CONSUMER DEMAND FOR SELLERS. Each customer who makes an offer through priceline.com must guarantee his offer with a major credit card. The guaranteed aspect of the demand is attractive to sellers because they know that priceline.com offers them a confirmed sale whenever they accept a buyer's offer. Sellers can be sure that collected demand represents willing buyers, at each named price, rather than browsing shoppers who have made no commitment to purchase. Priceline.com's database of consumer offers also provides sellers with valuable market information about the precise quantities of latent demand at each price point below their retail prices. - BROAD APPLICATIONS ACROSS MULTIPLE MARKETS. In contrast to many e-commerce companies that are building brands in vertical categories or groups of related categories, priceline.com believes that its e-commerce business model has horizontal application to products and services in a wide range of industries. Priceline.com further believes that the broad applicability of the priceline.com service and the strength of the priceline.com brand afford it the opportunity to obtain substantial economies of scale and offer the potential for priceline.com to become a major new channel of distribution. The breadth of potential applications of the priceline.com business model also is enhanced by various cross-selling opportunities, since priceline.com expects that consumers who successfully complete transactions through priceline.com will return to priceline.com to purchase other products and services. THE PRICELINE.COM GROWTH STRATEGY Priceline.com's objective is to continue to expand the priceline.com business and to establish priceline.com's demand collection system as a leading source for the purchase of products and services on the Internet. The key elements of priceline.com's strategy are as follows: - STRENGTHEN THE PRICELINE.COM BRAND. Priceline.com intends to establish priceline.com as the leading consumer brand for buyer-driven commerce over the Internet. To achieve this objective, priceline.com intends to continue to pursue an aggressive brand development strategy through mass market and targeted advertising and promotions, press coverage and strong word-of-mouth support. 36 While priceline.com believes it is already one of the most recognized e-commerce brands among adult Americans, priceline.com believes that it can expand the public's association with the priceline.com "name your price" proposition to a broad range of products and services. - LEVERAGE THE PRICELINE.COM BRAND OVER NUMEROUS PRODUCTS AND SERVICES. Priceline.com intends to leverage the priceline.com brand across numerous products and services to achieve significant revenue scale and growth. In contrast to most e-commerce businesses that operate in one or two "vertical" markets, priceline.com is a "horizontal" commerce system that can benefit both buyers and sellers in a broad range of industries. Priceline.com's strategy is to make available multiple product and service offerings at a single Web site under a common brand to take advantage of these market opportunities. Over the next two years, priceline.com intends to offer products and services in four sectors of the economy where its demand collection system is particularly well suited. These sectors are: - travel, including leisure airline tickets and hotel rooms, rental cars, "all-inclusives" resorts, cruises and time shares; - financial services, including home mortgages, credit card balance consolidation and automobile and life insurance; - automobile sales and related financing; and - retail products, including computers, home electronics and other consumer products. In these sectors, the priceline.com service currently offers leisure airline tickets, hotel rooms, home mortgages and, on a test basis, automobiles. Given the size and scope of these markets, priceline.com believes it can achieve a large revenue base and sustain revenue growth by capturing even a small portion of the excess unsold inventory or capacity in these sectors and by capturing even relatively small amounts of market share from traditional seller-driven channels of retail distribution. - EXPAND SELLER PARTICIPANT NETWORKS. Priceline.com intends to continue to expand its alliances with major seller participants selected for reputation, quality and national presence to create proprietary seller networks for each of its major products and services. A critical element of the priceline.com business has been priceline.com's ability to demonstrate to its seller participants that priceline.com can generate incremental revenues for sellers without disrupting their existing distribution channels or retail pricing structures. Priceline.com intends to form and maintain alliances with industry leaders by designing its products and services in a way that requires consumers to accept some trade-offs from currently available retail product offerings in return for lower prices. Such trade-offs typically include not knowing the identity of the seller or brand prior to the acceptance of a customer's offer by a seller. - ENHANCE SITE FUNCTIONALITY AND INCREASE CONSUMER USAGE. Priceline.com intends to frequently update and enhance the features of the priceline.com service. Priceline.com continually monitors feedback from consumers and frequently adds new features to further refine and simplify the buying process. Priceline.com also receives offers and provides customer service by telephone to assist consumers in the offer process. By continuing to increase the functionality of the service and enhance the consumer experience, priceline.com believes that it will continue to increase customer usage and loyalty. - EXPAND ADAPTIVE MARKETING PROGRAMS. Priceline.com intends to further develop and expand what it refers to as "adaptive marketing programs." Adaptive marketing programs include two distinct initiatives. "Adaptive promotions" allow consumers to increase the amount of their offers, and thus their likelihood of success, at no additional cost by participating in sponsor promotions during the process of making a priceline.com offer. For example, a customer making an offer to buy an airline 37 ticket can increase the amount of his offer by a stated amount by applying online for a credit card issued by one of priceline.com's strategic sponsors. These promotions have the effect of increasing the percentage of successful offers at no additional cost to the customer, while at the same time enabling priceline.com to earn significant fee income, which it can use to offset the sale of products and services below its unit cost. The second type of adaptive marketing program is referred to as "adaptive cross selling" and utilizes cross selling of multiple products to increase the number of successful transactions. - INCREASE FINANCIAL RETURNS OVER TIME. While it is inherent in the nature of priceline.com's business model that not all offers will be acceptable to sellers, an integral part of priceline.com's strategy is to ensure that a high percentage of reasonable offers get accepted, thereby increasing financial returns while reinforcing the priceline.com service. As consumers have become more familiar with the service, priceline.com has been able to increase the percentage of offers it satisfies and expects this trend to continue. As its revenue base grows, priceline.com intends to increase its financial returns over time. Priceline.com's revenue model for travel services enables it to balance revenue growth against gross profit margins, thereby enhancing its ability to manage a targeted gross margin as a percentage of revenues. Priceline.com initially intends to emphasize revenue growth over profit margins in order to achieve significant revenue scale and to further strengthen the priceline.com brand. However, over time, as its revenue base increases, priceline.com believes it will be able to capture a greater portion of the incremental profit that it generates for participating sellers and thereby increase its profit margins and financial returns. - EXPLORE INTERNATIONAL EXPANSION. Priceline.com believes that the international scope of the Internet and the global demand for the types of products and services that it intends to make available through priceline.com presents opportunities to expand its service internationally. Given the anticipated continued increase in use of the Internet throughout the world, priceline.com intends to explore avenues and strategies for international expansion. It believes that joint ventures and licensing arrangements with international partners are likely to be the preferred methods of international expansion, as they will enable priceline.com to combine its expertise in demand collection systems with its partners' expertise in their local markets. THE PRICELINE.COM BUSINESS MODEL Priceline.com believes that its demand collection system is a powerful new business model for conducting commerce on the Internet. The priceline.com business model is designed to allow consumers to save money on a wide range of products and services by trading flexibility regarding brands, product features and/or sellers in return for being able to buy products and services at prices that are lower than those charged through traditional retail channels of distribution. The priceline.com business model motivates sellers to offer products through priceline.com at below their retail prices by enabling them to generate incremental revenue while protecting their existing channels of distribution and retail pricing structures. The priceline.com business model enables the company to earn substantial revenues without charging customers for submitting offers through, or charging sellers for participating in, the priceline.com system. Priceline.com has the flexibility to earn fixed or percentage based fees by serving as an intermediary on the sale of products or services, or to earn the spread between the customer's offer and the cost of a product or service by serving as principal in a transaction. Consumer fees are payable only upon completion of successful transactions. This unique revenue structure enables priceline.com to manage the level of gross margins and, as appropriate, balance revenue growth with margin growth. 38 The defining elements of the priceline.com business model are the following: - the buyer specifies or accepts a RANGE OF SUBSTITUTABILITY among brands, product features and/or sellers; for example, he agrees to stay at any three-star hotel in a certain area, agrees to fly at any time of the day or agrees to purchase a new car from any factory-authorized dealer; - the buyer NAMES THE PRICE he is prepared to pay for the products or services within the specified range of substitutability; - the buyer GUARANTEES HIS OFFER for a specified time period by securing all or a portion of his potential payment for the product or service with a major credit card; - companies sell products or services at prices below their currently available retail prices using priceline.com as a BRAND SHIELD to protect their retail pricing structures and channels of distribution; - each guaranteed offer can be consummated with products or services from any of a GROUP OF SELLERS; and - offers made through priceline.com are held open for a specified period of time, and CANNOT BE CANCELED by either the seller or the buyer. The priceline.com consumer proposition is simple and compelling: realize immediate savings by using the Internet to name your own price when you are willing to be flexible about brands, product features and/or sellers. A central premise of the priceline.com consumer proposition is that in many product and service categories there are a significant number of consumers for whom brands, product features or sellers are interchangeable, particularly if agreeing to a substitution among brands or sellers will result in saving money. For example, priceline.com believes that many leisure travelers are relatively indifferent about the brand of major airline they fly. Similarly many consumers are indifferent to which financial services company provides them with a credit card or home mortgage. Priceline.com also believes that many consumers prefer not to spend time and effort engaged in an evaluative process among similar products, brands or sellers, which they consider to be substitutable. Finally, priceline.com is appealing to some consumers because it does not charge a customer to submit an offer, and priceline.com's Web site provides convenient access, available 24 hours a day, seven days a week. Priceline.com believes that the collection of large volumes of consumer demand is essential to building networks of multiple sellers. Priceline.com also believes that it is important that all of the demand it collects is GUARANTEED by the buyers, that offers must be held open for a specified time period and that once an offer is accepted it generally cannot be canceled or the purchase price refunded. This approach assures sellers that a customer's offer is bona fide and that once an offer is accepted, the seller will generate an immediate sale, rather than an invitation to further negotiation or comparison shopping. The priceline.com business model is predicated on the assumption that sellers almost invariably have excess inventory or capacity that they would sell at lower prices, if they could do so without either lowering their prices to their retail customers or advertising that lower prices are available. Priceline.com allows sellers to capture demand below their retail "price line," without allowing retail customers who might be willing to pay more to "free ride" down to the lower price. The ability to offer prices below the retail price line generates incremental revenue by accessing buyer segments otherwise priced out of the market and, in certain cases, by capturing market share from nonparticipating competitors. Finally, priceline.com's database of consumer offers benefits sellers by providing them with valuable market information about the precise quantities of latent demand at each price point below their retail prices. Priceline.com believes that its demand collection system is ideally suited to industries characterized by low variable costs relative to total cost, which results in high profit contribution margins and provides sellers with a strong incentive to sell products at prices below their retail prices to generate incremental sales, provided that they can do so without threatening their existing distribution channels or retail pricing structures. Low variable costs frequently exist in industries with expiring or rapidly aging inventory. 39 Priceline.com also believes, however, that its demand collection system will prove to be effective even in industries that are not characterized by rapidly aging inventories and low variable costs because a significant number of consumers will prefer the relative cost savings, ease of use and convenience of priceline.com's name your price system to traditional retail distribution channels, and sellers will be attracted to the potential of the priceline.com service to increase sales velocity, which is often a significant factor in the success of businesses in these industries. Priceline.com believes that markets characterized by a large degree of brand, product feature or seller substitutability are substantial and include both those in industries characterized by high profit contribution margins and industries in which many consumers are dissatisfied with traditional retail distribution methods. In the business-to-consumer market, travel, new car sales, financial services and many retail products offer substantial ranges of substitutability in consumers' minds. In the business-to-business market, long distance service, media sales and office supplies are subject to high degrees of product or brand substitutability. In the consumer-to-consumer market, there are often multiple sellers that are ready, willing and able to offer new or nearly new products that consumers consider substitutable. Priceline.com believes that its business model can be applied to each of these markets, thereby providing it with considerable potential for long term growth. PRODUCTS AND SERVICES Priceline.com launched the priceline.com service on April 6, 1998 with the sale of leisure airline tickets. Since that time, the priceline.com service has been expanded to include the sale of new automobiles, on a test basis, in July 1998, hotel room reservations in October 1998 and home mortgages from a third party mortgage lender in January 1999. Priceline.com also intends to expand its product offerings over the next two years to include other leisure travel products such as rental cars, cruises, time shares, and vacation packages; automobile and personal insurance and other financial services products; and certain retail products such as computers, home electronics and other consumer products. TRAVEL SERVICES LEISURE AIRLINE TICKETS. Priceline.com commenced its service with the sale of leisure airline tickets. The number of airlines participating in priceline.com's airline ticket service has increased substantially since the launch of the business, from an initial group of two domestic airlines and four international airlines, to a total of five domestic airlines and 13 international airlines. Priceline.com also purchases and resells a small percentage of its tickets from airline ticket consolidators. Airlines participate in priceline.com's airline ticket service by making available to priceline.com unpublished fares and, in some cases, dedicated or special inventory. Priceline.com does not publicly advertise the names of airlines participating in its airline ticket service. Consumers can make offers to purchase airline tickets through the priceline.com Web site or the 1-800-Priceline call center. The vast majority of all airline ticket requests are made through priceline.com's Web site. To make an offer, the customer specifies (1) the origin and destination of the trip, (2) the dates on which he wishes to depart and return and (3) the price he is willing to pay, and guarantees the offer with a credit card. Consumers must agree to, among others, the following conditions: - to fly on any major full-service airline, which is defined by the United States Department of Transportation; - to leave at any time of the day on their desired dates of departure and return; - to purchase only round trip economy class tickets between the same two points of departure and return; - to accept up to one stop or connection; 40 - to receive no frequent flier miles or upgrades; and - to accept tickets that cannot be refunded or changed. Consumers are informed that they can increase their chances of obtaining the desired ticket by accepting greater flexibility, such as accepting flights outside of priceline.com's normal flight times or accepting more than one stop or connection. Consumers also are given the opportunity to have their offers increased by a specified dollar amount, and thereby increase the likelihood of success, if they agree to participate in an adaptive promotion during the process of submitting their offers, such as applying for a credit card or subscribing to a magazine. In order to encourage reasonable initial offers, consumers are not permitted to make revised offers for an identical itinerary within seven days of an unsuccessful offer. When priceline.com receives an offer, it determines whether to fulfill the offer based upon the available fares, rules and inventory that have been provided by participating airlines. Such fares and rules are filed by participating airlines in a private database known as SecureRate within the Worldspan central reservation system. As a certified travel agency, priceline.com also has access to the published "tariff" fares of all airlines, including those not participating in the priceline.com service, although priceline.com currently does not sell tickets purchased pursuant to published tariff fares. If a qualifying airfare is identified, a search in Worldspan is initiated to find seat availability on the requested dates of travel. Where more than one seller is able to fulfill the customer's offer, priceline.com awards the business based on an allocation protocol. A customer is notified whether his offer has been accepted within one hour for domestic flights and within twenty-four hours for international flights. If priceline.com is able to obtain an airline ticket within the parameters specified by the customer, the customer's credit card is charged for the amount of the customer's offer and the ticket is delivered to the customer by the delivery method specified by the customer. Approximately 90% of the tickets issued through priceline.com are electronic tickets for which there is no delivery charge. Priceline.com does not charge a fee to either the customer or the airline, but earns the spread, if any, between the customer's offered price and the cost to purchase the ticket from the airline. HOTELS. In October 1998, priceline.com launched its second travel service, which allows consumers to name their price for hotel room reservations. Priceline.com's hotel reservation service currently is available in more than 220 cities, including 30 metropolitan areas, which include Atlanta, Boston, Chicago, Los Angeles, New York, Orlando and San Francisco. Priceline.com intends to expand its hotel reservation service during 1999 to include substantially all major cities and metropolitan areas in the United States and various international destinations. Seller participants in the hotel reservation service include several of the most significant national hotel chains, including Marriott, Renaissance, Sheraton and Westin, as well as several important real estate investment trusts, including Meristar, Patriot and Starwood, and independent property owners. Hotels participate by filing private discounted rates with related inventory control rules in priceline.com's private database in the Worldspan centralized reservation system for hotel rooms. These rates generally are not available to the general public or to consolidators and other discount distributors who sell to the public. Priceline.com's hotel reservation service operates in a manner similar to its airline ticket service. Consumers are required to accept certain trade-offs with respect to brands or product features in return for saving money. For example, consumers are required to accept a reservation in any hotel within a specified geographic area within a designated "class" of service (2, 3, 4 or 5-star) and must accept limitations on changes and cancellations. Priceline.com determines the class of service for each participating hotel based upon published industry reports, the amenities available at each property and other factors such as age and decor. As with the airline ticket service, the target market for priceline.com's hotel reservation service is the leisure travel market. 41 Consumers can make offers for a hotel reservation through the priceline.com Web site or 1-800-Priceline call center. To make an offer, the customer (1) specifies (a) his dates of stay, (b) the metropolitan area, including geographic zones within that metropolitan area, (c) the class of hotel service and (d) the price he is willing to pay; and (2) guarantees the offer with a credit card. Upon receipt of an offer for a hotel reservation, priceline.com systematically compares the offer with rates and inventory rules provided by sellers through their reservation systems and determines whether to fulfill the offer based upon available inventory. Within a specified time, which currently is one hour, the customer is notified whether his offer has been accepted. When selling a hotel reservation, priceline.com earns the spread between the consumer's offer price and the price charged to the company by the hotel. Priceline.com also earns fee income from adaptive promotions that it makes available to consumers during the course of submitting an offer for a hotel reservation. The dynamics of the hotel industry are similar to those of the airline industry in that both industries are characterized by expiring inventory and low marginal costs so that the sale of any excess inventory provides a significant contribution to profits. As with the airline industry, a significant amount of available inventory in the hotel industry expires unsold. Priceline.com also believes that consumers are willing to trade off brand identity for lower rates with a specified class of hotel service and that such industry dynamics make priceline.com's demand collection system particularly well-suited to the hotel industry. Priceline.com also believes that the hotel reservation service will create opportunities for cross-selling to leisure travelers who purchase airline tickets through priceline.com. OTHER TRAVEL SERVICES. Priceline.com intends to expand its products and services within the leisure travel industry over the next two years to encompass the rental car, cruise, all-inclusive resort, time share and vacation package segments. FINANCIAL SERVICES PRODUCTS HOME MORTGAGES. Priceline.com introduced its home mortgage service in January 1999. Priceline.com's mortgage service allows consumers to name their interest rate for mortgages of a specified term, including purchase money mortgages, refinancings and home equity loans. LendingTree, an Internet based mortgage service provider, is priceline.com's joint marketing partner in connection with its mortgage service. Under priceline.com's agreement with LendingTree, priceline.com is responsible for maintaining the mortgage service on the priceline.com Web site and for consumer marketing. LendingTree serves as the mortgage broker and operates the back-end processing system, which presents offers received through priceline.com to multiple mortgage lending institutions for consideration. LendingTree maintains its own online mortgage service, which includes a network of over 20 mortgage lending institutions. See "-- Strategic Alliances -- Marketing Agreement for Mortgage Services." To obtain a home mortgage through the priceline.com service, consumers access the priceline.com Web site and specify the amount of the loan, the term and the interest rate they are willing to pay. Consumers complete a simplified loan application as part of the process of making an offer. In connection with making an offer, consumers are required to guarantee with a major credit card the payment of a fee of $200, to be credited against closing costs if their offer is accepted. Priceline.com transmits each offer to LendingTree, which in turn presents the offer to multiple lenders who can either accept the offered terms, or return a counteroffer to the consumer. Priceline.com notifies the customer within 48 hours whether his offer has been accepted. Upon the closing of a mortgage placed through priceline.com's mortgage service, LendingTree receives a fee from the lending institution, and priceline.com receives a fee from LendingTree. According to industry data published in 1998, approximately $1.1 trillion of home mortgages were entered into in the United States in 1996. Priceline.com believes that consumers are largely indifferent to which mortgage issuer provides their mortgage and seek merely to obtain the lowest cost in the most efficient manner. Moreover, comparison shopping among the hundreds of mortgage lenders can be a 42 frustrating experience for consumers. Priceline.com believes the priceline.com mortgage service will provide consumers with a simple and efficient vehicle for obtaining the interest rate they seek through a preferable purchasing process. For lenders, the priceline.com mortgage service will provide guaranteed demand from consumers who are committed to buy and will submit that demand in a format that can be reviewed and evaluated by the lender with minimal variable costs. OTHER FINANCIAL SERVICES PRODUCTS. Priceline.com intends to expand its products and services within the financial services industry over the next two years to include unsecured personal loans, credit card balance consolidations and automobile and life insurance policies. As with its other products and services, priceline.com intends to expand its financial product services by entering into strategic relationships with leading industry participants. Priceline.com believes its financial product services will have broad demographic appeal among consumers who seek to obtain the most attractive economic terms in the most efficient manner from what they perceive to be substitutable suppliers. NEW CAR SALES Priceline.com introduced a new car sales service on a test basis in the New York metropolitan area in July 1998. Priceline.com is using the New York market to learn more about the automobile sales over the Internet and to develop product features and systems support. In the first half of 1999, priceline.com intends to introduce its new car sales service in a prototype market, which presently is expected to be a city with a population of approximately one million. Once the service's product features have been refined and its performance expectations have been achieved in this prototype market, priceline.com expects to implement a gradual roll-out to additional metropolitan markets in the United States. Priceline.com's new car sales service currently does not offer automobile financing. Because a significant majority of new car buyers finance their purchase, priceline.com intends to add a financing feature to its program, for both leasing and lending, prior to a broader roll-out of the service, including a "budget worksheet" that will assist customers in determining what cars they can afford to purchase. Priceline.com's new car sales service accepts offers for every major brand of automobile. To purchase a new car through the priceline.com service, consumers name the price for a new car with specified model options, and agrees to purchase such car from any factory authorized dealer within a specified geographic radius. To help consumers submit reasonable requests, both the manufacturer's suggested retail price and the dealer invoice price for the vehicles and options requested are displayed on the priceline.com Web site. Upon receiving an offer for a new car, priceline.com transmits the customer's offer to factory authorized dealers within the specified geographic radius, without disclosing the identity of the customer. Priceline.com directs the sale to the first dealer that notifies the company that it is willing to accept the customer's offer. Priceline.com then notifies the customer to pick up the vehicle from that dealer and the transaction is closed directly between them. Due to the numerous features and options on a new automobile, the range of product substitutability that consumers will accept is lower in the case of new cars than with airline tickets or hotels. As a result, a dealer that may not be able to precisely fulfill a customer's offer is permitted to make a counteroffer through priceline.com. The counteroffer may specify a different product package or price. The customer is free to accept or reject such a counteroffer. The customer also is permitted to submit an additional offer through priceline.com. Once an offer for a new car is accepted by a dealer, the consumer completes the transaction directly with the dealer and receives the same standard manufacturer's warranty and other terms that are available with respect to any new car purchased at that dealer. When a sale is completed, priceline.com is paid a fee, which is currently $25, from the customer and an additional fee from the auto dealer. If the customer fails to consummate the transaction within 14 business days of being notified that an offer is accepted, the customer is charged a cancellation fee, which is currently $200, half of which is payable to priceline.com with the other half payable to the dealer. 43 Priceline.com believes that, for many consumers, purchasing an automobile through priceline.com's new car sales service will be a preferred purchasing method compared to traditional retail channels which often involve protracted negotiations with numerous dealers, some of which may utilize aggressive sales tactics. Priceline.com also believes that many automobile dealers will view the priceline.com service as an attractive way to generate incremental sales through a low cost distribution channel. The priceline.com new car sales service is differentiated from other Internet car sales services, which serve as lead generators for participating car dealers. Under such services, multiple dealers may contact the customer in response to the customer's inquiry to the Internet service. By contrast, priceline.com's new car sales service does not reveal the identity of the customer to the auto dealer until the dealer has accepted the customer's offer. Furthermore, in contrast to other Internet car sales services, dealers are not required to pay a participation fee to review offers from the priceline.com service. ADAPTIVE MARKETING PROGRAMS Priceline.com has developed adaptive marketing programs to help bridge the gap between consumer offers and seller prices, provide users of the priceline.com service with other desired products, and generate additional revenue for the company. These programs also serve as an integral part of priceline.com's strategy of building customer loyalty. Priceline.com intends to further develop and expand its adaptive marketing programs, which presently include two distinct initiatives. The first, which it refers to as "adaptive promotions," allows consumers to increase the amount of their offers, and thus their likelihood of success, at no additional cost by participating in sponsor promotions during the process of making a priceline.com offer. For example, a customer making an offer to buy an airline ticket can immediately increase the amount of his offer by $50 by applying online for a credit card. If the customer obtains the requested ticket, he still pays only the amount contained in his original offer. For example, if a customer makes an offer to purchase a round trip ticket from New York to Chicago for $200 and, in the process of submitting that offer, he applies for a credit card, the offer would be submitted at $250, but the customer would have to pay only $200 for the ticket. The second type of adaptive marketing program is referred to as "adaptive cross selling" and utilizes cross selling of multiple products to increase the number of successful transactions. For example, a customer whose offer for an airline ticket was slightly below acceptable levels could be offered a second related product such as a hotel room reservation or a rental car day at a combined price that provided an acceptable margin for the sellers of both products and for priceline.com. Priceline.com's principal adaptive promotion offers consumers the ability to apply for a credit card issued by Capital One while submitting offers through priceline.com. In connection with this promotion, priceline.com is paid a fee by Capital One for each qualifying credit card application. MARKETING AND BRAND AWARENESS Priceline.com has established itself as a leading e-commerce brand through an aggressive marketing and promotion campaign. From inception through December 31, 1998, priceline.com incurred $24.4 million for sales and marketing expense. It intends to continue to pursue an aggressive marketing strategy designed to promote brand awareness and the concept that consumers can save money on a wide range of products and services through priceline.com. Underlying priceline.com's marketing strategy is the company's belief that its target market is all consumers, not just Internet-savvy consumers. Substantially all of such spending has been for radio and newspaper advertising. Priceline.com's campaign features the actor William Shatner as its spokesperson. Priceline.com supplements its paid advertising and promotion with targeted media coverage. Priceline.com has been featured in hundreds of news stories in national publications such as THE NEW YORK 44 TIMES, THE WALL STREET JOURNAL and USA TODAY, reflecting the intuitive appeal of the priceline.com business model and its strong word-of-mouth support. In addition, priceline.com engages in grass roots marketing such as promotional events on college campuses and co-promotions with popular media such as MTV. Priceline.com believes that the priceline.com service has achieved widespread brand awareness. Based upon the results of an independent research study conducted for priceline.com, the company believes that, as of September 1998, among adult Americans, the priceline.com "name your price" business proposition was the second most recognized e-commerce brand among the 13 leading brands included in the survey and one of the six most recognized Internet brands among the 25 leading brands included in the survey. Based on the study, priceline.com also believes that, after only five months of operation, 62.5 million (or 32%) of all adult Americans were aware of the priceline.com "name your price" proposition. Priceline.com's strong brand awareness has been achieved without any affiliation with an Internet portal company such as Yahoo! or Excite or a proprietary online service such as America Online. Priceline.com also believes that it enjoys high levels of consumer satisfaction among users of its service who provide powerful word-of-mouth endorsements. STRATEGIC ALLIANCES AIRLINE ALLIANCES AND RELATIONSHIPS Priceline.com has entered into Airline Participation Agreements with five domestic and 13 international airlines. The Airline Participation Agreements do not commit the airlines to provide tickets for any particular routes or at a discount to their retail prices, but outline the terms and conditions under which ticket inventory provided by the airlines may be sold. Such terms and conditions include the following: - the tickets must be non-refundable, non-endorsable and non-changeable; - all travel must be round-trip between the same two points of departure and return, with no stopovers permitted; - the tickets are not eligible for frequent flyer mileage or upgrades; - consumers must agree to accept up to one stop or connection on both their departing and return flights; - consumers must be willing to fly on any participating airline; and - consumers must be willing to depart at any time after 6 a.m. and land any time before 10 p.m. of day on the requested dates. All offers must be guaranteed with a major credit card; and - consumers must be limited in their ability to make multiple offers with respect to the same travel itinerary. The Airline Participation Agreements generally are subject to termination upon 30 days' notice by priceline.com or the airline. While priceline.com's agreement with Delta nominally has a ten-year term, the Agreement does not impose any material obligations on Delta. In particular, Delta is not at any time obligated to supply airline tickets to priceline.com and may supply airline tickets to priceline.com's competitors at any time, without offering any airline tickets to priceline.com, or may offer tickets to priceline.com's competitors at more favorable prices than those offered to priceline.com. In addition to the Airline Participation Agreements, priceline.com entered into a related agreement with Delta which provides, among other things, certain incentives designed to encourage Delta to increase its participation in priceline.com's buying service. For example, Delta is entitled to share in revenue generated from airline ticket sales on Delta if priceline.com's gross margin on such sales exceeds approximately 12% in any calendar quarter. In addition, priceline.com is required to use the highest qualifying fare to fulfill ticket requests allocable to Delta, subject to an agreed minimum profit margin to priceline.com. The agreement also requires, subject to various exceptions, Delta's approval of the addition 45 of new carriers to the priceline.com service and restricts both the volume of tickets that may be sold and the routes for which tickets may be offered by specified carriers through the priceline.com service. Delta also may require the exclusion of specific markets in order for certain other airlines to participate. Further, priceline.com is required to license its buyer-driven commerce system to Delta on a non-exclusive basis and on commercially reasonable terms under specified conditions. In addition, priceline.com's ability to transfer or license its intellectual property to other travel providers is limited in the manner set forth in the agreement. In connection with the Airline Participation Agreement with Delta, priceline.com also issued a warrant to Delta to purchase up to 14,895,522 shares of common stock at an exercise price of approximately $1.16 per share. The Delta warrant will vest at the earlier of December 31, 2005, and Delta's achievement of certain performance thresholds of ticket sales. Priceline.com also has issued to several participating airlines warrants to purchase an aggregate of 1,750,000 shares of common stock, comprised of warrants to purchase 750,000 shares of common stock at an exercise price of $4.00 per share and warrants to purchase 1,000,000 shares of common stock at an exercise price of $8.00 per share. The warrants having an exercise price of $4.00 per share become exercisable 210 days after the completion of this offering. With respect to the warrants having an exercise price of $8.00 per share, warrants relating to one-half of the underlying shares become exercisable on December 31, 1999, and warrants relating to the remaining underlying shares become exercisable on December 31, 2000, subject to earlier termination of such warrants in the circumstances identified in the warrant agreement. MARKETING AGREEMENT FOR MORTGAGE SERVICES In connection with priceline.com's home mortgage service, priceline.com has entered into a joint marketing relationship with LendingTree, an Internet based mortgage service provider. Under this arrangement, priceline.com is responsible for maintaining the mortgage service for the priceline.com Web site and for consumer marketing. LendingTree provides the back-end processing system, which presents the priceline.com offers to multiple mortgage lending institutions for consideration. Under the terms of the Internet Marketing and Licensing Agreement, effective as of August 1, 1998, between priceline.com and LendingTree, priceline.com receives the majority of the net revenue generated by the mortgage program, and the balance is earned by LendingTree. LendingTree is responsible for providing (1) the substantive mortgage content of the mortgage service for the priceline.com Web site; (2) a network of lenders to participate in the mortgage program; (3) customer service; and (4) the software required to effect a communication system between priceline.com, LendingTree and the participating lenders. LendingTree also is responsible for compliance with all regulations applicable to the mortgage service and products, including the maintenance of requisite broker licenses, registration, approvals and exemptions. The initial term of the agreement began on August 1, 1998, expires one year from the commencement of the priceline.com mortgage service and renews automatically thereafter. The agreement may be terminated by either party after the initial term expires, or immediately in the event that the other party materially breaches the agreement or becomes subject to a bankruptcy proceeding. HOTEL ALLIANCES In connection with priceline.com's hotel service, priceline.com has entered into letter agreements with eight hotel chains. The agreements generally provide for the hotels to supply priceline.com with competitive net rates for hotel properties included in the priceline.com service. Hotels must be of 2-star quality or higher, with priceline.com to make the final quality determination. These letter agreements do not require the hotels to provide any minimum level of inventory. In most cases, the agreements are cancellable by either party at any time. 46 COMPETITION Priceline.com competes with both online and traditional sellers of the products and services offered on priceline.com. The market for selling products and services over the Internet is new, rapidly evolving and intensely competitive. Current and new competitors can launch new sites at a relatively low cost. In addition, the traditional retail industry for the products and services priceline.com offers is intensely competitive. Priceline.com currently or potentially competes with a variety of companies with respect to each product or service it offers. With respect to travel products, these competitors include: - Internet travel agents such as Travelocity, Preview Travel and Microsoft's Expedia.com; - traditional travel agencies; - consolidators and wholesalers of airline tickets and other travel products; - individual airlines, hotels, rental car companies, cruise operators and other travel service providers; and - operators of travel industry reservation databases such as Worldspan and Sabre. Priceline.com's current or potential competitors with respect to new automobiles include traditional and online auto dealers, including newly developing auto super stores such as Auto Nation, Auto-by-Tel and Microsoft's CarPoint. With respect to financial service products, priceline.com's competitors include: - banks and other financial institutions; - online and traditional mortgage and insurance brokers, including Quicken Mortgage, E-Loan and Home Shark; and - insurance companies. While priceline.com faces competition from all of these current or potential competitors, its business and financial position would be particularly at risk if the airlines chose to establish their own buyer-driven commerce system to sell excess inventory. Priceline.com potentially faces competition from a number of large Internet companies and services that have expertise in developing online commerce and in facilitating Internet traffic, including America Online, Microsoft and Yahoo!, who could choose to compete with priceline.com either directly or indirectly through affiliations with other e-commerce companies. Other large companies with strong brand recognition, technical expertise and experience in Internet commerce could also seek to compete with priceline.com. Competition from these and other sources could have a material adverse effect on priceline.com's business, results of operations and financial condition. Priceline.com believes that the principal competitive factors in its markets are brand recognition, price, Web site accessibility, ability to fulfill offers, customer service, reliability of delivery, ease of use, and technical expertise and capabilities. Many of priceline.com's current and potential competitors, including Internet directories and search engines and large traditional retailers, have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing, technical and other resources than priceline.com. Some of these competitors may be able to secure products and services on more favorable terms than priceline.com. In addition, many of these competitors may be able to devote significantly greater resources to: - marketing and promotional campaigns; - attracting traffic to their Web sites; - attracting and retaining key employees; and - Web site and systems development. Increased competition could result in reduced operating margins and loss of market share and could damage priceline.com's brand. There can be no assurance that priceline.com will be able to compete successfully against current and future competitors or that competition will not have a material adverse effect on priceline.com's business, results of operations and financial condition. 47 OPERATIONS AND TECHNOLOGY Priceline.com's business is supported by a state of the art systems platform, which was designed with an emphasis on scalability, performance and reliability. Priceline.com's core demand collection and offer processing systems are proprietary to priceline.com. The software platform and architecture are built on server-side Java, C++, and ISO standard SQL scripts integrated with an Oracle relational database system. This internal platform was designed to include open application protocol interfaces that can provide real-time connectivity to vendors in the range of industries in which the priceline.com operates. These include large global inventory systems, such as airline and hotel reservation systems, for example, the Worldspan central reservation systems; and financial service providers; as well as individual inventory suppliers, such as auto dealers, individual hotels and hard goods merchants. Priceline.com's Internet servers utilize Verisign digital certificates to help it conduct secure communications and transactions. Priceline.com out-sources most of its call center and customer service functions, and uses a real-time interactive voice response system with transfer capabilities to its call centers and customer service centers in Stamford, Connecticut; Columbus, Ohio; and Charlotte, North Carolina. Priceline.com's systems infrastructure, Web and database servers are hosted at Exodus Communications, Inc. in Jersey City, New Jersey, which provides communication lines from multiple providers including UUNet and AT&T, as well as 24-hour monitoring and engineering support. Exodus has its own generator and multiple back-up systems in Jersey City. Priceline.com also maintains an uninterruptible power supply system and generator and redundant servers at its Stamford, Connecticut headquarters to provide service capability if the Exodus site fails. While priceline.com primarily is an Internet business, it also offers phone service through its toll-free number, 1-800-Priceline. This service allows consumers who do not have access to a computer to phone in their orders. From launch to December 31, 1998, priceline.com has received approximately 15% of its airline ticket orders through its toll-free number. In addition, consumers who choose not to transmit their credit card information via the Internet have the option of submitting their credit card information through the phone service. Priceline.com also uses its toll-free number to provide customer service. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS Priceline.com holds a business process patent issued by the United States Patent and Trademark Office which is directed to a unique buyer-driven commerce system. While so-called business process patents are only now becoming widely understood by the general business community, a decision by the Court of Appeals for the Federal Circuit (the highest United States appellate court for patent-related appeals below the United States Supreme Court), recently affirmed the validity of patents covering software-implemented business processes. STATE STREET BANK & TRUST CO. V. SIGNATURE FINANCIAL GROUP, INC. (July 1998). Priceline.com currently holds two issued United States patents, No. 5,794,207 and No. 5,797,127, as well as one allowed and eighteen pending United States patent applications and one pending international patent application. Priceline.com is in the process of filing at least five more patent applications, with an ongoing program for identifying and protecting new inventions. Priceline.com's core business method patent is directed to a unique buyer-driven commerce system using a computer to collect credit card-backed or other financial account-backed conditional purchase offers to present to multiple sellers, receive one or more acceptances or fulfillments of these offers, and use the credit card or other financial account to provide a payment to one or more of the sellers. The pending patent applications are directed to various operational features of the system, as well as to product-specific enhancements. While priceline.com believes that its core buyer-driven commerce patent, together with its pending patent applications, help to protect the priceline.com business, there can be no assurance that (1) the core buyer-driven patent or any other patent can be successfully defended against challenges by third parties; (2) the pending patent applications will result in the issuance of patents; (3) competitors or potential competitors of priceline.com will not devise new methods of competing with the company that are not covered by priceline.com's patent or patent applications; (4) because of variations in the application of our business model to each of our products and services, our core buyer-driven commerce patent may not be 48 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; or (5) a third party will not have or obtain one or more patents that prevent priceline.com from practicing features of its business or will require priceline.com to pay for a license to use those features. Priceline.com has been notified that a third party patent applicant has challenged its core patent through an interference action in the United States Patent and Trademark Office. See "-- Legal Proceedings." In addition, priceline.com has learned of several Internet travel services that appear to use customer-offer based transaction models. Priceline.com seeks to protect its copyrights, service marks, trademarks, trade dress and trade secrets through a combination of laws and contractual restrictions, such as confidentiality agreements. For example, priceline.com attempts to register its trademarks and service marks in the United States and internationally. However, effective trademark, service mark, copyright and trade secret protection may not be available in every country in which priceline.com's services are made available online. See "Risk Factors -- Our Success Depends on Our Ability to Protect Our Intellectual Property." A third party has sued priceline.com for, among other things, misappropriation of trade secrets. See "Legal Proceedings." Priceline.com currently owns the Internet domain name "priceline.com." Domain names generally are regulated by Internet regulatory bodies. The relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Priceline.com, therefore, could be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of its trademarks and other proprietary rights. See "Risk Factors -- Our Success Depends on Our Ability to Protect Our Intellectual Property." GOVERNMENTAL REGULATION The products and services offered through the priceline.com service are regulated by federal and state governments. TRAVEL SERVICES Priceline.com is subject to the laws and regulations of a number of states governing the offer and/or sale of travel services. For example, Priceline Travel is registered as a "seller of travel" under the California Seller of Travel Act and is a member of the Airline Reporting Corporation. Priceline.com also will be making similar filings for registration and membership prior to consummation of this offering. In addition, a number of state travel laws and regulations require compliance with specific disclosure, bond and/or other requirements. All travel registrations are presently held by Priceline Travel. To the extent that such registrations can be transferred by merger, priceline.com intends to succeed to all such registrations by merging with Priceline Travel prior to the consummation of this offering. Priceline.com expects to obtain all other required travel related registrations prior to the consummation of this offering. NEW CAR SALES A number of states have laws and regulations governing the registration and conduct of automobile dealers and brokers. Such laws generally provide that any person receiving direct or indirect compensation for selling automobiles or brokering automobile transactions must register as an automobile broker or dealer. Registration for automobile dealers/brokers may, among other things, require the registrant to maintain a physical office in the applicable state, a dealer lot zoned for automobile sales within the applicable state and/or a franchise agreement with the manufacturers of the automobiles to be sold. Priceline.com believes that it is not subject to such automobile dealer/broker laws because priceline.com is a car buying service, and not a seller or broker of automobiles, operating on behalf of customers and participating dealers. It is uncertain how automobile dealer and broker laws apply to the provision of automobile selling services offered through the Internet. Priceline.com has been orally advised by representatives of a number of states that, generally, no enforcement action will be initiated against Internet companies for non-compliance with such laws until clearer regulatory or legislative guidance is provided. It is possible, however, that state regulatory bodies could take the view that priceline.com is subject to automobile broker and dealer laws, in which case they could attempt to require priceline.com to register as 49 an automobile broker/dealer in the applicable states. Given the nature of priceline.com's business, any requirement to register under such laws could severely interfere with the conduct of its business. HOME MORTGAGES Most states have laws and regulations governing the registration or licensing and conduct of persons providing mortgage brokerage services. Such laws and regulations also typically require certain consumer protection disclosures, loan solicitation procedures and a variety of other practices throughout the various stages of the mortgage solicitation, application and approval process. In addition to state law, mortgage brokerage services are heavily regulated by federal law. For example, the Real Estate Settlement Procedures Act, prohibits the payment and receipt of mortgage loan referral fees. The act, however, does permit persons to be compensated for the fair market value of non- referral services actually rendered. Priceline.com introduced its home mortgage service in January 1999. LendingTree serves as the mortgage broker and provides all mortgage brokerage services. Priceline.com provides and is responsible for maintaining the home mortgage service on its Web site and develops and purchases all advertising. LendingTree will compensate priceline.com for the fair market value of its non-referral services. Priceline.com believes that offering the priceline.com home mortgage service does not require our registration under or compliance with the mortgage or similar brokerage laws of any jurisdiction. However, it is possible that one or more regulatory authorities could seek to enforce existing laws, or otherwise enact new legislation, requiring priceline.com's registration and compliance and could scrutinize the compensation arrangement between LendingTree and priceline.com under Real Estate Settlement Procedures Act or other federal or state laws. Such action could severely interfere with the conduct of the priceline.com business. LendingTree provides the mortgage brokerage services offered through the priceline.com home mortgage service on priceline.com's Web site and is responsible for maintaining the necessary and appropriate state registrations and licenses associated with LendingTree's provision of those mortgage brokerage services. If a federal or state regulatory authority, or an aggrieved customer, should in the future claim that LendingTree has failed to comply fully with applicable federal or state law requirements pertaining to LendingTree's provision of mortgage brokerage services, the priceline.com home mortgage service could be materially and adversely affected and priceline.com may be unable to continue to make its home mortgage services Web site available, either to residents of affected state(s) or on a national basis. CONSUMER PROTECTION AND RELATED LAWS All of priceline.com's services are subject to federal and state consumer protection laws and regulations prohibiting unfair and deceptive trade practices. Priceline.com is also subject to related "plain language" statutes in place in many jurisdictions, which require the use of simple, easy to read, terms and conditions in contracts with consumers. Although there are very few laws and regulations directly applicable to the protection of consumers in an online environment, it is possible that legislation will be enacted in this area and could cover such topics as permissible online content and user privacy, including the collection, use, retention and transmission of personal information provided by an online user. Furthermore, the growth and demand for online commerce could result in more stringent consumer protection laws that impose additional compliance burdens on online companies. Such consumer protection laws could result in substantial compliance costs and interfere with the conduct and growth of the priceline.com business. BUSINESS QUALIFICATION LAWS Because priceline.com's service is available over the Internet in multiple states, and because it sells to numerous consumers resident in such states, such jurisdictions may claim that priceline.com is required to qualify to do business as a foreign corporation in each such state. Priceline.com is qualified to do business in a limited number of states, and failure by priceline.com to qualify as a foreign corporation in a jurisdiction where it is required to do so could subject priceline.com to taxes and penalties for the failure to so qualify and limit its ability to conduct litigation in such states. 50 INTERNATIONAL EXPANSION Priceline.com intends to explore opportunities for expanding the priceline.com business into international markets. It is possible, however, that the priceline.com demand collection system will not be readily adaptable to regulatory environments of certain foreign jurisdictions. In addition, there are various other risks associated with international expansion. They include language barriers, unexpected changes in regulatory requirements, trade barriers, problems in staffing and operating foreign operations, changes in currency exchange rates, difficulties in enforcing contracts and other legal rights, economic and political instability and problems in collection. LEGAL PROCEEDINGS On January 6, 1999, priceline.com received notice that a third party patent applicant and patent attorney, Thomas G. Woolston, purportedly had filed in December 1998 with the United States Patent and Trademark Office a request to declare an "interference" between a patent application filed by Woolston describing an electronic market for used and collectible goods and priceline.com's core buyer-driven commerce patent. Priceline.com has received a copy of a Petition for Interference from Woolston, the named inventor in at least three United States Patent applications titled "Consignment Nodes", one of which has issued as a patent (U.S. Patent Number: 5,845,265). Priceline.com currently is awaiting information from the Patent Office regarding whether it will initiate an interference proceeding concerning Woolston's patent application and priceline.com's core buyer-driven commerce patent. An interference is an administrative proceeding instituted in the Patent Office to determine questions of patentability and priority of invention between two or more parties claiming the same patentable invention. There is no statutory period within which the Patent Office must act on an interference request. If an interference is declared and proceeds through a final hearing in the Patent Office, a final judgment is made by the Patent Office as to inventorship. Following such final judgment, appeals could be made in Federal court. While there can be no certainty as to time periods, interference proceedings typically take years to resolve. As a threshold to the initiation of an interference proceeding, Woolston must show that his patent application supports claims that he copied from the priceline.com core buyer-driven commerce patent. In order to make this showing, he would have to prove, among other things, that he invented the subject matter of the priceline.com claims before the inventors of the priceline.com patent. If the Patent Office were to find that Woolston's patent application supported the copied priceline.com claims, it would resolve the interference by awarding inventorship to the party with the earliest proven date of invention. Woolston recently announced an agreement to license his issued patent and pending patent applications to the owner of an Internet travel service that, according to such announcement, commenced on-line operations in the fourth quarter of 1998 and purports to compete with priceline.com. Priceline.com believes that Woolston's claim is without merit. Among other things, priceline.com believes that the Woolston application does not disclose the inventions covered by the priceline.com patent claims. However, it is impossible to predict the outcome of an interference with certainty. While Woolston claims to have an earlier invention date by a period of approximately sixteen months, the final decision as to priority of invention would be made by the Patent Office after considering facts provided by each party during the interference proceeding. If an interference is declared and thereafter resolved in favor of Woolston, such resolution could result in an award of some or all of the disputed patent claims to Woolston. If, following such award, Woolston were successful in a patent infringement action against priceline.com, including prevailing over all defenses available to priceline.com such as those of non- infringement and invalidity, this could require priceline.com to obtain licenses from Woolston at a cost which could significantly adversely affect priceline.com's business. If, in addition to prevailing in both an interference and an infringement action, Woolston were able to make the showings necessary to obtain an injunction, then priceline.com could be enjoined from conducting business through the priceline.com service to the extent covered by the patent claims awarded to Woolston. In addition, defense of the interference action may be expensive and may divert management attention away from the company's business. 51 On January 19, 1999, a lawsuit was filed in the United States District Court for the Northern District of California by Marketel International, Inc., a California corporation, under the caption MARKETEL INTERNATIONAL INC. V. PRICELINE.COM ET. AL., No. C-99-1061 (N.D. CA 1999), against priceline.com, Priceline Travel, Walker Asset Management, Walker Digital, Mr. Jay S. Walker, priceline.com's Founder and Vice Chairman, and Mr. Andre Jaeckle, an individual who made a $1 million loan to priceline.com bearing interest at a rate of 6% per year, and in connection therewith, received warrants to purchase 50,000 shares of our common stock. The complaint filed by Marketel alleges causes of action for, among other things, misappropriation of trade secrets, breach of contract, conversion, breach of confidential relationship, copyright infringement, fraud, unfair competition, and false advertising, and seeks injunctive relief and damages in an unspecified amount. In its complaint, Marketel alleges, among other things, that the defendants conspired to misappropriate Marketel's business model, which it describes as a buyer-driven electronic marketplace for travel services and its appurtenant techniques, market research, forms, plans and processes, and which an executive of Marketel allegedly provided to Messrs. Walker and Jaeckle in confidence approximately ten years ago. Based upon publicly available information, priceline.com believes that Marketel's fax and fee-based business was launched in 1991 and ceased operations seven months later. Priceline.com's Internet-based model was independently developed by Walker Digital and practiced by priceline.com starting in 1998. Based on publicly available information and Marketel's complaint, priceline.com understands that Marketel operated a fax-based travel information service which offered consumers, travel agents and/or consolidators the opportunity to purchase specially printed forms. These forms, when accompanied by an additional non-refundable fee, allowed prospective ticket buyers to fax to Marketel credit-card guaranteed bids for airline travel at a bid price specified by the buyer. Priceline.com believes that Marketel has not engaged in any regular commercial activities since ceasing operations in 1992. Based upon publicly available information, Marketel reactivated its active status as a corporation by satisfying its back-due tax obligations to the State of California shortly after the filing of its complaint. On February 5, 1999, the defendants filed their answer to the complaint, in which they denied the material allegations of liability in the complaint. Priceline.com and all other defendants strongly dispute the material legal and factual allegations contained in Marketel's complaint and believe that the complaint is without merit. Priceline.com intends to defend vigorously against the action. Defending the law suit may involve significant expense and, due to the inherent uncertainties of litigation, there can be no certainty as to the ultimate outcome. From time to time priceline.com has been and expects to continue to be subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of third party intellectual property rights by the company. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources. EMPLOYEES Currently, priceline.com has 141 full-time employees. In addition, through an Intercompany Agreement with Walker Digital Corporation, priceline.com receives a variety of services, including research and development, patent and other intellectual property services and technical support. Priceline.com also employs independent contractors to support its customer service and system support functions. See "Certain Transactions." Priceline.com has never had a work stoppage and its employees are not represented by any collective bargaining unit. It considers its relations with its employees to be good. Priceline.com's future success will depend, in part, on its ability to continue to attract, integrate, retain and motivate highly qualified technical and managerial personnel, for whom competition is intense. FACILITIES Priceline.com's executive, administrative and operating offices are located in approximately 35,000 square feet of leased office space located in Stamford, Connecticut. Priceline.com is subleasing this office space from Walker Digital on a month-to-month basis. Priceline.com anticipates that it will require additional space within the next 12 months to accommodate its anticipated growth and that suitable office space will be available on commercially reasonable terms. 52 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below is certain information regarding the directors and executive officers of priceline.com as of the date hereof. Service with priceline.com prior to July 1998 was rendered to priceline.com's predecessor, priceline.com LLC.
NAME AGE POSITION - ------------------------------------------ --- --------------------------------------------------------------- Richard S. Braddock....................... 57 Chairman and Chief Executive Officer Jay S. Walker............................. 43 Founder and Vice Chairman Jesse M. Fink............................. 42 Chief Operating Officer Paul E. Francis........................... 44 Chief Financial Officer Mark Benerofe............................. 39 Executive Vice President, Corporate Development Timothy G. Brier.......................... 50 Executive Vice President, Travel Melissa M. Taub........................... 35 Senior Vice President, General Counsel and Secretary Thomas P. D'Angelo........................ 39 Vice President, Finance and Controller Paul A. Allaire........................... 60 Director Ralph M. Bahna(a)......................... 56 Director Paul J. Blackney(b)....................... 52 Director William E. Ford(b)........................ 37 Director Marshall Loeb(a).......................... 69 Director N.J. Nicholas, Jr.(a)(b).................. 59 Director Nancy B. Peretsman........................ 44 Director
- ------------------------ (a) Member of the Compensation Committee. (b) Member of the Audit Committee. RICHARD S. BRADDOCK has served as Chairman of the board of directors and Chief Executive Officer of priceline.com since August 1998. From December 1997 to January 1999, he served as the non-executive Chairman of True North Communications, Inc. and Ion Laser Technology. From September 1996 to August 1997, he served as a special advisor to General Atlantic Partners, LLC. Mr. Braddock was a principal of Clayton, Dubilier & Rice, from June 1994 through September 1995. He also served as Chief Executive Officer of Medco Containment Services during 1993. From 1973 to 1993, Mr. Braddock held a variety of positions at Citicorp and its principal subsidiary, Citibank, N.A., including President and Chief Operating Officer. Mr. Braddock also serves as a director of NewSub Services, Walker Digital, Amtec, Inc, a semiconductor equipment manufacturer, Eastman Kodak Company, an imaging products company, E*Trade Group, Inc., a provider of online investing services, and Cadbury Schweppes plc, a global beverage and confectionary manufacturer and Ion Laser Technology. JAY S. WALKER is priceline.com's Founder and has served as Vice Chairman of the board of directors of priceline.com since August 1998. From inception through August 1998, he served as Chairman of the board and Chief Executive Officer of priceline.com. Mr. Walker is an entrepreneur and has been actively engaged in the start-up of new enterprises for more than 15 years. Mr. Walker serves as Chairman of the board of directors of Walker Digital, which he founded in September 1994. In addition, he is the co-founder and non-executive Chairman of NewSub Services a direct marketing firm he co-founded in 1992. JESSE M. FINK has been the Chief Operating Officer of priceline.com since its inception. Since June 1996, he has served as Chief Operating Officer of Walker Digital. From November 1984 to June 1996, Mr. Fink served in various capacities with C.U.C. International, a membership marketing company that is 53 now part of Cendant Corporation, including as a Divisional Senior Vice President--New Business Development. PAUL E. FRANCIS has been the Chief Financial Officer of priceline.com since its inception. From June 1997 to December 1998, Mr. Francis also was Chief Financial Officer of Walker Digital. From April 1993 to February 1997, Mr. Francis was Executive Vice President--Finance and Administration, Chief Financial Officer and a member of the Board of Directors of Ann Taylor Stores Corporation, a specialty retailer of women's apparel. From 1986 to April 1993, Mr. Francis served in a variety of positions at Merrill Lynch & Co. and certain of its affiliates, including Managing Director in the Investment Banking Division. MARK BENEROFE has been Executive Vice President, Corporate Development, of priceline.com since August 1998. He also has been Chief Marketing Officer of Walker Digital since August 1998. From 1996 to 1998, Mr. Benerofe was Senior Vice President, Entertainment Programming & Systems Development, of Sony Online Entertainment, an entertainment and electronics company. From 1993 to 1998, he was a partner in Vortex Communications, a strategic marketing and product development service for online commerce, and from 1993 to 1994, he was the Director of Interactive Media at Microsoft. TIMOTHY G. BRIER has been an Executive Vice President, Travel of priceline.com since its inception, and the President of Priceline Travel since June 1998. In 1994, Mr. Brier co-founded CAP Systems, a division of NewSub Services, that provides affinity marketing programs to airlines, and served as its President from 1995 to 1998. From 1990 to 1995, he was Vice President of Marketing for Continental Airlines. From 1988 to 1990, Mr. Brier was Vice President of Marketing Planning for Pan American World Airways and from 1985 to 1988 was Vice President of Marketing for TWA. MELISSA M. TAUB has been Senior Vice President, General Counsel and Secretary of priceline.com since September 1998. Prior to joining priceline.com, Ms. Taub practiced law in the Business Clients Department of Cummings & Lockwood, a law firm with its principal office located in Stamford, Connecticut, serving as a partner from January 1998 to September 1998 and an associate from 1989 to December 1997. THOMAS P. D'ANGELO has been Vice President, Finance and Controller of priceline.com since October 1997. From April 1993 to October 1997, he was Chief Financial Officer of Direct Travel, Inc., a corporate travel agency. PAUL A. ALLAIRE has served as a director of priceline.com since February 1999. Since 1991, he has been the Chairman and Chief Executive Officer and the Chairman of the Executive Committee of Xerox Corporation, a company offering document processing services and products. Mr. Allaire also serves as a director of Fuji Xerox Co., Ltd., a document processing company, J.P. Morgan & Co., Inc., a global financial services company, Lucent Technologies Inc., a global communications systems and software company, Sara Lee Corporation, a global consumer packaged goods company, SmithKline Beecham p.l.c., a healthcare company, Xerox Financial Services, Inc. and Xerox Limited, a document processing company. Mr. Allaire is a member of The Business Roundtable and the Business Council and is a member of the Board of Directors of the Council on Foreign Relations, the Ford Foundation, and the Council on Competitiveness. RALPH M. BAHNA has served as a director of priceline.com since July 1998. Since 1992, Mr. Bahna has been the President of Masterworks Development Corp., a company he founded to develop a chain of hotels named Club Quarters-TM-. From 1980 to 1989, Mr. Bahna served as the Chief Executive Officer of Cunard Lines, Ltd., and the Cunard Group of Companies. PAUL J. BLACKNEY has served as a director of priceline.com since July 1998. Since January 1998, he has been the Chairman of XTRA On-Line Corporation, a business to business desktop booking system. Since September 1993, he has been the Chairman and President of Galileo Japan. From September 1993 to September 1997, Mr. Blackney served as President and Chief Executive Officer of Apollo Travel Services Partnership, an airline central reservation system, and from March 1990 to September 1993, he served as Senior Vice President of Operations at Covia, an airline central reservation system. 54 WILLIAM E. FORD has served as a director of priceline.com since July 31, 1998. He is a Managing Member of General Atlantic Partners, LLC, a private equity firm that invests in software and information technology companies, where he has served since 1991. Mr. Ford also serves as a director of GT Interactive Software Corp., an interactive entertainment software company; MAPICS, Inc., a resources planning software applications company; Envoy Corporation, an electronic data processing company; LHS Group Inc., a billing solutions company; E*Trade Group, Inc., an online discount broker; Eclipsys Corporation, a provider of clinical, financial and administrative software solutions to the healthcare industry; and several private information technology companies. Mr. Ford serves on priceline.com's board of directors as the designee of GAP LLC pursuant to the terms of the Series A convertible preferred stock. He also serves as a director of NewSub Services. MARSHALL LOEB has served as a director of priceline.com since July 1998. He is the Editor of the COLUMBIA JOURNALISM REVIEW and the author of MARSHALL LOEB'S LIFETIME FINANCIAL STRATEGIES. Mr. Loeb also is the broadcast commentator for the CBS Radio Network "Your Dollars" program. Mr. Loeb is a member of the Board of Overseers for the Stern School of Business at New York University, the Chairman of the Advisory Board of the Bagehot Fellows Program at Columbia University. From 1994 to 1996, he was a columnist for FORTUNE and from 1986 to 1994, he served as the Managing Editor of FORTUNE magazine. From 1980 to 1984, he also was Managing Editor of MONEY magazine. Mr. Loeb also has served as the Business Editor, Nation Editor and Economics Editor of TIME magazine. N. J. NICHOLAS, JR. has served as a director of priceline.com since July 1998. From 1990 to 1992, he was the co-Chief Executive Officer of Time Warner Inc. and from 1986 to 1990 he was President of Time Inc. He also is a director of the Bankers Trust New York Corporation, Boston Scientific Corporation, Xerox Corporation and BT Capital Partners. He also serves on the boards of several privately owned media companies and is Chairman of the Advisory Board of the Columbia University Graduate School of Journalism. Mr. Nicholas currently is a private investor. NANCY B. PERETSMAN has served as a director of priceline.com since January 1999. Since June 1995, she has been a Managing Director and Executive Vice President of Allen & Company Incorporated, an investment bank. Prior to joining Allen & Company Incorporated, Ms. Peretsman had been an investment banker since 1983 at Salomon Brothers Inc., where she was a Managing Director since 1990. She served for fourteen years on the Board of Trustees of Princeton University and is currently an Emerita Trustee. BOARD COMMITTEES Priceline.com's board of directors has an Audit Committee and a Compensation Committee. The Audit Committee of the Board consists of Messrs. Paul J. Blackney, William E. Ford and N.J. Nicholas, Jr. The Audit Committee reviews priceline.com's financial statements and accounting practices, makes recommendations to the board regarding the selection of independent auditors and reviews the results and scope of the audit and other services provided by priceline.com's independent auditors. Mr. Ford is Chairman of the Audit Committee. The Compensation Committee of the board consists of Messrs. Ralph M. Bahna, Marshall Loeb and N.J. Nicholas, Jr. The Compensation Committee makes recommendations to the board concerning salaries and incentive compensation for priceline.com's officers and employees and administers priceline.com's employee benefit plans. Mr. Nicholas is Chairman of the Compensation Committee. DIRECTOR COMPENSATION Directors who are also employees of priceline.com receive no compensation for serving on the board of directors. With respect to directors who are not employees of priceline.com, priceline.com reimburses such non-employee directors for all travel and other expenses incurred in connection with attending board of directors and committee meetings. Non-employee directors are also eligible to receive stock option grants under the 1997 Omnibus Plan. Pursuant to such plan, Messrs. Bahna, Blackney, Ford and Loeb and Ms. Peretsman received grants of 25,000 options each in December 1998 and Mr. Allaire received a grant 55 of 30,000 options in December 1998. Such options have vested and are exercisable at any time at an exercise price of $4.00 per share, subject to certain restrictions described under "Shares Eligible for Future Sale." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Compensation Committee of the board of directors is an officer or employee of priceline.com. No executive officer of priceline.com serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on priceline.com's Compensation Committee. SUMMARY OF COMPENSATION The following table sets forth information concerning compensation earned in the fiscal year ended December 31, 1998, by priceline.com's Chief Executive Officer and its other four most highly compensated executive officers. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ------------- NUMBER OF ANNUAL COMPENSATION SECURITIES ------------------------------- UNDERLYING ALL OTHER SALARY OPTIONS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) (#) ($) - ---------------------------------------------------------- --------- --------- --------- ------------- --------------- Richard S. Braddock(a).................................... 1998 112,500 -- 5,000,000 (c) Chairman and Chief Executive Officer Jay S. Walker(b).......................................... 1998 250,000 -- 1,212,000 -- Vice Chairman and Founder Jesse M. Fink............................................. 1998 227,083 -- 1,955,000 1,028(e) Chief Operating Officer Paul E. Francis........................................... 1998 225,000(d) -- 828,000 413(e) Chief Financial Officer Timothy G. Brier.......................................... 1998 177,083 72,917 1,602,500 6,789(e) Executive Vice President
- ------------------------------ (a) Mr. Braddock commenced serving as Chairman and Chief Executive Officer in August 1998. (b) Mr. Walker served as Chairman and Chief Executive Officer of priceline.com LLC from its formation until its conversion into priceline.com in August 1998, and of priceline.com from its inception until August 1998. (c) Excludes the grant to Mr. Braddock in July 1998 of a profits interest with respect to 6,500,000 units in priceline.com's predecessor, priceline.com LLC, which units were converted into an equivalent number of shares of common stock. (d) Includes distributions as a member in priceline.com's predecessor, priceline.com LLC. (e) Represents life insurance premiums paid and, in the case of Mr. Fink, disability insurance premiums paid for the fiscal year. 56 STOCK OPTIONS The following table sets forth information concerning the grant of stock options to priceline.com's Chief Executive Officer and each of its other four most highly compensated executive officers during the fiscal year ended December 31, 1998. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS (A) ------------------------------------------------------------ NUMBER OF SECURITIES UNDERLYING % OF TOTAL GRANT DATE OPTIONS OPTIONS GRANTED EXERCISE OR PRESENT GRANTED TO EMPLOYEES IN BASE PRICE VALUE NAME (#) FISCAL YEAR ($/SH) EXPIRATION DATE ($)(B) - -------------------------------------------- ----------- --------------- ------------- --------------- ----------- Richard S. Braddock......................... 5,000,000 30.6 1.00 6/1/2008 812,579 Jay S. Walker............................... 1,212,000 7.4 1.00 6/1/2008 196,969 Jesse M. Fink............................... 1,955,000 12.0 1.00 6/1/2008 317,718 Paul E. Francis............................. 828,000 5.1 1.00 6/1/2008 139,563 Timothy G. Brier............................ 1,602,500 9.8 1.00 6/1/2008 260,431
- ------------------------------ (a) Options become exercisable as follows: (1) with respect to Mr. Braddock: (a) 2 million shares will vest upon consummation of this offering, but are not exercisable until expiration of the lock-up period, and (b) 3 million shares will vest on the earliest to occur of (x) priceline.com having a public market capitalization of $750.0 million for five consecutive trading days, (y) priceline.com having pre-tax operating income of $30.0 million or more over a twelve-month period occurring over four consecutive fiscal quarters or (z) August 15, 2007, but are not exercisable until expiration of the lock-up period; (2) with respect to Mr. Walker: (a) 1 million shares are vested, but are not exercisable until expiration of the lock-up period, (b) 106,000 shares will vest on June 1, 1999, but are not exercisable until expiration of the lock-up period and (c) the remainder of the shares vest and become exercisable on June 1, 2000; (3) with respect to Mr. Fink: (a) 1,200,000 shares are vested, but are not exercisable until expiration of the lock-up period, (b) 500,000 shares will vest on June 1, 1999, but are not exercisable until expiration of the lock-up period and (c) the remainder of the shares vest and become exercisable on June 1, 2000; (4) with respect to Mr. Francis, (a) 300,000 shares are vested, but are not exercisable until expiration of the lock-up period, (b) 300,000 shares will vest on June 1, 1999, but are not exercisable until expiration of the lock-up period and (c) the remainder of the shares vest and become exercisable on June 1, 2000; and (5) with respect to Mr. Brier: (a) 750,000 shares are vested, but are not exercisable until expiration of the lock-up period, (b) 500,000 shares will vest on June 1, 1999, but that are not exerciseable until expiration of the lock-up period and (c) the remainder of the shares vest and become exercisable on June 1, 2000. (b) Based on Black-Scholes pricing model, using a discount rate of 6 percent, an expected life of 3 years, no dividends and no volatility. EXERCISE OF OPTIONS AND YEAR-END VALUES The following table sets forth information concerning the exercise of stock options during the fiscal year ended December 31, 1998 by priceline.com's Chief Executive Officer and each of its other four most highly compensated executive officers and the fiscal year-end value of unexercised options. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES VALUE OF UNDERLYING UNEXERCISED IN- UNEXERCISED THE-MONEY OPTIONS AT FY- END OPTIONS AT FY- (#) END ($) (A) ----------------- --------------- SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAMES ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE - ---------------------------------------------- ----------------- --------------- ----------------- --------------- Richard S. Braddock........................... -- -- 0/5,000,000 0/15,000,000 Jay S. Walker................................. -- -- 0/1,212,000 0/3,636,000 Jesse M. Fink................................. -- -- 0/1,955,000 0/5,865,000 Paul E. Francis............................... -- -- 0/828,000 0/2,484,000 Timothy G. Brier.............................. -- -- 0/1,602,500 0/4,807,500
- ------------------------------ (a) Assumes a fiscal year-end market price of $4.00 per share. 57 STOCK BASED PLANS Pursuant to the priceline.com Incorporated 1997 Omnibus Plan, priceline.com has granted awards of options to certain officers, other employees, consultants and directors of priceline.com. The maximum number of shares of common stock reserved for the grant or settlement of awards under the 1997 Omnibus Plan is 19,100,000, subject to adjustment as provided therein. Of such number, 18,050,375 options covering shares of common stock were outstanding under the 1997 Omnibus Plan as of February 12, 1998. In February 1999, priceline.com established the priceline.com Incorporated 1999 Omnibus Plan, pursuant to which awards will be made to certain officers, other employees, consultants and directors of priceline.com from time to time following the consummation of this offering. The maximum number of shares of common stock reserved for the grant or settlement of awards under the 1999 Omnibus Plan is 7.5 million, subject to adjustment. Set forth below is a description of the provisions of the 1999 Omnibus Plan and the provisions of the 1997 Omnibus Plan. The description is only a summary and is qualified in its entirety by the provisions of such plans. Terms not defined herein have the meanings given to such terms in the respective plans. PRICELINE.COM INCORPORATED 1997 OMNIBUS PLAN The 1997 Omnibus Plan was ratified and approved by the board of directors and stockholders of priceline.com and by the Board of Managers and the members of priceline.com LLC in 1997. The 1997 Omnibus Plan is intended to promote the long term financial interests and growth of priceline.com by providing employees, officers, directors and consultants of priceline.com with appropriate incentives and rewards to enter into and continue in the employ of, or their relationship with, 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. GENERAL The 1997 Omnibus Plan provides for the granting of awards to such officers, other employees, consultants and directors of priceline.com and its affiliates as the compensation committee, which is the committee of the board appointed to administer the 1997 Omnibus Plan, may select from time to time. Awards under the 1997 Omnibus Plan may be made in the form of options to acquire priceline.com common stock. Some of the options granted under the 1997 Omnibus Plan may qualify as "incentive stock options;" as defined in the Internal Revenue Code of 1986, generally referred to as the "Code," and some of the options granted under the 1997 Omnibus Plan will not qualify as incentive stock options. Such options are generally referred to as "non-qualified stock options." Awards under the 1997 Omnibus Plan may also be made in the form of appreciation rights with respect to common stock, which appreciation rights may be granted in tandem with other awards or may be granted independent of other awards, or may be made in the form of restricted stock, phantom stock, stock bonuses or other awards. If any shares subject to an award are forfeited, cancelled, 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 common stock with respect to such award will, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for awards under the 1997 Omnibus Plan. In the event that the compensation committee determines that any dividend or other distribution (whether in the form of cash, common 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 common stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of holders of awards under the 1997 Omnibus Plan, then the compensation committee will make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (1) the number and kind of shares of common stock or other property (including cash) that may thereafter be issued in connection with awards; (2) the number and kind of 58 shares of common stock or other property (including cash) issued or issuable in respect of outstanding awards; (3) the exercise price, grant price, or purchase price relating to any award; and (4) the maximum number of shares of common stock subject to outstanding awards that may be awarded to any employee during any priceline.com tax year; provided that, with respect to incentive stock options, such adjustment shall be made in accordance with the applicable provisions of the Code. ADMINISTRATION The 1997 Omnibus Plan will be administered by the compensation committee. The compensation committee has the authority in its sole discretion, subject to and not inconsistent with the express provisions of the 1997 Omnibus Plan, to administer the 1997 Omnibus Plan and to exercise all the powers and authorities either specifically granted to it under, or necessary or advisable in the administration of, the 1997 Omnibus Plan, including, without 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 common 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 priceline.com or the financial statements of priceline.com, 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 1997 Omnibus Plan and any award; to prescribe, amend and rescind rules and regulations relating to the 1997 Omnibus Plan; to determine the terms and provisions of agreements evidencing awards; and to make all other determinations deemed necessary or advisable for the administration of the 1997 Omnibus Plan. The compensation committee may, in its absolute discretion, without amendment to the 1997 Omnibus Plan, (a) accelerate the date on which any option or stand-alone appreciation right granted under the 1997 Omnibus Plan becomes exercisable, waive or amend the operation of provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such option or stand-alone appreciation right, (b) accelerate the vesting or waive any condition imposed with respect to any restricted stock, phantom stock or other awards and (c) otherwise adjust any of the terms applicable to any award. AWARDS UNDER THE 1997 OMNIBUS PLAN STOCK OPTIONS; STOCK APPRECIATION RIGHTS Unless otherwise determined by the compensation committee, options granted pursuant to the 1997 Omnibus Plan will become exercisable ratably over three years commencing on the first anniversary of the date of grant, but in no event may an option be exercised more than 10 years following the date of its grant. The "option exercise price," which is the purchase price per share payable upon the exercise of an option, will be established by the compensation committee; PROVIDED, HOWEVER, that incentive stock options may not have an exercise price less than the fair market value of a share of common stock on the date of grant. The option exercise price is payable by any one of the following methods or a combination thereof, to the extent permitted by the compensation committee: (1) in cash or by personal check, certified check, bank cashier's check or wire transfer; (2) subject to the approval of the compensation committee, in common 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 (3) subject to the approval of the compensation committee, by such other provision as the compensation committee may from time to time authorize. The compensation committee also has the authority to specify, at the time of grant or, with respect to non-qualified stock options at or after the time of grant, that a participant shall be granted a new non-qualified stock option, otherwise known as a "reload option," for a number of shares of common stock equal to the number of shares of common stock surrendered by the participant upon exercise of all or a 59 part of an option in the manner described above, subject to the availability of common stock under the 1997 Omnibus 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 compensation committee in its discretion, subject to the terms of the 1997 Omnibus Plan. Appreciation rights with respect to priceline.com's common stock may be granted alone or in tandem with options. An appreciation right is a right to be paid an amount in cash for each share of common stock subject to the appreciation right equal to the excess of the fair market value of a share of common stock on the date the appreciation right is exercised over either the fair market value of a share of common stock on the date of grant, in case of a stand-alone appreciation right, or the exercise price of the related stock option, in case of a tandem appreciation right. RESTRICTED STOCK; PHANTOM STOCK A restricted stock award is an award of common stock and a phantom stock award is an award of the right to receive cash or common stock at a future date, in each case, that is subject to such restrictions on transferability and other restrictions, if any, as the compensation committee may impose at the date of grant or thereafter, which restrictions may lapse separately or in combination at such times, under such circumstances, including, without limitation, a specified period of employment or the satisfaction of pre-established performance goals, when granted to executive officers, in such installments, or otherwise, as the compensation committee may determine. The compensation committee may grant such restricted stock or phantom stock to such persons, in such amounts, and subject to such terms and conditions as the compensation committee may determine in its discretion; PROVIDED, HOWEVER, that shares of restricted stock and phantom stock granted to executive officers may vest upon the attainment of performance goals pre-established by the compensation committee, based on one or more of the following criteria: return on total owner equity; earnings per share; pre-tax income or after-tax income; revenue; return on assets; increases in EBITDA; or such other criteria as the stockholders of priceline.com may approve. OTHER AWARDS Upon a determination by the compensation committee, an executive officer may receive awards of shares of common stock. In addition, other awards valued in whole or in part by reference to, or otherwise based on, common stock may be granted either alone or in addition to other awards under the 1997 Omnibus Plan. Subject to the provisions of the 1997 Omnibus Plan, the compensation committee will have the sole and complete authority to determine the persons to whom and the time or times at which such other awards will be granted, the number of shares of common stock to be granted pursuant to such other awards and all other conditions of such other awards. AMENDMENT; TERMINATION The board of directors or the compensation committee may suspend, revise, terminate or amend the 1997 Omnibus Plan at any time; PROVIDED, HOWEVER, that (1) stockholder approval will be obtained if and to the extent required under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, which is generally referred to as the "Exchange Act," or if and to the extent the board determines that such approval is required for purposes of satisfying Section 162(m) or Section 422 of the Code and (2) no such suspension, revision, termination or amendment may, without the consent of a participant, reduce the participant's rights under any outstanding award. NEW 1997 OMNIBUS PLAN BENEFITS Prior to the consummation of the offering, priceline.com intends to grant additional awards under the 1997 Omnibus Plan up to the maximum number of shares currently reserved for the grant or settlement of awards under the 1997 Omnibus Plan. See "Option Grants in Last Fiscal Year" for the name, position and grant information for 1997 Omnibus Plan participants who were granted awards thereunder during fiscal year 1998. 60 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is a brief summary of the principal United States federal income tax consequences under current federal income tax laws relating to awards under the 1997 Omnibus Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. NON-QUALIFIED STOCK OPTIONS An optionee will not recognize any taxable income upon the grant of a non-qualified stock option. Priceline.com will not be entitled to a tax deduction with respect to the grant of a non-qualified stock option. Upon exercise of a non-qualified stock option, the excess of the fair market value of the common stock on the exercise date over the option exercise price will be taxable as compensation income to the optionee and will be subject to applicable withholding taxes. Priceline.com will generally be entitled to a tax deduction at such time in the amount of such compensation income. The optionee's tax basis for the common stock received pursuant to the exercise of a non-qualified stock option will equal the sum of the compensation income recognized and the exercise price. In the event of a sale of common stock received upon the exercise of a non-qualified stock option, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss. INCENTIVE STOCK OPTIONS An optionee will not recognize any taxable income at the time of grant or timely exercise of an incentive stock option and priceline.com will not be entitled to a tax deduction with respect to such grant or exercise. Exercise of an incentive stock option may, however, give rise to taxable compensation income subject to applicable withholding taxes, and a tax deduction to priceline.com, if the incentive stock option is not exercised on a timely basis (generally, while the optionee is employed by priceline.com or within 90 days after termination of employment) or if the optionee subsequently engages in a "disqualifying disposition," as described below. A sale or exchange by an optionee of shares acquired upon the exercise of an incentive stock option more than one year after the transfer of the shares to such optionee and more than two years after the date of grant of the incentive stock option will result in any difference between the net sale proceeds and the exercise price being treated as long-term capital gain or loss to the optionee. If such sale or exchange takes place within two years after the date of grant of the incentive stock option or within one year from the date of transfer of the incentive stock option shares to the optionee, such sale or exchange will generally constitute a "disqualifying disposition" of such shares that will have the following results: any excess of (x) the lesser of (1) the fair market value of the shares at the time of exercise of the incentive stock option and (2) the amount realized on such disqualifying disposition of the shares over (y) the option exercise price of such shares, will be ordinary income to the optionee, subject to applicable withholding taxes, and priceline.com will be entitled to a tax deduction in the amount of such income. Any further gain or loss after the date of exercise generally will qualify as capital gain or loss and will not result in any deduction by priceline.com. APPRECIATION RIGHTS The grant of appreciation rights has no federal income tax consequences at the time of grant. Upon the exercise of appreciation rights, the amount received is generally taxable as ordinary income, and priceline.com is entitled to a corresponding deduction. RESTRICTED STOCK A grantee will not recognize any income upon the receipt of restricted stock unless the holder elects under Section 83(b) of the Code, within thirty days of such receipt, to recognize ordinary income in an amount equal to the fair market value of the restricted stock at the time of receipt, less any amount paid for the shares. If the election is made, the holder will not be allowed a deduction for amounts subsequently 61 required to be returned to priceline.com. If the election is not made, the holder will generally recognize ordinary income, on the date that the restrictions to which the restricted stock are subject are removed, in an amount equal to the fair market value of such shares on such date, less any amount paid for the shares. At the time the holder recognizes ordinary income, priceline.com generally will be entitled to a deduction in the same amount. Generally, upon a sale or other disposition of restricted stock with respect to which the holder has recognized ordinary income, for example, if a Section 83(b) election was previously made or the restrictions were previously removed, the holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale or other disposition and the holder's basis in such shares. PHANTOM STOCK The grant of phantom stock has no federal income tax consequences at the time of grant. Upon the receipt of payment, the amount received is generally taxable as ordinary income, and priceline.com is entitled to a corresponding deduction. OTHER TYPES OF AWARDS The grant of any other stock-based award generally will not result in income for the grantee or in a tax deduction for priceline.com. Upon the settlement of such an award, the grantee will recognize ordinary income equal to the aggregate value of the payment received, and priceline.com generally will be entitled to a tax deduction in the same amount. PRICELINE.COM INCORPORATED 1999 OMNIBUS PLAN In February 1999, priceline.com established the 1999 Omnibus Plan. The 1999 Omnibus Plan is intended to promote the long-term financial interests and growth of priceline.com by providing employees of priceline.com with appropriate incentives and rewards to encourage 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. GENERAL The 1999 Omnibus Plan provides for the granting of awards to such officers, other employees, consultants and directors of priceline.com and its affiliates as the compensation committee, which is the committee of the board of directors appointed to administer the Plan may select from time to time. Awards under the 1999 Omnibus Plan may be made in the form of incentive stock options, non-qualified stock options, restricted stock or other awards. The maximum number of shares of common stock reserved for the grant or settlement of awards under the 1999 Omnibus Plan is 7.5 million subject to adjustment as provided in the 1999 Omnibus Plan. There is a maximum number of shares of common stock that may be awarded in respect of options, restricted stock and other awards to a single individual in any given year during the life of the 1999 Omnibus Plan, which amounts are subject to adjustment as described below. Awards (either as options, restricted stock or other awards) will be made in a manner consistent with Section 162(m) of the Code. Shares of common stock acquired upon the exercise or settlement of awards may, in whole or in part, be authorized but unissued shares or shares that shall have been or may be reacquired by priceline.com in the open market, in private transactions or otherwise. If any shares subject to an award are forfeited, cancelled, 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 common stock with respect to such award will, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for awards under the 1999 Omnibus Plan. 62 Except as provided in an agreement evidencing the grant of an award, in the event that the compensation committee determines that any dividend or other distribution (whether in the form of cash, common 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 common stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of holders of awards under the 1999 Omnibus Plan, then the compensation committee will make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (1) the number and kind of shares of common stock or other property (including cash) that may thereafter be issued in connection with awards, (2) the number and kind of shares of common stock or other property, including cash, issued or issuable in respect of outstanding awards, (3) 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, (4) the performance criteria with respect to an award and (5) the individual limitations applicable to awards. ADMINISTRATION The 1999 Omnibus Plan is administered by the compensation committee, the composition of which will at all times satisfy the provisions of Section 162(m) of the Code and Rule 16b-3 promulgated under the Exchange Act. The compensation committee has the authority, in its sole discretion, subject to and not inconsistent with the express provisions of the 1999 Omnibus Plan, to administer, and to exercise all the powers and authorities either specifically granted to it under, the 1999 Omnibus Plan or necessary or advisable in the administration of the 1999 Omnibus Plan, including, without 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 common 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 priceline.com or the financial statements of priceline.com, 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 1999 Omnibus Plan and any award; to prescribe, amend and rescind rules and regulations relating to the 1999 Omnibus Plan; to determine the terms and provisions of agreements evidencing awards; and to make all other determinations deemed necessary or advisable for the administration of the 1999 Omnibus Plan. The compensation committee may, in its absolute discretion, without amendment to the 1999 Omnibus Plan, (a) accelerate the date on which any option granted thereunder becomes exercisable, waive or amend the operation of the 1999 Omnibus Plan provisions thereunder respecting exercise after termination of employment or otherwise adjust any of the terms of such option, (b) accelerate the vesting or waive any condition imposed with respect to any restricted stock and (c) otherwise adjust any of the terms applicable to any award. AWARDS UNDER THE 1999 OMNIBUS PLAN STOCK OPTIONS Unless otherwise determined by the compensation committee, options granted pursuant to the 1999 Omnibus Plan become exercisable ratably over three years commencing on the first anniversary of the date of grant. The "option exercise price," which is the purchase price per share payable upon the exercise of an option, will be established by the compensation committee; PROVIDED, HOWEVER, that the option exercise price may be no less than the fair market value of a share of common stock on the date of grant. The option exercise price is payable by any one of the following methods or a combination thereof: (1) in cash or by personal check, certified check, bank cashier's check or wire transfer; (2) subject to the approval of the compensation committee, in stock owned by the participant for at least six months prior to the date of 63 exercise and valued at their fair market value on the effective date of such exercise; or (3) in such other manner as the compensation committee may from time to time authorize. RESTRICTED STOCK The compensation committee may grant restricted shares of common stock to such persons, in such amounts, and subject to such terms and conditions, including the attainment of performance goals, which performance goals may be based upon one or more of the following criteria: pre-tax or after-tax income; operating profit; return on equity, assets, capital or investment; earnings or book value per share; sales or revenues; operating expenses; stock price appreciation; and the implementation or completion of critical projects or processes, as the compensation committee may determine in its discretion. Unless the compensation committee determines otherwise, termination of employment during the restricted period will result in the forfeiture by the participant of all shares still subject to restrictions. OTHER AWARDS Other awards valued in whole or in part by reference to, or otherwise based on, common stock may be granted either alone or in addition to other awards under the 1999 Omnibus Plan. Subject to the provisions of the 1999 Omnibus Plan, the compensation committee has the sole and complete authority to determine the persons to whom and the time or times at which such other awards will be granted, the number of shares of common stock to be granted pursuant to such other awards and all other conditions of such other awards, including the attainment of performance goals. OTHER FEATURES OF THE 1999 OMNIBUS PLAN In the event of a Change in Control, as defined in the 1999 Omnibus Plan, of priceline.com, all outstanding awards will become fully vested and/or immediately exercisable and any restrictions thereon will lapse. The board or the compensation committee may suspend, revise, terminate or amend the 1999 Omnibus Plan at any time; PROVIDED, HOWEVER, that no such action may, without the consent of a participant, reduce the participant's rights under any outstanding award. NEW PLAN BENEFITS Inasmuch as awards under the 1999 Omnibus Plan will be granted at the sole discretion of the compensation committee, it is not possible to determine the awards that will be granted at the time of the offering or during 1999. See "Option Grants in Last Fiscal Year." CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is a brief summary of the principal United States Federal income tax consequences under current Federal income tax laws relating to awards under the 1999 Omnibus Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. NON-QUALIFIED STOCK OPTIONS An optionee will not recognize any taxable income upon the grant of a non-qualified stock option. Priceline.com will not be entitled to a tax deduction with respect to the grant of a non-qualified stock option. Upon exercise of a non-qualified stock option, the excess of the fair market value of the common stock on the exercise date over the option exercise price will be taxable as compensation income to the optionee and will be subject to applicable withholding taxes. Priceline.com will generally be entitled to a tax deduction at such time in the amount of such compensation income. The optionee's tax basis for the common stock received pursuant to the exercise of a non-qualified stock option will equal the sum of the compensation income recognized and the exercise price. 64 In the event of a sale of common stock received upon the exercise of a non-qualified stock option, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss. INCENTIVE STOCK OPTIONS An optionee will not recognize any taxable income at the time of grant or timely exercise of an incentive stock option and priceline.com will not be entitled to a tax deduction with respect to such grant or exercise. Exercise of an incentive stock option may, however, give rise to taxable compensation income subject to applicable withholding taxes, and a tax deduction to priceline.com, if the incentive stock option is not exercised on a timely basis (generally, while the optionee is employed by priceline.com or within 90 days after termination of employment) or if the optionee subsequently engages in a "disqualifying disposition," as described below. A sale or exchange by an optionee of shares acquired upon the exercise of an incentive stock option more than one year after the transfer of the shares to such optionee and more than two years after the date of grant of the incentive stock option will result in any difference between the net sale proceeds and the exercise price being treated as long-term capital gain or loss to the optionee. If such sale or exchange takes place within two years after the date of grant of the incentive stock option or within one year from the date of transfer of the incentive stock option shares to the optionee, such sale or exchange will generally constitute a "disqualifying disposition" of such shares that will have the following results: any excess of (a) the lesser of (i) the fair market value of the shares at the time of exercise of the Incentive Stock Option and (ii) the amount realized on such disqualifying disposition of the shares over (b) the option exercise price of such shares, will be ordinary income to the optionee, subject to applicable withholding taxes, and priceline.com will be entitled to a tax deduction in the amount of such income. Any further gain or loss after the date of exercise generally will qualify as capital gain or loss and will not result in any deduction by priceline.com. RESTRICTED STOCK A grantee will not recognize any income upon the receipt of restricted stock unless the holder elects under Section 83(b) of the Code, within thirty days of such receipt, to recognize ordinary income in an amount equal to the fair market value of the restricted stock at the time of receipt, less any amount paid for the shares. If the election is made, the holder will not be allowed a deduction for amounts subsequently required to be returned to priceline.com. If the election is not made, the holder will generally recognize ordinary income, on the date that the restrictions to which the restricted stock are subject are removed, in an amount equal to the fair market value of such shares on such date, less any amount paid for the shares. At the time the holder recognizes ordinary income, priceline.com generally will be entitled to a deduction in the same amount. Generally, upon a sale or other disposition of restricted stock with respect to which the holder has recognized ordinary income, for example, if a Section 83(b) election was previously made or the restrictions were previously removed, the holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale or other disposition and the holder's basis in such shares. OTHER TYPES OF AWARDS The grant of any other stock-based award generally will not result in income for the grantee or in a tax deduction for priceline.com. Upon the settlement of such an award, the grantee will recognize ordinary income equal to the aggregate value of the payment received, and priceline.com generally will be entitled to a tax deduction in the same amount. EMPLOYMENT ARRANGEMENTS BRADDOCK EMPLOYMENT AGREEMENT. Pursuant to an employment agreement, dated as of August 15, 1998, between priceline.com and Mr. Richard S. Braddock, Mr. Braddock serves as the Chairman and 65 Chief Executive Officer of priceline.com through August 15, 2001. While Mr. Braddock devoted a majority of his working time to priceline.com following commencement of his employment, he retained his position as non-executive Chairman of True North Communications, Inc. until January 31, 1999. Mr. Braddock now serves as the Chairman and Chief Executive Officer of priceline.com on a full-time basis. Pursuant to an agreement in principle entered into July 23, 1998, by and between priceline.com and Mr. Braddock in anticipation of entering into the employment agreement, Mr. Braddock received 6,500,000 equity units in priceline.com's predecessor, which have since been converted into 6,500,000 shares of common stock. Mr. Braddock also was granted an option to purchase up to 5,000,000 equity units in priceline.com's predecessor at an exercise price of $1.00 per share, subject to standard anti-dilution adjustments, which has been converted into an option to purchase 5,000,000 shares of common stock. While the option is not exercisable until expiration of 180 day period following consummation of the offering, the option will vest with respect to 2,000,000 of such shares upon consummation of this offering and will vest with respect to the remaining 3,000,000 shares on the earliest to occur of: (1) priceline.com having a public market capitalization of $750.0 million for five consecutive trading days; (2) priceline.com having pre-tax operating income of $30.0 million or more over a twelve-month period occurring over four consecutive fiscal quarters; and (3) August 15, 2007, subject, in each case, to acceleration or cancellation under certain circumstances in connection with the termination of Mr. Braddock's employment. Under the terms of his employment agreement, Mr. Braddock is entitled to an initial annual base salary of $300,000, subject to annual adjustment, and is eligible to participate in any cash bonus program that may be introduced by priceline.com. In connection with the execution of the employment agreement, Mr. Braddock also received an option to purchase an equity interest in Walker Digital from Walker Digital. FINK EMPLOYMENT AGREEMENT. Pursuant to an employment agreement, dated as of January 1, 1998, as amended, between priceline.com, Walker Digital, Mr. Jay S. Walker and Mr. Jesse M. Fink, Mr. Fink serves as the Chief Operating Officer of both priceline.com and Walker Digital for a term expiring January 1, 2001. Under the terms of his employment agreement, Mr. Fink is entitled to an annual base salary of $225,000, subject to annual adjustment, and is eligible to participate in any cash bonus program that may be introduced by priceline.com. Payment of Mr. Fink's salary is allocated between priceline.com and Walker Digital as mutually agreed. In addition, Mr. Fink was issued 2,700,000 equity units in the priceline.com LLC, which units have since been converted into 2,700,000 shares of common stock. Priceline.com also granted Mr. Fink an option to purchase up to 1,955,000 shares of common stock at an exercise price of $1.00 per share, subject to standard anti-dilution adjustments. The option: - currently is vested for 1,200,000 of such shares that are not exercisable until expiration of the lock-up period; - will vest for an additional 500,000 of such shares on June 1, 1999 that are not exercisable until expiration of the lock-up period; and - will become exercisable for the balance of such shares on June 1, 2000, subject in each case, to acceleration or cancellation under certain circumstances in connection with the termination of his employment. Under the terms of his employment agreement, Mr. Fink also is entitled to additional compensation from Walker Digital and Mr. Walker. In addition, the employment agreement provides that, upon the mutual agreement of Mr. Fink and Mr. Walker, Mr. Fink may be employed by an entity controlled by Mr. Walker, other than priceline.com or Walker Digital. BRIER EMPLOYMENT AGREEMENT. Pursuant to an employment agreement, dated as of July 23, 1998, as amended, between priceline.com and Mr. Timothy G. Brier, Mr. Brier serves as an Executive Vice President of priceline.com and as the President of Priceline Travel, Inc., through December 31, 2000. Under the terms of his employment agreement, Mr. Brier is entitled to an annual base salary of $250,000, and until April 6, 1999, is entitled to receive cash bonuses based upon the number of airlines and consolidators that participate in the priceline.com service. Under certain circumstances, Mr. Brier may also 66 be entitled to a compensatory bonus that is designed to ensure that his aggregate annual compensation for services rendered to priceline.com and CAP Systems, another entity affiliated with Mr. Walker for which Mr. Brier continues to provide services, equals $500,000. In addition, Mr. Brier was issued 1,200,000 equity units in priceline.com LLC, which have since been converted into 1,200,000 shares of common stock. Priceline.com also granted Mr. Brier an option to purchase up to 1,602,500 shares of common stock at an exercise price of $1.00 per share, subject to standard anti-dilution adjustments. The option: - currently is vested for 750,000 of such shares that are not exercisable until expiration of the lock-up period; - will vest for an additional 500,000 of such shares on June 1, 1999 that are not exercisable until expiration of the lock-up period; and - will become exercisable for the balance of such shares on June 1, 2000, subject, in each case, to acceleration or cancellation under certain circumstances in connection with the termination of Mr. Brier's employment. NEW CHIEF OPERATING OFFICER Priceline.com recently has retained a recruitment firm to assist in the search for a new Chief Operating Officer to replace Mr. Jesse M. Fink. Upon finding a suitable replacement, Mr. Fink intends to resign as the Chief Operating Officer of priceline.com, but will continue in his current position as the Chief Operating Officer of Walker Digital. Mr. Fink may, however, provide services to priceline.com in a different capacity. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY Section 145 of the Delaware General Corporation Law authorizes a corporation's board of directors to grant indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act of 1933, as amended, which is commonly referred to as the "Securities Act." As permitted by Delaware law, priceline.com's certificate of incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to priceline.com or its stockholders; (2) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (3) under Section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or (4) for any transaction from which the director derived an improper personal benefit. As permitted by Delaware law, priceline.com's certificate of incorporation, provides that (1) priceline.com is required to indemnify its directors and officers to the fullest extent permitted by Delaware law, subject to certain very limited exceptions; (2) priceline.com is permitted to indemnify its other employees to the extent that it indemnifies its officers and directors, unless otherwise required by law, its certificate of incorporation, its by-laws or agreements; (3) priceline.com is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by Delaware law, subject to certain very limited exceptions; and (4) the rights conferred in the certificate of incorporation are not exclusive. 67 CERTAIN TRANSACTIONS Priceline.com was founded as a limited liability company in July 1997 and converted to a corporation in July 1998. In connection with this conversion, all equity units issued by priceline.com's predecessor were converted into an equal number of shares of common stock. The following discussion does not distinguish between priceline.com and its predecessor and the common stock and the equity units of priceline.com's predecessor. EQUITY TRANSACTIONS Upon its inception, priceline.com issued to Mr. Jay S. Walker, its Founder, 28,512,169 shares of common stock for services previously rendered. Priceline.com also issued 5,516,667 shares of common stock to Walker Digital, an affiliate of Mr. Walker, in partial consideration for the transfer of certain intellectual property to priceline.com. Subsequently, priceline.com sold an aggregate of 20,170,364 shares of common stock to Mr. Walker and his affiliates for $1.00 per share, the estimated fair market value of the shares at the time of the sale. Upon its inception, priceline.com issued to several officers of priceline.com LLC an aggregate of 5,880,000 shares of common stock for services previously rendered of which 2,700,000 shares were issued to Mr. Jesse M. Fink, 1,200,000 shares were issued to Mr. Timothy G. Brier and 540,000 shares were issued to Paul E. Francis. In October 1997, priceline.com sold 570,776 shares of common stock to Mr. Paul E. Francis, its Chief Financial Officer, for approximately $0.87 per share, the estimated fair market value of the shares at the time of the sale. In February 1998, priceline.com sold 2,283,900 shares of common stock to an affiliate of General Atlantic for approximately $0.87 per share, the estimated fair market value of the shares at the time of the sale. On July 1, 1998, priceline.com sold 1,000,000 shares of common stock to Mr. Richard S. Braddock, its Chief Executive Officer, for $1.00 per share. In December 1998, priceline.com sold an additional 62,500 shares of common stock to Mr. Braddock for $4.00 per share. The per share purchase price for both transactions represented the estimated fair value of the shares at the time of such transactions. On July 1, 1998, priceline.com sold 250,000 shares of common stock to Mr. Ralph M. Bahna, who is a director of the company, for $1.00 per share, the estimated fair market value of the shares at the time of the sale. On July 1, 1998, priceline.com sold 500,000 shares of common stock to a family trust of Mr. N.J. Nicholas, Jr., who is a director of the company, for $1.00 per share, the estimated fair market value of the shares at the time of the sale. On July 31, 1998, priceline.com sold an aggregate of 17,288,684 shares of preferred stock to two affiliates of General Atlantic for approximately $1.16 per share, the estimated fair market value of the shares at the time of the sale. This preferred stock is automatically convertible into 17,288,684 shares of common stock upon the completion of this offering. In October 1998, priceline.com sold 86,207 shares of common stock to Mr. Paul J. Blackney, who is a director of the company, for $1.16 per share, the estimated fair market value of the shares at the time of the purchase. In December 1998, priceline.com sold an aggregate of 13,837,500 shares of preferred stock to a group of investors for $4.00 per share, the estimated fair market value of the shares at the time of the sale, of which 7,500,000 shares were sold to Vulcan Ventures Incorporated, an aggregate of 1,437,500 shares were sold to affiliates of General Atlantic and 275,000 shares were sold to Allen & Company Incorporated. This 68 preferred stock is automatically convertible into 13,837,500 shares of common stock upon the completion of this offering. RELATIONSHIP WITH WALKER DIGITAL The priceline.com core buyer driven commerce business model and related intellectual property rights were initially developed by Walker Digital, a technology research and development company that was founded and is controlled by Mr. Walker. In partial consideration for the transfer, priceline.com issued Walker Digital 5,516,667 shares of common stock. Priceline.com also granted Walker Digital a perpetual, non-exclusive, royalty-free right and license to use the intellectual property related to the priceline.com service for non-commercial internal research and development purposes. Priceline.com also has the right to purchase at fair market value any intellectual property that is owned and subsequently acquired, developed or discovered by Walker Digital that will provide significant value in the use or commercial exploitation of the priceline.com system. Walker Digital and priceline.com provide each other with a variety of services. The services provided by priceline.com include management and administrative services. The services provided by Walker Digital include (1) research and development assistance; (2) patent and intellectual property services; and (3) technical support. Walker Digital also subleases a portion of its Stamford, Connecticut facilities to priceline.com on a month-to-month basis. Several of priceline.com's executive officers and other key employees also are directors, officers, employees or stockholders of Walker Digital and either own, or hold an option to purchase, equity securities of Walker Digital. Priceline.com issued a promissory note to Walker Digital for $1,000,000 in June 1998. The promissory note bore interest at a rate of 6% per annum and was due June 30, 1999. The Note has been repaid. MERGER OF PRICELINE TRAVEL, INC. INTO PRICELINE.COM Priceline.com's travel agency license is held by Priceline Travel, a separate company owned by Mr. Walker. As a result, all of priceline.com's airline ticket sales have been effected through Priceline Travel. Mr. Walker has agreed to merge Priceline Travel into priceline.com prior to the consummation of the offering for nominal consideration. OTHER TRANSACTIONS Prior to completion of the offering, priceline.com intends to make a loan to Mr. Richard S. Braddock in an amount sufficient to enable the payment of taxes related to the issuance to Mr. Braddock of 6,500,000 shares of common stock. The loan will bear interest at the applicable federal rate specified from time to time by the Internal Revenue Service. Principal and interest on the loan will be payable in January 2004. Priceline.com has entered into compensation arrangements with certain of its directors and officers. See "Management -- Summary of Compensation -- Stock Based Plans." Priceline.com received a loan in the amount of $1.0 million from Mr. Michael Loeb, a relative of Mr. Marshall Loeb, who is a director of the company, and a loan in the amount of $500,000 from Mr. Francis. The interest rate on each of the loans was 10%. As of the date of this prospectus, both of the loans have been repaid. Priceline.com has granted registration rights to certain stockholders and warrant holders. See "Description of Capital Stock -- Registration Rights." In February 1999, priceline.com made a payment of $850,000 to Allen & Company, Incorporated for financial advisory services. Ms. Peretsman is a director and stockholder of Allen & Company. 69 Mr. Richard S. Braddock invested as a limited partner of an affiliate of General Atlantic from August 1996 to December 31, 1998 and served as a special advisor to General Atlantic from September 1996 to August 1997. Mr. Braddock, however, did not participate in any of the investments by affiliates of General Atlantic in priceline.com. Affiliates of General Atlantic have invested approximately $59.3 million in NewSub Services. 70 PRINCIPAL STOCKHOLDERS The following table sets forth certain information known to priceline.com with respect to beneficial ownership of priceline.com's common stock as of February 12, 1999 by (1) each stockholder known by priceline.com to be the beneficial owner of more than 5% of priceline.com's common stock; (2) each director of priceline.com; (3) priceline.com's Chief Executive Officer and each of its other four most highly compensated executive officers; and (4) all executive officers and directors as a group.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO OFFERING(A) OWNED AFTER OFFERING(A) -------------------------- ------------------------ NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT - ---------------------------------------------------------- ------------- ----------- ------------- --------- Jay S. Walker(b).......................................... 50,199,200 47.0% 50,199,200 Richard S. Braddock(c).................................... 11,662,500 10.8 11,662,500 Jesse M. Fink(d).......................................... 3,900,000 3.6 3,900,000 N. J. Nicholas, Jr.(e).................................... 3,100,000 2.9 3,100,000 Timothy G. Brier(f)....................................... 1,950,000 1.8 1,950,000 Paul E. Francis(g)........................................ 1,410,776 1.3 1,410,776 Paul A. Allaire(h)........................................ 30,000 * 30,000 Ralph M. Bahna(i)......................................... 275,000 * 275,000 Paul J. Blackney(j)....................................... 111,207 * 111,207 William E. Ford(k)........................................ 21,035,084 19.9 21,035,084 Marshall Loeb(l).......................................... 25,000 * 25,000 Nancy B. Peretsman(m)..................................... 2,325,000 2.2 2,325,000 General Atlantic Partners, LLC(k)......................... 21,035,084 19.9 21,035,084 Vulcan Ventures Incorporated(n)........................... 7,500,000 7.1 7,500,000 All directors and executive officers as a group (14 persons)(b),(c),(d),(e),(f),(g),(k),(m),(o)............. 94,540,434 84.8%
- ------------------------------ * Represents beneficial ownership of less than one percent. (a) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock options or warrants that are currently exercisable or exercisable within 60 days of February 12, 1999 are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. (b) Includes 6,016,667 shares held by Walker Digital Corporation of which Mr. Walker is Founder, Chairman and the controlling stockholder, and 4,400,000 shares held by The Jay Walker Irrevocable Credit Trust. Also includes options outstanding to purchase 1,000,000 shares which are vested but not exercisable until expiration of the lock-up period. Excludes 212,000 shares subject to options that are not vested or exercisable within 60 days of February 12, 1999. (c) Includes options outstanding to purchase 2,000,000 shares, which will vest on consummation of this offering but are not exercisable until expiration of the lock-up periods. Includes options to purchase 600,000 shares that are currently exercisable for shares owned by Mr. Walker. Excludes 3,000,000 shares subject to options that will vest on the earlier to occur of (1) priceline.com having a public market capitalization of $750.0 million for five consecutive trading days, (2) priceline.com having pre-tax operating income of $30.0 million or more over a twelve-month period occurring over four consecutive fiscal quarters, and (3) August 15, 2007. (d) Includes 700,000 shares held by The Jesse Fink 1998 Grantor Retained Annuity Trust and options outstanding to purchase 1,200,000 shares which are vested but not exercisable until the expiration of the lock-up period. Excludes 755,000 shares subject to options that are not vested or exercisable within 60 days of February 12, 1999. (e) Represents shares held by The NJN 1997 Family Trust as to which Mr. Nicholas disclaims beneficial ownership.Includes options to purchase 600,000 shares that are curently exercisable for shares owned by Mr. Walker. (f) Includes 400,000 shares held by The Tim Brier 1998 Grantor Annuity Trust and 6,000 shares held by immediate family members of Mr. Brier. Includes options outstanding to purchase 750,000 shares which are vested but not exercisable until expiration of the lock-up period. Excludes 852,500 shares subject to options that are not vested or exercisable within 60 days of February 12, 1999. 71 (g) Includes 62,500 shares held by The Paul E. Francis 1998 Trust. Includes options outstanding to purchase 300,000 shares which are vested but not exercisable until expiration of the lock-up period. Excludes 528,000 shares subject to options that are not vested or exercisable within 60 days of February 12, 1999. (h) Includes options outstanding to purchase 30,000 shares, which are vested but not exercisable until expiration of the lock-up period. (i) Includes options outstanding to purchase 25,000 shares, which are vested but not exercisable until expiration of the lock-up period. (j) Includes options outstanding to purchase 25,000 shares, which are vested but not exercisable until expiration of the lock-up period. (k) Includes the following securities held by various General Atlantic entities: (1) 2,283,900 shares of common stock (2) 17,288,684 shares of Series A convertible preferred stock, which will be converted (subject to anti-dilution adjustment) into an equal number of shares of common stock upon consummation of the offering, (3) 1,437,500 shares of Series B convertible preferred stock, which will be converted (subject to anti-dilution adjustment) into an equal number of shares of common stock upon consummation of the offering and (4) options outstanding to purchase 25,000 shares which are vested but not exercisable until expiration of the lock-up period, which options are held by Mr. William E. Ford. Mr. Ford, a director of priceline.com, is a managing member of General Atlantic Partners, LLC and a general partner of certain General Atlantic entities. Mr. Ford disclaims beneficial ownership of the shares referred to in clauses (1), (2) and (3) above, except to the extent of his pecuniary interest therein. General Atlantic disclaims beneficial ownership of the options referred to in clause (4) above. The address of General Atlantic is 3 Pickwick Plaza, Greenwich, Connecticut 06830. (l) Comprises options outstanding to purchase 25,000 shares which are vested but not exercisable until expiration of the lock-up period. (m) Includes the following securities held by Allen & Company Incorporated on its own behalf and on behalf of certain of its officers, directors and employees: (1) 800,000 shares of common stock; and (2) 275,000 shares of Series B convertible preferred stock that are convertible into an equal number of shares of common stock upon the consummation of the offering. Ms. Peretsman, who is a Managing Director and Executive Vice President of Allen & Company Incorporated, disclaims beneficial ownership in the shares referred to in clauses (1) and (2) above, except to the extent of her pecuniary interest therein. Includes options outstanding to purchase 25,000 shares, which are vested but not exercisable until expiration of the lock-up period. Includes options to purchase 600,000 shares that are exercisable for shares owned by Mr. Walker. (n) Comprises 7,500,000 shares of Series B convertible preferred stock, which will be converted into an equal number of shares of common stock upon consummation of the offering. Excludes 125,000 shares held by an officer and director of Vulcan Ventures Incorporated. The address of Vulcan Ventures Incorporated is 110 110th Avenue N.E., Bellevue, Washington 98004-5840. (o) Includes options outstanding to purchase 5,716,667 shares, which are either (1) exercisable upon consummation of this offering or (2) vested but not exercisable until expiration of the lock-up period. Excludes 12,030,833 shares subject to options that are not vested or exercisable within 60 days of February 12, 1999. The address of all directors and executive officers is Five High Ridge Park, Stamford, Connecticut 06905. 72 DESCRIPTION OF CAPITAL STOCK Immediately following the consummation of this offering, the authorized capital stock of priceline.com will consist of 1,000,000,000 shares of common stock and 150,000,000 shares of preferred stock, par value $0.01 per share, of priceline.com. Upon completion of this offering, there will be outstanding shares of common stock, outstanding options to purchase shares of common stock and outstanding warrants to purchase shares of common stock. COMMON STOCK Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the board of directors may from time to time determine. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in the priceline.com's certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon the occurrence of a liquidation, dissolution or winding-up, the holders of shares of common stock would be entitled to share ratably in the distribution of all of the company's assets remaining available for distribution after satisfaction of all its liabilities and the payment of the liquidation preference of any outstanding preferred stock. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. PREFERRED STOCK The board of directors has the authority, within the limitations and restrictions stated in the certificate of incorporation, to provide by resolution for the issuance of shares of preferred stock, in one or more classes or series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designation of such series. The issuance of preferred stock could have the effect of decreasing the market price of the common stock and could adversely affect the voting and other rights of the holders of common stock. OPTIONS As of February 12, 1999, (1) options to purchase a total of 18,050,375 shares of common stock were outstanding; and (2) up to 1,049,625 additional shares of common stock may be subject to options granted in the future under the 1997 Omnibus Plan. As of February 12, 1999, no options to purchase shares of common stock were granted under the 1999 Omnibus Plan. All of the options contain standard anti-dilution provisions. See "Management -- Priceline.com Incorporated 1997 Omnibus Plan," "--Priceline.com Incorporated 1999 Omnibus Plan" and "-- Summary of Compensation." WARRANTS As of February 12, 1999, priceline.com had the following outstanding warrants to purchase shares of common stock: (1) a warrant to purchase up to 14,895,522 shares of common stock at an exercise price of approximately $1.16 per share that is held by Delta; (2) a warrant to purchase up to 50,000 shares of common stock at an exercise price of $1.00 per share that is held by a high net worth individual; (3) a warrant to purchase up to 100,000 shares of common stock in exchange for services rendered priceline.com by a non-employee for an estimated fair value of approximately $100,000; (4) warrants to purchase up to an aggregate of 750,000 shares of common stock at an exercise price of $4.00 per share and 1,000,000 73 shares of common stock at an exercise price of $8.00 per share, that are held by various airlines. All of the warrants contain standard anti-dilution provisions. See "Business -- Strategic Alliances." REGISTRATION RIGHTS As of the completion of this offering, the holders of an aggregate of 115,329,306 shares of common stock or securities convertible into common stock will be entitled to certain registration rights. These rights are provided under the terms of a registration rights agreement between priceline.com and the holders of the registrable securities, who include Mr. Braddock, Mr. Walker, General Atlantic, Vulcan Ventures Incorporated and several airlines. This agreement provides demand registration rights to the holders of substantially all of the registrable securities. In addition, the holders of all of the registrable securities are entitled under the agreement, subject to certain limitations, to require priceline.com to include their registrable securities in future registration statements the company files. Registration of shares of common stock pursuant to the rights granted in this agreement will result in such shares becoming freely tradeable without restriction under the Securities Act of 1933. However, the agreement provides priceline.com the right to delay any registration request until 90 days after the effective date of this prospectus. All registration expenses incurred in connection with the above registrations will be borne by priceline.com. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the common stock is ChaseMellon Shareholder Services, L.L.C. LISTING Priceline.com has applied for quotation of the common stock on the Nasdaq National Market under the trading symbol "PCLN." 74 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-U.S. INVESTORS INTRODUCTION The following is a summary of certain United States federal tax consequences to non-U.S. investors of owning common stock. In this summary, "non-U.S. investor" means a person or entity other than: - a citizen or resident of the United States; - a corporation, partnership or other entity created or organized in or under the laws of the United States or of any state; - an estate, the income of which is subject to United States federal income taxation regardless of its source; or - a trust, the administration of which is subject to the primary supervi-sion of a United States court and the control of all of the substantial decisions of which is within the authority of one or more United States persons. This summary does not address all of the federal tax considerations that may be relevant to a non-U.S. investor in light of its particular circumstances or to non-U.S. investors that may be subject to special treatment under federal tax laws. Also, this summary does not discuss any aspects of state, local or foreign taxation. This summary is based on current provisions of the Internal Revenue Code, Treasury regulations, judicial opinions, published positions of the IRS and other applicable authorities. These authorities are all subject to change, possibly with retroactive effect. Each prospective non-U.S. investor should consult its tax advisor with respect to the tax consequences of investing in the common stock. DIVIDENDS Dividends paid to a non-U.S. investor generally will be subject to withholding of federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, if the dividend is effectively connected with the conduct of a trade or business of the non-U.S. investor within the United States, the dividend will instead be taxed at ordinary federal income tax rates on a net income basis. Further, if the non-U.S. investor is a corporation, this effectively connected dividend income may also be subject to an additional branch profits tax. SALE OR OTHER DISPOSITION OF COMMON STOCK A non-U.S. investor generally will not be subject to federal income tax on any gain recognized on the sale or other disposition of common stock, except in the following circumstances: (1) The gain will be subject to federal income tax if it is effectively connected with a trade or business of the non-U.S. investor within the United States. (2) The gain will be subject to federal income tax if the non-U.S. investor is an individual who holds the common stock as a capital asset, is present in the United States for 183 or more days in the taxable year of the sale or other disposition, and either the individual has a "tax home" in the United States for federal income tax purposes or the gain is attributable to an office or other fixed place of business maintained by the individual in the United States. (3) The gain may be subject to federal income tax pursuant to federal income tax laws applicable to certain expatriates. (4) The gain may be subject to federal income tax if priceline.com is or has been during certain periods a "United States real property holding corporation" and the non-U.S. investor held, at any time during the five-year period ending on the date of disposition (or, if shorter, the non-U.S. 75 investor's holding period), more than 5 percent of the outstanding common stock. Priceline.com believes that it will not constitute a United States real property holding corporation immediately after the offering and does not expect to become a United States real property holding corporation; however, no assurance can be given in this regard. BACKUP WITHHOLDING AND INFORMATION REPORTING DIVIDENDS. United States backup withholding tax generally will not apply to dividends paid to a non-U.S. investor at an address outside the United States. Priceline.com must report annually to the IRS and to each non-U.S. investor the amount of dividends paid to such investor and the amount, if any, of tax withheld with respect to such dividends. This information may also be made available to the tax authorities in the non-U.S. investor's country of residence. SALE THROUGH A U.S. OFFICE OF A BROKER. Upon the sale or other disposition of common stock by a non-U.S. investor to or through a United States office of a broker, the broker must backup withhold at a rate of 31% and report the sale to the IRS, unless the investor certifies its foreign status under penalties of perjury or otherwise establishes an exemption from backup withholding. SALE THROUGH A FOREIGN OFFICE OF A BROKER. Upon the sale or other disposition of common stock by a non-U.S. investor to or through a foreign office of a United States broker or a foreign broker with certain types of relationships with the United States, the broker is not required to backup withhold. However, the broker must report the sale or other disposition to the IRS unless the broker has documentary evidence in its files that the seller is a non-U.S. investor and certain other conditions are met, or the holder otherwise establishes an exemption. Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules are generally allowable as a refund or credit against the non-U.S. investor's federal income tax liability, if any, provided, that the required information is furnished to the IRS. Final United States Treasury regulations, effective for payments made after December 31, 1999, may affect the procedures to be followed by a non-U.S. investor in establishing such investor's foreign status for purposes of the withholding, backup withholding and information reporting rules described in this "Backup Withholding and Information Reporting" section. Prospective non-U.S. investors should consult their tax advisors concerning such regulations. FEDERAL ESTATE TAXES Common stock owned or treated as owned by an individual who is not a citizen or a "resident," which is specially defined for federal estate tax purposes, of the United States at the time of death, will be included in such individual's gross estate for federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. 76 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for the common stock, and there can be no assurance that a significant public market for the common stock will develop or be sustained after this offering. Future sales of substantial amounts of common stock, including shares issued upon exercise of outstanding options and warrants, in the public market after this offering could adversely affect market prices prevailing from time to time and could impair priceline.com's ability to raise capital through the sale of its equity securities. Sales of substantial amounts of common stock of priceline.com in the public market could adversely affect the prevailing market price and the ability of priceline.com to raise equity capital in the future. Upon completion of this offering, priceline.com will have outstanding shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding warrants and options, which as of February 12, 1999 were vested for an aggregate of 8,407,792 shares of common stock and will vest for an additional 9,642,583 shares of common stock in the future. Of these shares, the shares of common stock sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by "affiliates" of priceline.com as that term is defined in Rule 144 under the Securities Act. Each of priceline.com and the directors, executive officers and certain other stockholders of priceline.com has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not, during the period ending 180 days after the date of this prospectus: - offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, file a registration statement, in the case of priceline.com, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; - enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise; or - file a registration statement, in the case of priceline.com, other than a registration statement on Form S-8 covering shares of common stock subject to outstanding options under the 1997 Omnibus Plan or shares of common stock subject to options to be issued under the 1999 Omnibus Plan. The restrictions described in this paragraph do not apply to: - the sale of the shares to the underwriters in this offering; - the issuance of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus; or - other transfer of any shares of common stock by certain of the foregoing persons to any associate, as such term is defined in Rule 12b-2 under the Exchange Act, of such person which agrees to be bound by the foregoing provisions. In addition, the shareholders have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, neither it nor any of its affiliates will, during the period ending 180 days after the date of the prospectus, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock. Beginning 180 days after the date of this prospectus, all shares will be eligible for sale in the public market, subject to certain timing, manner of sale and volume limitations pursuant to Rule 144. 77 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person, or persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year, including the holding period of any prior owner except an affiliate, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of (1) 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering, or (2) the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 also are subject to certain manner of sale provisions and notice requirements and to the availability of current public information about priceline.com. Under Rule 144(k), a person who is not deemed to have been an affiliate of priceline.com at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except an affiliate, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144. Any employee, officer or director of or consultant to priceline.com who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling such shares. Following consummation of this offering, priceline.com intends to file a registration statement on Form S-8 under the Securities Act covering shares of common stock subject to outstanding options under the 1997 Omnibus Plan and 7.5 million shares of common stock reserved for issuance under the 1999 Omnibus Plan. Based on the number of shares subject to outstanding options at February 12, 1999 and currently reserved for issuance under such plan, such registration statement would cover approximately 18,050,375 shares issuable on exercise of the options of which 8,407,792 options have vested as of such date. Such registration statement will automatically become effective upon filing. Accordingly, subject to the exercise of such options, shares registered under such registration statement will be available for sale in the open market immediately after the 180-day lock-up agreements expire. Also beginning 90 days after the date of this offering, certain holders of shares of common stock will be entitled to certain rights with respect to registration of such shares of common stock for offer and sale to the public. However, under certain lock-up agreements with the underwriters, such rights will not be able to be exercised until 180 days after the date of this prospectus. See "Description of Capital Stock -- Registration Rights." 78 UNDERWRITERS Under the terms and subject to the conditions contained in an underwriting agreement dated 1999 (the "underwriting agreement"), the U.S. underwriters named below for whom Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancBoston Robertson Stephens Inc. and Donaldson, Lufkin & Jenrette Securities Corporation are acting as U.S. representatives, and the International underwriters named below for whom Morgan Stanley & Co. International Limited, Merrill Lynch International, BancBoston Robertson Stephens Inc. and Donaldson, Lufkin & Jenrette International are acting as international representatives have severally agreed to purchase, and priceline.com has agreed to sell to them, severally, the respective number of shares of common stock set forth opposite the names of such underwriters below:
NUMBER OF NAME SHARES - ------------------------------------------------------------------------------------------------------ ----------- U.S. underwriters: Morgan Stanley & Co. Incorporated................................................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated.............................................................................. BancBoston Robertson Stephens Inc. ................................................................. Donaldson, Lufkin & Jenrette Securities Corporation................................................. ----------- Subtotal........................................................................................ ----------- ----------- International underwriters: Morgan Stanley & Co. International Limited.......................................................... Merrill Lynch International......................................................................... BancBoston Robertson Stephens Inc. ................................................................. Donaldson, Lufkin & Jenrette International.......................................................... ----------- Subtotal........................................................................................ ----------- Total......................................................................................... ----------- -----------
The U.S. underwriters and the international underwriters, and the U.S. representatives and the international representatives, are collectively referred to as the "underwriters" and the "representatives," respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from priceline.com and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered hereby, other than those covered by the U.S. underwriters' over-allotment option described below, if any are taken. Pursuant to the Agreement between U.S. and International underwriters, each U.S. underwriter has represented and agreed that, with certain exceptions: - it is not purchasing any shares (as defined herein) for the account of anyone other than a United States or Canadian Person (as defined herein) and - it has not offered or sold, and will not offer or sell, directly or indirectly, any shares or distribute any prospectus relating to the shares outside the United States or Canada or to anyone other than a United States or Canadian Person. Pursuant to the Agreement between U.S. and International Underwriters, each international underwriter has represented and agreed that, with certain exceptions: - it is not purchasing any shares for the account of any United States or Canadian Person and 79 - it has not offered or sold, and will not offer or sell, directly or indirectly, any shares or distribute any prospectus relating to the shares in the United States or Canada or to any United States or Canadian Person. With respect to any underwriter that is a U.S. underwriter and an International underwriter, the foregoing representations and agreements made by it in its capacity as a U.S. underwriter apply only to it in its capacity as a U.S. underwriter and made by it in its capacity as an international underwriter apply only to it in its capacity as an international underwriter. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement between U.S. and International Underwriters. As used herein, "United States or Canadian Person" means any national or resident of the United States or Canada, or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof, other than a branch located outside the United States and Canada of any United States or Canadian Person, and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. All shares of common stock to be purchased by the underwriters under the underwriting agreement are referred to herein as the "shares." Pursuant to the Agreement between U.S. and International Underwriters, sales may be made between the U.S. underwriters and international underwriters of any number of shares as may be mutually agreed. The per share price of any shares so sold shall be the public offering price set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below. Pursuant to the Agreement between U.S. and International Underwriters, each U.S. underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any shares, directly or indirectly, in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and has represented that any offer or sale of shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made. Each U.S. underwriter has further agreed to send to any dealer who purchases from it any of the shares a notice stating in substance that, by purchasing such shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such shares in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and that any offer or sale of shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made, and that such dealer will deliver to any other dealer to whom it sells any of such shares a notice containing substantially the same statement as is contained in this sentence. Pursuant to the Agreement between U.S. and International Underwriters, each international underwriter has represented and agreed that: - it has not offered or sold and, prior to the date six months after the closing date for the sale of the shares to the international underwriters, will not offer or sell, any shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments, as principal or agent, for the purposes of their business or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; - it has complied and will comply will all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom; and - it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the offering of the shares to a person who is of a kind described in 80 Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)(Exemptions) Order 1996 (as amended) or is a person to whom such document may otherwise lawfully be issued or passed on. Pursuant to the Agreement between U.S. and International Underwriters, each international underwriter has further represented that it has not offered or sold, and has agreed not to offer or sell, directly or indirectly, in Japan or to or for the account of any resident thereof, any of the shares acquired in connection with the distribution contemplated hereby, except for offers or sales to Japanese international underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law. Each international underwriter has further agreed to send to any dealer who purchases from it any of the shares a notice stating in substance that, by purchasing such shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, any of such shares, directly or indirectly, in Japan or to or for the account of any resident thereof except for offers or sales to Japanese international underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law, and that such dealer will send to any other dealer to whom it sells any of such shares a notice containing substantially the same statement as is contained in this sentence. The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other underwriters or to certain other dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives. Priceline.com has granted to the U.S. underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional shares of common stock at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The U.S. underwriters may exercise such option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered hereby. To the extent such option is exercised, each U.S. underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of common stock as the number set forth next to such U.S. underwriter's name in the preceding table bears to the total number of shares of common stock set forth next to the names of all U.S. underwriters in the preceding table. If the U.S. underwriters exercise the over-allotment option in full, the total public offering price will be $ , the total underwriting discounts and commissions will be $ and the total proceeds to priceline.com will be $ . The underwriters have informed priceline.com that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them. At the request of priceline.com, the underwriters have reserved up to shares of common stock offered hereby for sale at the initial public offering price to certain employees of priceline.com and to certain other persons. The number of shares available for sale to the general public will be reduced to the extent that such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares of common stock offered hereby. Priceline.com has applied for quotation of the common stock on the Nasdaq National Market under the symbol "PCLN." 81 Each of priceline.com and the directors, executive officers and certain other securityholders of priceline.com has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not, during the period ending 180 days after the date of this prospectus: - offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; - enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise; or - file a registration statement (in the case of priceline.com) other than a registration statement on Form S-8 covering shares of common stock subject to outstanding options under the 1997 Omnibus Plan or shares of common stock subject to options to be issued under the 1999 Omnibus Plan. The restrictions described in the previous paragraph do not apply to: - the sale of the shares to the underwriters; - the issuance by priceline.com of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus; or - the sale or other transfer of any shares of common stock by certain of the foregoing persons to any associate (as such term is defined in Rule 12b-2 under the Exchange Act) if such person which agrees to be bound by the foregoing provisions. In addition, the stockholders of priceline.com have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, neither it nor any of its affiliates will, during the period ending 180 days after the date of the prospectus, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot in connection with the offering, creating a short position in the common stock for their own account. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. Priceline.com and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. PRICING OF THE OFFERING Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiations between priceline.com and the U.S. representatives. Among the factors to be considered in determining the initial public offering price will be the future prospects of priceline.com and its industry in general, sales, earnings and certain other financial and operating information of priceline.com in recent periods, and the price-earnings ratios, price-sales ratios, 82 market prices of securities and certain financial and operating information of companies engaged in activities similar to those of priceline.com. The estimated initial public offering price range set forth on the cover page of this prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS The validity of the issuance of the shares of common stock offered hereby will be passed upon for priceline.com by Melissa M. Taub, Esq., Senior Vice President, General Counsel and Secretary of priceline.com, and Skadden, Arps, Slate, Meagher & Flom LLP and for the underwriters by Davis Polk & Wardwell. EXPERTS The combined financial statements of priceline.com and Priceline Travel as of December 31, 1997 and December 31, 1998 and for the period July 18, 1997 (Inception) to December 31, 1997 and for the year ended December 31, 1998 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 83 ADDITIONAL INFORMATION Priceline.com has filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits thereto. For further information with respect to priceline.com and the common stock offered hereby, reference is made to the registration statement and the exhibits thereto. Statements contained in this prospectus regarding the contents of any contract or any other document to which reference is made are not necessarily complete, and, in each instance where a copy of such contract or other document has been filed as an exhibit to the registration statement, reference is made to the copy so filed, each such statement being qualified in all respects by such reference. A copy of the registration statement and the exhibits thereto may be inspected without charge at the offices of the Commission at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549 upon the payment of the fees prescribed by the Commission. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as priceline.com, that file electronically with the Commission. Priceline.com intends to provide its stockholders with annual reports containing combined financial statements audited by an independent accounting firm and quarterly reports containing unaudited combined financial data for the first three quarters of each year. 84 INDEX TO FINANCIAL STATEMENTS
PAGE ----------- INDEPENDENT AUDITORS' REPORT F-2 COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND DECEMBER 31, 1998 AND FOR THE PERIOD JULY 18, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1998: Combined Balance Sheets F-3 Combined Statements of Operations F-4 Combined Statements of Changes in Stockholders' Equity F-5 Combined Statements of Cash Flows F-6 Notes to Combined Financial Statements F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of priceline.com Incorporated and Priceline Travel, Inc. We have audited the accompanying combined balance sheets of priceline.com Incorporated and Priceline Travel, Inc. (collectively the "Company") as of December 31, 1997 and 1998 and the related combined statements of operations, changes in stockholders' equity and cash flows for the period July 18, 1997 (Inception) to December 31, 1997 and the year ended December 31, 1998. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1997 and 1998 and the results of their operations and their cash flows for the period July 18, 1997 to December 31, 1997 and the year ended December 31, 1998 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Stamford, Connecticut February 10, 1999 F-2 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. COMBINED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1998
1997 1998 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents......................................................... $ 16,459 $ 53,593,026 Restricted bank deposit........................................................... -- 511,589 Accounts receivable, net of allowance for uncollectible accounts of $290,823 at December 31,1998................................................................ -- 4,176,980 Note receivable from stockholder.................................................. 250,000 -- Prepaid expenses and other current assets......................................... -- 1,921,953 ------------- ------------- Total current assets.......................................................... 266,459 60,203,548 PROPERTY AND EQUIPMENT--Net......................................................... 1,180,119 5,926,877 RESTRICTED BANK CERTIFICATE OF DEPOSIT.............................................. -- 168,750 OTHER ASSETS........................................................................ 2,686 273,310 ------------- ------------- TOTAL ASSETS........................................................................ $ 1,449,264 $ 66,572,485 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.................................................................. $ 899,052 $ 5,268,430 Related party payable............................................................. 1,104,391 32,447 Accrued professional fees......................................................... 266,614 1,766,216 Accrued marketing fees............................................................ -- 1,225,315 Accrued telecommunications expense................................................ 24,354 776,303 Other accrued expenses............................................................ 36,595 490,807 Current portion of capital lease obligations...................................... 21,906 25,033 Other current liabilities......................................................... 302,363 696,997 ------------- ------------- Total current liabilities..................................................... 2,655,275 10,281,548 LONG-TERM DEBT--net................................................................. -- 989,018 CAPITAL LEASE OBLIGATIONS--net of current portion................................... 51,108 26,074 ------------- ------------- Total liabilities................................................................... 2,706,383 11,296,640 COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY (DEFICIENCY) Preferred stock................................................................... -- 311,262 Common stock...................................................................... 416,358 748,802 Additional paid-in capital........................................................ 840,005 148,224,070 Accumulated deficit............................................................... (2,513,482) (94,008,289) ------------- ------------- Total stockholders' equity (deficiency)....................................... (1,257,119) 55,275,845 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................... $ 1,449,264 $ 66,572,485 ------------- ------------- ------------- -------------
See notes to combined financial statements. F-3 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. COMBINED STATEMENTS OF OPERATIONS FOR THE PERIOD JULY 18, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1998
JULY 18, 1997 (INCEPTION) YEAR ENDED TO DECEMBER 31, DECEMBER 31, 1997 1998 ---------------------- -------------- Revenues................................................................. $ -- $ 35,236,860 Cost of revenues......................................................... -- 33,495,745 ----------- -------------- Gross profit......................................................... -- 1,741,115 Expenses: Supplier start-up charges.............................................. -- 38,960,000 Sales and marketing.................................................... 441,479 24,388,061 General and adminstrative.............................................. 1,011,600 18,004,585 Systems and business development....................................... 1,060,091 11,131,650 ----------- -------------- Total expenses....................................................... 2,513,170 92,484,296 ----------- -------------- Operating loss........................................................... (2,513,170) (90,743,181) Interest income (expense), net........................................... (312) 548,374 ----------- -------------- Net loss................................................................. (2,513,482) (90,194,807) Accretion on preferred stock............................................. -- (1,300,000) ----------- -------------- Net loss applicable to common shareholders............................... $ (2,513,482) $ (91,494,807) ----------- -------------- ----------- -------------- Basic and diluted loss per common share.................................. $ (0.06) $ (1.41) ----------- -------------- ----------- -------------- Weighted average common shares outstanding............................... 40,667,005 64,985,140
See notes to combined financial statements. F-4 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD JULY 18, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1998
PRICELINE.COM INCORPORATED PRICELINE TRAVEL, INC. ------------------------------------------------------- ------------------------------------- ADDITIONAL ADDITIONAL PREFERRED STOCK COMMON STOCK PAID-IN COMMON STOCK PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL --------- --------- --------- --------- ----------- ----------- ----------- ----------- Issuance of common stock and common stock subscriptions......... -- -- 41,335,776 $ 413,358 $ 836,642 3,000 $ 3,000 $ 3,363 Net loss applicable to common shareholders... -- -- -- -- -- --------- --------- --------- --------- ----------- ----- ----------- ----------- Balance, December 31, 1997.................. -- -- 41,335,776 413,358 836,642 3,000 3,000 3,363 Issuance of common stock and common stock subscriptions......... -- -- 33,244,384 332,444 32,662,919 -- -- -- Issuance of Series A convertible preferred stock................. 17,288,684 $ 172,887 -- -- 19,827,113 -- -- -- Issuance of Series B convertible preferred stock................. 13,837,500 138,375 -- -- 54,276,175 -- -- -- Accretion on preferred stock................. -- -- -- -- 1,300,000 -- -- -- Issuance of options to purchase common stock................. -- -- -- -- 245,063 -- -- -- Issuance of warrants to purchase common stock................. -- -- -- -- 39,072,795 -- -- -- Net loss applicable to common shareholders... -- -- -- -- -- -- -- -- --------- --------- --------- --------- ----------- ----- ----------- ----------- Balance, December 31, 1998.................. 31,126,184 $ 311,262 74,580,160 $ 745,802 $148,220,707 3,000 $ 3,000 $ 3,363 --------- --------- --------- --------- ----------- ----- ----------- ----------- --------- --------- --------- --------- ----------- ----- ----------- ----------- COMBINED ------------------------- ACCUMULATED DEFICIT TOTAL ------------ ----------- Issuance of common stock and common stock subscriptions......... -- $ 1,256,363 Net loss applicable to common shareholders... $(2,513,482) (2,513,482) ------------ ----------- Balance, December 31, 1997.................. (2,513,482) (1,257,119) Issuance of common stock and common stock subscriptions......... -- 32,995,363 Issuance of Series A convertible preferred stock................. -- 20,000,000 Issuance of Series B convertible preferred stock................. -- 54,414,550 Accretion on preferred stock................. (1,300,000) -- Issuance of options to purchase common stock................. -- 245,063 Issuance of warrants to purchase common stock................. -- 39,072,795 Net loss applicable to common shareholders... (90,194,807) (90,194,807) ------------ ----------- Balance, December 31, 1998.................. ($94,008,289) $55,275,845 ------------ ----------- ------------ -----------
See notes to combined financial statements. F-5 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. COMBINED STATEMENTS OF CASH FLOWS FOR THE PERIOD JULY 18, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1998
JULY 18, 1997 (INCEPTION) YEAR ENDED TO DECEMBER 31, DECEMBER 31, 1997 1998 ---------------------- -------------- OPERATING ACTIVITIES: Net loss................................................................. $ (2,513,482) $ (90,194,807) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................................ 211,996 1,860,096 Provision for uncollectible accounts................................. -- 580,448 Equity based compensation............................................ -- 45,817,858 Changes in assets and liabilities: Accounts receivable.................................................. -- (4,757,428) Prepaid expenses and other current assets............................ -- (1,921,953) Restricted bank deposit and bank certificate of deposit.............. -- (680,339) Accounts payable and accrued expenses................................ 1,226,615 8,300,456 Other................................................................ 299,677 113,030 ----------- -------------- Net cash used in operating activities.............................. (775,194) (40,882,639) ----------- -------------- INVESTING ACTIVITIES--Additions to property and equipment................ (1,317,404) (6,606,854) ----------- -------------- FINANCING ACTIVITIES: Related party payable................................................ 1,104,391 (1,071,944) Issuance of long-term debt........................................... -- 1,000,000 Principal payments under capital lease obligations................... (1,697) (21,907) Issuance of common stock and subscription units...................... 1,006,363 26,495,361 Payment received on stockholder note................................. -- 250,000 Issuance of Series A convertible preferred stock..................... -- 20,000,000 Issuance of Series B convertible preferred stock..................... -- 54,414,550 ----------- -------------- Net cash provided by financing activities.......................... 2,109,057 101,066,060 ----------- -------------- NET INCREASE IN CASH AND CASH EQUIVALENTS................................ 16,459 53,576,567 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................... -- 16,459 ----------- -------------- CASH AND CASH EQUIVALENTS, END OF PERIOD................................. $ 16,459 $ 53,593,026 ----------- -------------- ----------- -------------- SUPPLEMENTAL CASH FLOW INFORMATION: Capital lease obligations............................................ $ 74,711 $ -- Cash paid during the period for interest............................. 836 60,681
See notes to combined financial statements. F-6 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS DESCRIPTION Priceline.com ("priceline.com") has pioneered a unique new type of e-commerce 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 price," priceline.com collects consumer demand, in the form of individual customer offers guaranteed by a credit card, for a particular product or service at a price set by the customer. Priceline.com then either communicates that demand directly to participating sellers who determine whether to accept the customer's offer, or accesses participating sellers' private databases to determine whether the customer's offer can be fulfilled on the basis of the pricing information and rules established by the sellers. Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers. Once fulfilled, offers cannot be canceled. By requiring consumers to be flexible with respect to brands, sellers and/or product features, priceline.com enables sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures. Priceline.com commenced its service on April 6, 1998 with the sale of leisure airline tickets. During 1997, the Company had been in the development stage. Priceline.com's services were expanded to include the sale of new automobiles, on a test basis, in July 1998, hotel room reservations in October 1998, and home mortgages in January 1999. Priceline.com was founded as a limited liability company ("LLC") in July 1997 and converted to a corporation in July 1998. All LLC units and options and warrants to purchase units, were converted in July 1998 to common stock of priceline.com ("Common Stock") and options and warrants to purchase Common Stock. For presentation purposes all such LLC units, and options and warrants to purchase units are presented as Common Stock or options and warrants to purchase Common Stock. Priceline Travel, Inc. ("Priceline Travel") holds the travel agency license used to effect airline ticket sales. Priceline Travel is wholly owned by the founding stockholder and Vice-Chairman of priceline.com. Priceline.com has a call option to purchase Priceline Travel for nominal consideration. Priceline.com and Priceline Travel are entities under common control, accordingly, the financial statements of the two companies are presented on a combined basis. Priceline Travel will merge into priceline.com during the first quarter of 1999. Priceline.com and Priceline Travel are referred to, collectively, as the Company. Walker Digital Corporation ("Walker Digital"), a research and development company, developed the priceline.com service and the business model and related intellectual property rights underlying the priceline.com service, the rights for which were transferred to the Company on July 18, 1997. Walker Digital had no operations and no revenues related to the assets transferred to priceline.com. Walker Digital was founded and is controlled by the founding stockholder and Vice Chairman of priceline.com. Walker Digital has also been providing the Company with a variety of services including subleasing office facilities to the Company on a month to month basis. Charges to the Company for such services aggregated $19,813 and $706,160 during the period July 18, 1997 to December 31, 1997 and the year ended December 31, 1998, respectively. Such amounts are included in general and administrative expense. In addition, the Company charged Walker Digital $95,874 and $384,831 for the period July 18, 1997 to December 31, 1997 and the year ended December 31, 1998, respectively, for shared expenses. Such reimbursement has been offset against general and administrative expenses in the accompanying combined statements of operations. Several of the Company's executive offers and other key employees are also officers, employees and/or stockholders of Walker Digital. F-7 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF COMBINATION AND BASIS OF PRESENTATION--The combined financial statements for all periods presented include the financial statements of priceline.com and Priceline Travel. The combined financial statements have been prepared in accordance with generally accepted accounting principles. All significant intercompany transactions have been eliminated. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company's financial instruments, including cash and cash equivalents, restricted bank deposits, accounts receivable-net and accounts payable, are carried at cost which approximates their fair value because of the short-term maturity of these financial instruments. The carrying value of the capital lease obligations and long-term debt approximates fair value because the interest rates on these obligations are comparable to the interest rates that could have been obtained at the date of the balance sheet. CASH AND CASH EQUIVALENTS, RESTRICTED BANK DEPOSITS--The Company invests excess cash primarily in money market accounts, certificates of deposits, and short-term commercial paper. All highly liquid instruments with an original maturity of three months or less are considered cash equivalents. Restricted bank deposits collateralize letters of credit issued in favor of certain airlines. NOTE RECEIVABLE FROM STOCKHOLDER--Represents a note receivable related to the sale of common stock that was subsequently paid on January 9, 1998. PROPERTY AND EQUIPMENT--Property and equipment are stated at historical cost. Depreciation and amortization of property and equipment is computed on a straight-line basis, generally over the estimated useful lives of the assets or, when applicable, the life of the lease, whichever is shorter. Capitalized software costs represent costs paid to third parties and are amortized on a straight-line basis over their estimated useful lives. Maintenance and repairs are charged directly to expense as incurred. INTANGIBLE ASSETS--The Company acquired certain patent rights covering the core buyer-driven commerce system and the method and system for pricing and selling airline ticket options from a Walker Digital affiliate on July 18, 1997 in exchange for 5,516,667 shares of common stock. Since the transfer was between entities under common control, it was recorded at the historical cost of the asset transferred, which was zero. IMPAIRMENT OF LONG-LIVED ASSETS--The Company evaluates the recoverability of its long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. REVENUE RECOGNITION--The manner in which revenues are recognized differs depending on the product or service sold through the priceline.com service. With respect to airline ticket and hotel reservation services, revenues are generated by transactions with customers who make offers to purchase airline tickets and hotel rooms supplied by participating sellers. Offers are guaranteed by a customer credit card. Revenues and related costs are recognized if, and when, the customer's offer is accepted. Because F-8 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) priceline.com is the merchant of record in these transactions, revenue for these services includes the amount billed to the customer, net of certain transportation taxes and fees. Airline and hotel revenues may also include fees from third parties for adaptive marketing programs. With respect to automobile and mortgage services, fees or other payments payable by the seller and/or the customer are recognized as revenue. Because priceline.com acts as an intermediary between the customer and the seller in these transactions, revenue for these products and services is recorded at the amount of the fee received in connection with the transaction, and not on the value of the underlying transaction, when the transaction is completed. Automobile and mortgage services revenues may also include fees from third parties for adaptive marketing programs. Approximately $4,037,000 of total revenues are attributable to adaptive marketing programs for the year ended December 31, 1998. SUPPLIER START-UP CHARGES--Supplier start-up charges include equity based compensation (comprised of warrants to purchase Common Stock to secure airline alliances and relationships--see note 6). Such charges are expensed as incurred. SALES AND MARKETING--Sales and marketing expenses are comprised primarily of costs of radio and newspaper advertising, costs of the third-party offer-taking call center, credit card merchant fees, compensation for the Company's sales and marketing personnel. Such costs are expensed as incurred. SYSTEMS AND BUSINESS DEVELOPMENT--Systems and business development expenses are comprised primarily of compensation to the Company's information systems and product development staff and payments to outside contractors, data communications and other expenses associated with operating the Company's Web site, depreciation on computer hardware and licensing fees for computer software. Such costs are expensed as incurred. INTEREST INCOME (EXPENSE), NET--Interest income (expense), net includes interest income of $523 and $633,294 and interest expense of $835 and $84,920 for the period July 18, 1997 to December 31, 1997 and the year ended December 31, 1998, respectively. EQUITY-BASED COMPENSATION--The Company accounts for stock- based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25, compensation expense is based on the difference, if any, on the date of grant, between the fair value of priceline.com's stock and the exercise price. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services". INCOME TAXES--The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes", which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the temporary difference between the financial statement and tax basis of assets and liabilities using presently enacted tax rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. F-9 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) During the period priceline.com operated as an LLC, it was treated substantially as a partnership for tax purposes and, accordingly, the tax effect of its activities accrued to its members through July 1998. NET LOSS PER SHARE--The Company computes net loss per share in accordance with SFAS No. 128, "Earnings Per Share" which requires dual presentation of basic earnings per share ("EPS") and diluted EPS. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and potentially dilutive shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon conversion of the Series A and Series B Convertible Preferred Stock (using the if-converted method) and shares issuable upon the exercise of stock options and warrants (using the treasury stock method). At December 31, 1998, Series A and Series B Convertible Preferred Stock were convertible into 17,288,684 shares and 13,837,500 shares, respectively, and options and warrants to purchase 33,745,598 shares of Common Stock were outstanding. Outstanding convertible preferred stock, warrants and options could potentially dilute basic earnings per share in the future but have not been included in the computation of diluted net loss per share as the impact would have been antidilutive for the periods presented. BUSINESS RISK--Business risks include the following: Competition--The markets for the products and services offered on the priceline.com service are intensely competitive. The Company competes with both traditional distribution channels and online services. The Company currently or potentially competes with a variety of companies with respect to each product or services offered. The Company potentially faces competition from a number of large online services that have expertise in developing online commerce and in facilitating Internet traffic. Many competitors have significant competitive advantages. For example, airlines, hotels and other suppliers also sell their products and services directly to consumers and have established Web sites. Internet directories, search engines and large traditional retailers have significantly greater operating histories, customer bases, technical expertise, brand recognition and/or online commerce experience than the Company. In addition, certain competitors may be able to devote significantly greater resources to furthering their business. Dependence on Airline Industry and Certain Carriers--The Company's near term, and possibly long term, prospects are significantly dependent upon the sale of leisure airline tickets. Sales of leisure airline tickets and revenues derived from related adaptive marketing programs represented essentially all of the Company's revenues for the year ended December 31, 1998. Sales of airline tickets from the Company's three largest airline suppliers accounted for approximately 95% of airline ticket revenue for the year ended December 31, 1998. As a result, currently the Company is substantially dependent upon the continued participation of these three airlines in the priceline.com service in order to maintain and continue to grow its total airline ticket revenues. Significantly reducing the Company's dependence on the airlines is likely to take a long time and there can be no guarantee that the Company will succeed in reducing that dependence. Risks Associated with Brand Development--The Company intends to continue to pursue an aggressive brand-enhancement strategy, which will include mass market and multimedia advertising, promotional programs and public relations activities. To increase awareness of the priceline.com brand and expand it to a wide range of products and services, the Company will need to continue to spend significant amounts on F-10 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) advertising and promotions. These expenditures may not result in a sufficient increase in revenues to cover such advertising and promotions expenses. CONCENTRATION OF CREDIT RISK--Financial instruments which potentially subject the Company to concentrations of credit risk are principally bank deposits and accounts receivable. Cash and cash equivalents and restricted bank deposits are deposited with high credit quality financial institutions. Accounts receivable typically represent credit card purchases and are derived from the revenues earned from customers in the U.S. and are denominated in U.S. dollars. Accounts receivable balances are typically settled through customer credit cards and, as a result, the majority of accounts receivable are collected upon processing of credit card transactions. The Company maintains an allowance for uncollectible accounts based upon the expected collectibility of accounts receivable. During the year ended December 31, 1998, approximately 11% of revenues were generated from one vendor participating in an adaptive marketing program. As of December 31, 1998, amounts due from this vendor represented approximately 54% of accounts receivable. COMPREHENSIVE INCOME--Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." Under SFAS 130 changes in net assets of an entity resulting from transactions and other events and circumstances from non-owner sources are reported in a financial statement for the period in which they are recognized. Because there were no such changes, adoption of SFAS 130 did not impact the combined financial statements of the Company. SEGMENT REPORTING--Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, Statement of Financial Accounting Standards SFAS No 133 "Accounting for Derivative Instruments and Hedging Activities" was released. The statement requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the planned use of the derivative and the resulting designation. The Company is required to implement the statement in the first quarter of fiscal 2000. The Company has not used derivative instruments and believes the impact of adoption of this statement will not have a significant effect on the financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use." This SOP is effective for fiscal years beginning after December 15, 1998. This SOP requires capitalization of certain costs of computer software developed or obtained for internal use. F-11 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 3. ACCOUNTS RECEIVABLE A summary of the activity in the allowance for uncollectible accounts for the year ended December 31, 1998 is as follows:
AMOUNT ---------- Provision charged to expense.......................................................................... $ 580,448 Charge offs........................................................................................... (289,625) ---------- Balance at end of period.............................................................................. $ 290,823 ---------- ----------
4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1997 and 1998 consists of the following:
ESTIMATED USEFUL LIVES (YEARS) 1997 1998 ------------ ------------ ------------ Computer equipment and software......................................... 3 $ 1,144,263 $ 7,034,088 Office equipment........................................................ 3 89,846 584,034 Furniture and fixtures.................................................. 7 158,006 380,847 ------------ ------------ Total................................................................... 1,392,115 7,998,969 Less accumulated depreciation and amortization.......................... 211,996 2,072,092 ------------ ------------ Property and equipment--net............................................. $ 1,180,119 $ 5,926,877 ------------ ------------ ------------ ------------
Depreciation and amortization expense was $211,996 and $1,860,096 for the period July 18, 1997 to December 31, 1997 and the year ended December 31, 1998, respectively. 5. LONG-TERM DEBT In April 1998, priceline.com issued a promissory note to an investor for $1,000,000. The promissory note bears interest at a rate of 6% per annum and matures on April 15, 2003. In connection with the promissory note, priceline.com issued detachable warrants to purchase 50,000 common shares at $1.00 per share. The portion of the proceeds allocable to the warrant, estimated fair value of $12,795, was accounted for as additional paid-in capital. The fair value of the warrants was determined using an option pricing model. The discount will be recorded as interest expense over the term of the promissory note. At December 31, 1998, the principal balance of the promissory note, net of unamortized discount, was $989,018. F-12 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. STOCKHOLDERS' EQUITY Combined stockholders' equity at December 31, 1997 and 1998 consists of the following:
1997 1998 ----------- ------------- Priceline.com Incorporated: Common stock, $0.01 par value--authorized 300,000,000 shares; issued and outstanding, 41,335,776 and 74,580,160 at December 31, 1997 and 1998, respectively.............. $ 413,358 $ 745,802 Convertible Preferred Stock, Series A--$0.01 par value; authorized 30,000,000 shares; $1.16 liquidation value; issued and outstanding, 17,288,684 shares................. -- 172,887 Convertible Preferred Stock, Series B--$0.01 par value; $4.00 liquidation value; issued and outstanding, 13,837,500 shares.......................................... -- 138,375 Additional paid-in capital........................................................... 836,642 148,220,707 Priceline Travel, Inc: Common stock, $1 par value--3,000 shares authorized, issued and outstanding.......... 3,000 3,000 Additional paid-in capital........................................................... 3,363 3,363 Accumulated deficit.................................................................. (2,513,482) (94,008,289) ----------- ------------- Total stockholders' equity (deficiency).............................................. (1,257,119) 55,275,845 ----------- -------------
On July 18, 1997, priceline.com issued 34,392,169 shares of Common Stock for the initial contributed services of the founders. No compensation expense was recognized for the contributed services as priceline.com was in the earliest phases of development. Also, on July 18, 1997, priceline.com issued 5,516,667 shares of Common Stock to Walker Digital in exchange for the transfer by Walker Digital to priceline.com all of the rights, title, and interest in certain patents and patent applications relating to buyer driven commerce. In July 1998, priceline.com also issued 6,500,000 shares of Common Stock, to the Chairman and Chief Executive Officer which resulted in the recognition of a one time charge of $6,500,000 with respect to these shares. The shares were issued as compensation for agreeing to accept the position. In July 1998, pursuant to an agreement between priceline.com and two partnerships affiliated with General Atlantic Partners, LP (collectively "GAP"), priceline.com sold to GAP a total of 17,288,684 shares of Series A Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock") for $20,000,000. In December 1998, priceline.com raised net proceeds of approximately $54,414,550 by completing a private placement of an aggregate of 13,837,500 shares of its Series B Convertible Preferred Stock (the "Series B Preferred Stock") with several investors, including GAP and Vulcan Ventures Incorporated. Fees of $850,000 have been paid to a company, in which a director of priceline.com is a director and stockholder, in connection with this transaction. Shares of the Series A and Series B Preferred Stock are automatically convertible, subject to antidilution adjustment, into an equal number of shares of Common Stock upon an initial public offering of the Company. The holders of the Series A and Series B Preferred Stock vote together as a single class with the holders of Common Stock. If the Company has not consummated an initial public offering by F-13 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. STOCKHOLDERS' EQUITY (CONTINUED) December 1999, the conversion price of Series B Preferred Stock will be adjusted to $2.46 per share. Since the Series B Preferred Stock contained this beneficial conversion feature at the date of issue, the Company allocated a portion of the proceeds equal to the value of the feature ($21,309,750) to additional paid-in capital. This amount will be amortized over one year. Amortization will cease if an initial public offering is completed within one year and the Series B Preferred Stock convert at $4.00 per share. The shares of the Series A and Series B Preferred Stock rank senior to the Common Stock with respect to liquidation and equal to the Common Stock with respect to dividends. In March 1998, priceline.com issued warrants to purchase 100,000 shares of Common Stock, at a zero exercise price, to a non-employee in exchange for services rendered to the Company. The estimated fair value of the warrants at the date of grant of $100,000 was based on the value of the equivalent shares as of the grant date (that is 100,000 shares at $1 per share) and has been reflected as sales and marketing expense and additional paid-in-capital. In April 1998, priceline.com issued warrants to purchase 50,000 shares of Common Stock at an exercise price of $1.00 per share in conjunction with a promissory note (see Note 5--Long-Term Debt). In August 1998, priceline.com entered into a warrant agreement with Delta Air Lines ("Delta") to purchase up to 15,114,083 shares of Common Stock at an exercise price of approximately $1.16 per share ("Delta Warrant"). Vesting was contingent upon achievement of certain predetermined performance thresholds. However, there was no penalty for failure to provide ticket inventory to satisfy these performance thresholds. Accordingly, no expense was recorded when the warrant was issued. On December 31, 1998, the Company amended its agreement with Delta Air Lines to eliminate the vesting contingencies and fix the number of shares subject to the warrant at 14,895,522. The amended Delta Warrant will vest at the earlier of seven years or upon the achievement of certain performance thresholds. However, the agreement does not require Delta to make any performance commitments, is non-exclusive and allows Delta to participate in other programs similar to the priceline.com service. Accordingly, the Company recognized approximately $38.1 million of expense based upon the fair value of the warrant on December 31, 1998 which is included in Supplier Start-up Charges in the accompanying statement of operations. On December 31, 1998, priceline.com issued warrants to purchase 750,000 shares of Common Stock at an exercise price of $4.00 per share to three airlines in exchange for services provided to the Company. Accordingly, the Company recognized approximately $.9 million of expense based upon the fair value of the warrants at December 31, 1998, which is included in Supplier Start-up Charges in the accompanying statement of operations. On January 29, 1999, priceline.com issued warrants to an airline to purchase 1,000,000 shares of Common Stock at an exercise price of $8.00 per share. The warrants become exercisable as follows, 50% on January 29, 2000 and 50% on January 29, 2001. If the airline does not provide the specified services, the unexercised warrants are returnable and in addition, there is a penalty of $1.0 million in the first year and $0.5 million in the second year. F-14 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. STOCKHOLDERS' EQUITY (CONTINUED) The fair value of the airline warrants was determined by a third party valuation using an option pricing model and the following assumptions:
OTHER DELTA AIRLINE WARRANTS WARRANTS ----------- ------------- Stock Price......................................................................... $4.00 $4.00 Exercise Price...................................................................... $1.16 $4.00 Term................................................................................ 7 years 3 years Volatility.......................................................................... 50% 50% Risk Free Rate...................................................................... 4.6% 4.6%
As of December 31, 1998, no warrants have been exercised. 7. STOCK OPTION PLAN Priceline.com has adopted the 1997 Omnibus Plan (the "Plan"), which provides for grants of options as incentives and rewards to encourage employees, officers, consultants and directors in the long term success of the Company. The Plan provides for grants of options to purchase up to 19,100,000 shares at a purchase price equal to the fair market value on the date of grant. Generally, the options vest over three years from the date of grant. In accounting for the Plan, the Company has elected to follow APB 25 and related interpretations in accounting for its employee stock options. When the exercise price of employee stock options issued under the plan equaled the fair value of the underlying stock on the date of grant, no compensation expense was recorded. Compensation expense was recognized for the fair value of the options granted to non-employees and to the extent fair value of the underlying stock exceeded the exercise price of employee stock options. Compensation expense, included in general and administrative, recognized during the year ended December 31, 1998 aggregated $245,063. The following summarizes the transactions pursuant to the Plan:
WEIGHTED RANGE AVERAGE OF SHARES OPTION PRICE SHARE ------------ ------------- --------- Granted during 1998.......................................................... 18,759,375 $ 1.16 $ 1-4 Forfeited.................................................................... (151,499) 1.00 1 Cancelled.................................................................... (652,500) 1.00 1 ------------ Balance at December 31, 1998................................................. 17,955,376 1.17 ------------ ------------ Exercisable at December 31, 1998............................................. None ------------ ------------ Available for grant at December 31, 1998..................................... 1,144,624 ------------ ------------
F-15 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 7. STOCK OPTION PLAN (CONTINUED) Had compensation costs been determined based upon the fair value at grant date, the Company's pro forma net loss and pro forma net loss per share for the year ended December 31, 1998 would have been reported as follows:
REPORTED PRO FORMA ------------- ------------- 1998 Net loss...................................................................... $ 90,194,807 $ $92,565,537 1998 Net loss applicable to common shareholders.................................... 91,494,807 93,865,537 1998 Basic and diluted loss per common share....................................... $ 1.41 $ 1.44
The fair value of each option grant was determined on the date of grant using the minimum value method. The weighted average fair value of options granted during 1998 was estimated to be approximately $0.19 on the dates of grant using the minimum value method and the following assumptions: volatility of 0%, risk free interest rate of 6.00% and an expected life of 3 years, respectively. The Plan also provides for the grant of tandem stock appreciation rights, stand-alone stock appreciation rights, phantom stock and other forms of equity based incentive awards which do not reduce the number of shares with respect to which incentive awards may be granted. No such awards were made as of December 31, 1998. In February 1999, priceline.com established the 1999 Omnibus Plan (the "1999 Plan"), which provides for grants of options as incentives and rewards to encourage employees, officers, consultants and directors in the long term success of the Company. The Plan provides for grants of options to purchase up to 7,500,000 million shares at a purchase price equal to the fair market value on the date of grant. Generally, the options vest over three years from the date of grant. The Plan also provides for the grant of tandem stock appreciation rights, stand-alone stock appreciation rights, phantom stock and other forms of equity based incentive awards which do not reduce the number of shares with respect to which incentive awards may be granted. 8. TAXES INCOME TAXES--Through July 31, 1998, priceline.com operated as a limited liability company and income taxes (benefits) accrued to the members. Accordingly, no income taxes (benefits) were reflected in the accompanying financial statements as of December 31, 1997 and for the period then ended. Since converting from an LLC to a corporation in July 1998, the Company has incurred net operating losses of $22,703,000. This loss will expire if not utilized by December 31, 2018. As of December 31, 1998 a valuation allowance for the full amount of the net deferred tax asset of approximately $24,658,093, resulting from the tax net operating losses and other items was recorded because of the uncertainty regarding its realization. F-16 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 8. TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of deferred tax assets at December 31, 1998 are as follows:
1998 ------------- Equity based compensation.......................................................................... $ 11,940,338 Net operating loss carryforwards................................................................... 9,347,966 Supplier start-up charges.......................................................................... 2,988,359 Depreciation and amortization...................................................................... 176,906 Allowance for uncollectible accounts............................................................... 119,746 Other.............................................................................................. 84,778 ------------- Less valuation allowance........................................................................... (24,658,093) ------------- Deferred tax asset, net............................................................................ $ -- ------------- -------------
The income tax benefit is different from the amount computed using applicable statutory federal rates for the following reasons:
1998 ------------- Income tax benefit at federal statutory rate....................................................... $ 31,568,182 Adjustment due to: LLC status through July 31, 1998................................................................. (7,089,945) Increase in valuation allowance.................................................................. (24,658,093) Other............................................................................................ 179,856 ------------- Income tax benefit................................................................................. $ -- ------------- -------------
FEDERAL AIR TRANSPORTATION TAX--Currently, a Federal transportation tax is imposed upon the sale of airline tickets and generally is collected by the airlines selling the tickets. The tax is based upon a percentage of the cost of transportation, which was 9% for periods prior to October 1, 1998 and 8% thereafter. The tax has been calculated based on the amount paid to the airline for a ticket, rather than the price paid by the customer. There is a possibility that current law requires computation of the tax based on the price paid by the customer. Approximately $111,000 in additional taxes relating to the method of calculating the tax has been accrued as of December 31, 1998. 9. OTHER RELATED PARTY TRANSACTIONS The Founder and Vice Chairman of priceline.com also serves as non-executive Chairman of NewSub Services, Inc. ("NewSub"), a direct marketing company co-founded by him. The Company participates in certain adaptive marketing programs with NewSub. Sales and marketing expense related to these programs totaled $80,799 for the year ended December 31, 1998. There was no such expense in 1997. In June 1998, priceline.com issued a promissory note to a Walker Digital for $1,000,000. The promissory note bore interest at a rate of 6% per annum and was due June 30, 1999. The note has been repaid. F-17 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 10. COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS--On January 6, 1999, priceline.com received notice that a third party patent applicant and patent attorney, Thomas G. Woolston, purportedly had filed in December 1998 with the United States Patent and Trademark Office a request to declare an "interference" between a patent application filed by Woolston describing an electronic market for used and collectible goods and priceline.com's core buyer-driven commerce patent. Priceline.com has received a copy of a Petition for Interference from Woolston, the named inventor of at least three United States Patent applications titled "Consignment Nodes", one of which has issued as a patent (U.S. Patent Number: 5,845,265). Priceline.com currently is awaiting information from the Patent Office regarding whether it will initiate an interference proceeding concerning Woolston's patent application and priceline.com's core buyer-driven commerce patent. An interference is an administrative proceeding instituted in the Patent Office to determine questions of patentability and priority of invention between two or more parties claiming the same patentable invention. There is no statutory period within which the Patent Office must act on an interference request. If an interference is declared and proceeds through a final hearing in the Patent Office, a final judgment is made by the Patent Office as to inventorship. Following such final judgment, appeals could be made in Federal court. While there can be no certainty as to time periods, interference proceedings typically take years to resolve. As a threshold to the initiation of an interference proceeding, Woolston must show that his patent application supports claims that he copied from the priceline.com core buyer-driven commerce patent. In order to make this showing, he would have to prove, among other things, that he invented the subject matter of the priceline.com claims before the inventors of the priceline.com patent. If the Patent Office were to find that Woolston's patent application supported the copied priceline.com claims, it would resolve the interference by awarding inventorship to the party with the earliest proven date of invention. Woolston recently announced an agreement to license his issued patent and pending patent applications to the owner of an Internet travel service that, according to such announcement, commenced on-line operations in the fourth quarter of 1998 and purports to compete with priceline.com. Priceline.com believes that Woolston's claim is without merit. Among other things, priceline.com believes that the Woolston application does not disclose the inventions covered by the priceline.com patent claims. However, it is impossible to predict the outcome of an interference with certainty. While Woolston claims to have an earlier invention date by a period of approximately sixteen months, the final decision as to priority of invention would be made by the Patent Office after considering facts provided by each party during the interference proceeding. If an interference is declared and thereafter resolved in favor of Woolston, such resolution could result in an award of some or all of the disputed patent claims to Woolston. If, following such award, Woolston were successful in a patent infringement action against priceline.com, including prevailing over all defenses available to priceline.com such as those of non- infringement and invalidity, this could require priceline.com to obtain licenses from Woolston at a cost which could significantly adversely affect priceline.com's business. If, in addition to prevailing in both an interference and an infringement action, Woolston were able to make the showings necessary to obtain an injunction, then priceline.com could be enjoined from conducting business through the priceline.com service to the extent covered by the patent claims awarded to Woolston. In addition, defense of the interference action may be expensive and may divert management attention away from the company's business. On January 19, 1999, Marketel International Inc., a California corporation, filed a lawsuit against priceline.com and Priceline Travel, among others. The complaint filed by Marketel alleges causes of action for, among other things, misappropriation of trade secrets, breach of contract, conversion, breach of F-18 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 10. COMMITMENTS AND CONTINGENCIES (CONTINUED) confidential relationship, copyright infringement, fraud, unfair competition and false advertising, and seeks injunctive relief and damages in an unspecified amount. In the complaint, Marketel alleges, among other things, that the defendants conspired to misappropriate Marketel's business model for a buyer-driven electronic marketplace for travel services and its appurtenant techniques, market research, forms, plans, and processes, which allegedly were provided in confidence approximately ten years ago. The Company strongly disputes the material legal and factual allegations contained in the complaint, and believes the complaint is without merit. The Company intends to defend the action vigorously. Defending the law suit may involve significant expense and, due to the inherent uncertainties of litigation, there can be no certainty as to the ultimate outcome. From time to time the Company has been and expects to continue to be subject to legal proceedings and claims in the ordinary course of business, and including claims of alleged infringement of third party intellectual property rights by the company. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources. AIRLINE ALLIANCES AND RELATIONSHIPS--Priceline.com has entered into Airline Participation Agreements with eighteen airlines for the supply of airline tickets. The Airline Participation Agreements do not commit the airlines to provide tickets for any particular routes or at a discount to their retail prices, but outline the terms and conditions under which tickets may be sold pursuant to fares, rules and availability that the airlines may provide from time to time. The Airline Participation Agreements are generally subject to termination upon 30 days notice by priceline.com or the airline. EMPLOYMENT CONTRACTS--Priceline.com has entered into employment agreements with certain members of senior management that provide for minimum annual compensation of approximately $2,135,000 in the aggregate. The agreements provide for periods of employment of up to 3 years. Generally, the agreements provide for incentives and bonuses based on the achievement of performance goals, as well as the grant of stock options under the 1997 Omnibus Stock Option Plan. CAPITAL LEASES--Priceline.com leases certain machinery and equipment costing $74,711 under a capital lease agreement. Accumulated depreciation on this equipment was $2,075 and $26,979 at December 31, 1997, and December 31, 1998, respectively. These amounts are included in property and equipment in Note 4. Future minimum lease payments, including interest, under the capital lease at December 31, 1998 are as follows:
YEAR ENDING DECEMBER 31, 1999................................................................................................... $ 30,389 2000................................................................................................... 30,389 --------- Total minimum lease payments........................................................................... 60,778 Less amounts representing interest..................................................................... 9,671 --------- Present value of future minimum lease payments......................................................... 51,107 Less current portion of obligations.................................................................... 25,033 --------- Obligations under capital leases, net of current portion............................................... $ 26,074 --------- ---------
F-19 PRICELINE.COM INCORPORATED AND PRICELINE TRAVEL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 11. BENEFIT PLAN Priceline.com adopted a defined contribution 401(k) savings plan (the "Plan") during 1998 covering all employees who are at least 21 years old and have completed 6 months of service. The Plan allows eligible employees to contribute up to 20% of their eligible earnings, subject to a statutorily prescribed annual limit. The Company may make matching contributions on a discretionary basis to the Plan. All participants are fully vested in their contributions and investment earnings. During the year ended December 31, 1998, the Company did not make any matching contributions to the Plan. F-20 [LOGO] PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by priceline.com in connection with the sale of common stock being registered. All amounts are estimates. SEC registration fee.......................................................... $ 31,970 NASD Filing fee............................................................... 12,000 Nasdaq National Market listing fee............................................ 50,000 Printing and engraving expenses............................................... * Legal fees and expenses....................................................... * Accounting fees and expenses.................................................. * Blue sky fees and expenses.................................................... * Transfer agent fees........................................................... * Miscellaneous fees and expenses............................................... * ----------- Total................................................................... $ * ----------- -----------
- ------------------------ * to be filed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law authorizes a court to award or a corporation's board of directors to grant indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act of 1933. As permitted by Delaware law, Article Seventh of priceline.com's certificate of incorporation provides that (1) priceline.com is required to indemnify its directors and officers to the fullest extent permitted by Delaware law, subject to certain very limited exceptions; (2) priceline.com is permitted to indemnify its other employees to the extent that it indemnifies its officers and directors, unless otherwise required by law, its certificate of incorporation, its by-laws or agreements; (3) priceline.com is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by Delaware law, subject to certain very limited exceptions; and (4) the rights conferred in the certificate of incorporation are not exclusive. As permitted by Delaware law, priceline.com's certificate of incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to priceline.com or its stockholders; (2) for acts of omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (3) under Section 174 of Delaware General Corporation Law regarding payments of dividends, stock purchases or redemptions which are unlawful; or (4) for any transaction from which the director derived an improper personal benefit. This provision in the certificate of incorporation does not eliminate the directors' fiduciary duty, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to priceline.com for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. II-1 As permitted by Delaware law, priceline.com has purchased insurance covering the company's directors and officers against liability asserted against them in their capacity as such. Reference is made to the Underwriting Agreement contained in Exhibit 1.1 hereto, which contains provisions indemnifying officers and directors of priceline.com against certain liabilities. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since its inception, priceline.com has issued and sold the following securities: In July 1997, priceline.com's predecessor issued an aggregate of 34,392,169 equity units to Messrs. Jay S. Walker, Jesse M. Fink, Timothy G. Brier, Paul E. Francis and two other executive officers for services previously rendered. In July 1997, priceline.com's predecessor issued 5,516,667 equity units to Walker Digital Corporation, which, together with its affiliate Walker Asset Management Limited Partnership, transferred to priceline.com all of their rights, title, and interest in certain patents and patent applications relating to buyer-driven commerce. From September 1997 to February 1998, priceline.com's predecessor issued and sold an aggregate of 5,080,702 equity units to Mr. Paul E. Francis, a partnership affiliated with General Atlantic Partners, LLC and six other investors for an estimated fair value of $0.876 per share. From March 1998 to July 1998, priceline.com's predecessor issued and sold and aggregate of 22,920,364 equity units to Mr. Jay S. Walker, a trust affiliated with Mr. Jay S. Walker, Walker Digital, Mr. Richard S. Braddock, a trust affiliated with Mr. N.J. Nicholas, Jr., Mr. Ralph M. Bahna and one other investor for an estimated fair value of $1.00 per share. In March 1998, priceline.com issued warrants to purchase 100,000 shares of common stock to a non-employee in exchange for services rendered to priceline.com for an estimated fair value of approximately $100,000. In April 1998, priceline.com issued warrants to purchase 50,000 shares of common stock at an exercise price of $1.00 per share to an individual in connection with the execution of a promissory note in the amount of $1,000,000. In July 1998, priceline.com's predecessor issued 6,500,000 equity units to Mr. Richard S. Braddock in connection with his employment as its Chief Executive Officer and Chairman. On July 31, 1998, all of the foregoing equity units were converted into an equal number of shares of common stock as a result of the merger of priceline.com's predecessor into priceline.com. On July 31, 1998, priceline.com issued and sold 17,288,684 shares of its Series A convertible preferred stock to two partnerships affiliated with General Atlantic Partners, LLC for an estimated fair value of approximately $1.16 per share. In August 1998, priceline.com issued warrants to Delta to purchase up to 15,114,083 shares of common stock at an exercise price of approximately $1.16 per share. This warrant was amended in December 1998 to, among other things, fix the number of shares of common stock subject to the warrant at 14,895,522. In October 1998, priceline.com issued and sold an aggregate of 107,759 shares of common stock to Mr. Paul J. Blackney and another individual for an estimated fair value of $1.16 per share. On December 8, 1998, priceline.com issued and sold an aggregate of 13,837,500 shares of its Series B convertible preferred stock to Vulcan, two partnerships affiliated with General Atlantic Partners, LLC and seven other investors for an estimated fair value of $4.00 per share. II-2 On December 8, 1998, priceline.com issued and sold an aggregate of 62,500 shares of common stock to Mr. Braddock for an estimated fair value of $4.00 per share. In December 1998, priceline.com issued warrants entitling three airlines to each purchase up to 250,000 shares of common stock at an exercise price of $4.00 per share. In January 1999, priceline.com issued warrants to an airline to purchase up to 1,000,000 shares of common stock at an exercise price of $8.00 per share. The issuances described above in this Item 15 were deemed exempt from registration under the Securities Act in reliance on either (1) Rule 701 promulgated under the Securities Act as offers and sales of securities pursuant to certain compensatory benefit plans and contracts relating to compensation in compliance with Rule 701 or (2) Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS:
EXHIBIT DESCRIPTION - ---------- ------------------------------------------------------------------------------------------------------ 1.1** Form of Underwriting Agreement. 2.1* Agreement of Merger, dated as of July 31, 1998, between priceline.com LLC and Registrant. 2.2** Form of Agreement of Merger between Priceline Travel, Inc. and Registrant. 3.1 Form of Amended and Restated Certificate of Incorporation of Registrant to be filed on the closing of the offering made hereby. 3.2 Form of By-Laws of Registrant to be filed on the closing of the offering made hereby. 4.1 Reference is hereby made to Exhibits 3.1 and 3.2. 4.2** Specimen Certificate for Registrant's Common Stock. 4.3* Amended and Restated Registration Rights Agreement, dated as of December 8, 1998, among Registrant and certain stockholders of Registrant. 5.1** Opinion of Melissa M. Taub, Esq., Senior Vice President, General Counsel and Secretary to the Registrant. 10.1.1 1997 Omnibus Plan of Registrant. 10.1.2** 1999 Omnibus Plan of Registrant. 10.2* Stock Purchase Agreement, dated July 31, 1998, among Registrant and the investors named therein, as amended. 10.3* Stock Purchase Agreement, dated as of December 8, 1998, among Registrant and the investors named therein. 10.4 Reference is hereby made to Exhibit 4.3. 10.5 Purchase and Intercompany Services Agreement, dated April 6, 1998, among Registrant, Walker Asset Management Limited Partnership, Walker Digital Corporation and Priceline Travel, Inc. 10.6.1 Employment Agreement, dated as of January 1, 1998, between Jay S. Walker, Walker Digital Corporation, Registrant and Jesse M. Fink. 10.6.2 Amendment No. 1 to Employment Agreement, dated November 16, 1998 between Registrant and Jesse M. Fink. 10.7.1 Employment Agreement, dated as of July 23, 1998, between Registrant and Timothy G. Brier. 10.7.2 Amendment No. 1 to Employment Agreement, dated November 16, 1998, between Registrant and Timothy G. Brier.
II-3
EXHIBIT DESCRIPTION - ---------- ------------------------------------------------------------------------------------------------------ 10.8** Employment Agreement, dated as of August 15, 1998, between Registrant and Richard Braddock. 10.9* Airline Participation Agreement, dated April 1998, by and among Registrant, Priceline Travel, Inc. and Trans World Airlines, Inc. 10.10+ Airline Participation Agreement, dated October 2, 1998, by and among Registrant, Priceline Travel, Inc. and Northwest Airlines, Inc. 10.11.1+ General Agreement, dated August 31, 1998, by and among the Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc. 10.11.2+ Airline Participation Agreement, dated August 31, 1998, by and among the Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc. 10.11.3+ Amendment to the Airline Participation Agreement and the General Agreement, dated December 31, 1998, between and among the Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc. 10.12+ Airline Participation Agreement, dated December 31, 1998, by and among the Registrant, Priceline Travel, Inc. and America West Airlines. 10.13+ Internet Marketing and Licensing Agreement, as of August 1, 1998, between the Registrant and LendingTree, Inc. 10.14* Systems Access Agreement, dated as of August 4, 1997, between the Registrant and WORLDSPAN, L.P. 10.15* Master Agreement for Outsourcing Call Center Support, dated as of April 6, 1998, between the Registrant and CALLTECH Communications, Incorporated. 10.16* $1,000,000 Commercial Promissory Note, dated April 15, 1996, between the Registrant and Andre Jaeckle. 10.17* Warrant Agreement, dated April 15, 1998, between the Registrant and Andre Jaeckle. 10.18* Warrant Agreement, dated April 9, 1998, between the Registrant and William Shatner. 10.19.1 Participation Warrant Agreement, dated August 31, 1998, between the Registrant and Delta Air Lines, Inc. 10.19.2+ First Amendment and Waiver to Participation Warrant Agreement, dated December 31, 1998, between the Registrant and Delta Air Lines, Inc. 10.21 Form of Participation Warrant Agreement. 10.22.1+ Participation Warrant Agreement, dated December 31, 1998. 10.22.2+ Amendment No. 1 to Warrant Participation Agreement, dated February 4, 1999. 10.23 Form of Hotel Agreement. 23.1 Consent of Deloitte & Touche LLP. 24.1 Power of Attorney (see page II-5).
- ------------------------ * Previously filed. ** To be filed by amendment. + Certain portions of this document have been omitted pursuant to a confidential treatment request. (B) FINANCIAL STATEMENT SCHEDULES: All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the combined financial statements or notes thereto. II-4 ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) of (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stamford, State of Connecticut, on February 12, 1999. PRICELINE.COM INCORPORATED By: /s/ MELISSA M. TAUB ----------------------------------------- Melissa M. Taub SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Paul E. Francis, Melissa M. Taub, and Thomas P. D'Angelo, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act), and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in counterparts. Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- * Chairman and Chief - ------------------------------ Executive Officer February 12, 1999 Richard S. Braddock (Principal Executive Officer) * - ------------------------------ Vice Chairman, Founder and February 12, 1999 Jay S. Walker Director /s/ PAUL E. FRANCIS Chief Financial Officer - ------------------------------ (Principal Financial February 12, 1999 Paul E. Francis Officer) * Senior Vice President, - ------------------------------ General Counsel and February 12, 1999 Melissa M. Taub Secretary
II-6
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- * Vice President Finance and - ------------------------------ Controller (Principal February 12, 1999 Thomas P. D'Angelo Accounting Officer) * - ------------------------------ Director February 12, 1999 Ralph M. Bahna /s/ PAUL A. ALLAIRE - ------------------------------ Director February 12, 1999 Paul A. Allaire * - ------------------------------ Director February 12, 1999 Paul J. Blackney * - ------------------------------ Director February 12, 1999 William E. Ford * - ------------------------------ Director February 12, 1999 Marshall Loeb * - ------------------------------ Director February 12, 1999 N.J. Nicholas, Jr. /s/ NANCY B. PERETSMAN - ------------------------------ Director February 12, 1999 Nancy B. Peretsman
*By: /s/ PAUL E. FRANCIS ------------------------- Paul E. Francis ATTORNEY-IN-FACT
II-7 EXHIBIT INDEX
EXHIBITS DESCRIPTION PAGE - ---------- --------------------------------------------------------------------------------------------- --------- 1.1** Form of Underwriting Agreement. 2.1* Agreement of Merger, dated as of July 31, 1998, between priceline.com LLC and Registrant. 2.2** Form of Agreement of Merger between Priceline Travel, Inc. and Registrant. 3.1 Form of Amended and Restated Certificate of Incorporation of Registrant to be filed on the closing of the offering made hereby. 3.2 Form of By-Laws of Registrant to be filed on the closing of the offering made hereby. 4.1 Reference is hereby made to Exhibits 3.1 and 3.2. 4.2** Specimen Certificate for Registrant's Common Stock. 4.3* Amended and Restated Registration Rights Agreement, dated as of December 8, 1998, among Registrant and certain stockholders of Registrant. 5.1** Opinion of Melissa M. Taub, Esq., Senior Vice President, General Counsel and Secretary to the Registrant. 10.1.1 1997 Omnibus Plan of Registrant. 10.1.2** 1999 Omnibus Plan of Registrant. 10.2* Stock Purchase Agreement, dated July 31, 1998, among Registrant and the investors named therein, as amended. 10.3* Stock Purchase Agreement, dated as of December 8, 1998, among Registrant and the investors named therein. 10.4 Reference is hereby made to Exhibit 4.3. 10.5 Purchase and Intercompany Services Agreement, dated April 6, 1998, among Registrant, Walker Asset Management Limited Partnership, Walker Digital Corporation and Priceline Travel, Inc. 10.6.1 Employment Agreement, dated as of January 1, 1998, between Jay M. Walker, Walker Digital Corporation, Registrant and Jesse M. Fink. 10.6.2 Amendment No. 1 to Employment Agreement, dated November 16, 1998 between Registrant and Jesse M. Fink. 10.7.1 Employment Agreement, dated as of July 23, 1998, between Registrant and Timothy G. Brier. 10.7.2 Amendment No. 1 to Employment Agreement, dated November 16, 1998, between Registrant and Timothy G. Brier. 10.8** Employment Agreement, dated as of August 15, 1998, between Registrant and Richard Braddock. 10.9* Airline Participation Agreement, dated April 1998, by and among Registrant, Priceline Travel, Inc. and Trans World Airlines, Inc. 10.10+ Airline Participation Agreement, dated October 2, 1998, by and among Registrant, Priceline Travel, Inc. and Northwest Airlines, Inc. 10.11.1+ General Agreement, dated August 31, 1998, by and among the Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc. 10.11.2+ Airline Participation Agreement, dated August 31, 1998, by and among the Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc. 10.11.3+ Amendment to the Airline Participation Agreement and the General Agreement, dated December 31, 1998, between and among the Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc. 10.12+ Airline Participation Agreement, dated December 31, 1998, by and among the Registrant, Priceline Travel, Inc. and America West Airlines.
EXHIBITS DESCRIPTION PAGE - ---------- --------------------------------------------------------------------------------------------- --------- 10.13+ Internet Marketing and Licensing Agreement, as of August 1, 1998, between the Registrant and LendingTree, Inc. 10.14* Systems Access Agreement, dated as of August 4, 1997, between the Registrant and WORLDSPAN, L.P. 10.15* Master Agreement for Outsourcing Call Center Support, dated as of April 6, 1998, between the Registrant and CALLTECH Communications, Incorporated. 10.16* $1,000,000 Commercial Promissory Note, dated April 15, 1996, between the Registrant and Andre Jaeckle. 10.17* Warrant Agreement, dated April 15, 1998, between the Registrant and Andre Jaeckle. 10.18* Warrant Agreement, dated April 9, 1998, between the Registrant and William Shatner. 10.19.1 Participation Warrant Agreement, dated August 31, 1998, between the Registrant and Delta Air Lines, Inc. 10.19.2+ First Amendment and Waiver to Participation Warrant Agreement, dated December 31, 1998, between the Registrant and Delta Air Lines, Inc. 10.21 Form of Participation Warrant Agreement. 10.22.1+ Participation Warrant Agreement, dated December 31, 1998. 10.22.2+ Amendment No. 1 to Warrant Participation Agreement, dated February 4, 1999. 10.23 Form of Hotel Agreement. 23.1 Consent of Deloitte & Touche LLP. 24.1 Power of Attorney (see page II-5).
- ------------------------ * Previously filed. ** To be filed by amendment. + Confidential treatment has been requested for certain portions of this document. EX-3.1 2 AMENDED & RESTATED ARTICLES OF INCORPORATION Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PRICELINE.COM INCORPORATED ----------------------------------------------- Pursuant to Sections 228, 242 and 245 of the Delaware General Corporation Law ----------------------------------------------- Priceline.com Incorporated, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: (1) The name of the Corporation is priceline.com Incorporated. (2) The date of filing of the Corporation's original certificate of incorporation with the Secretary of State is July 30, 1998. (3) This Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation and adopted by the holders of a majority of the issued and outstanding shares of capital stock of the Corporation, in accordance with Sections 228, 242 and 245 of the Delaware General Corporation Law. (4) The Corporation's Certificate of Incorporation, as heretofore amended, is hereby restated, integrated and amended to read in its entirety as follows: FIRST: The name of the Corporation is priceline.com Incorporated (hereinafter, the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at that address is Corporation Service Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the "DGCL"). FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 1,000,000,000 shares of common stock, each having a par value of one penny ($.01), and 150,000,000 shares of preferred stock, each having a par value of one penny ($.01). The Board of Directors of the Corporation is expressly authorized to provide for the issuance of all or any shares of the preferred stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors of the Corporation providing for the issuance of such class or series and as may be permitted by the DGCL, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; (iv) convertible into, or exchangeable for, shares of any other class or classes of stock of the Corporation at such price or prices or at such rates of exchange and with such adjustments; and/or (v) entitled to voting rights, including extraordinary or limited voting rights; all as may be stated in such resolution or resolutions. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: 2 (1) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors of the Corporation. (2) The directors of the Corporation shall have concurrent power with the stockholders of the Corporation to make, alter, amend, change, add to or repeal the By-Laws of the Corporation. (3) The number of directors of the Corporation shall be as from time to time fixed by, or in the manner provided in, the By-Laws of the Corporation. Election of directors of the Corporation need not be by written ballot unless the By-Laws of the Corporation so provide. (4) No director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article FIFTH shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. (5) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors of the Corporation are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this Amended and Restated Certificate of Incorporation, and any By-Laws adopted by the stockholders of the Corporation; PROVIDED, HOWEVER, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors of the Corporation which would have been valid if such By-Laws had not been adopted. (6) Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called 3 annual or special meeting of the stockholders of the Corporation, and the stockholders of the Corporation may not act by written consent. (7) Unless otherwise required by law, special meetings of the stockholders of the Corporation, for any purpose or purposes, may be called by either (i) the Chairman of the Board of Directors of the Corporation, if there be one, (ii) the Vice Chairman of the Board of Directors of the Corporation, if there be one, (iii) the Chief Executive Officer of the Corporation or (iv) the Board of Directors of the Corporation, and the stockholders of the Corporation may not call a special meeting of the stockholders of the Corporation. SIXTH: Meetings of the stockholders of the Corporation may be held within or without the State of Delaware, as the By-Laws of the Corporation may provide. The books of the Corporation may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors of the Corporation or in the By-Laws of the Corporation. SEVENTH: The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; PROVIDED, HOWEVER, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation. The right to indemnification conferred by this Article SEVENTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition. The Corporation may, to the extent authorized from time to time by the Board of Directors of the Corporation, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article SEVENTH to directors and officers of the Corporation. The rights to indemnification and to the advancement of expenses conferred in this Article SEVENTH shall not be exclusive of any other right which any person may have or hereafter acquire under this Amended and Restated Certificate 4 of Incorporation, the By-Laws of the Corporation, any statute, agreement, vote of the stockholders of the Corporation or disinterested directors of the Corporation or otherwise. Any repeal or modification of this Article SEVENTH shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification. EIGHTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders of the Corporation herein are granted subject to this reservation. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by the Secretary of the Corporation this [ ] day of [ ], 1999. --------------------------- Melissa M. Taub Secretary 5 EX-3.2 3 BY-LAWS OF REGISTRANT Exhibit 3.2 BY-LAWS OF PRICELINE.COM INCORPORATED (hereinafter called the "Corporation") ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors. SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other proper business may be transacted at the annual meeting of stockholders. SECTION 3. SPECIAL MEETINGS. Unless otherwise required by law, special meetings of stockholders, for any purpose or purposes, may be called as set forth in the certificate of incorporation of the Corporation, as amended or amended and restated from time to time (the "Certificate of Incorporation"). At a special meeting of stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto). SECTION 4. NOTICE. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. SECTION 5. NATURE OF BUSINESS AT MEETINGS OF STOCKHOLDERS. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given 2 by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 5 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 5. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; PROVIDED, HOWEVER, that (i) in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date or (ii) with respect to the annual meeting of stockholders of the Corporation for the year 2000, notice by the stockholder in order to be timely must be so received not later than the close of business 3 on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 5; PROVIDED, HOWEVER, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 5 shall be deemed to preclude discussion by any stockholder of any such 4 business. If the chairman of the annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. SECTION 6. NOMINATION OF DIRECTORS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 6 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 6. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. 5 To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; PROVIDED, HOWEVER, that (i) in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date or (ii) with respect to the annual meeting of stockholders of the Corporation for the year 2000, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of such person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned 6 beneficially or of record by such person and (iv) any other information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. 7 No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 6. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. SECTION 7. ADJOURNMENTS. Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 8. QUORUM. Unless otherwise required by law or the Certificate of Incorporation, the holders of a majority of the capital stock of the Corporation issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the 8 withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 7, until a quorum shall be present or represented. SECTION 9. VOTING. Unless otherwise required by law, the Certificate of Incorporation or these By-laws, any question brought before any meeting of stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the capital stock represented and entitled to vote thereat, voting as a single class. Unless otherwise provided in the Certificate of Incorporation, and subject to Section 5 of Article V hereof, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in such officer's discretion, may require that any votes cast at such meeting shall be cast by written ballot. SECTION 10. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and 9 make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. SECTION 11. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 10 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 12. CONDUCT OF MEETINGS. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the 10 judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants. ARTICLE III DIRECTORS SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors shall consist of not less than one nor more than 13 members, the exact number of which shall be fixed by the Board of Directors. Except as otherwise provided in the Certificate of Incorporation or these By-Laws, directors shall be elected by a plurality of the votes cast at the annual meetings of stockholders and each director so elected 11 shall hold office until the next annual meeting of stockholders and until such director's successor is duly elected and qualified, or until such director's earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders. SECTION 2. VACANCIES. Unless otherwise required by law or the Certificate of Incorporation, vacancies arising through death, resignation, removal, an increase in the number of directors or otherwise may be filled only by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. SECTION 3. DUTIES AND POWERS. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders. SECTION 4. MEETINGS. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. 12 Special meetings of the Board of Directors may be called by the Chairman, if there be one, the Vice Chairman, if there be one, the Chief Executive Officer or by any director. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. SECTION 5. QUORUM. Except as otherwise required by law or the Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present. SECTION 6. ACTIONS BY WRITTEN CONSENT. Unless otherwise provided in the Certificate of Incorporation, or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, 13 as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise provided in the Certificate of Incorporation, members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. SECTION 8. COMMITTEES. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law 14 and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. SECTION 9. COMPENSATION. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 10. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because the director or officer's vote is counted for such purpose if (i) the material 15 facts as to the director or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to the director or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. SECTION 11. EX OFFICIO MEMBERS OF THE BOARD OF DIRECTORS. The Board of Directors, in its discretion, may appoint one or more persons as ex officio members of the Board of Directors, who shall serve at the pleasure of the Board of Directors. Ex officio members of the Board of Directors shall be permitted to attend meetings of the Board of Directors but shall not be entitled to vote on any matter before the Board of Directors and shall not be considered to be directors of the Corporation for any other purpose, including without limitation, for establishing a 16 quorum, acting by written consent or providing notice of meetings. Notwithstanding the foregoing, the Board of Directors may hold meetings that do not include ex officio members of the Board of Directors. ARTICLE IV OFFICERS SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chief Executive Officer, a Secretary and a Treasurer. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director), a Vice Chairman of the Board of Directors (who must be a director), a President and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law or the Certificate of Incorporation. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman and the Vice Chairman, need such officers be directors of the Corporation. SECTION 2. ELECTION. The Board of Directors, at its first meeting held after each annual meeting of stockholders (or action by written consent of stockholders in lieu of the annual meeting of stockholders), shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the 17 Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer, the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. 18 SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman shall be the Chief Executive Officer of the Corporation, unless the Board of Directors designates another person to serve as the Chief Executive Officer, and except where by law the signature of the Chief Executive Officer is required, the Chairman shall possess the same power as the Chief Executive Officer to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. The Chairman shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these By-Laws or by the Board of Directors. SECTION 5. VICE CHAIRMAN. In the absence of the Chairman, the Vice Chairman, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the Chief Executive Officer is required, the Vice Chairman shall possess the same power as the Chief Executive Officer to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the Chairman, the Vice Chairman shall exercise all powers and discharge all the duties of the Chairman. The Vice Chairman shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these By-Laws or by the Board of Directors. 19 SECTION 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, subject to the control of the Board of Directors and the Chairman (if the Chairman is not the Chief Executive Officer), have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the Chief Executive Officer. If any bond, mortgage, contract and other instrument of the Corporation is required by law or otherwise to be signed by the president of a corporation and the Corporation does not have a President, the Chief Executive Officer shall be deemed to be the President of the Corporation and shall have the authority to execute such document. In the absence or disability of the Chairman and the Vice Chairman, or if there be none, the Chief Executive Officer shall preside at all meetings of the stockholders and the Board of Directors. The Chief Executive Officer shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors. 20 SECTION 7. PRESIDENT. At the request of the Chief Executive Officer or in the Chief Executive Officer's absence or in the event of the Chief Executive Officer's inability or refusal to act (and if there be no Chairman or Vice Chairman), the President shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. The President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. SECTION 8. VICE PRESIDENTS. At the request of the Chief Executive Officer or in the Chief Executive Officer's absence or in the event of the Chief Executive Officer's inability or refusal to act (and if there be no Chairman, Vice Chairman or President), the Vice President, or the Vice Presidents if there is more than one (in the order designated by the Board of Directors), shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman, Vice Chairman, President and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the Chief Executive Officer or in the event of the inability or refusal of the Chief Executive Officer to act, shall perform the duties 21 of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. SECTION 9. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman, the Vice Chairman or the Chief Executive Officer, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the Chief Executive Officer may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer's signature. The Secretary shall see that all books, 22 reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. SECTION 10. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer's possession or under the Treasurer's control belonging to the Corporation. SECTION 11. ASSISTANT SECRETARIES. Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be 23 assigned to them by the Board of Directors, the Chief Executive Officer, President, if there be one, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretary's disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. SECTION 12. ASSISTANT TREASURERS. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, President, if there be one, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer's disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer's possession or under the Assistant Treasurer's control belonging to the Corporation. 24 SECTION 13. OTHER OFFICERS. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE V STOCK SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman, Vice Chairman, the Chief Executive Officer, President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. SECTION 2. SIGNATURES. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 25 SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or the owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. 26 SECTION 5. RECORD DATE. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; providing, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record 27 date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolutions taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, 28 the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. SECTION 6. RECORD OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law. ARTICLE VI NOTICES SECTION 1. NOTICES. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in 29 the United States mail. Written notice may also be given personally or by telegram, telex or cable. SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE VII GENERAL PROVISIONS SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 6 of Article III hereof), and may be paid in cash, in property, or in shares of the Corporation's capital stock. Before payment of 30 any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII AMENDMENTS SECTION 1. AMENDMENTS. These By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or 31 by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such meeting of stockholders or Board of Directors, as the case may be. All such amendments must be approved by either the holders of a majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office. SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article VIII and in these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. * * * Adopted as of: July 30, 1998 Last Amended as of: / /, 1999 32 EX-10.(1)(1) 4 1997 OMNIBUS PLAN Exhibit 10.1.1 PRINCIPAL TERMS OF PRICELINE.COM OPTION PLAN EXERCISE PRICE: 1.00 per share TOTAL NUMBER OF SHARES OUTSTANDING: Approximately 65,000,000 prior to exercise of employee stock options. VESTING: Options vest over three years; the first allotment vest immediately; an additional allotment vests on June 1, 1999 and June 1, 2000. A portion of options for current employees are immediately vested as a result of the plan to tie vesting of the first third of options to the successful launch of priceline. For employees hired after July 1, 1998, the options will vest on the first three anniversaries of the date of grant. The optionholder must remain employed by priceline.com for options to vest provided, however, that if the optionholder continues to be employed by a company controlled by Jay Walker, the optionholder will be allowed pro rata vesting for the portion of the year employed by priceline.com. EXERCISE RIGHTS: Options are exercisable for ten years from the date of grant provided that the options are vested. Due to securities law requirements, it is also a condition of exercise that priceline.com is a public company. Options will become exercisable once priceline.com is a public company and any applicable "holdback" period (typically 180 days from the date of the IPO) imposed by the underwriters has expired. EFFECT OF TERMINATION OF EMPLOYMENT: Exercise rights are terminated immediately if the employee is terminated for Cause. If employment terminates for reasons other than Cause and the Company has not had an initial public offering, then vested options shall remain exercisable until 90 days following the initial public offering, provided, however, that the Company shall have the right to repurchase such vested options for cash at a price equal to the difference between the fair market value of the Company's shares and the exercise price at any time prior to a public offering; and provided further, however, that the 90 day periods referred to above will be one year in the case of termination of employment for death or disability. The Company repurchase rights described above shall not apply so long as the optionholder is working for any company controlled by Jay Walker. TAX STATUS: The options will be non-qualified options (meaning the holder will have taxable ordinary income upon exercise of the options and the Company will have a tax deduction in the amount of the difference between the fair market value of the stock at that time and the exercise price). 2 PRICELINE.COM LLC 1997 OMNIBUS PLAN 1. ESTABLISHMENT AND PURPOSE. There is hereby adopted the PriceLine.com LLC 1997 Omnibus Plan (the "Plan"). This Plan is intended to promote the interests of PriceLine.com LLC (the "Company") by providing employees of the Company with appropriate incentives and rewards to encourage 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. The Company is a limited liability company formed under Delaware Law. It is contemplated that the Company may reorganize as a corporation in the future and that the corporate successor for the Company will carry on the Plan. Certain references in the Plan may only be applicable upon conversion of the Company to corporate form, and upon such conversion references herein to "Units" or "Unitholders" shall mean "stock" or "stockholders" of a corporate successor. 2. DEFINITIONS. As used in the Plan, the following definitions apply to the terms indicated below: (a) "Agreement" shall mean the written agreement between the Company and a Participant evidencing an Incentive Award. (b) "Board of Managers" shall mean the Board of Managers or, upon conversion of the Company to corporate form, the Board of Directors of the Company. (c) "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(c), 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. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (e) "Committee" shall mean the Option Committee of the Board of Managers, or, if no such Committee has been constituted by the Board of Managers, then the Board of Managers of the Company. (f) "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. (g) "Effective Date" shall mean the date upon which this Plan is adopted by the Board of Managers. (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (i) "Executive Officer" shall have the meaning set forth in Rule 3b-7 promulgated under the Exchange Act. (j) "Fair Market Value" of a Unit, as of a date of determination, shall mean (1) the closing sales price per Unit on the national securities exchange on which Units are principally traded for the last preceding date on which there was a sale of Units on such exchange, or (2) if the Units are not listed or admitted to trading on any such ex- 2 change, the closing price as reported by the NASDAQ Stock Market for the last preceding date on which there was a sale of Units on such exchange, or (3) if the Units are not listed on the NASDAQ Stock Market, the average of the highest reported bid and lowest reported asked prices for the Units as reported by the National Association of Securities Dealers, Inc. Automated Quotations System for the last preceding date on which there was a sale of the Units in such market, or (4) if the Units are not then listed on a national securities exchange or traded in an over-the-counter market or the value of Units is not otherwise determinable, such value as determined by the Committee in good faith. (k) "Family Member" shall mean, as to any natural Person, a parent, child, descendant, spouse or sibling of the Person, the spouse of any of the foregoing, or the estate, any guardian, custodian or conservator of the Person or any of the foregoing, or a trust of which there are and continue to be, during the term of this Plan, no principal beneficiaries other than the foregoing. (l) "Holdback Period" shall mean the period of time after the Initial Public Offering Date during which a Participant may not exercise or sell or distribute publicly, including a sale pursuant to Rule 144 under the Securities Act, an Incentive Award, which period of time shall be equal to 180 days or such shorter period of time as the Committee may agree in writing. (m) "Incentive Award" shall mean any Option, Tandem UAR, Stand-Alone UAR, Restricted Units, Phantom Units, Unit Bonus or Other Award granted pursuant to the terms of the Plan. (n) "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. (o) "Initial Manager" shall mean a Non-Employee Manager of the Company who is a member of the Board of Managers on the Effective Date. 3 (p) "Initial Public Offering Date" shall mean the date on which the Company first sells Units in a public offering pursuant to an effective registration statement under the Securities Act. (q) "Issue Date" shall mean the date established by the Company on which certificates representing Restricted Units shall be issued by the Company pursuant to the terms of Section 10(e). (r) "Manager" shall mean a member of the Board of Managers. (s) "Non-Employee Manager" shall mean a member of the Board of Managers who is not and has never been an employee of the Company. (t) "Non-Qualified Unit Option" shall mean an Option other than an Incentive Stock Option. (u) "Option" shall mean an option to purchase Units granted pursuant to Section 7. (v) "Other Award" shall mean an award granted pursuant to Section 13 hereof (w) "Partial Exercise" shall mean an exercise of an Incentive Award for less than the full extent permitted at the time of such exercise. (x) "Participant" shall mean (1) an employee or consultant of the Company to whom an Incentive Award is granted pursuant to the Plan and (2) upon the death of an individual described in (1), his or her successors, heirs, executors and administrators, as the case may be. (y) "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, (4) a corporation owned, directly or indirectly, by the unitholders of the Company in substantially the same proportions as their ownership of 4 Units of the Company or (5) Jay Walker or any of his Family Members or Family Members of such Family Members. (z) "Phantom Units" shall mean the right, granted pursuant to Section 11, to receive in cash the Fair Market Value of a Unit. (aa) "Reload Option" shall mean a Non-Qualified Stock Option granted pursuant to Section 7(c)(6). (bb) "Restricted Units" shall mean a Unit which is granted pursuant to the terms of Section 10 hereof and which is subject to the restrictions set forth in Section 10(c). (cc) "Rule 16b-3" shall mean the Rule 16b-3 promulgated under the Exchange Act, as amended from time to time. (dd) "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. (ee) "Stand-Alone UAR" shall mean a Unit appreciation right which is granted pursuant to Section 9 and which is not related to any Option. (ff) "Unit Bonus" shall mean a bonus payable in Units granted pursuant to Section 12. (gg) "Subsequent Manager" shall mean a Non-Employee Manager of the Company who becomes a member of the Board of Managers subsequent to the Effective Date. (hh) "Subsidiary" shall mean a "subsidiary corporation" within the meaning of Section 424(f) of the Code. (ii) "Tandem UAR" shall mean a Unit appreciation right which is granted pursuant to Section 8 and which is related to an Option. (jj) "Units" shall mean the units of equity of the Company issued pursuant to the Limited Liability Company Agreement pertaining to the Company dated as of July 18, 1997. 5 (kk) "Vesting Date" shall mean the date established by the Committee on which Restricted Units or Phantom Units may vest. 3. STOCK SUBJECT TO THE PLAN (a) UNITS AVAILABLE FOR AWARDS The maximum number of Units reserved for issuance under the Plan shall be 18,000,000 Units (subject to adjustment as provided herein). The Committee may direct that any Unit certificate evidencing Units issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such Units pursuant to the Plan. The grant of a Tandem UAR, a Stand-Alone UAR or Phantom Units shall not reduce the number of Units with respect to which Incentive Awards may be granted pursuant to the Plan. (b) ADJUSTMENT FOR CHANGE IN CAPITALIZATION. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Units or other property), recapitalization, Unit split, reverse Unit split, reorganization, merger, consolidation, spin-off, combination, repurchase, or Unit exchange, or other similar transaction or event, affects Units such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (1) the number and kind of Units which may thereafter be issued in connection with Incentive Awards, (2) the number and kind of Units issued or issuable in respect of outstanding Incentive Awards, (3) the exercise price, grant price or purchase price relating to any Incentive Award, and (4) the maximum number of Units subject to Incentive Awards which may be awarded to any employee during any tax year of the Company; provided that, with respect to Incentive Stock Options, such adjustment shall be made in accordance with Section 424 of the Code. 6 (c) RE-USE OF UNITS. The following Units shall again become available for Incentive Awards: except as provided below, any Units subject to an Incentive Award that remain unissued upon the cancellation, surrender, exchange or termination of such award for any reason whatsoever; and any Restricted Units forfeited. Notwithstanding the foregoing, upon the exercise of any Incentive Award granted in tandem with any other Incentive Awards, such related Awards shall be canceled to the extent of the number of Units as to which the Incentive Award is exercised and such number of Units shall no longer be available for Incentive Awards under the Plan. 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, without limitation, the authority to grant Incentive Awards; to determine the persons to whom and the time or times at which Incentive Awards shall be granted; to determine the type and number of Incentive Awards to be granted, the number of Units to which an Award may relate and the terms, conditions, restrictions and performance criteria relating to any Incentive Award; to determine whether, to what extent, and under what circumstances an Incentive 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 Incentive 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 or Stand-Alone UAR 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 7 terms of such Option or Stand-Alone UAR, and (b) accelerate the Vesting Date or Issue Date, or waive any condition imposed hereunder, with respect to any Restricted Units, Phantom Units or other Incentive Award or otherwise adjust any of the terms applicable to any such Incentive Award. 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 the Limited Liability Company Agreement of the Company) 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. The persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be such employees, consultants and Managers of the Company as the Committee shall select from time to time. 6. AWARDS UNDER THE PLAN; AGREEMENT. The Committee may grant Options, Tandem UARs, Stand-Alone UARs, Restricted Units, Phantom Units, Unit Bonuses and Other Awards in such amounts and with such terms and conditions as the Committee shall determine, subject to the provisions of the Plan. Each Incentive Award granted under the Plan (except an unconditional Unit Bonus) shall be evidenced by an Agreement which shall contain such provisions as the Committee may in its sole discretion deem necessary or desirable. By accepting an Incentive Award, a Participant thereby agrees that the award shall be subject to all of the terms and provisions of the Plan and the applicable Agreement. 8 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 Unit Option. (b) APPROVAL UPON CONVERSION TO CORPORATION. In order that options intended to be Incentive Stock Options qualify as such under the Code, within twelve (12) months following the conversion of the Company to a corporation, the stockholders of the Company shall approve the Plan in accordance with the then applicable provisions of the corporate charter and by-laws and the applicable law prescribing the method and degree of stockholder approval required for the issuance of corporate stock or options. (c) EXERCISE PRICE. Each Agreement with respect to an Option shall set forth the amount (the "option exercise price") payable by the grantee to the Company upon exercise of the Option. The option exercise price per Unit shall be determined by the Committee; provided, however, that in the case of an Incentive Stock Option, the option exercise price shall in no event be less than the Fair Market Value of a Unit on the date the Option is granted. (d) TERM AND EXERCISE OF OPTIONS. (1) Incentive Stock Option must be granted within ten (10) years from the earlier of (i) the date the Plan is adopted or (ii) the date the Plan is approved by the stockholders of the Company pursuant to Section 7(b) above. (2) 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; 9 provided, however, that no Option shall be exercisable more than 10 years after the date of grant. Unless the applicable Agreement provides otherwise, no Option shall be exercisable prior to the first anniversary of the date of grant. (3) An Option may be exercised for all or any portion of the Units 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. (4) An Option shall be exercised by delivering notice to the Company's principal office, to the attention of is Secretary. Such notice shall be accompanied by the applicable Agreement, shall specify the number of Units 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 Units 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 Units 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. (5) Certificates for Units purchased upon the exercise of an Option shall be issued in the name of the Participant or other person entitled to receive such Units, and delivered to the Participant or such other person as soon as practicable following the effective date on which the Option is exercised. (6) The Committee shall have the authority to specify, at the time of grant or, with respect to Non-Qualified Unit Options, at or after the time of grant, that a Participant shall be granted a new 10 Non-Qualified Unit Option (a "Reload Option") for a number of Units equal to the number of Units surrendered by the Participant upon exercise of all or a part of an Option in the manner described in Section 7(d)(4)(ii) above, subject to the availability of Units 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. (7) Each Option by its terms shall be nontransferable other than at death and must be exercisable during the Participant's lifetime only by the Participant. (e) LIMITATIONS ON INCENTIVE STOCK OPTIONS. (1) To the extent that the aggregate Fair Market Value of Units 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 Unit 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) Units possessing more than ten 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 Company 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. 11 (f) 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 the later of (x) such termination or (y) the Initial Public Offering Date plus the Holdback Period, 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(f)(1) shall be extended to one year from the later of (x) such termination or (y) the Initial Public Offering Date plus the Holdback Period, 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 the later of (x) such termination or (y) the Initial Public Offering Date plus the Holdback Period, 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 outstanding Options granted to such Participant 12 shall expire at the commencement of business on the date of such termination. 8. TANDEM UARs. The Committee may grant in connection with any Option granted hereunder, one or more Tandem UARs relating to a number of Units less than or equal to the number of Units subject to the related Option. A Tandem UAR granted in connection with an Option must be granted at the same time that such Option is granted; provided, however, that a Tandem UAR granted in connection with a Non-Qualified Unit Option may be granted subsequent to the time that such Non-Qualified Unit Option is granted. (a) BENEFIT UPON EXERCISE. The exercise of a Tandem UAR with respect to any number of Units shall entitle the Participant to a cash payment, for each such Unit, equal to the excess of (1) the Fair Market Value thereof on the exercise date over (2) the option exercise price of the related Option. Such payment shall be made as soon as practicable after the effective date of such exercise. (b) TERM AND EXERCISE OF TANDEM UAR. (1) A Tandem UAR shall be exercisable only if and to the extent that its related Option is exercisable. (2) The exercise of a Tandem UAR with respect to a number of Units shall cause the immediate and automatic cancellation of its related Option with respect to an equal number of Units. The exercise of an Option, or the cancellation, termination or expiration of an Option (other than pursuant to this Section 8(b)(2)), with respect to a number of Units shall cause the automatic and immediate cancellation of any related Tandem UARs to the extent of the number of Units subject to such Option which is so exercised, canceled, terminated or expired. (3) A Tandem UAR may be exercised for all or any portion of the Units as to which it is exercisable; provided, that no Partial 13 Exercise of a Tandem UAR shall be for an aggregate exercise price of less than S 1,000. (4) No Tandem UAR shall be assignable or transferable otherwise than together with its related Option. (5) A Tandem UAR 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 Units with respect to which the Tandem UAR 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 to which the Tandem UAR is related. 9. STAND-ALONE UARs. (a) EXERCISE PRICE. The exercise price per Unit of a Stand-Alone UAR shall be determined by the Committee at the time of grant, but shall in no event be less than the Fair Market Value of a Unit on the date of grant. (b) BENEFIT UPON EXERCISE. The exercise of a Stand-Alone UAR with respect to any number of Units shall entitle the Participant to a payment, for each such Unit, equal to the excess of (1) the Fair Market Value thereof on the exercise date over (2) the exercise price of the StandAlone UAR. Such payments shall be made as soon as practicable after such exercise, in cash and/or Units as determined by the Committee. (c) TERM AND EXERCISE OF STAND-A LONE UARS. (1) Unless the applicable Agreement provides otherwise, a Stand-Alone UAR 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 14 standalone UAR. Unless the applicable Agreement provides otherwise, no Standalone UAR shall be exercisable prior to the first anniversary of the date of grant. (2) A Stand-Alone UAR may be exercised for all or any portion of the Units as to which it is exercisable; provided, that no Partial Exercise of a Stand-Alone UAR shall be for an aggregate exercise price of less than $1,000. (3) A Stand-Alone UAR 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 Units with respect to which the Stand-Alone UAR is being exercised, and the effective date of the proposed exercise, and shall be signed by the Participant. (d) EFFECT OF TERMINATION OF EMPLOYMENT. The provisions set forth in Section 7(f) with respect to the exercise of Options following termination of employment shall apply as well to such exercise of Standalone UARs. 10. RESTRICTED UNITS. (a) ISSUE DATE AND VESTING DATE. At the time of the grant of Restricted Units, the Committee shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such Units. The Committee may divide such Units 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 Restricted Units shall be issued in accordance with the provisions of Section 10(e). Provided that all conditions to the vesting of Restricted Units imposed pursuant to Section 10(b) are satisfied, and except as provided in Section 10(g), upon the occurrence of the Vesting Date with respect to Restricted Units, such Units shall vest and the restrictions of Section 10(c) shall lapse. 15 (b) CONDITIONS TO VESTING. At the time of the grant of Restricted Units, the Committee may impose such restrictions or conditions to the vesting of such Units as it, in its absolute discretion, deems appropriate. (c) RESTRICTIONS ON TRANSFER PRIOR TO VESTING. Prior to the vesting of any Restricted Units, no transfer of a Participant's rights with respect to such Unit, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such Units, and all of the rights related thereto, shall be forfeited by the Participant. (d) DIVIDENDS ON RESTRICTED UNIT. The Committee in its discretion may require that any dividends or distributions paid on Restricted Units be held in escrow until all restrictions on such Units have lapsed. (e) ISSUANCE OF CERTIFICATES. (1) Reasonably promptly after the Issue Date with respect to Restricted Units, the Company shall cause to be issued a certificate, registered in the name of the Participant to whom such Units were granted, evidencing such Units; 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 Units. Each such certificate shall bear the following legend: THE TRANSFERABILITY OF THIS CERTIFICATE AND THE UNITS REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS AND CONDITIONS (INCLUDING FORFEITURE PROVISIONS AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE PRICELINE.COM LLC 1997 OMNIBUS PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER OF SUCH UNITS AND PRICELINE.COM LLC. A 16 COPY OF THE PLAN AND AGREEMENT IS ON FILE IN THE OFFICE OF THE SECRETARY OF THE COMPANY. Such legend shall not be removed until such Units vest pursuant to the terms hereof. (2) Each certificate issued pursuant to this Section 10(e), together with the powers relating to the Restricted Units 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 Units pursuant to the terms hereof, the restrictions of Section 10(c) shall lapse with respect to such Units. Reasonably promptly after any Restricted Units vest, the Company shall cause to be delivered to the Participant to whom such Units were granted a certificate evidencing such Units, free of the legend set forth in Section 10(e). (g) EFFECT OF TERMINATION OF EMPLOYMENT. (1) 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 Units 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 Units, then the Participant shall continue to be the owner of such Units subject to such continuing restrictions as the Committee may prescribe in such notice. In the event of a forfeiture of Units pursuant to this section, the Company shall repay to the Participant (or the Participants estate) any amount paid by the Participant for such Units. In the event that the Company requires a return of Units, it shall also have the 17 right to require the return of all dividends or distributions paid on such Units, whether by termination of any escrow arrangement under which such dividends or distributions are held or otherwise. (2) In the event of the termination of a Participant's employment for Cause, all Restricted Units 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 Units, in return for which the Company shall repay to the Participant any amount paid by the Participant for such Units. (h) SPECIAL PROVISIONS REGARDING AWARDS. Notwithstanding anything to the contrary contained herein, Restricted Units granted pursuant to this Section 10 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, based on one or more of the following criteria: (1) the attainment of a specified percentage return on total owner equity; (2) the attainment of a specified percentage increase in earnings per Unit, (3) the attainment of a specified percentage increase in net income (before or after taxes); (4) the attainment of a specified percentage increase in earnings before interest, taxes, depreciation and amortization; (5) a specified percentage increase in earnings before interest and income taxes, as adjusted for office overhead expense allocation; (6) a specified percentage increase in revenues; (7) a specified minimum return on assets; and (8) such other criteria as the unitholders of the Company may approve; in each case, as determined in accordance with generally accepted accounting principles. Such Restricted Units shall be released from restrictions only after the attainment of such performance measures have been certified by the Committee. 18 11. PHANTOM UNITS. (a) VESTING DATE. At the time of the grant of Phantom Units, the Committee shall establish a Vesting Date or Vesting Dates with respect to such Units. The Committee may divide such Units into classes and assign a different Vesting Date for each class. Provided that all conditions to the vesting of Phantom Units imposed pursuant to Section 11(c) are satisfied, and except as provided in Section 11(d), upon the occurrence of the Vesting Date such Phantom Units shall vest. (b) BENEFIT UPON VESTING. Upon the vesting of Phantom Units, the Participant shall be entitled to receive, within 30 days of the date on which the same shall vest, an amount, in cash and/or Units, as determined by the Committee, equal to the sum of (1) the Fair Market Value thereof on the date on which such Phantom Units vest and (2) the aggregate amount of cash dividends or distributions paid during the period commencing on the date on which such Phantom Units were granted and terminating on the date on which they vest. (c) CONDITIONS TO VESTING. At the time of the grant of Phantom Units, the Committee may impose such restrictions or conditions to the vesting of such Units as it, in its absolute discretion, deems appropriate. (d) 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, Phantom Units that have not vested, together with any dividends or distributions credited on such Units, shall be forfeited upon the Participant's termination of employment for any reason. 19 (e) SPECIAL PROVISIONS REGARDING AWARDS. Notwithstanding anything to the contrary contained herein, the vesting of Phantom Units granted pursuant to this Section 11 to Executive Officers may be based on the attainment by the Company (or a Subsidiary or division of the Company if applicable) of one or more of the performance criteria set forth in Section 10(h) hereof, in each case, as determined in accordance with generally accepted accounting principles. No payment in respect of any such Phantom Units award will be paid to an Executive Officer until the attainment of the respective performance measures have been certified by the Committee. 12. STOCK BONUSES. In the event that the Committee grants a Unit Bonus, a certificate for the Units comprising such Unit Bonus shall be issued in the name of the Participant to whom such grant was made and delivered to such Participant as soon as practicable after the date on which such Unit Bonus is payable. Executive Officers shall be eligible to receive Unit Bonus grants hereunder only after a determination of eligibility is made by the Committee, in its sole discretion. 13. OTHER AWARDS. Other forms of Incentive Awards ("Other Awards") valued in whole or in part by reference to, or otherwise based on, Units may be granted either alone or in addition to other Incentive 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 Awards shall be granted, the number of Units to be granted pursuant to such Other Awards and all other conditions of such Other Awards. 14. RIGHTS AS A UNITHOLDER. No person shall have any rights as a member or unitholder with respect to any Units covered by or relating to any Incentive Award until the date of issuance of a certificate with respect to such Units. Except as otherwise expressly provided in Section 3(b), no adjustment to any Incentive Award shall be made for dividends or other rights prior to the date such certificate is issued. 20 15. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE 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 Incentive Award hereunder. The Committee's granting of an Incentive Award to a participant at any time shall neither require the Committee to grant any other Incentive 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. 16. 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 Units 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 Units 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 Units are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing Units pursuant to the terms hereof, that the recipient of such Units 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 Units hereunder shall be effective only at such time as counsel to the Company shall have determined that the issuance and delivery of such Units is in compliance with all applicable laws, regulations of governmental authority, the requirements of any securities, exchange on which Units are traded and the terms and conditions of the Company's Limited Liability Company Agreement. The Committee may, in its sole discretion, defer the effectiveness of 21 any transfer of Units hereunder in order to allow the issuance of such Units 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. 17. WITHHOLDING TAXES. Whenever cash is to be paid pursuant to an Incentive Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever Units are to be delivered pursuant to an Incentive 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 Units having a value equal to the amount of tax to be withheld. Such Units shall be valued at their Fad Market Value on the date of which the amount of tax to be withheld is determined (the "Tax Date"). Fractional Unit amounts shall be settled in cash. Such a withholding election may be made with respect to all or any portion of the Units to be delivered pursuant to an Incentive Award. 18. NOTIFICATION OF ELECTION UNDER SECTION 83(b) OF THE CODE. If any Participant shall, in connection with the acquisition of Units 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. 22 19. NOTIFICATION UPON DISQUALIFYING DISPOSITION UNDER SECTION 421(b) OF THE CODE. Each Participant shall notify the Company of any disposition of Units 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. 20. AMENDMENT OR TERMINATION OF THE PLAN. The Board of Managers may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that unitholder approval shall be required if and to the extent required by Rule 16b-3 or by any comparable or successor exemption under which the Board of Managers believes it is appropriate for the Plan to qualify, or if and to the extent the Board of Managers determines that such approval is appropriate for purposes of satisfying Section 162(m) or 422 of the Code. Incentive 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 other-wise 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 Incentive Award. 21. TRANSFERS UPON DEATH; NONASSIGNABILITY. Upon the death of a Participant, outstanding Incentive 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 Incentive 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 Incentive 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 Incentive Award. 23 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. 22. EXPENSES AND RECEIPTS. The expenses of the Plan shall be paid by the Company. Any proceeds received by the Company in connection with any Incentive Award will be used for general corporate purposes. 23. 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 Incentive Award, in whole or in part, as the Committee, in its absolute discretion, may determine. 24. EFFECTIVE DATE AND TERM OF PLAN. The Plan became effective on the Effective Date, but the Plan (and any grants of Incentive Awards made prior to approval of the Plan) shall be subject to any requisite approval of the unitholders of the Company. Unless earlier terminated by the Board of Managers, the right to grant Incentive Awards under the Plan will terminate on the tenth anniversary of the Effective Date. Incentive Awards outstand- 24 ing at Plan termination will remain in effect according to their terms and the provisions of the Plan. 25. 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. 26. 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 Incentive Award shall have no rights as a unitholder with respect to any Units covered by any award until the date of the issuance of a certificate to him or her for such Units. 27. 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 Incentive 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. 28. BENEFICIARY. If 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. 29. INTERPRETATION. The Plan is designed and intended to comply with Rule 16b-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. Further, in the event there is a conflict between the terms of the Plan or any Optionholder Agreement and the terms of the Company's 25 Limited Liability Agreement or other organizational documents, the provisions of such Limited Liability Company Agreement or other organizational document shall control. 30. 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. 26 EX-10.5 5 PURCHASE & INTERCOMPANY SERVICES AGREEMENT Exhibit 10.5 PURCHASE AND INTERCOMPANY SERVICES AGREEMENT THIS PURCHASE AND INTERCOMPANY SERVICES AGREEMENT (this "AGREEMENT"), by and among WALKER ASSET MANAGEMENT LIMITED PARTNERSHIP, a Connecticut limited partnership ("WAMP"), WALKER DIGITAL CORPORATION, a Delaware corporation ("WALKER DIGITAL" and, together with WAMP, collectively, the "WALKER PARTIES"), PRICELINE.COM LLC, a Delaware limited liability company ("PRICELINE.COM"), and PRICELINE TRAVEL, INC., a Delaware corporation ("PRICELINE TRAVEL" and, together with priceline.com, collectively the "PRICELINE PARTIES"). This Agreement shall be effective as of the 6th day of April, 1998 (the "EFFECTIVE DATE") unless another date is expressly stated. WHEREAS, WAMP, Walker Digital, priceline.com and PriceLine Travel are affiliated business entities; and WHEREAS, Walker Digital has previously invested $500,000 in priceline.com (the "INVESTMENT") in exchange for the issuance of common equity interests in priceline.com that have not yet been issued by priceline.com; and WHEREAS, subject to the terms and conditions set forth in this Agreement, WAMP desires to (i) transfer, convey, sell and assign to priceline.com all of its right, title and interest in and to the patents and patent applications listed on SCHEDULE A annexed hereto and made a part hereof, which patents were developed by WAMP for Buyer-Driven Commerce (as defined below) applications, products and services (collectively, the "PATENTS"), (ii) transfer, convey, sell and assign to priceline.com the trademarks and servicemarks and all related applications (including intent to use applications) listed on SCHEDULE B annexed hereto and made a part hereof, owned by WAMP and used or intended for use in connection with the commercial exploitation of the Buyer-Driven Commerce applications, products and services of WAMP (the "TRADEMARKS"); and (iii) transfer, convey, sell and assign to priceline.com all of its right, title and interest in and to the other assets and intellectual property of WAMP's existing Buyer-Driven Commerce applications, products and services (the "OTHER WAMP ASSETS"); and WHEREAS, subject to the terms and conditions set forth in this Agreement, Walker Digital desires to sublease to the PriceLine Parties certain of the real estate leased by Walker Digital at Five High Ridge Road, Stamford, Connecticut 06905 (the "INTERCOMPANY LEASE"); and 2 WHEREAS, subject to the terms and conditions set forth in this Agreement, Walker Digital desires to provide certain intercompany services to the PriceLine Parties as further described in this Agreement (the "INTERCOMPANY SERVICES"); and WHEREAS, subject to the terms and conditions set forth in this Agreement, priceline.com desires to issue common equity interests in priceline.com to Walker Digital in connection with the Investment, and purchase and acquire the Patents, the Trademarks and the Other WAMP Assets, and the PriceLine Parties desire to accept and receive the Intercompany Lease and the Intercompany Services. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS Defined terms used in this Agreement but not defined elsewhere in this Agreement shall have the meanings set forth below: 1.1 "BUYER-DRIVEN COMMERCE" shall mean any commerce system or process that permits a prospective buyer to fix the terms and conditions, including price, on which he or she is willing to purchase a particular product or service, with such offer being guaranteed or otherwise secured by the buyer should a seller of the product or service accept the terms of the buyer's offer. 1.2 "INTELLECTUAL PROPERTY" shall mean the Patents and the Trademarks, together with all knowledge, know how, trade secrets, copyrights and all other intellectual property of WAMP for use with or otherwise relating to Buyer-Driven Commerce applications, products and services, and all goodwill associated with all of the foregoing. 1.3 "PERSON" shall mean any natural person, corporation, partnership, association, sole proprietorship, trust, joint venture, limited liability company, general partnership, limited partnership, trust association or other business entity. 1.4"SUCCESSOR" or "SUCCESSORS" shall mean any Person who succeeds to the business of priceline.com LLC whether by merger, conversion of equity securities, 3 acquisition of equity interests, operation of law, acquisition of all or substantially all of priceline.com's assets, assignment or otherwise. ARTICLE II PURCHASE AND SALE 2.1 TRANSFER OF BUYER-DRIVEN COMMERCE ASSETS. In exchange for the consideration to be provided to Walker Digital as set forth in Article III of this Agreement, WAMP does hereby convey, sell, assign and transfer all of its right, title and interest in and to the following: (a) The Patents, including all worldwide applications and registrations therefor, and all rights to recover for any prior infringements of the Patents; (b) The Trademarks, including all goodwill associated therewith, all worldwide applications and registrations therefor, and all rights to recover for any prior infringements of the Trademarks; and (c) All other Intellectual Property (other than the Patents and the Trademarks) owned, used or held for use by WAMP on or prior to the Effective Date. 2.2 REPRESENTATIONS AND WARRANTIES OF THE WALKER PARTIES. The Walker Parties hereby represent and warrant to priceline.com as follows: (a) All right, title and interest in and to the Intellectual Property is owned by WAMP, free and clear of all liens, security interests, license grants, mortgages or other encumbrances of any nature whatsoever; (b) The Intellectual Property represents the existing Buyer-Driven Commerce applications, products and services of WAMP; and (c) To the knowledge of the Walker Parties, no registration in respect of the Intellectual Property, or application to register the Intellectual Property, has lapsed, expired, been abandoned or been canceled. The Walker Parties shall, jointly and severally, indemnify priceline.com and its Successors and hold such Persons harmless from and against any and all claims, actions, suits, 4 proceedings, liabilities, damages, legal fees (including the costs of defense) or any other liabilities or obligations arising from or relating to a breach of any of the above representations and warranties. 2.3 RIGHT TO PURCHASE. In addition to the Intellectual Property conveyed to priceline.com pursuant to Section 2.1 above, the Walker Parties hereby grant to priceline.com and its Successors the right to purchase any inventions, patents and other intellectual property owned by one or both of the Walker Parties and acquired, developed or discovered by one or both of the Walker Parties any time after the Effective Date (the "ADDITIONAL INTELLECTUAL PROPERTY"), provided that the Additional Intellectual Property is in process or has been fully developed and will provide significant value in the use or commercial exploitation of the Buyer-Driven Commerce Intellectual Property sold and assigned to priceline.com hereunder. Priceline.com and its Successors may exercise its right to purchase such Additional Intellectual Property by written notice to the Walker Parties. Any such purchase shall be at the fair market value of the Additional Intellectual Property being sold, as determined in good faith by the parties to the transaction. In the event that a Walker Party elects to sell all or any portion of the Additional Intellectual Property to any Person other than priceline.com or a Successor, the Walker Party shall provide priceline.com or its Successor of notice of such intent and priceline.com or the Successor shall have the right to purchase the same at fair market value as described in this Section 2.3. 2.4 WAMP ASSIGNMENTS. Concurrently with the parties execution and delivery of this Agreement, WAMP shall execute and deliver to priceline.com a Patent Assignment and a Trademark Assignment, each in the forms annexed hereto as EXHIBIT A and EXHIBIT B, respectively. In addition to the foregoing, WAMP and Walker Digital (as applicable) shall, from and after the Effective Date and upon the reasonable request of priceline.com or its Successors, execute and deliver to priceline.com or such Successor, good and sufficient bills of sale, assignment and other instruments of transfer, each in recordable form, to sell, assign and transfer to and vest in priceline.com or such Successor good and marketable title to the Intellectual Property and/or the Additional Intellectual Property herein conveyed, sold, assigned and transferred, and all rights, title and interests in and to such Intellectual Property and/or Additional Intellectual Property, such instruments to be in a form and having such content reasonably satisfactory to counsel to priceline.com or such Successor. 5 ARTICLE III CONSIDERATION In consideration of the Investment and the rights, conveyances, covenants, representations and warranties of the Walker Parties as set forth in Article II of this Agreement and Walker Digital's Initial Investment, priceline.com hereby agrees as follows: (a) Effective as of January 1, 1998, priceline.com hereby agrees to issue to Walker Digital 6,016,667 units of common equity interests of priceline.com. In connection with the foregoing, Walker Digital hereby ratifies, adopts, accepts and agrees to be bound by all of the terms and conditions of the priceline.com Limited Liability Agreement effective as of July 18, 1997 as if Walker Digital was an actual signatory thereto. (b) Simultaneously with the parties' execution and delivery of this Agreement, priceline.com hereby grants to Walker Digital a perpetual, non-exclusive, royalty free right and license to use, solely for non-commercial uses (meaning any use for internal development and research purposes and without any right of commercial exploitation), all or any portion of (i) the Intellectual Property other than the Trademarks, and (ii) all know-how, knowledge, copyrights, patents and other intellectual property (but excluding any trademarks, servicemarks, tradenames, trade dress, insignias, logos or other similar items), developed and owned by priceline.com from and after the Effective Date and designed or intended for use in Buyer-Driven Commerce applications, products or services. In the event that Walker Digital exceeds the scope and purpose of the license granted under this subsection (e), such license may be terminated by priceline.com or its Successors immediately by providing notice of termination to the Walker Parties, and all rights granted under this subsection (e) shall immediately revert to and be fully vested in priceline.com or its Successor. ARTICLE IV INTERCOMPANY LEASE 4.1 LEASE OF SPACE. Commencing on and as of the Effective Date and continuing on a month-to-month basis thereafter, Walker Digital shall sublease to the PriceLine Parties all or a portion of the real estate leased by Walker Digital at Five High Ridge Park, Stamford, Connecticut 06905 (the "WALKER LEASED SPACE"). The portions of 6 the Walker Leased Space subject to the Intercompany Lease may, depending on the occupancy requirements of the PriceLine Parties, fluctuate from time to time during the term of the Intercompany Lease. On not less than a quarterly basis commencing with the calendar quarter beginning July 1, 1998, Walker Digital and priceline.com shall determine in good faith the portion of the Walker Leased Space then occupied by the PriceLine Parties (the "PRICELINE OCCUPIED SPACE") for purposes of the payment obligations of the PriceLine Parties set forth in section 4.2 below. 4.2 LEASE AND OTHER PAYMENTS. The monthly rent payable by the PriceLine Parties under the Intercompany Lease shall be equal to Walker Digital's monthly base rental payment for leasing the PriceLine Occupied Space then occupied by the PriceLine Parties (as determined by Walker Digital and priceline.com as required by Section 4.1 above). In addition to the foregoing, the PriceLine Parties shall pay to Walker Digital, on a monthly basis after invoice from Walker Digital (i) their proportionate share, based on the then current PriceLine Occupied Space, of the monthly out-of-pocket cost to Walker Digital for all utilities (other than telephone and telecom services), taxes and maintenance, cleaning, security and repair fees paid by Walker Digital with respect to the Walker Leased Space, (ii) their proportionate share, based on usage, of the monthly out-of-pocket cost to Walker Digital for the provision of third party telephone and telecom services to the PriceLine Parties, and (iii) their proportionate share, based on the usage of the PriceLine Parties, of the monthly out-of-pocket cost to Walker Digital for all capital equipment located at or on the Walker Leased Space (such as photocopy and facsimile equipment and leased appliances), PROVIDED, HOWEVER, that all telephones (including cellular telephones), personal computers and printers used by the PriceLine Parties and owned or leased by Walker Digital shall be paid for by the PriceLine Parties based on the actual out-of-pocket cost to Walker Digital for the provision of each such item to the PriceLine Parties. 4.3 LEASE TERM. The Intercompany Lease will continue on a month-to-month basis until terminated by Walker Digital or a PriceLine Party on at least ninety (90) days prior written to the other parties. A PriceLine Party may freely assign its rights and obligations under the Intercompany Lease to any affiliate or any Successor without the consent of Walker Digital. 7 ARTICLE V SUPPORT SERVICES 5.1 INTERCOMPANY SERVICES. For a period not to exceed three (3) years from the Effective Date unless otherwise extended by Walker Digital and priceline.com, Walker Digital shall provide to priceline.com, or to PriceLine Travel at priceline.com's request, any legal, technical, consulting or other services requested from time to time by priceline.com; PROVIDED, HOWEVER, that Walker Digital personnel, at the time of such request, possess the requisite experience and knowledge necessary to provide such Intercompany Services and have reasonable time availability to provide such Intercompany Services within the time requested. Any Intercompany Services provided by Walker Digital that are legal in nature shall be at the direction of, and shall be supervised by, the Chief Legal Officer of priceline.com. 5.2 INTERCOMPANY SERVICES FEE. Priceline.com shall pay for the Intercompany Services on a per project or assignment basis. The fee shall be commercially reasonable and shall be negotiated in good faith by priceline.com and Walker Digital. 5.3 NO REQUIRED USE. Nothing herein shall prohibit priceline.com from engaging any other person to provide legal, technical, consulting or other services to priceline.com. Without limiting the generality of the foregoing, nothing herein shall prohibit priceline.com from engaging any other Persons to perform any or all services that make up the Intercompany Services without first requesting Walker Digital to provide such services. ARTICLE VI MISCELLANEOUS PROVISIONS 6.1 WAIVER; MODIFICATION. No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, waiver, modification or discharge is agreed to in writing and signed by each of the parties hereto or a duly authorized representative thereto. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8 6.2 INVALIDITY. If any provision of this Agreement shall be determined by any court of competent jurisdiction to be unenforceable or invalid to any extent, the remainder of this Agreement shall not be affected thereby, and this Agreement shall be construed to the fullest extent possible as to give effect to the intentions of the provision found unenforceable or invalid. 6.3 PARTIES IN INTEREST. This Agreement may not be assigned by a Walker Party without the prior written consent of priceline.com (whether by a sale of all or substantially all of its assets, a change in control or by operation of law), which consent shall not be unreasonably withheld or delayed. This Agreement shall be binding upon the parties hereto and all Successors. 6.4 EXPENSES. Except as otherwise specifically provided for herein, each party hereto shall bear all expenses incurred by it in connection with this Agreement including, without limitation, the charges of its counsel, accountants and other experts. 6.5 NOTICES. All notices and other communications provided for hereunder shall be in writing and shall be delivered to each party hereto by hand or sent by reputable overnight courier, with receipt verified, or registered or certified mail, return receipt requested, addressed as follows: If to WAMP: Walker Asset Management Limited Partnership Four High Ridge Park Stamford, CT 06905 Attention: President, Chief Operating Officer or Chief Legal Officer of the General Partner If to Walker Digital: Walker Digital Corporation Five High Ridge Park Stamford, CT 06905 Attention: President, Chief Operating Officer or Chief Legal Officer 9 If to priceline.com: Priceline.com LLC Five High Ridge Park Stamford, CT 06905 Attention: President, Chief Operating Officer or Chief Legal Officer If to PriceLine Travel: PriceLine Travel, Inc. Five High Ridge Park Stamford, CT 06905 Attention: President, Chief Operating Officer or Chief Legal Officer or at such other address as either party may specify by notice to the other party given as aforesaid. Such notices shall be deemed to be effective when the same shall be deposited, postage prepaid, in the mail and/or when the same shall have been delivered by hand or overnight courier, as the case may be. If any action or notice is to be taken or given on or by a particular calendar day, and such calendar day is not a business day, then such action or notice may be deferred until, or may be taken or given on, the next business day. 6.6 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut without regard to its conflicts of law principles. 6.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 6.8 HEADINGS. All headings contained in this Agreement are for reference purposes only and shall not in any way effect the meaning or interpretation of any provision or provisions of this Agreement. 6.9 INTEGRATION. This Agreement, and the documents to be delivered in connection therewith, and the exhibits and schedules thereto, if any, set forth the entire 10 agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior and contemporaneous agreements, promises, covenants, arrangements, understandings, communications, representations or warranties, whether oral or written, by any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled. No agreements or representations, whether written, oral, express or implied, with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement and the other documents to be delivered in connection herewith and therewith. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the ___ day of _____, 1998. WALKER ASSET MANAGEMENT WALKER DIGITAL CORPORATION LIMITED PARTNERSHIP By: Walker Digital Corporation, its sole General Partner By:_________________________ By:________________________ Name: Name: Title: Title: PRICELINE.COM. LLC PRICELINE TRAVEL, INC. By:________________________ By:________________________ Name: Name: Title: Title: SCHEDULE A 1. U.S. PATENTS PATENT NO. TITLE 2. U.S. PATENT APPLICATIONS SERIAL NO. TITLE 08/707,660 Method and Apparatus for a Cryptographically Assisted Commercial Network System Designed to Facilitate Buyer-Driven Conditional Purchase Offers 08/889,319 Conditional Purchase Offer Management System 08/923,530 Conditional Purchase Offer Management System for Event Tickets 08/943,266 System and Method for Aggregating Multiple Buyers Utilizing Conditional Purchase Offers (CPOs) 08/923,317 Conditional Purchase Offer Management System for Telephone Calls 08/923,683 Conditional Purchase Offer (CPO) Management System for Packages 08/964,967 Conditional Purchase Offer (CPO) Management System for Collectibles 08/923,524 Conditional Purchase Offer (CPO) and Third-Party Input Management System 08/969,875 Conditional Purchase Offer (CPO) Management System for Vehicle Leases 08/923,618 Conditional Purchase Offer Management System for Cruises 2 08/943,483 System and Method for Facilitating Acceptance of Conditional Purchase Offers (CPOs) 08/997,170 Conditional Purchase Offer Buyer Agency System 3. FOREIGN PATENTS AND PATENT APPLICATIONS COUNTRY APPLN. NO. TITLE WO US97/15492 Conditional Purchase Offer Management System SCHEDULE B Service Marks Owned or Controlled by Walker Asset Management Limited Partnership and Worldwide Applications to Register Therefor Description of Mark Country Appl. No. Filing Date PRICELINE (word) United States 75/218912 27-Dec-96 Canada 848845 24-Jun-97 Community Trademark 595850 25-Jun-97 Japan 132553 27-Jun-97 TRAVEL PRICELINE (word) United States 75/218913 27-Dec-96 PRICELINE.COM (word) United States 75/371458 10-Oct-97 Canada 871380 06-Mar-98 Community Trademark 794537 08-Apr-98 Japan 27911/98 02-Apr-98 SUPER LEISURE (word) United States 75/406667 17-Dec-97 Canada 875442 17-Apr-98 Community Trademark 817494 06-May-98 Japan 39499/98 12-May-98 EXHIBIT A PATENT ASSIGNMENT BY AND BETWEEN WALKER ASSET MANAGEMENT LIMITED PARTNERSHIP AND PRICELINE.COM LLC WHEREAS, Walker Asset Management Limited Partnership, hereinafter "Assignor", a limited partnership organized and existing under the laws of the State of Connecticut and having a principal office at Five High Ridge Park, Stamford, Connecticut, 06905, is the owner of the entire right, title and interest in and to certain patents and patent applications listed on SCHEDULE 1 annexed hereto (collectively referred to as the "Patents"); and WHEREAS, priceline.com LLC, hereinafter "Assignee", a limited liability company organized and existing under the laws of the State of Delaware and having a principal office at Five High Ridge Park, Stamford, Connecticut, 06905, is desirous of acquiring all right, title, and interest in and to the Patents. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor hereby sells, assigns and transfers to Assignee the entire right, title and interest in and to the Patents throughout the world and the inventions and designs covered thereby, including the right to claim priority and the right to any continuation, division, or substitute application thereof and the right to any reissue, restoration, extension or reexamination of any patent thereof, the same to be held and enjoyed by Assignee for its own use and enjoyment, and for the use and enjoyment of its successors, assigns and legal representatives, to the end of the terms for which the Patents have been or will be granted, as fully and entirely as the same would have been held and enjoyed by Assignor if this assignment had not been made; together with all claims by Assignor for damages by reason of past infringement of the Patents with the 2 right to sue for, and collect the same for its own use and benefit, and for the use and benefit of its successors, assigns and other legal representatives. Assignor agrees that when requested by Assignee it will, at the sole cost of Assignee, execute all documents necessary or desirable to properly vest full right, title and interest in and to all Patents throughout the world in the name of Assignee or which, in the sole judgment of Assignee, may be necessary to obtain, maintain, issue or enforce said Patents. IN WITNESS WHEREOF, Walker Asset Management Limited Partnership has caused this Patent Assignment to be executed and delivered as of this __ day of _______, 1998. IN WITNESS WHEREOF, priceline.com LLC accepts this Patent Assignment executed and delivered as of this __ day of _______, 1998. WALKER ASSET MANAGEMENT LIMITED PARTNERSHIP By: Walker Digital Corporation Its Sole General Partner By:_________________________ Name: Title: 3 State of ________________ ) ) ss.: County of ______________ ) On this ____ day of _____, 1998, before me personally came ________________, to me known, who being by me duly sworn, did depose and say that he/she is ______________ of Walker Digital Corporation, the sole general partner of the limited partnership described in and which executed the foregoing instrument; and that he/she signed his/her name thereto by order of the Board of Directors of Walker Digital Corporation. [Notarial Seal] ____________________________________ Notary Public SCHEDULE 1 1. U.S. PATENTS PATENT NO. TITLE 2. U.S. PATENT APPLICATIONS SERIAL NO. TITLE 08/707,660 Method and Apparatus for a Cryptographically Assisted Commercial Network System Designed to Facilitate Buyer-Driven Conditional Purchase Offers 08/889,319 Conditional Purchase Offer Management System 08/923,530 Conditional Purchase Offer Management System for Event Tickets 08/943,266 System and Method for Aggregating Multiple Buyers Utilizing Conditional Purchase Offers (CPOs) 08/923,317 Conditional Purchase Offer Management System for Telephone Calls 08/923,683 Conditional Purchase Offer (CPO) Management System for Packages 08/964,967 Conditional Purchase Offer (CPO) Management System for Collectibles 08/923,524 Conditional Purchase Offer (CPO) and Third-Party Input Management System 08/969,875 Conditional Purchase Offer (CPO) Management System for Vehicle Leases 08/923,618 Conditional Purchase Offer Management System for Cruises 2 08/943,483 System and Method for Facilitating Acceptance of Conditional Purchase Offers (CPOs) 08/997,170 Conditional Purchase Offer Buyer Agency System 3. FOREIGN PATENTS AND PATENT APPLICATIONS COUNTRY APPLN. NO. TITLE WO US97/15492 Conditional Purchase Offer Management System EXHIBIT B TRADEMARK ASSIGNMENT BY AND BETWEEN WALKER ASSET MANAGEMENT LIMITED PARTNERSHIP AND PRICELINE.COM LLC WHEREAS, Walker Asset Management Limited Partnership, hereinafter "Assignor", a limited partnership organized and existing under the laws of the State of Connecticut, having a principal place of business at Five High Ridge Park, Stamford, Connecticut 06905, is the record owner of certain trademark registrations and/or trademark applications listed in SCHEDULE 1 (collectively referred to as the "Marks"); and WHEREAS, priceline.com LLC hereinafter "Assignee", a limited liability company organized and existing under the laws of the State of Delaware, having a place of business at Five High Ridge Park, Stamford, Connecticut 06905, desires to acquire the Marks. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor hereby sells, assigns and transfers to Assignee, its successors and assigns, all of Assignor's right, title and interest, whether statutory or at common law, in and to the Marks, together with the goodwill of the business symbolized by them throughout the world and such other trademarks, service marks, trade names and trade dress as may be owned by Assignor and used in connection with the Marks, and all registrations and pending applications therefor, in all countries throughout the world (collectively, "All Marks"), together with all causes of action for any and all previously occurring infringements of the rights being assigned and the right to receive and retain the proceeds relating to those infringements. 2 Assignor agrees to execute further papers and to do such other acts as may be necessary and proper to vest full title in and to All Marks in the Assignee or which may be necessary to obtain, renew, issue or enforce All Marks. This Trademark Assignment may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, Walker Asset Management Limited Partnership has caused this Trademark Assignment to be executed and delivered as of this ___ day of ____, 1998. IN WITNESS WHEREOF, priceline.com LLC accepts this Trademark Assignment executed and delivered as of this ___ day of _____, 1998. WALKER ASSET MANAGEMENT LIMITED PARTNERSHIP By: Walker Digital Corporation Its Sole General Partner By:_________________________ Name: Title: 3 State of ________________ ) ) ss.: County of ______________ ) On this ____ day of ____, 1998, before me personally came ________________, to me _____ known, who being by me duly sworn, did depose and say that he/she is ______________ of Walker Digital Corporation, the sole general partner of the limited partnership described in and which executed the foregoing instrument; and that he/she signed his/her name thereto by order of the Board of Directors of Walker Digital Corporation. [Notarial Seal] ____________________________________ Notary Public SCHEDULE 1 Service Marks Owned or Controlled by Walker Asset Management Limited Partnership and Worldwide Applications to Register Therefor Description of Mark Country Appl. No. Filing Date PRICELINE (word) United States 75/218912 27-Dec-96 Canada 848845 24-Jun-97 Community Trademark 595850 25-Jun-97 Japan 132553 27-Jun-97 TRAVEL PRICELINE (word) United States 75/218913 27-Dec-96 PRICELINE.COM (word) United States 75/371458 10-Oct-97 Canada 871380 06-Mar-98 Community Trademark 794537 08-Apr-98 Japan 27911/98 02-Apr-98 SUPER LEISURE (word) United States 75/406667 17-Dec-97 Canada 875442 17-Apr-98 Community Trademark 817494 06-May-98 Japan 39499/98 12-May-98 EX-10.(6)(1) 6 EMPLOYMENT AGREEMENT 1/1/98 Exhibit 10.6.1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of January 1, 1998 by and among Mr. Jay Walker (the "Stockholder"), Walker Digital Corporation, a Connecticut corporation ("Walker Digital"), priceline.com LLC, a Delaware limited liability company ("PriceLine" and, together with Walker Digital, the "Companies"), and Mr. Jesse Fink, a resident of the State of Connecticut (the "Employee"). WHEREAS, the Stockholder (or trusts established for the benefit of members of the Stockholder's family) currently owns substantially all of the issued and outstanding common stock, without par value, of Walker Digital ("Walker Digital Stock"); WHEREAS, the Stockholder (or trusts established for the benefit of members of the Stockholder's family) and Walker Digital currently own substantially all of the common equity units of PriceLine ("PriceLine Units"); and WHEREAS, the Stockholder and the Companies desire that the Employee continue to serve as the Chief Operating Officer of PriceLine and the Employee desires to continue to so serve under the terms and conditions of this Agreement. NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows: 1. EMPLOYMENT. (a) The Companies agree to continue to employee the Employee, and the Employee hereby agrees to continue to serve the Companies, upon the terms and subject to the conditions set forth herein. The Companies hereby agree to continue to engage the Employee, and the Employee hereby agrees to continue to serve, as a the Chief Operating Officer of each of the Companies upon the terms and subject to the conditions set forth herein. (b) During the Term (as defined herein), the Employee shall serve as the Chief Operating Officer of each of the Companies and shall have such responsibilities, duties and authority consistent with the position of Chief Operating Officer as may from time to time be determined by the respective board of directors of each of the Companies. (c) During the Term, the Employee shall diligently and faithfully serve the Companies and devote substantially all of his working time and efforts to the business and affairs of the Companies. (d) Upon the mutual agreement of the Employee and the Stockholder, the Employee may be employed pursuant to this Agreement by an entity (the "New Employer") other than the Companies that is controlled by the Stockholder, in which event (i) the Employee shall be deemed to be employed by the New Employer pursuant to the terms of this Agreement and the Term shall continue as if the Employee continued to be employed by the Companies, (ii) the Employee shall be entitled to the Options vested at the time of such transfer of employment and (iii) (A) the Employee shall have the right to receive options to purchase equity interests in the New Employer in lieu of the Options that are not vested at the time of such transfer of employment and (B) the Employee and the Stockholder shall negotiate in good faith to ensure that such options have an equivalent profit opportunity over the term of this Agreement as the unvested Options at the time of such transfer. For example, if the reasonably anticipate value of the unvested Options at the time of the Employee's transfer of employment equals $2 million, then the Employee would receive options to purchase equity interests in the New Employer valued at $2 million that would be subject to the same terms and conditions as the unvested Option. 2. TERM. Subject to Section 5 hereof, the term of the employment by the Companies of the Employee pursuant to this Agreement (the "Term") is for an initial period commencing on January 1, 1998 and terminating on January 1, 2001. 3. COMPENSATION. (a) BASE SALARY. In partial consideration of the Employee's services to be rendered pursuant hereto and the Employee's agreement to the covenants and restrictions set forth in Section 8 hereof, the Companies shall pay to the Employee, effective as of January 1, 1998, an annual base salary of $225,000, 2 subject to annual adjustment (the "Base Salary"), such salary to be payable to the employee in semi-monthly installments in accordance with the Companies' customary payroll practices. PriceLine and Walker Digital will allocate such payments between them in their discretion. (b) CASH BONUS. The Employee shall be eligible to participate in any cash bonus program introduced by PriceLine at a level commensurate with the Employee's position and responsibility. (c) ISSUANCE OF PRICELINE UNITS. In partial consideration for the services previously rendered by the Employee, the services to be rendered pursuant hereto and the Employee's agreement to the covenants and restrictions set forth in Section 8 hereof, PriceLine shall issue and deliver to the Employee on the date of this Agreement a certificate or certificates representing 2,700,000 PriceLine Units (representing approximately 36% of the founders' equity of PriceLine and approximately 3.9% of PriceLine's estimated capitalization), free and clear of any lien, encumbrance, security interest, mortgage, pledge, charge, claim, option, right of first refusal or call, or restriction of any kind, other than the restrictions provided for herein. Upon such delivery of PriceLine Units, the Employee shall agree in writing to be bound by the terms and conditions of the Limited Liability Company Agreement dated as of July 18, 1997 by and among PriceLine and its members (as the same may be amended through the time of exercise or any successor agreement, the "PriceLine LLC Agreement") and any other agreement pertaining to the rights of equity holders of PriceLine, and will, if requested by PriceLine or the Stockholder, execute a separate statement to such effect. (d) PRICELINE OPTION. (i) In partial consideration for the services previously rendered by the Employee, the services to be rendered pursuant hereto and the Employee's agreement to the covenants and restrictions set forth in Section 8 hereof, PriceLine hereby grants to the Employee, effective as of the date hereof, an option (the "PriceLine Option") to purchase, on the terms set forth in this Section 3(d), up to 2,200,000 PriceLine Units, which represent approximately 3.2% of PriceLine's estimated capitalization. (ii) The PriceLine Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3 (iii) The PriceLine Option is exercisable at an aggregate exercise price of $2,200,000, or a per security exercise price of $1.00 per PriceLine Unit. (iv) Subject to Section 5 hereof, the PriceLine Option shall become exercisable as to (A) 1,200,000 of the PriceLine Units underlying the PriceLine Option on the earlier of (x) the day on which the 5,000th airline ticket is sold through PriceLine's priceline.com website and (y) December 31, 1998 (the "Launch Vesting Date"); (B) 500,000 of the PriceLine Units underlying the PriceLine Option on the first anniversary of the Launch Vesting Date; and (C) 500,000 of the PriceLine Units underlying the PriceLine Option on the second anniversary of the Launch Vesting Date. (v) Except as otherwise specifically provided for in this Agreement, the PriceLine Option shall be governed by the terms of the Omnibus PriceLine Option Plan and related Option Agreement. (e) WD/CASH OPTION. (i) In partial consideration for the services previously rendered by the Employee, the services to be rendered pursuant hereto and the Employee's agreement to the covenants and restrictions set forth in Section 8 hereof, Walker Digital hereby grants to the Employee, effective as of the date hereof and upon the terms set forth in this Section 3(e), an option (the "WD/Cash Option," and together with the PriceLine Option, the "Options" ) to (A) purchase up to 500 shares of Walker Digital Stock, which represent approximately .5% of Walker Digital's estimated capitalization or (B) elect to receive a cash payment (the "Cash Payment") from the Stockholder in an amount equal of the product of (1) the difference between (x) the per share fair market value (as determined pursuant to Section 3(e)(vi) hereof) of the common stock of NewSub Services, Inc., a Connecticut corporation ("NewSub"), on the date of exercise of the WS/Cash Option minus (y) $30,709.74 (the per share fair market value of the common stock of NewSub on the date hereof) multiplied by (2) 32.563 (the "Reference Factor"). (ii) The WD/Cash Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. 4 (iii) The WD/Cash Option is exercisable in the aggregate for (A) 500 shares of Walker Digital Stock at an aggregate exercise price of $1,000,000, or a per security exercise price of $2,000 per share of Walker Digital Stock (the "WD/Cash Exercise Price") or (B) the Cash Payment. (iv) The per security exercise price for Walker Digital Stock was determined on the basis of a $200 million valuation of Walker Digital, after giving effect to presently anticipated equity transactions. The Reference Factor of 32.563 was determined on the basis of a $270 million valuation of NewSub and 8,792 issued and outstanding shares of common stock of NewSub as of March 9, 1998. (v) The WD/Cash Option shall become exercisable upon the issuance of the WD/Cash Option. The WD/Cash Option may be exercised for Walker Digital Stock or the Cash Payment by written notice delivered in person or by mail to Walker Digital and the Stockholder specifying either the number of shares of Walker Digital Stock that the WD/Cash Option is being exercised for or that the WD/Cash Option is being exercised for the Cash Payment. If the WD/Cash Option is exercised for Walker Digital Stock, the WD/Cash Exercise Price shall be paid in full and in cash at the time of exercise to Walker Digital. Unless sooner exercised or terminated pursuant to the terms of this Agreement, the WD/Cash Option shall be cancelled and be of no further force and effect after January 1, 2001 (the "Expiration Date"). (vi) The per share fair market value of the common stock of NewSub on the date of exercise of the WD/Cash Option shall be determined in good faith by the Stockholder, PROVIDED, HOWEVER, if the Employee challenges such valuation within thirty (30) days of being notified of such valuation, then the valuation shall be determined in the following manner: (A) First, the Stockholder and the Employee shall each select a financial advisor who shall work together to determine the per share fair market value of the common stock of NewSub on the date of exercise of the WD/Cash Option; and (B) Second, if the financial advisors of the Stockholder and the Employee are not able to mutually agree on the per share fair market value of the common stock of NewSub on the date of exercise of the 5 WD/Cash Option, then the financial advisors shall jointly select a third financial advisor to determine such value. (vii) In determining the per share fair market value of the common stock of NewSub on the date of exercise of the WD/Cash Option pursuant to Section 3(e)(vi) , the Stockholder and the Employee shall each be responsible for the fees, costs and expenses of their own financial advisor and shall equally divide the fees, costs and expenses of the third financial advisor. (f) ISSUANCE OF WALKER DIGITAL STOCK. The Employee will be issued 10% of the Walker Digital Stock as founder's equity effectively granted "as of" June 30, 1996. This investment was diluted by capital contributions in the amount of $5,977,843 that were made by the Stockholder from June 30, 1996 through December 31, 1997 based on a $20 million pre-investment valuation, thereby diluting the Employee's equity stake to 7.7% by virtue of the Stockholder's investment during such period. Such issuance will be in the form of a profits interest and will be made as soon as practicable following the recapitalization of Walker Digital to an limited liability company. The tag-along and conversion provisions set forth in Section 3(g) hereof shall also apply to the units received in such grant. The Employee will have the right to maintain his base 10% stake in Walker Digital by giving the Stockholder a personal recourse note accumulating interest at the rate of 12% compounded annually in a principal amount equal to 10% of the Stockholder's investment during this period (i.e., $597,784). The Stockholder's investment in Walker Digital beginning January 1, 1998 will be based on a $100 million valuation, subject to adjustment up or down based on changes in fair market value and subject to fiduciary obligations to other shareholders. The Employee will have the right to preserve his ownership percentage in Walker Digital by investing cash in Walker Digital at the same valuation as any new investments. The Employee will be diluted ratably with the Stockholder for the $5 million of Walker Investment Unit subscriptions based on a $200 million valuation of Walker Digital, thereby reducing Employee's investment ownership to 7.7%. The Employee will have the right to co-invest with the Stockholder on a pari passu basis in any venture that licenses or otherwise receives Walker Digital intellectual property. In addition, it is currently anticipated that the Employee will receive 30% of a management participation pool of 20% (i.e., 6% of the total) of the 1996 Walker Digital patents and 20% of a management participation pool of 20% (i.e., 4% of the total) of the 1997 Walker Digital patents. Walker Digital will hold approximately 7.3% of the fully diluted equity of PriceLine. In the event that Walker Digital does not create any such management participation pools or effect 6 the aforementioned recapitalization, the Employee and the Stockholder will negotiate in good faith for a comparable management participation arrangement or comparable founders' stock arrangement, as the case may be.. (g) ADJUSTMENT. (i) In the event that, following March 9, 1998, Walker Digital or PriceLine effects an extraordinary dividend or other extraordinary distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, or other similar corporate transaction or event that affects the Walker Digital Stock, PriceLine Units, as the case may be, such that an adjustment is appropriate to prevent dilution or enlargement of the rights of the Employee with respect to the Options, then Walker Digital or PriceLine, as the case may be, shall make such equitable changes or adjustments as Walker Digital, with respect to the Walker Digital Stock, and PriceLine with respect to the PriceLine Units, deems necessary or appropriate to any or all of (A) the number and kind of equity securities for which the Options are exercisable and (B) exercise price of the Options. (ii) In the event that, following March 9, 1998, NewSub effects an extraordinary dividend or other extraordinary distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, or other similar corporate transaction or event that affects the common stock of NewSub, such that an adjustment is appropriate to prevent dilution or enlargement of the rights of the Employee with respect to the WD/Cash Option, then the Stockholder shall make such equitable changes or adjustments to the WD/Cash Option as the Stockholder deems necessary or appropriate to the maximum Reference Factor and Section 3(e)(3). For example, in the event that NewSub declares a two-for-one stock split the maximum Reference Factor would be increased to 65.126 and Section 3(e)(3) would be adjusted accordingly. (iii) The parties hereto acknowledge and understand that ordinary dividends and/or additional issuances of equity securities by Walker Digital, PriceLine or NewSub for cash or property shall not result in an adjustment under this Section 3(g), unless such issuances are to the Stockholder or any member of the Stockholder's immediate family or any entity controlled by the Stockholder or pursuant to a transaction that is not an "arm's length" purchase of 7 such securities, in either case, at a valuation less than the valuations set forth in Sections 3(d) and 3(e) hereof. (h) BENEFITS. During the Term, Walker Digital or PriceLine shall provide the Employee with health, welfare and insurance benefits to the extent and on the same terms as it provides such benefits to its executive officers. The Employee also shall be entitled to participate in and receive any fringe benefits or perquisites which may become available to the Companies' executive officers. (i) TAG-ALONG RIGHTS; CONVERSION. (i) Except as set forth below, if the Stockholder proposes to transfer, sell or otherwise dispose of PriceLine Units or shares of Walker Digital Stock (other than to an affiliate, as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended, of the Stockholder), the Stockholder shall provide the Employee with not less than ten business days' prior written notice of such proposed sale, which notice shall include all of the terms and conditions of such proposed sale and identify the proposed purchaser(s) ("Tag-Along Purchaser(s)") of such securities (the "Sale Notice"). The Employee shall have the option, exercisable by written notice given to the Stockholder within ten business days after receipt of the Sale Notice, to require the Stockholder to arrange for such Tag-Along Purchaser(s) to purchase from the Employee, together with the Stockholder's securities, that number of PriceLine Units or shares of Walker Digital Stock, as the case may be ("Employee Put Shares"), equal to the product, rounded down to the nearest whole number, of (a) a fraction, the numerator of which is the number of PriceLine Units or shares of Walker Digital Stock, as the case may be, proposed to be sold by the Stockholder and the denominator of which is the number of PriceLine Units or shares of Walker Digital Stock, as the case may be, then owned by the Stockholder, multiplied by (b) the number of PriceLine Units or shares of Walker Digital Stock, as the case may be, then owned by the Employee, or any lesser number of shares of such securities as the Employee shall desire. If the Employee shall so elect, the Stockholder shall either (y) arrange for such Tag-Along Purchaser(s) to purchase the Employee Put Shares at the same time as and upon the same terms (including price per PriceLine Unit or share of Walker Digital Stock) and conditions (including all direct or indirect consideration or compensation) at which the Stockholder sells his PriceLine Units or shares of Walker Digital Stock, as the case may be (it being understood that in the event the Employee Put Shares require exercise, con- 8 version or exchange to effect such sale, such exercise, conversion or exchange may be made simultaneously with the closing of such sale), and provided that if such Tag-Along Purchaser(s) elect to purchase only such aggregate number of securities as originally agreed with the Stockholder, then the number of securities to be sold by the Stockholder and the Employee shall be reduced pro rata to such aggregate number or (z) not effect the proposed sale to such Tag Along Purchaser(s). (ii) Upon the conversion of PriceLine from a limited liability company to a "C" corporation under the Code, the issued and outstanding PriceLine Units owned by the Employee shall be converted into the number of shares of stock of the successor corporation that is necessary for the Employee to own the same percentage of the issued and outstanding stock of such corporation immediately after such conversion as the Employee owned of the issued and outstanding PriceLine Units immediately prior to such conversion. (iii) In the event that PriceLine sells all or a substantial portion of its assets outside of the ordinary course of business, then the Employee shall be paid, as additional compensation, an amount equal to the excess, if any, of (A) an amount equal to what would have been his "pro rata" share of the net proceeds available for distribution to all holders of PriceLine Units (calculated as if all holders of PriceLine Units were to receive distributions strictly in accordance with the number of PriceLine Units outstanding and owned by each member of PriceLine) over (B) the amount available for distribution to him under the terms of the PriceLine LLC Agreement. 4. BUSINESS EXPENSES. The Employee shall be reimbursed for all direct, out-of-pocket business expenses incurred by him in connection with his employment (including, without limitation, expenses for travel and entertainment incurred in conducting or promoting business for the Companies) upon timely submission by the Employee of receipts and other documentation as required by the Code and in accordance with the normal expense reimbursement policies of the Companies. 5. TERMINATION. (a) DEATH. The employment by the Companies of the Employee pursuant to this Agreement shall be terminated upon the death of the 9 Employee. In the event that this Agreement is terminated pursuant to this Section 5(a), (i) the Employee's spouse or heirs shall be entitled to (A) the Base Salary and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination (as defined herein) and (B) the Base Salary and benefits to be paid or provided to the Employee under this Agreement for the period commencing on the day after the Date of Termination and ending on the later of (x) the six (6) month anniversary of the Date of Termination or (y) January 1, 1999 and (ii) the Employee's executor, administrator or other person entitled by law to his rights under the Options shall be entitled to exercise the Options in accordance with the terms set forth in Section 3 as though the Employee had not been terminated and vested Options shall be exercisable at any time prior to the later of (A) one year after the Date of Termination and (B) ninety days after the third anniversary of the date of this Agreement. To the extent not exercisable pursuant to Section 3 hereof or this Section 5(a), the Options shall immediately terminate on the Date of Termination. (b) DISABILITY. The employment by the Companies of the Employee pursuant to this Agreement may be terminated by written notice to the Employee at the option of either of the Companies, in the event that the Employee becomes unable to perform his duties and responsibilities by reason of physical or mental illness or accident for any six (6) consecutive month period. In the event that this Agreement is terminated by the Companies pursuant to this Section 5(b), the Employee shall be entitled to (i) the Base Salary and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination; (ii) the Base Salary and benefits to be paid or provided to the Employee under this Agreement for the period commencing on the day after the Date of Termination and ending on the later of (A) the six (6) month anniversary of the Date of Termination or (B) January 1, 1999; and (iii) exercise the Options in accordance with the terms set forth in Section 3 as though the Employee had not been terminated and vested Options shall be exercisable at any time prior to the later of (A) one year after the Date of Termination and (B) ninety days after the third anniversary of the date of this Agreement. To the extent not exercisable pursuant to Section 3 hereof or this Section 5(b), the Options shall immediately terminate on the Date of Termination. (c) BY THE COMPANIES FOR CAUSE. This Agreement may be terminated by either of the Companies by written notice to the Employee ("Notice of Termination") upon the occurrence of any of the following events (each of which shall constitute "Cause" for termination): (i) the commission by the 10 Employee of any act of gross negligence, fraud or dishonesty causing harm to either of the Companies; (ii) the conviction of the Employee of a felony; (iii) intentional obtainment by the Employee of personal gain, profit or enrichment at the expense of either of the Companies or from any transaction in which the Employee has an interest which is adverse to the interest of either of the Companies, unless the Employee shall have obtained the prior written consent of the board of directors of the Company as to which his interest is adverse; (iv) acts by the Employee in a manner which is materially detrimental or damaging to either of the Companies' reputation, business operations or relations with its employees, suppliers or customers; or (v) any material breach by the Employee of this Agreement, including, without limitation, a breach of Section 1 or 8 hereof or the Confidentiality Agreements (as defined herein), which breach, if able to be corrected, remains uncorrected for a period of thirty (30) days after receipt by the Employee of written notice from the Companies setting forth the breach. In the event the employment by the Companies of the Employee is terminated pursuant to this Section 5(c), the Employee shall be entitled to the Base Salary and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination and the Options, whether or not then exercisable, may not be exercised at any time on or after the Date of Termination. (d) BY THE COMPANIES WITHOUT CAUSE. The employment by the Companies of the Employee pursuant to this Agreement may be terminated by either of the Companies at any time without Cause by delivery of a Notice of Termination to the Employee. In the event that the employment by the Companies of the Employee pursuant to this Agreement is terminated by the Companies pursuant to this Section 5(d), the Employee shall be entitled to (i) the Base Salary and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination; (ii) the Base Salary and benefits to be paid or provided to the Employee under this Agreement for the period commencing on the day after the Date of Termination and ending on the later of (A) the six (6) month anniversary of the Date of Termination or (B) January 1, 1999; and (iii) exercise the Options in accordance with the terms set forth in Section 3 as though the Employee had not been terminated and vested Options shall be exercisable at any time prior to ninety days after the third anniversary of the date of this Agreement. To the extent not exercisable pursuant to Section 3 hereof or this Section 5(d), the Options shall immediately terminate on the Date of Termination. (e) BY THE EMPLOYEE. The employment of the Employee by the Companies pursuant to this Agreement may be terminated by the Employee at any 11 time by delivery of a written notice of resignation to the Companies and the Stockholder ("Notice of Resignation"). In the event the employment by the Companies of the Employee pursuant to this Agreement is terminated by the Employee pursuant to this Section 5(e), the Employee shall be entitled to (i) the Base Salary and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination, (ii) exercise the PriceLine Option in accordance with the terms set forth in Section 3(d) hereof, as to the number and type of securities for which the PriceLine Option would be exercisable on the next vesting date following the Date of Termination, at any time prior to 90 days after the Date of Termination and (iii) exercise the WD/Cash Option in accordance with the terms set forth in Section 3(e) hereof, at any time prior to 90 days after the Date of Termination. To the extent not exercisable pursuant to Section 3 hereof or this Section 5(e), the Options shall immediately terminate on the Date of Termination. (f) DATE OF TERMINATION. The Employee's Date of Termination shall be (i) if the Employee's employment by the Companies is terminated pursuant to Section 5(a) hereof, the date of his death, (ii) if the Employee's employment by the Companies is terminated pursuant to Section 5(b) hereof, the last day the Employee worked, (iii) if the Employee's employment by the Companies is terminated pursuant to Section 5(c) or 5(d) hereof, the date on which a Notice of Termination is given and (iv) if the Employee's employment by the Companies is terminated pursuant to Section 5(e) hereof, the date on which a Notice of Resignation is given. 6. REPRESENTATIONS. (a) Walker Digital represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of Walker Digital and is a valid and binding agreement of Walker Digital enforceable against it in accordance with its terms and (ii) all shares of Walker Digital Stock which may be issued upon exercise of the WD/Cash Option shall be, when issued in accordance with the terms of this Agreement, duly authorized, validly issued, fully paid and nonassessable and free of any preemptive rights in respect thereto. (b) PriceLine represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of PriceLine and is a valid and binding agreement of PriceLine enforceable against it in accordance with its terms and (ii) all PriceLine Units which may be issued pursuant to this Agreement shall 12 be, when issued in accordance with the terms of this Agreement, duly authorized, validly issued, fully paid and nonassessable and free of any preemptive rights in respect thereto. (c) The Stockholder represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement and that this Agreement is a valid and binding agreement of the Stockholder enforceable against him in accordance with its terms. (d) The Employee represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement and that this Agreement is a valid and binding agreement of the Employee enforceable against him in accordance with its terms. 7. LIMITATION ON TRANSFER OF SECURITIES. (a) The Employee shall not, directly or indirectly, offer, transfer, sell, assign, pledge, encumber, hypothecate or otherwise dispose of all or part of the securities issued pursuant to this Agreement or solicit any offers to purchase or otherwise acquire or take a pledge of all or part of such securities without the prior written consent of the issuer of such securities, PROVIDED, HOWEVER, the foregoing restrictions shall not apply to the securities of an issuer that has issued common equity securities in a public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), other than a registration statement filed on Form S-8, or any successor form thereto, or any other applicable form with respect to the issuance of common equity securities to be issued or granted to employees, officers or directors of the issuer, in an amount not to exceed 15% of the common equity securities of the issuer then outstanding on a fully-diluted basis. (b) In the event of any purported or attempted transfer by the Employee of all or part of the securities issued pursuant to this Agreement that does not comply with this Agreement, the purported transferee or successor shall not be deemed to be a security holder of the issuer of such securities for any purpose and shall not be entitled to any of the rights of a security holder, including, without limitation, the right to vote or to receive any dividends or other distributions on or with respect to such securities. 13 (c) Notwithstanding the foregoing, no provision hereof is intended to prohibit the transfer of the securities issued pursuant to this Agreement (i) upon the death of the Employee, by operation of laws of inheritance and descent to the Employee's personal representatives, executors, administrators, testamentary trustees, legatees or beneficiaries or (ii) by gift to a spouse, child, other descendant or any other United States citizen, PROVIDED such person is reasonably satisfactory to the Stockholder, or to a trust established for the benefit of such person (each transferee referred to in clause (i) or (ii) being a "Permitted Transferee"); PROVIDED, HOWEVER, that (i) any and all such Permitted Transferees shall agree in writing to be bound by the terms of this Agreement, a copy of which writing shall be filed with the issuer of such securities and (ii) any such securities so transferred shall continue to be subject to this Agreement. (d) The Employee acknowledges that he is aware that there are substantial restrictions on the transferability of the securities issued pursuant to this Agreement. In addition to the restrictions set forth above, since the securities issued pursuant to this Agreement will not be, and the Employee has no right to require that such securities be, registered under the Act, such securities may not be sold unless such sale is exempt from such registration under the Act. The undersigned further acknowledges that the Employee shall be responsible for compliance with all conditions on transfer imposed by any state "blue sky" or securities law administrator. (e) Each certificate representing the securities (other than the PriceLine Option and the WD/Cash Option) issued to the Employee pursuant to this Agreement shall bear substantially the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE EMPLOYMENT AGREEMENT DATED AS OF JANUARY 1, 1997. IN ADDITION TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE 14 MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER (THE "ACT"), AND ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR (B) IF SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF THE ACT AND, IF REQUIRED BY THE COMPANY, THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THAT EFFECT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT. 8. CONFIDENTIALITY; NON-COMPETITION. As a condition to the Companies' and the Stockholder's willingness to enter into this Agreement and in partial consideration of the grant of the Options, the Employee agrees to the covenants and restrictions set forth in this Section 8. (a) The Employee agrees that, during the Term and for a period of two (2) years thereafter, he shall not, directly or indirectly, induce or solicit (or authorize or assist in the taking of any such actions by any third party) any employee or consultant of the Companies to leave his or her business association with the Companies. (b) The Employee acknowledges and agrees that, during the course of the provision of the Employee's services to the Companies, the Employee may be exposed to confidential, proprietary or sensitive data and information concerning the business and affairs of the Companies, and that all such data and information constitutes a protectable business interest of the Companies. In furtherance of such business interest, the Employee is contemporaneously herewith executing and delivering to Walker Digital and PriceLine the standard consultant confidentiality agreement of each of them (the "Confidentiality Agreements"). (c) The Employee agrees that he will not at any time during the Term and, (i) for a period of one (1) year following the Date of Termination, di- 15 rectly or indirectly, own any interest in, operate, join, control or participate as a director, stockholder, owner, partner, principal, officer or agent of, enter into the employment of, act as a consultant to, or perform any services for, any entity that is engaged anywhere in the United States of America in any business in which either of the Companies is presently engaged. Notwithstanding anything herein to the contrary, this Section 8 shall not prevent the Employee from acquiring securities representing not more than one percent (1%) of the outstanding voting securities of any publicly held corporation. It is the desire and intent of the parties that the provisions of this Section 8(c) shall be enforced to the fullest extent permitted under applicable law. If all or part of this Section 8(c) is held invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect. If any part of this Section 8(c) is ultimately determined to be excessively broad as to duration, scope, activity or subject, such part will be construed by limiting and reducing it so as to be enforceable to the maximum extent compatible with applicable law. (d) The Employee acknowledges and agrees that each of the covenants set forth in this Section 8 and in the Confidentiality Agreements are reasonable and necessary for the protection of the Companies' business interests, that irreparable injury will result to the Companies if the Employee breaches any of the terms of said covenants, and that in the event of the Employee's actual or threatened breach of any such covenants, the Companies will have no adequate remedy at law. The Employee accordingly agrees that in the event of any actual or threatened breach by the Employee of any of said covenants, the Companies shall be entitled to immediate injunctive and other equitable relief without bond and without the necessity of showing actual monetary damages. Nothing contained herein shall be construed as prohibiting the Companies from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages which it is able to prove. (e) The provisions of this Section 8 shall survive the expiration or termination of this Agreement, and any of the arrangements contained herein, and shall be binding upon the Employee's corporate or personal successors and assigns. 9. INDEMNIFICATION. In the event the Employee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any threatened, pending or completed 16 action, suit or proceeding, or any inquiry or investigation (whether instituted by the Companies or any other party) that the Employee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (a "Claim"), by reason of (or arising in part out of) any event or occurrence related to the fact that the Employee is or was a director, officer, employee, agent, independent contractor, consultant or fiduciary of either of the Companies, or is or was serving at the request of either of the Companies as a director, officer, employee, trustee, agent, independent contractor, consultant or fiduciary of another corporation, partnership, limited liability company, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by the Employee in any such capacity (an "Indemnifiable Event"), then the Companies, jointly and severally, shall indemnify and hold harmless the Employee to the fullest extent permitted by law as soon as practicable but in any event no later than thirty (30) days after written demand is presented to the Companies, against any and all expenses (including attorneys' fees), judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such expenses, judgments, fines, penalties or amounts paid in settlement of such Claim. If so requested by the Employee, the Companies shall advance (within two (2) business days of such request) to the Employee any and all expenses (including attorneys' fees) incurred by the Employee in connection with any Claim relating to an Indemnifiable Event, upon the receipt of an undertaking by or on behalf of the Employee to repay such amounts if it shall ultimately be determined that he is not entitled to be indemnified by the Companies as authorized in this Section 9. Notwithstanding anything contained herein to the contrary, the indemnification obligations of the Companies set forth in this Section 9 shall survive the termination or expiration of this Agreement. 10. SUCCESSORS; BINDING AGREEMENT. This Agreement is a personal contract and the rights and interests of the Employee hereunder may not be sold, transferred, assigned, pledged, encumbered or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of the parties hereto and their respective representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 11. ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreements contain all of the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes any other undertakings and agree- 17 ments, whether oral or in writing, previously entered into by them with respect thereto. The Employee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Stockholder or the Companies with regard to the subject matter or effect of this Agreement or otherwise. 12. AMENDMENT, MODIFICATION AND WAIVER. No provision of this Agreement may be amended, modified or waived unless such amendment, modification or waiver is agreed to in writing, signed by the Employee, the Stockholder and a duly authorized officer of each of the Companies. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 13. NOTICES. Any notices, requests, demands, waivers or other communications required or permitted to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or facsimile or registered or certified mail, postage prepaid, return receipt requested, by reputable overnight courier (receipt of which is confirmed) addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing: To the Employee at: Mr. Jesse Fink Five High Ridge Park Stamford, Connecticut 06905-1325 Telecopier: (203) 614-3234 To Walker Digital at: Walker Digital Corporation Five High Ridge Park Stamford, Connecticut 06905-1325 Telecopier: (203) 614-3234 Attention: Mr. Jay Walker To PriceLine at: 18 priceline.com LLC Five High Ridge Park Stamford, Connecticut 06905-1325 Telecopier: (203) 614-3234 Attention: Mr. Jay Walker To the Stockholder at: Mr. Jay Walker Four High Ridge Park Stamford, Connecticut 06905-1325 Telecopier: (203) 614-3234 All such notices, requests, demands, waivers and communications shall be deemed to have been given on the date on which so hand-delivered, on the third business day following the date on which so mailed, on the next business day following the date on which delivered to such overnight courier and on the date of such facsimile transmission and confirmation, except for a notice of change of person or address, which shall be effective only upon receipt thereof. 14. SEVERABILITY. If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and all other such provisions shall to the full extent consistent with law continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision which, together with all other provisions of this Agreement, shall likewise to the full extent consistent with law continue in full force and effect. 15. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 16. GOVERNING LAW; JURISDICTION; ARBITRATION. (a) This Agreement will be governed by and construed in accordance with the laws of the State of Connecticut, without regard to its conflicts of laws principles. 19 (b) The parties hereto hereby irrevocably: (i) agree that any suit, action or other legal proceeding arising out of this Agreement, or any of the transactions contemplated hereby, may be brought in the courts of record of the State of Connecticut or the courts of the United States located in the State of Connecticut; (ii) consent to the jurisdiction of each such court in any such suit, action or proceeding; (iii) waive any objection to the laying of venue of any such suit, action or proceeding in any of such courts; and (iv) agree that Connecticut is the most convenient forum for litigation of any such suit, action or proceeding. (c) If any dispute arising under this Agreement is not settled promptly in the ordinary course of business, the parties shall seek to resolve any such dispute between them, first, by negotiating promptly with each other in good faith. If the parties are unable to resolve the dispute between them within twenty (20) business days (or such period as the parties shall otherwise agree) through these negotiations, then any such disputes shall be settled by binding arbitration in accordance with this Agreement and the following procedures: (i) Any arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association (the "AAA") then in effect. (ii) Either party shall serve upon the other parties a written demand that the dispute be arbitrated, specifying in reasonable detail the nature of the dispute to be submitted to arbitration. (iii) Within thirty (30) days after service of a demand for arbitration, the parties shall attempt to agree upon a single arbitrator. (iv) In the event the parties cannot agree upon a single arbitrator, any party may request the AAA to appoint an arbitrator in accordance with its rules; except that if the parties fail to agree upon an arbitrator from the persons named by the AAA or if for any reason the appointment cannot be made 20 from the lists submitted by the AAA, then the Employee, on the one hand, and the Companies and the Stockholder, on the other hand, shall appoint an arbitrator within seven (7) days thereafter and the third arbitrator shall be appointed by the AAA. (v) The arbitration proceeding shall be held in Stamford, Connecticut. (vi) The arbitrators shall have no power or authority to add to or detract from the agreements of the parties. The arbitrators shall have no authority to award punitive, exemplary, consequential, special, indirect or incidental damages. (vii) The expenses of arbitration shall be borne equally by the Employee, on the one hand, and the Companies and the Stockholder, on the other hand, unless the arbitrators determine that one of the parties has not proceeded in good faith with respect to the matters submitted for arbitration, in which case, such party shall bear fully the expenses of arbitration. (viii) Judgment may be entered on any arbitration award in any court of competent jurisdiction. 17. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 18. SPECIFIC PERFORMANCE. Each party hereto acknowledges that money damages would be both incalculable and an insufficient remedy for any breach of this Agreement by such party and that any such breach would cause the other parties irreparable harm. Accordingly, each party hereto also agrees that, in the event of any breach or threatened breach of the provisions of this Agreement by such party, the other parties shall be entitled to equitable relief without the requirement of posting a bond or other security, including in the form of injunctions and orders for specific performance, in addition to all other remedies available to such other parties at law or in equity. 21 19. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 22 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. EMPLOYEE /s/ Jesse Fink ---------------------------------- Jesse Fink WALKER DIGITAL CORPORATION By: /s/ Jay M. Walker ------------------------------- Name: ----------------------------- Title: ---------------------------- priceline.com LLC By: /s/ Jay M. Walker ------------------------------- Name: ----------------------------- Title: ---------------------------- STOCKHOLDER /s/ Jay M. Walker ---------------------------------- Jay Walker 23 EX-10.(6)(2) 7 AMENDMENT TO EMPLOYMENT AGREEMENT 11/16/98 Exhibit 10.6.2 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), made as of this 16th day of November, 1998 (the "Employment Agreement"), is by and between Mr. Jesse Fink ("Employee"), and priceline.com Incorporated, a Delaware corporation (the "PriceLine") and the successor by merger to priceline.com LLC, formerly a Delaware limited liability company. In connection with that certain Amendment to the Priceline.com LLC Non-Qualified Option Agreement, made as of the date hereof, by and between the Employee and PriceLine (the "Option Agreement"), the parties desire to amend certain terms and conditions of the Employment Agreement related to the subject matter of the Option Amendment. Unless defined in this Amendment, all defined terms used herein but not defined herein shall have the meanings set forth in the Employment Agreement. For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree that the Agreement is hereby amended as follows: 1. PRICELINE OPTION. The Employee and PriceLine agree that Section 3(d)(i) of the Employment agreement is hereby amended by deleting (a) from the fifth line thereof the phrase "up to 2,2000,000 PriceLine Units" and replacing the same with the phrase "up to 1,955,000 PriceLine Units." and (b) from the fifth and sixth line thereof the phrase ",which represent approximately 3.2% of PriceLine's estimated capitalization,". 2. VESTING OF PRICELINE OPTION. The Employee and PriceLine agree that Section 3(c)(iv) of the Employment agreement is hereby amended by deleting the same in its entirety and replacing the same with the following: (iv) Subject to Section 5 hereof, the Option shall vest as to (A) 1,200,000 of the PriceLine Units underlying the Option on June 1, 1998; (B) 500,000 of the PriceLine Units underlying the Option on June 1, 1999; and (C) 255,000 of the PriceLine Units underlying the Option on June 1, 2000. 3. EFFECTIVE DATE. This Amendment shall be effective as of the date indicated in the introductory paragraph of this Amendment. 4. NO OTHER AMENDMENTS; GOVERNING DOCUMENT. Except as modified by this Amendment, all other terms and provisions of the Employment Agreement shall remain in full force and effect; PROVIDED, HOWEVER, that in the event that any term or condition of this Amendment conflicts or is inconsistent with, or otherwise contrary to, any term or provision of the Employment Agreement, then the terms and provisions of the Amendment shall control. IN WITNESS WHEREOF, the parties have executed and delivered this Amendment on the date indicated above. EMPLOYEE PRICELINE.COM INCORPORATED /s/ Jesse Fink /s/ Melissa M. Taub - -------------------------------- -------------------------------------- Jesse Fink Name: Melissa M. Taub Title: Senior Vice President & Secretary EX-10.(7)(1) 8 EMPLOYMENT AGREEMENT 7/23/98 Exhibit 10.7.1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of July __, 1998 by and between priceline.com LLC, a Delaware limited liability company ("PriceLine") and Mr. Timothy Brier, a resident of the State of Connecticut (the "Employee"). WHEREAS, PriceLine desires that the Employee serve, and the Employee desires to serve, as the Executive Vice President of PriceLine and the President of PriceLine Travel, Inc. ("PriceLine Travel"), under the terms and conditions of this Agreement. NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows: 1. EMPLOYMENT. (a) PriceLine hereby agrees to employ the Employee, and the Employee hereby agrees to serve, as the Executive Vice President of PriceLine and the President of PriceLine Travel, upon the terms and subject to the conditions set forth herein. (b) During the Term (as defined herein), the Employee shall serve as the Executive Vice President of PriceLine and the President of PriceLine Travel and shall have such responsibilities, duties and authority consistent with such positions as may from time to time be determined by the board of managers of PriceLine. (c) During the Term, the Employee shall diligently and faithfully serve PriceLine and PriceLine Travel and shall devote substantially all of his working time and efforts to the business and affairs of PriceLine and PriceLine Travel other than any such time that the Employee devotes to fulfilling his obligations under his consulting agreement with NewSub Services, Inc. 2. TERM. Subject to Section 5 hereof, the term of the employment by PriceLine of the Employee pursuant to this Agreement (the "Term") is for an initial period commencing on the date hereof and terminating on December 31, 2000. 3. COMPENSATION. (a) BASE SALARY. In partial consideration of the Employee's services to be rendered pursuant hereto and the Employee's agreement to the covenants and restrictions set forth in Section 8 hereof, PriceLine shall pay to the Employee, effective as of the date hereof, an annual base salary of $250,000 (the "Base Salary"), such salary to be payable to the employee in semi-monthly installments in accordance with PriceLine's customary payroll practices. (b) AIRLINE PARTICIPATION BONUS. (i) In partial consideration for the services to be rendered pursuant hereto and the Employee's agreement to the covenants and restrictions set forth in Section 8 hereof, PriceLine shall pay Employee a cash bonus (the "Airline Participation Bonus") in the amount of: (A) $12,500 for each domestic air carrier that is participating in PriceLine's priceline.com website ("priceline.com") within 180 days of the day on which the 5,000th airline ticket is sold through priceline.com (the "Launch Date") and an additional $12,500 in the event that at least 10,000 tickets on such air carrier are sold through priceline.com during the one-year period commencing on the Launch Date and ending on the first anniversary of the Launch Date; and (B) $5,000 for each consolidator and foreign flag air carrier that is participating in priceline.com within 180 days of the Launch Date and an additional $5,000 in the event that at least 3,000 tickets from any such consolidator or 2,500 tickets on any such air carrier, as the case may be, are sold through priceline.com during the one-year period commencing on the Launch Date and ending on the first anniversary of the Launch Date. (ii) Subject to PriceLine's right to withhold any Airline Participation Bonus payment to repay any outstanding amount borrowed by Employee pursuant to Section 3(b)(iii), each Airline Participation Bonus payable pursuant to this Section 3(b) shall be payable within ten days of meeting the respective ticket sales threshold amount. 2 (iii) Employee shall be permitted to borrow against the Airline Participation Bonus an amount not to exceed the lesser of (A) $200,000 and (B) an amount equal to the amount of the unpaid Airline Participation Bonus payments Employee would be entitled to receive if all of the airlines and consolidators participating in priceline.com on the Launch Date exceeded their respective ticket sales threshold amounts (the "Loan"). Interest shall accrue on any outstanding amount of the Loan at the rate of 10% compounded semi-annually ("Interest"). Notwithstanding anything to the contrary in this Agreement, PriceLine shall be permitted to repay any outstanding amount of the Loan and the Interest by withholding (A) Airline Participation Bonus payments and (B) any payments to be made pursuant to Section 5 of this Agreement. Employee shall be required to repay any amount of the Loan and Interest that is outstanding on December 31, 1999. (c) COMPENSATORY BONUS. In the event that Employee's combined cash compensation from his CAP Systems Consulting Agreement dated February 1, 1998 and from PriceLine, including the Airline Participation Bonus, is less than $500,000 per annum (the "Current Compensation"), PriceLine shall pay Employee a compensatory bonus (the "Compensatory Bonus") equal to 0.5% of the amount by which PriceLine's total annual revenues (calculated on a calendar year basis) exceed $50,000,000; PROVIDED, HOWEVER, that the Compensatory Bonus shall not exceed the lesser of (i) $250,000 and (ii) the amount by which the Employee's Current Compensation is less than $500,000. (d) ISSUANCE OF PRICELINE UNITS. In partial consideration for the services to be rendered pursuant hereto and the Employee's agreement to the covenants and restrictions set forth in Section 8 hereof, PriceLine shall issue and deliver to the Employee on the date of this Agreement a certificate or certificates representing 1,200,000 common equity units of PriceLine Units ("PriceLine Units") (representing approximately 1.75% of PriceLine's estimated capitalization on the Launch Date), free and clear of any lien, encumbrance, security interest, mortgage, pledge, charge, claim, option, right of first refusal or call, or restriction of any kind, other than the restrictions provided for herein. Upon such delivery of PriceLine Units, the Employee shall agree in writing to be bound by the terms and conditions of the Limited Liability Company Agreement dated as of July 18, 1997 by and among PriceLine and its members (as the same may be amended through the time of exercise or any successor agreement) and any other agreement pertaining to the rights of equity holders of PriceLine, and will, if requested by PriceLine, execute a separate statement to such effect. 3 (e) PRICELINE OPTION. (i) In partial consideration for the services to be rendered pursuant hereto and the Employee's agreement to the covenants and restrictions set forth in Section 8 hereof, PriceLine hereby grants to the Employee, effective as of the date hereof, an option (the "Option") to purchase, on the terms set forth in this Section 3(e), up to 1,750,000 PriceLine Units, which represent approximately 2.55% of PriceLine's estimated capitalization on the Launch Date. (ii) The Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). (iii) The Option is exercisable at an aggregate exercise price of $1,750,000, or a per security exercise price of $1.00 per PriceLine Unit. (iv) Subject to Section 5 hereof, the Option shall become exercisable as to (A) 750,000 of the PriceLine Units underlying the Option on the Launch Date; (B) 500,000 of the PriceLine Units underlying the Option on the first anniversary of the Launch Date; and (C) 500,000 of the PriceLine Units underlying the Option on the second anniversary of the Launch Date. (v) Except as otherwise specifically provided for in this Agreement, the Option shall be governed by the terms of the Omnibus PriceLine Option Plan and related Option Agreement. (f) BENEFITS. (i) During the Term, PriceLine shall provide the Employee with health, welfare and insurance benefits to the extent and on the same terms as it provides such benefits to its executive officers; PROVIDED, HOWEVER, that such benefits shall be provided on terms no less favorable than the terms of the benefits the Employee received while he was employed by NewSub Services, Inc., a Connecticut corporation. (ii) Notwithstanding anything to the contrary contained herein, upon termination of this Agreement, Employee shall have the right to continue to participate in PriceLine's medical plan, at a cost equal to PriceLine's average capita cost for health insurance, for a period of time equal to the product 4 of five multiplied by the number of years, including partial years, Employee was employed by PriceLine (for purposes of this calculation, Employee shall be deemed to have commenced employment with PriceLine on January 1, 1998); PROVIDED, HOWEVER, that such right shall terminate if Employee accepts other full-time employment with an entity that offers the Employee health insurance that is comparable to the health insurance provided to the Employee by PriceLine. (iii) PriceLine will purchase and maintain during the Term a term life policy for Employee in the face amount equal to 3.5 times the Base Salary; PROVIDED, HOWEVER, that PriceLine shall not be required to pay in excess of $25,000 per annum with respect to such policy. (iv) The Employee also shall be entitled to participate in and receive any fringe benefits or perquisites which may become available to PriceLine's executive officers. 4. BUSINESS EXPENSES. The Employee shall be reimbursed for all reasonable direct, out-of-pocket business expenses incurred by him in connection with his employment (including, without limitation, expenses for travel and entertainment incurred in conducting or promoting business for PriceLine and PriceLine Travel and home office expenses) upon timely submission by the Employee of receipts and other documentation as required by the Code and in accordance with the normal expense reimbursement policies of PriceLine; PROVIDED, HOWEVER, that Employee shall not be entitled to an automobile allowance. 5. TERMINATION. (a) DEATH. The employment by PriceLine of the Employee pursuant to this Agreement shall be terminated upon the death of the Employee. In the event that this Agreement is terminated pursuant to this Section 5(a), (i) the Employee's spouse or heirs shall be entitled to (A) the Base Salary and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination (as defined herein), (B) the Base Salary and benefits to be paid or provided to the Employee under this Agreement for the period commencing on the day after the Date of Termination and ending on the later of (x) the six (6) month anniversary of the Date of Termination or (y) the first anniversary of the date of this Agreement, (C) any Airline Participation Bonus or Compensatory Bonus payments Employee would have been entitled to receive under this Agree- 5 ment if the Employee had not been terminated pursuant to this Section 5(a) and (ii) the Employee's executor, administrator or other person entitled by law to his rights under the Option shall be entitled to exercise the Option in accordance with the terms set forth in Section 3 as though the Employee had not been terminated and vested Options shall be exercisable at any time prior to the later of (A) one year after the Date of Termination and (B) ninety days after the third anniversary of the date of this Agreement. To the extent not exercisable pursuant to Section 3 hereof or this Section 5(a), the Option shall immediately terminate on the Date of Termination. (b) DISABILITY. The employment by PriceLine of the Employee pursuant to this Agreement may be terminated by written notice to the Employee at the option of PriceLine, in the event that the Employee becomes unable to perform his duties and responsibilities by reason of physical or mental illness or accident for any six (6) consecutive month period. In the event that this Agreement is terminated by PriceLine pursuant to this Section 5(b), the Employee shall be entitled to (i) the Base Salary and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination; (ii) the Base Salary and benefits to be paid or provided to the Employee under this Agreement for the period commencing on the day after the Date of Termination and ending on the later of (A) the six (6) month anniversary of the Date of Termination or (B) the first anniversary date of this Agreement; (iii) any Airline Participation Bonus or Compensatory Bonus payments Employee would have been entitled to receive under this Agreement if the Employee had not been terminated pursuant to this Section 5(b) and (iv) exercise the Option in accordance with the terms set forth in Section 3 as though the Employee had not been terminated and vested Options shall be exercisable at any time prior to the later of (A) one year after the Date of Termination and (B) ninety days after the third anniversary of the date of this Agreement. To the extent not exercisable pursuant to Section 3 hereof or this Section 5(b), the Option shall immediately terminate on the Date of Termination. (c) BY PRICELINE FOR CAUSE. This Agreement may be terminated by PriceLine by written notice to the Employee ("Notice of Termination") upon the occurrence of any of the following events (each of which shall constitute "Cause" for termination): (i) the commission by the Employee of any act of gross negligence, incompetence, fraud or dishonesty causing harm to PriceLine; (ii) the conviction of the Employee of a felony; (iii) intentional obtainment by the Employee of personal gain, profit or enrichment at the expense of PriceLine or from any transaction in which the Employee has an interest which is adverse to 6 the interest of PriceLine, unless the Employee shall have obtained the prior written consent of the board of managers of PriceLine; (iv) acts by the Employee in a manner which is materially detrimental or damaging to PriceLine's reputation, business operations or relations with its employees, suppliers or customers; or (v) any material breach by the Employee of this Agreement, including, without limitation, a breach of Section 1 or 8 hereof or the Confidentiality Agreement (as defined herein), which breach, if able to be corrected, remains uncorrected for a period of thirty (30) days after receipt by the Employee of written notice from PriceLine setting forth the breach; PROVIDED, HOWEVER, Cause shall expressly not include the following: (x) bad judgement or negligence on behalf of the Employee and (y) an act or commission believed in good faith by the Employee not to be contrary to the interests of PriceLine. In the event the employment by PriceLine of the Employee is terminated pursuant to this Section 5(c), the Employee shall be entitled to the Base Salary and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination and the Option, whether or not then exercisable, may not be exercised at any time on or after the Date of Termination. (d) BY PRICELINE WITHOUT CAUSE. The employment by PriceLine of the Employee pursuant to this Agreement may be terminated by PriceLine at any time without Cause by delivery of a Notice of Termination to the Employee. In the event that the employment by PriceLine of the Employee pursuant to this Agreement is terminated by PriceLine pursuant to this Section 5(d), the Employee shall be entitled to (i) the Base Salary, Airline Participation Bonus, Compensatory Bonus and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination; (ii) the Base Salary, Airline Participation Bonus, Compensatory Bonus and benefits to be paid to the Employee under this Agreement for the period commencing on the day after the Date of Termination and ending on the later of (x) the first anniversary of the Date of Termination or (y) December 31, 2000, payable in monthly installments; and (iii) exercise the Option in accordance with the terms set forth in Section 3 as though the Employee had not been terminated and vested Options shall be exercisable at any time prior to ninety days after the third anniversary of the date of this Agreement. (e) BY THE EMPLOYEE. The employment of the Employee by PriceLine pursuant to this Agreement may be terminated by the Employee at any time by delivery of a written notice of resignation to PriceLine ("Notice of Resignation"). In the event the employment by PriceLine of the Employee pursu- 7 ant to this Agreement is terminated by the Employee pursuant to this Section 5(e), the Employee shall be entitled to (i) the Base Salary and benefits to be paid or provided to the Employee under this Agreement through the Date of Termination and (ii) exercise the Option, as to the number and type of securities for which the Option then would be exercisable, at any time prior to 90 days after the Date of Termination. (f) DATE OF TERMINATION. The Employee's Date of Termination shall be (i) if the Employee's employment by PriceLine is terminated pursuant to Section 5(a) hereof, the date of his death, (ii) if the Employee's employment by PriceLine is terminated pursuant to Section 5(b) hereof, the last day the Employee worked, (iii) if the Employee's employment by PriceLine is terminated pursuant to Section 5(c) or 5(d) hereof, the date on which a Notice of Termination is given and (iv) if the Employee's employment by PriceLine is terminated pursuant to Section 5(e) hereof, the date on which a Notice of Resignation is given. 6. REPRESENTATIONS. (a) PriceLine represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of PriceLine and is a valid and binding agreement of PriceLine enforceable against it in accordance with its terms and (ii) all PriceLine Units which may be issued pursuant to this Agreement shall be, when issued in accordance with the terms of this Agreement, duly authorized, validly issued, fully paid and nonassessable and free of any preemptive rights in respect thereto. (b) The Employee represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement and that this Agreement is a valid and binding agreement of the Employee enforceable against him in accordance with its terms. 7. LIMITATION ON TRANSFER OF SECURITIES. (a) The Employee shall not, directly or indirectly, offer, transfer, sell, assign, pledge, encumber, hypothecate or otherwise dispose of all or part of the securities issued pursuant to this Agreement or solicit any offers to purchase or otherwise acquire or take a pledge of all or part of such securities without the prior written consent of PriceLine; PROVIDED, HOWEVER, that the 8 foregoing restrictions shall not apply if PriceLine that has issued common equity securities in a public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), other than a registration statement filed on Form S-8, or any successor form thereto, or any other applicable form with respect to the issuance of common equity securities to be issued or granted to employees, managers, officers or directors of PriceLine, in an amount not to exceed 15% of the common equity securities of the issuer then outstanding on a fully diluted basis. (b) In the event of any purported or attempted transfer by the Employee of all or part of the securities issued pursuant to this Agreement that does not comply with this Agreement, the purported transferee or successor shall not be deemed to be a security holder of PriceLine for any purpose and shall not be entitled to any of the rights of a security holder, including, without limitation, the right to vote or to receive any dividends or other distributions on or with respect to such securities. (c) Notwithstanding the foregoing, no provision hereof is intended to prohibit the transfer of the securities issued pursuant to this Agreement (i) upon the death of the Employee, by operation of laws of inheritance and descent to the Employee's personal representatives, executors, administrators, testamentary trustees, legatees or beneficiaries or (ii) by gift to a spouse, child, other descendant or any other United States citizen, PROVIDED that such person is reasonably satisfactory to PriceLine, or to a trust established for the benefit of such person (each transferee referred to in clause (i) or (ii) being a "Permitted Transferee"); and PROVIDED, FURTHER, that (i) any and all such Permitted Transferees shall agree in writing to be bound by the terms of this Agreement, a copy of which writing shall be filed with the issuer of such securities and (ii) any such securities so transferred shall continue to be subject to this Agreement. (d) The Employee acknowledges that he is aware that there are substantial restrictions on the transferability of the securities issued pursuant to this Agreement. In addition to the restrictions set forth above, since the securities issued pursuant to this Agreement will not be, and the Employee has no right to require that such securities be, registered under the Act, such securities may not be sold unless such sale is exempt from such registration under the Act. The undersigned further acknowledges that the Employee shall be responsible for compliance with all conditions on transfer imposed by any state "blue sky" or securities law administrator. 9 (e) Each certificate representing the securities (other than the PriceLine Option) issued to the Employee pursuant to this Agreement shall bear substantially the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE EMPLOYMENT AGREEMENT DATED AS OF JULY __, 1998. IN ADDITION TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER (THE "ACT"), AND ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR (B) IF SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF THE ACT AND, IF REQUIRED BY THE COMPANY, THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THAT EFFECT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT. 8. CONFIDENTIALITY; NON-COMPETITION. As a condition to PriceLine's willingness to enter into this Agreement and in partial consideration of the grant of the Option, the Employee agrees to the covenants and restrictions set forth in this Section 8. 10 (a) The Employee agrees that, during the Term and for a period of two (2) years thereafter, he shall not, directly or indirectly, induce or solicit (or authorize or assist in the taking of any such actions by any third party) any employee or consultant of PriceLine or PriceLine Travel or any of their affiliates to leave his or her business association with such entity. (b) The Employee acknowledges and agrees that, during the course of the provision of the Employee's services to PriceLine and PriceLine Travel, the Employee may be exposed to confidential, proprietary or sensitive data and information concerning the business and affairs of PriceLine and PriceLine Travel, and that all such data and information constitutes a protectable business interest of PriceLine and PriceLine Travel. In furtherance of such business interest, the Employee is contemporaneously herewith executing and delivering to PriceLine the standard consultant confidentiality agreement PriceLine (the "Confidentiality Agreement"). (c) The Employee agrees that he will not at any time during the Term and, (i) for a period of one (1) year following the Date of Termination, directly or indirectly, own any interest in, operate, join, control or participate as a director, stockholder, owner, partner, principal, officer or agent of, enter into the employment of, act as a consultant to, or perform any services for, any entity that is engaged anywhere in the United States of America in a business substantially similar to PriceLine or PriceLine Travel whereby customers are directed to make an offer to purchase goods and services and such demand is provided to potential sellers. Notwithstanding anything herein to the contrary, this Section 8 shall not prevent the Employee from acquiring securities representing not more than one percent (1%) of the outstanding voting securities of any publicly held corporation. It is the desire and intent of the parties that the provisions of this Section 8(c) shall be enforced to the fullest extent permitted under applicable law. If all or part of this Section 8(c) is held invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect. If any part of this Section 8(c) is ultimately determined to be excessively broad as to duration, scope, activity or subject, such part will be construed by limiting and reducing it so as to be enforceable to the maximum extent compatible with applicable law. (d) The Employee acknowledges and agrees that each of the covenants set forth in this Section 8 and in the Confidentiality Agreement are reasonable and necessary for the protection of PriceLine's and PriceLine Travel's 11 business interests, that irreparable injury will result to PriceLine and PriceLine Travel if the Employee breaches any of the terms of said covenants, and that in the event of the Employee's actual or threatened breach of any such covenants, PriceLine and PriceLine Travel will have no adequate remedy at law. The Employee accordingly agrees that in the event of any actual or threatened breach by the Employee of any of said covenants, PriceLine and PriceLine Travel shall be entitled to immediate injunctive and other equitable relief without bond and without the necessity of showing actual monetary damages. Notwithstanding the provisions of Section 15 hereof, such equitable relief may be sought in any court of competent jurisdiction. Nothing contained herein shall be construed as prohibiting PriceLine from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages which it is able to prove. (e) The provisions of this Section 8 shall survive the expiration or termination of this Agreement, and any of the arrangements contained herein, and shall be binding upon the Employee's corporate or personal successors and assigns. 9. SUCCESSORS; BINDING AGREEMENT. This Agreement is a personal contract and the rights and interests of the Employee hereunder may not be sold, transferred, assigned, pledged, encumbered or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of the parties hereto and their respective representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 10. ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreement contain all of the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Employee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by PriceLine with regard to the subject matter or effect of this Agreement or otherwise. 11. AMENDMENT, MODIFICATION AND WAIVER. No provision of this Agreement may be amended, modified or waived unless such amendment, modifi- 12 cation or waiver is agreed to in writing, signed by the Employee and a duly authorized officer of PriceLine. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 12. NOTICES. Any notices, requests, demands, waivers or other communications required or permitted to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or facsimile or registered or certified mail, postage prepaid, return receipt requested, by reputable overnight courier (receipt of which is confirmed) addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing: To the Employee at: Mr. Timothy Brier Five High Ridge Park Stamford, Connecticut 06905-1325 Telecopier: (203) 614-3234 To PriceLine at: priceline.com LLC Five High Ridge Park Stamford, Connecticut 06905-1325 Telecopier: (203) 614-3234 Attention: Mr. Jay Walker All such notices, requests, demands, waivers and communications shall be deemed to have been given on the date on which so hand-delivered, on the third business day following the date on which so mailed, on the next business day following the date on which delivered to such overnight courier and on the date of such facsimile transmission and confirmation, except for a notice of change of person or address, which shall be effective only upon receipt thereof. 13. SEVERABILITY. If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of 13 this Agreement not so held invalid, and all other such provisions shall to the full extent consistent with law continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision which, together with all other provisions of this Agreement, shall likewise to the full extent consistent with law continue in full force and effect. 14. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 15. GOVERNING LAW; JURISDICTION; ARBITRATION. (a) This Agreement will be governed by and construed in accordance with the laws of the State of Connecticut, without regard to its conflicts of laws principles. (b) The parties hereto hereby irrevocably: (i) agree that any suit, action or other legal proceeding arising out of this Agreement, or any of the transactions contemplated hereby, may be brought in the courts of record of the State of Connecticut or the courts of the United States located in the State of Connecticut; (ii) consent to the jurisdiction of each such court in any such suit, action or proceeding; (iii) waive any objection to the laying of venue of any such suit, action or proceeding in any of such courts; and (iv) agree that Connecticut is the most convenient forum for litigation of any such suit, action or proceeding. (c) If any dispute arising under this Agreement is not settled promptly in the ordinary course of business, the parties shall seek to resolve any such dispute between them, first, by negotiating promptly with each other in good faith. If the parties are unable to resolve the dispute between them within twenty (20) business days (or such period as the parties shall otherwise agree) through these negotiations, then any such disputes shall be settled by binding arbitration in accordance with this Agreement and the following procedures: 14 (i) Any arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association (the "AAA") then in effect. (ii) Either party shall serve upon the other parties a written demand that the dispute be arbitrated, specifying in reasonable detail the nature of the dispute to be submitted to arbitration. (iii) Within thirty (30) days after service of a demand for arbitration, the parties shall attempt to agree upon a single arbitrator. (iv) In the event the parties cannot agree upon a single arbitrator, any party may request the AAA to appoint an arbitrator in accordance with its rules; except that if the parties fail to agree upon an arbitrator from the persons named by the AAA or if for any reason the appointment cannot be made from the lists submitted by the AAA, then the Employee and PriceLine shall each appoint an arbitrator within seven (7) days thereafter and the third arbitrator shall be appointed by the AAA. (v) The arbitration proceeding shall be held in Stamford, Connecticut. (vi) The arbitrators shall have no power or authority to add to or detract from the agreements of the parties. The arbitrators shall have no authority to award punitive, exemplary, consequential, special, indirect or incidental damages. (vii) The expenses of arbitration shall be borne equally by the Employee and PriceLine unless the arbitrators determine that one of the parties has not proceeded in good faith with respect to the matters submitted for arbitration, in which case, such party shall bear fully the expenses of arbitration. (viii) Judgment may be entered on any arbitration award in any court of competent jurisdiction. 15 16. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 17. SPECIFIC PERFORMANCE. Each party hereto acknowledges that money damages would be both incalculable and an insufficient remedy for any breach of this Agreement by such party and that any such breach would cause the other parties irreparable harm. Accordingly, each party hereto also agrees that, in the event of any breach or threatened breach of the provisions of this Agreement by such party, the other parties shall be entitled to equitable relief without the requirement of posting a bond or other security, including in the form of injunctions and orders for specific performance, in addition to all other remedies available to such other parties at law or in equity. 18. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. EMPLOYEE /s/ Timothy Brier ----------------------------------- Timothy Brier priceline.com LLC By: /s/ Jay M. Walker -------------------------------- Name: ------------------------------ Title: ----------------------------- 17 EX-10.(7)(2) 9 AMENDMENT TO EMPLOYMENT AGREEMENT 11/16/98 Exhibit 10.7.2 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), made as of this 16th day of November, 1998 (the "Employment Agreement"), is by and between Mr. Timothy Brier ("Employee"), and priceline.com Incorporated, a Delaware corporation (the "PriceLine") and the successor by merger to priceline.com LLC, formerly a Delaware limited liability company. In connection with that certain Amendment to the Priceline.com LLC Non-Qualified Option Agreement, made as of the date hereof, by and between the Employee and PriceLine (the "Option Amendment"), the parties desire to amend certain terms and conditions of the Employment Agreement related to the subject matter of the Option Amendment. Unless defined in this Amendment, all defined terms used herein but not defined herein shall have the meanings set forth in the Employment Agreement. For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree that the Agreement is hereby amended as follows: 1. PRICELINE OPTION. The Employee and PriceLine agree that Section 3(e)(l) of the Employment agreement is hereby amended by deleting (a) from the fifth line thereof the phrase "up to 1,750,000 PriceLine Units" and replacing the same with the phrase "up to 1,602,500 PriceLine Units." and (b) from the fifth and sixth line thereof the phrase ",which represent approximately 2.55% of PriceLine's estimated capitalization on the Launch Date,". 2. VESTING OF PRICELINE OPTION. The Employee and PriceLine agree that Section 3(e)(iv) of the Employment agreement is hereby amended by deleting the same in its entirety and replacing the same with the following: (iv) Subject to Section 5 hereof, the Option shall vest as to (A) 750,000 of the PriceLine Units underlying the Option on June 1, 1998; (B) 500,000 of the PriceLine Units underlying the Option on June 1, 1999; and (C) 352,500 of the PriceLine Units underlying the Option on June 1, 2000. 3. EFFECTIVE DATE. This Amendment shall be effective as of the date indicated in the introductory paragraph of this Amendment. 4. NO OTHER AMENDMENTS; GOVERNING DOCUMENTS. Except as modified by this Amendment, all other terms and provisions of the Employment Agreement shall remain in full force and effect; PROVIDED, HOWEVER, that in the event that any term or condition of this Amendment conflicts or is inconsistent with, or otherwise contrary to, any term or provision of the Employment Agreement, then the terms and provisions of the Amendment shall control. IN WITNESS WHEREOF, the parties have executed and delivered this Amendment on the date indicated above. EMPLOYEE PRICELINE.COM INCORPORATED /s/ Timothy Brier /s/ Melissa M. Taub - --------------------------- ---------------------------------------- Timothy Brier Name: Melissa M. Taub Title: Senior Vice President and Secretary EX-10.10 10 EXHIBIT 10.10 Exhibit 10.10 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. AIRLINE PARTICIPATION AGREEMENT BY AND AMONG NORTHWEST AIRLINES, INC., priceline.com Incorporated AND PRICELINE TRAVEL, INC. DATED: October 2, 1998 [**] = Confidential treatment requested for redacted portion. AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE 1. Terms and Conditions Relating to Airline Tickets..................1 ARTICLE 2. Confidentiality and Related Matters...............................4 ARTICLE 3. Reporting.........................................................5 ARTICLE 4. Proprietary Marks.................................................6 ARTICLE 5. PriceLine Ticket Reservations, Bookings, Payment and Fulfillment...........................................6 ARTICLE 6. PriceLine Ticket Allocation Methodology...........................8 ARTICLE 7. PriceLine Customer Service; Joint Marketing.......................8 ARTICLE 8. Term of Agreement.................................................9 ARTICLE 9. Indemnification...................................................9 ARTICLE 10. No Exclusivity...................................................10 ARTICLE 11. Taxes and the Payment Thereof....................................10 ARTICLE 12. General Provisions...............................................11 ATTACHMENT A..................................................................16 ATTACHMENT B..................................................................17
[**] = Confidential treatment requested for redacted portion. i AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- THIS AIRLINE PARTICIPATION AGREEMENT ("Agreement'), dated October 2,1998, is by and among NORTHWEST AIRLINES, INC., a Minnesota corporation, with its principal place of business at 5101 Northwest Drive, St. Paul, MN 5111-3034 (the "Airline"), and priceline.com Incorporated, a Delaware limited liability company with an address at 5 High Ridge Park, Stamford, Connecticut 06905 ("priceline.com"), and PriceLine Travel, Inc., a Delaware corporation with an address at 5 High Ridge Park, Stamford, Connecticut 06905 ("PriceLine Travel and, together with priceline.com, being collectively referred to herein as "PriceLine") WITNESSETH WHEREAS, PriceLine provides an electronic service via the Internet that allows consumers to purchase airline tickets at an offer price determined by the consumer (the "PriceLine Service"). The consumer identifies the origin and destination and departure and return dates for travel and the price the consumer is willing to pay for the travel. PriceLine then determines if seats are available at an appropriate price. If such seats are available, PriceLine Travel will issue a ticket on the applicable carrier. WHEREAS, The Airline desires to participate in the PriceLine Service and, in connection therewith, will provide access to the Airline's inventory at pricing for the origin and destination pairs (each, an "O&D") as determined by the Airline in accordance with the terms and conditions set forth in this Agreement. WHEREAS, PriceLine desires to include the Airline as a participating carrier in the PriceLine Service and to have access to such inventory in accordance with the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the covenants and agreements set forth in this Agreement, the parties agree as follows: ARTICLE 1 TERMS AND CONDITIONS RELATING TO AIRLINE TICKETS [**] = Confidential treatment requested for redacted portion. 1 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- 1.1 The Airline shall make available to PriceLine inventory and pricing of O&Ds as determined by the Airline in accordance with the terms and conditions set forth in this Agreement. As such, for each O&D that the Airline chooses to make available, the Airline shall provide PriceLine with an Unpublished Fare consisting of the base fare and the federal excise tax applicable thereto pursuant to sections 4261(a) and 4261(e)(5) of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provisions (the "Unpublished Fare"). It is expressly understood and agreed that the Airline makes no commitment whatsoever, regarding the level of inventory, the number of such O&Ds or the level of specific pricing of Unpublished Fares, except that, when any Unpublished Fares are made available, such will be communicated by the Airline to PriceLine under the procedures identified in Attachment A, annexed hereto and made a part hereof. Availability of seats is at the sole discretion of the Airline, and any inventory communicated to PriceLine may be decreased or withdrawn by Airline at any time before a sale thereof by PriceLine 1.2 All tickets issued by PriceLine for carriage on Airline (each, a "PriceLine Ticket") shall be subject to the following restrictions (the "Restrictions"): 1.2.1 All PriceLine Tickets will be non-refundable, non-endorsable and nonchangeable; 1.2.2 All travel will be round-trip with no stopovers or open-jaw travel permitted; 1.2.3 Frequent Flyer mileage and upgrades will not be permitted; provided Airline may offer such benefits to the extent that it is impractical, as determined by it, to impose frequent flyer restrictions on PriceLine Tickets; 1.2.4 PriceLine customers must agree to (i) make at least one stop or connection on both their departing and return flights, (ii) accept a ticket on any Participating Carrier, and (iii) travel on any flight on the specified date of travel (x) for domestic U.S. flights, during the 6 a.m. - 10 p.m. time period as determined by PriceLine (unless the customer has specified a request to [**] = Confidential treatment requested for redacted portion. 2 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- include flights departing outside those periods), and (y) for international flights, at any time (i.e., 12:01 a.m. to 11:59 P.M.); 1.2.5 All PriceLine travel reservations and bookings shall be made without PriceLine customers specifying a preferred (or requested) carrier, flight or time of day travel preference(s) on the specified date(s) of travel; 1.2.6 All PriceLine Tickets require instant ticketing guaranteed with a major credit card if PriceLine is, at such time, able to provide an airline ticket within the customer's requested price, departure and return date parameters; and 1.2.7 PriceLine Ticket reservations are limited to no more than eight persons traveling in the same itinerary. 1.2.8 In any 72-hour period, a PriceLine customer shall be limited to making one offer price for airline ticket(s) for a Trip. A "Trip" is defined as travel between the same airports on the same dates of travel by the persons identified in the previous subparagraph hereof. A PriceLine customer may, within said 72-hour period, make an offer for travel in a different airport pair, in the same airport pair, or on a different date of travel. 1.2.9 PriceLine Travel, and not the Airline, shall be solely responsible for issuing tickets that comply with section 7275(a) of the Code, or any successor provisions. 1.3 PriceLine may not change any of the Restrictions established by Airline with respect to a particular fare. 1.4 The Restrictions will apply to all tickets issued through the PriceLine Service on Airline. Airline may waive, at its own cost and expense, one or more of the Restrictions pursuant to a direct arrangement made by Airline with the applicable customer holding a PriceLine Ticket. On an exception basis where necessary or appropriate to promote customer good will, PriceLine may refund the [**] = Confidential treatment requested for redacted portion. 3 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- price of a PriceLine Ticket pursuant to a direct arrangement made by PriceLine with the applicable customer. PriceLine Shall provide Airline with a monthly report detailing the number and amount of refunded PriceLine Tickets involving air transportation services on Airline. PriceLine shall nonetheless pay Airline for such refunded ticket. 1.5 The Restrictions will be communicated by PriceLine to the customer via the Internet (or through PriceLine's customer service representatives if the customer contacts PriceLine through its toll free customer service number), and will be set forth on ticketing and/or itinerary documentation issued by PriceLine Travel. 1.6 All PriceLine Tickets issued for carriage on Airline shall be subject to the published conditions of carriage and the fare rules of Airline. Airline will honor all PriceLine Tickets issued for travel on Airline in accordance with the Restrictions and other rules and conditions established by Airline for PriceLine Tickets, which are set forth in Attachment A hereto, as the same may be supplemented by Airline in its discretion from time to time. 1.7 The Airline will provide transportation for PriceLine customers in accordance with its general conditions for carriage except as noted in Section 1.2 above. Any special handling procedures will be drafted by the parties and made a supplement hereto. PriceLine will provide customers with access to a fully-staffed telephone service center that will respond to any consumer questions and issues pertaining to special handling requirements for PriceLine Tickets, including processing any customer handling requirements as identified and authorized by the Airline. 1.8 At the request of Airline, PriceLine will, at its own cost and expense, incorporate into the PriceLine Service a "hot link" to the designated Internet site of Airline: provided however, that PriceLine will have a reasonable period of time following any such request to accomplish any system changes, additions or enhancements necessary or appropriate for the inclusion of any such "hot link". [**] = Confidential treatment requested for redacted portion. 4 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- ARTICLE 2 CONFIDENTIALITY AND RELATED MATTERS 2.1 PriceLine and the Airline will each hold in confidence and, without the prior written consent of the other, will not reproduce, distribute, transmit, transfer or disclose, directly or indirectly, in any form, by any means or for any purpose, any Confidential Information of the other. As used herein, the term "Confidential Information" shall mean this Agreement and its subject matter, and information that is provided to or obtained from one party to the other party and that is valuable to the disclosing party, and particularly any information which derives economic value, actual or potential, from not being generally known to, and not generally ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. The recipient of Confidential Information may only disclose such information to its employees on a need-to-know basis. The obligations of a recipient party with respect to Confidential Information shall remain in effect during and after the term of this Agreement (including any renewals or extensions hereof, and as otherwise further clarified in Section 2.3 hereof) except to the extent necessary to comply with applicable law or the order or other legal process of any court, governmental or similar authority having jurisdiction over the recipient. 2.2 The recipient of Confidential Information will exercise reasonable commercial care in protecting the confidentiality of the other party's Confidential Information. 2.3 The obligations of a recipient party with respect to Confidential Information shall remain in effect during and after the term of this Agreement (including any renewals or extensions hereof) and for a period of three (3) years thereafter, except to the extent such data: 2.3.1 is or becomes generally available to the public other than as a result of a disclosure by the recipient, or its directors, officers, employees, agents or advisors; 2.3.2 becomes available to the recipient on a non-confidential basis from a source other than the disclosing party or its affiliated companies, [**] = Confidential treatment requested for redacted portion. 5 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- provided that such source is not bound by any confidentiality obligations to the disclosing party or its affiliated companies (as applicable); or 2.3.3 is necessary to comply with applicable law or the order or other legal process of any court, governmental or similar authority having jurisdiction over the recipient. 2.4 In the event that the recipient becomes legally compelled to disclose any of such Confidential Information by any governmental body or court, recipient will provide the disclosing party with prompt notice so that the disclosing party may seek a protective order or other appropriate remedy and/or waive compliance (in writing) with provisions hereof. In the event that such protective order or other remedy is not obtained, or the disclosing party waives (in writing) compliance with the provisions hereof, recipient will furnish only that portion of such Confidential Material which is legally required and will exercise its reasonable business efforts to obtain appropriate assurance that confidential treatment will be accorded such Confidential Information. 2.5 PriceLine will not disclose (including, without limitation, by sale) to any third party information obtained through the PriceLine Service concerning a customer who has acquired a ticket on Airline using the PriceLine Service. 2.6 PriceLine will not identify the Airline's participation to the bidder in any specific O&D until a customer is booked and confirmed for ticketing. Further, PriceLine will not, in any media, indicate that the Airline is participating or has participated in any specific O&D except to indicate that, as a consumer proposition, a PriceLine customer must accept a routing on one of the major U.S. full service airlines or, in the case of international travel, other airline carriers available through the PriceLine Service. The Airline may be identified, in such case and for definitional purposes, as one of the major U.S. full service airlines. Beyond such identification, PriceLine will not otherwise advertise or promote that Airline is a participant in the PriceLine Program. [**] = Confidential treatment requested for redacted portion. 6 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- ARTICLE 3 REPORTING 3.1 PriceLine will provide the Airline with (i) access to information concerning each ticket issued by PriceLine Travel on the Airline: (ii) aggregate information (i.e. non airline specific) for all tickets Issued by PriceLine Travel in each O&D that the Airline participates with reasonable availability; (iii) aggregate information for all PriceLine offers not ticketed in each O&D that the Airline participates with reasonable availability; and (iv) information about the Airlines' PriceLine market share in each O & D in which the Airline participates. 3.2 PriceLine will provide to the Airline the methodology for processing customer offers and selecting a participating carrier to ticket each such offer. These processing procedures may be modified or adjusted from time to time by PriceLine. PriceLine will use its best efforts to provide, in writing, any modifications or adjustments to the processing procedures then in effect within five (5) business days of any such modification or adjustment. 3.3 PriceLine will provide to the Airline an annual statement by PriceLine's independent accounting firm or other qualified third-party concerning PriceLine's compliance with all reporting and processing procedures in effect from time to time. In addition, commencing six months after the effective date of the Agreement, PriceLine's independent accounting firm will provide to the Airline on a quarterly basis for each quarter ending March 30, June 30, September 30 and December 31, a statement certifying (1) that PriceLine has collected from its customer the correct amount of Section 4261 Taxes and Other Collected Taxes, as defined in Section 11.1, in compliance with all laws, regulation and rules applicable thereto; (2) that PriceLine has properly remitted the correct amount of such collected Section 4261 Taxes to the appropriate government entity or entities and (3) that PriceLine has remitted the correct amount of such Other Collected Taxes to the Airline. 3.4 Airline may, upon reasonable notice to PriceLine and during normal business hours, audit the financial books and records of PriceLine and the information specified in Sections 3.1 and 3.3 above. Any such audit shall be at the sole cost [**] = Confidential treatment requested for redacted portion. 7 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- and expense of Airline and shall be conducted in a manner that does not unduly disrupt or interfere with the normal business operations of PriceLine. ARTICLE 4 PROPRIETARY MARKS 4.1 During the term of this Agreement and thereafter, neither PriceLine nor Airline shall use the other party's trademarks, trade names, service marks, logos, emblems, symbols or other brand identifiers in advertising or marketing materials, unless it has obtained the prior written approval of the other party. The consent required by this Section 4.1 shall extend to the content of the specific advertising or marketing items as well as the placement and prominence of the applicable trademark, trade name, service mark, logo, emblem, symbol or other brand identifier of the other party. PriceLine or Airline, as applicable, shall cause the withholding, discontinuance, recall or cancellation, as appropriate, of any advertising or promotional material not approved in writing by the other party, that differs significantly from that approved by the other party, or that is put to a use or used in a media not approved by the other party. ARTICLE 5 PRICELINE TICKET RESERVATIONS, BOOKINGS, PAYMENT AND FULFILLMENT 5.1 Airline will file Unpublished Fares and rules for PriceLine Tickets with the computer reservation system ("CRS") used by PriceLine Travel. 5.2 PriceLine will determine the price at which tickets are sold based on customer offers received through the PriceLine Service. 5.3 All Unpublished Fares, as defined in Section 11.1, made available by Airline for sale through the PriceLine Service shall not be commissionable. All such Unpublished Fares shall be exclusive of any domestic federal segment taxes, and any domestic or international government-imposed fuel, departure, arrival, passenger facility, airport, terminal and/or security taxes or surcharges. All such [**] = Confidential treatment requested for redacted portion. 8 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- excluded items, however, must be included in the fare displayed or, if not included, displayed, pursuant to the rules established by the Department of Transportation, on- screen in full, by dollar amount, prior to a customer purchasing a ticket, and added to the fare amount collected from the passenger. 5.4 Upon locating an Unpublished Fare satisfying a PriceLine customer's ticket request, PriceLine Travel shall immediately ticket the customer's ticket price against a valid credit card provided by the PriceLine customer. 5.5 In all PriceLine Ticket transactions, PriceLine Travel will be the merchant of record and will pay all associated merchant credit card fees. All PriceLine tickets sold on Airline will be settled through the Airline Reporting Corporation ("ARC"). 5.6 All tickets of Airline issued through the PriceLine Service will be issued by PriceLine Travel using Agency ARC: 07-50854-6. 5.7 From the effective date of this Agreement through the date six months thereafter (the "Six Month Period"), PriceLine shall pay to the Airline the base fare, as defined in Attachment A, and all Section 4261 and Other Collected Taxes, associated with such base fare. In the event of any dispute as to the amount of the Section 4261 and Other Collected Taxes associated with any base fare offered by Airline to PriceLine, the Airline alone shall have the authority to determine the proper amount of such Collected Taxes. 5.8 After the Six Month Period, PriceLine, through its agent, ARC, shall pay to the Airline the base fare, as defined in Attachment A. and all Other Collected Taxes. 5.9 Unless otherwise directed by a PriceLine customer, all PriceLine Tickets issued on Airline will be issued electronically. After issuance, PriceLine will promptly forward to the customer a receipt of proof of purchase, contract of carriage on Airline and a copy of the Restrictions (including any additional restrictions imposed by Airline). [**] = Confidential treatment requested for redacted portion. 9 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- 5.10 PriceLine will encourage its customers to accept electronic ticketing for all PriceLine Ticket requests by imposing an additional charge for the issuance of paper tickets and maintaining the issuance of electronic tickets as the default option on the PriceLine Service. 5.11 Subject to the provisions of Section 6.5 above, all PriceLine paper tickets for carriage on Airline will be issued by PriceLine Travel on standard ARC traffic documents and will be validated with Airline's validation in accordance with ARC requirements. The auditor's coupon will show the Airline's base fare and all Section 4261 Taxes and all Other Collected Taxes that are remitted by PriceLine to Airline pursuant to Section 11.2. 5.12 In the event that PriceLine is unable to fulfill a PriceLine ticket request from Unpublished Fares and seat inventory provided from airlines participating in the PriceLine Service, PriceLine reserves the right to sell tickets on Airline using published fares used by travel agents generally as reflected in CRSs, in accordance with the rules and conditions associated with such fares. ARTICLE 6 PRICELINE TICKET ALLOCATION METHODOLOGY 6.1 All airlines participating in the PriceLine Service will be given the first opportunity to fill a customer ticket request based on a formula[**]. If a participating airline fails to respond to ticket request on its designated first look, then PriceLine will allocate the request through a second round of preferred looks[**] for each O&D requested (but excluding the participating airline that failed to fulfill the ticket request on the first look). ARTICLE 7 PRICELINE CUSTOMER SERVICE; JOINT MARKETING 7.1 PriceLine will provide 24-hour customer support services to all PriceLine customers through a toll-free number at the customer support center [**] = Confidential treatment requested for redacted portion. 10 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- designated by PriceLine from time to time. The customer support center will be adequately staffed with personnel trained to take PriceLine Ticket requests by phone and respond to all customer inquiries for related service and support. 7.2 PriceLine will use commercially reasonable efforts to ensure that its customer service representatives provide quality customer service and support to PriceLine customers in a prompt, reliable and courteous manner. 7.3 PriceLine will promptly respond to PriceLine customer questions and issues pertaining to special handling requirements for PriceLine Tickets, including processing any special customer handling requirements in respect of PriceLine Tickets issued on Airline. ARTICLE 8 TERM OF AGREEMENT 8.1 This Agreement will commence on the date set forth on the first page of this Agreement and may be terminated by the Airline or PriceLine upon thirty (30) days prior written notice to the other party except that, in the event PriceLine fails to pay any sum due hereunder on the due date, Airline may terminate this Agreement immediately. The obligations of the parties under Articles 2, 3 and 9 of this Agreement shall indefinitely survive the expiration or termination of this Agreement. 8.2 If any sum due to be paid hereunder is not paid on the due date, or if, after the Six Month Period referenced in Section 5.7, Airline reasonably believes that PriceLine has not put into place appropriate tax and other procedures to enable PriceLine to remit the Collected Taxes, as defined in Section 11.1, to the Internal Revenue Service, or other appropriate governmental entity, or if Airline has not received, in a timely manner, any of the certifications from PriceLine's independent accounting firm as required by Section 3.3. Airline may, upon notice to PriceLine, terminate this Agreement immediately. [**] = Confidential treatment requested for redacted portion. 11 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- 8.3 In the event of written notice of termination of this Agreement in accordance with the terms of this Article, all PriceLine tickets issued and paid for prior to the effective date of termination specified in such notice will be accepted by the Airline under the terms of this Agreement. ARTICLE 9 INDEMNIFICATION 9.1 PriceLine Travel and PriceLine Inc. will jointly and severally indemnify, defend and hold harmless Airline, its officers, directors, employees and agents, from and against all damages, losses and causes of action including, without limitation, failure to properly promote or advertise any fare, damage to property or bodily injury, to the extent caused by PriceLine Inc.'s or PriceLine Travel's breach of this Agreement or the ARC Agent Reporting Agreement, or any failure to assess, collect or, as provided herein, pay over to Airline or an appropriate government entity or entities any sums due to be paid hereunder, or by the negligence or willful acts of any of the parties named above or any of their respective employees or agents. 9.2 Airline will indemnify, defend and hold harmless PriceLine, Inc. and PriceLine Travel, and their respective officers, directors, employees and agents from and against all damages, losses and causes of action including, without limitation, damage to property or bodily injury, to the extent caused by the Airline's breach of this Agreement or by the negligence or willful acts of the Airline or any of its employees or agents. ARTICLE 10 NO EXCLUSIVITY 10.1 The relationship by and among Airline, PriceLine Inc. and PriceLine Travel as set forth in this Agreement shall be non-exclusive. As such, Airline may participate in other programs similar to the PriceLine Service. ARTICLE 11 TAXES AND THE PAYMENT THEREOF [**] = Confidential treatment requested for redacted portion. 12 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- 11.1 PriceLine shall be responsible for collecting (1) any taxes pursuant to Section 4261 of the Code ("Section 4261 Taxes") on any amounts paid by the customers of PriceLine to PriceLine and (2) any passenger facility charges, stamp taxes, excise taxes (including segment fees), value added taxes (in the nature of a sales or use tax), gross receipts taxes (in the nature of a sales or use tax), APHIS user fees, U.S. Custom user fees, U S. Immigration user fees, security charges, and any other taxes and/or user fees imposed by any domestic or foreign governmental entity on a per passenger basis ("Other Collected Taxes") on any amounts paid by the customers of PriceLine to PriceLine. 11.2 During the Six Month Period, PriceLine shall remit and be responsible for remitting to the Airline, any Section 4261 Taxes and any Other Collected Taxes on any amounts paid by the customers of PriceLine to PriceLine with one exception as follows: PriceLine shall not remit to the Airline any Section 4261 Taxes or any Other Collected Taxes on any amount charged to and paid by the customers of PriceLine in excess of the base fare (and Airline shall not, accordingly, have any obligation to pay such portion of the Section 4261 Taxes or any Other Collected Taxes to the appropriate government agency). During such Six Month Period, the Airline shall remit, and be responsible for remitting, to the appropriate governmental agencies all Section 4261 Taxes and any Other Collected Taxes received by the Airline from PriceLine pursuant to this paragraph. During such Six Month Period, PriceLine shall remit, and be responsible for remitting, to the appropriate governmental agencies, all Section 4261 Taxes and all Other Collected Taxes on any amounts paid by the customers of PriceLine in excess of the base fare. 11.3 After the Six Month Period, PriceLine shall remit, and be responsible for remitting to the appropriate governmental agencies, all Section 4261 Taxes on any amounts paid by the customers of PriceLine to PriceLine. After the Six Month Period, PriceLine shall remit, and be responsible for remitting, to the Airline any Other Collected Taxes on any amounts paid by the customers of PriceLine to PriceLine. The Airline, in turn, shall remit, and be responsible for remitting to the appropriate governmental entity cr entities, all such Other Collected Taxes received by the Airline from PriceLine. [**] = Confidential treatment requested for redacted portion. 13 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- 11.4 With the exception of the Airline's obligations set forth in Sections 11.2 and 11.3, PriceLine shall pay and be responsible for all Section 4261 Taxes and any Other Collected Taxes on any amounts paid by the customers of PriceLine to PriceLine, and related penalties and interest. PriceLine Travel and PriceLine Inc. will jointly and severally indemnify, defend and hold harmless Airline and Its affiliated airlines, and any of the airline's or its affiliated airlines' officers, directors, employees, and agents, from and against any and all assessments or payments of Section 4261 Taxes or Other Collected Taxes on any amounts paid by, or payable by, the customers of PriceLine Travel or PriceLine Inc. and any related penalties and interest. This indemnification specifically includes, but is not limited to, any assessments or payments under Sections 4263, 6651, 6652, 6856, 6662, 6672, or 7275 of the Code, and any successor provisions, and any related interest. Any payment that PriceLine shall be required to make to or with respect to Airline or its affiliated airlines, or any of the Airline's or its affiliated airlines' officers, directors, employees, and agents, shall be in an amount which, after reduction by the amount of taxes required to be paid in respect of the receipt, accrual or payment of such amount, shall be equal to the payment otherwise required hereunder. The obligations of this Section 11.4 are supplementary of those set forth in Section 9. 1 and shall survive the termination of this Agreement. 11.5 PriceLine's obligations to pay taxes hereunder shall be collateralized by an Irrevocable Stand-by Letter of Credit ("Letter of Credit") satisfactory in form to Airline and issued by a bank in the continental United States satisfactory to Airline ("Issuing Bank"). Such Letter of Credit shall be kept current and not be permitted to lapse and shall be in the amount of One Million Dollars ($1,000,000), any part of which amount shall be supplemented and replaced if it is drawn upon by Airline, so that the Letter of Credit continues to have a face amount of One Million Dollars ($1,000,000). Such Letter of Credit shall be delivered to Airline within fourteen (14) days from the date of this Agreement. Airline may draw upon such Letter of Credit if, at any time, it believes that any sums due to be paid by PriceLine hereunder have not been paid on the due date, by, without more, presenting to the Issuing Bank a certificate signed by [**] = Confidential treatment requested for redacted portion. 14 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- an officer of Airline, stating the sum that is due and that such sum has not been paid on the due date. ARTICLE 12 GENERAL PROVISIONS 12.1 No waiver or breach of any of the provisions of this Agreement shall be construed as a waiver of any succeeding breach of the same or any other provision. 12.2 If any paragraph, sentence or clause of this Agreement shall be adjudged illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the legality, validity or enforceability of this Agreement as a whole or of any paragraph, sentence or clause hereof not so adjudged. 12.3 Any notice required or permitted hereunder shall be deemed sufficient if given in writing and delivered personally, by facsimile transmission, by reputable overnight courier service or United States mail, postage prepaid, to the addresses shown below or to such other addresses as are specified by similar notice, and shall be deemed received upon personal delivery, upon confirmed facsimile receipt, two (2) days following deposit with such courier service, or three (3) days from deposit in the United States mails, in each case as herein provided: If to PriceLine Travel or to PriceLine Inc.: Priceline.com Incorporated Five High Ridge Park Stamford CT 06905 Attention: Chief Financial Officer Phone: 203-705-3027 Fax: 203-595-8344 WITH A COPY TO: [**] = Confidential treatment requested for redacted portion. 15 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- priceline.com Incorporated Five High Ridge Park Stamford CT 06905 Attention: General Counsel If to Airline: Northwest Airlines, Inc. 5101 Northwest Drive ST. Paul, MN 55111-3034 Attention: Director Domestic Pricing Phone: 612-726-0771 Fax: 612-727-7110 WITH A COPY TO: Attention: General Counsel Mail Stop: A l180 A Party may change its address and the name of its designated recipient of copies of notices for purposes of this Agreement by giving the other parties written notice of the new name and the address, phone and facsimile number of its designated recipient in accordance with this Section 12.3. 12.4 This Agreement and the Attachments hereto supersede and replace all previous understandings or agreements, whether oral or written, with respect to the subject matter hereof. The captions in this Agreement are for convenience only and do not alter any terms of this Agreement. 12.5 This Agreement may be amended or modified only by a written amendment executed by the parties. 12.6 The formation, construction, performance and validity of this Agreement shall be governed by the internal laws of the State of New York. . [**] = Confidential treatment requested for redacted portion. 16 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- 12.7 This Agreement may be executed in counterparts, each of which shall be deemed an original, and together, shall constitute one and the same instrument. Execution may be effected by delivery of facsimiles of signature pages (and the parties shall follow such delivery by prompt delivery of originals of such pages). 12.8 No party will in any manner or by any device, either directly or indirectly, act in violation of any applicable law, governmental order or regulation. PriceLine Travel shall comply at all times with the provisions of the Airline's tariffs (except where such tariffs are specifically amended by Airline under the terms of this Agreement) and the terms of the Airlines Reporting Corporation (ARC) Agent Reporting Agreement and any addenda thereto. 12.9 PriceLine agrees to notify the Airline promptly, in writing, in the event there is a change of control in the ownership of PriceLine Inc. For purposes of this Agreement, a "change of control" with respect to a party means (i) the acquisition by any other person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act (except an employee group of such party, any of its subsidiaries or a holding company of such party)), of the beneficial ownership of securities representing 20% or more of the combined voting power of the securities entitled to vote generally in the election of the board of directors of such party, or (ii) the sale, mortgage, lease or other transfer of assets or earning power constituting more than 50% of the assets or earning power of such party (other than ordinary course financing); provided that in no event shall a "change of control" be defined to include (i) an initial public offering of shares of a party's capital stock, (ii) the formation by a part of a holding company, or (ii) an intra-corporate transaction with a company under common control with a party. Upon the occurrence of a change of control, any other party may terminate this Agreement on thirty (30) days prior written notice. 12.10 No party hereto shall assign or transfer or permit the assignment or transfer of this Agreement within the prior written consent of the other parties hereto, which may be withheld in their respective sole discretion. [**] = Confidential treatment requested for redacted portion. 17 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- 12.11 This Agreement shall not- be deemed to create any partnership or joint venture between Airline and PriceLine, nor to create any rights in favor of any person or entity other than the parties hereto. This Agreement is for the sole benefit of the parties and nothing herein expressed or implied shall give or be construed to give any other person any legal or equitable rights hereunder. 12.12 In the event that irreparable damage shall occur in the event any provision of this Agreement is not performed in accordance with the terms hereof, the aggrieved party shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement. 12.13 Each party has participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 12.14 In the event that either party hereto is prevented from fulfilling any of its obligations under this Agreement for a period not exceeding one hundred twenty (120) consecutive days for a reason beyond its control, including, but not limited to, strikes, lockouts, work stoppages or other labor disputes, riots, civil commotions, acts of God, fire, flood and other weather-related reasons, governmental action or directive (a "Force Majeure Event), such party shall not, by reason of being so prevented, be in breach of this Agreement and such condition shall not be cause of termination by any other party. If a Force Majeure Event continues for a period in excess of one hundred twenty (120) consecutive days as to one party which prevents that party from fulfilling in any material way its obligations under this Agreement to the other party, the other party shall have the right to terminate this Agreement upon thirty (30) days' advance written notice to the other party. [**] = Confidential treatment requested for redacted portion. 18 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the date indicated above. AGREED AND ACCEPTED: NORTHWEST AIRLINES, INC. By: /s/ J. Timothy Griffin ---------------------------- Name: J. Timothy Griffin -------------------------- Title: Sr VP Mkt Plng ------------------------- priceline.com Incorporated By: /s/ Jay M. Walker ----------------------------- Name: Jay Walker -------------------------- Title: Vice Chairman ------------------------- PRICELINE TRAVEL, INC. By: /s/ Jay M.Walker ---------------------------- Name: Jay M.Walker -------------------------- Title: Vice Chairman ------------------------- [**] = Confidential treatment requested for redacted portion. 19 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - ------------------------------------------------------------------------------- ATTACHMENT A The Airline shall maintain and communicate any changes in fares and/or rules to be used by PriceLine. The Airline will file base fares (i.e. not fares) via ATPCO (Airline Tariff Publishing Corporation). The base fare is the Unpublished Fare net of any taxes required to be paid by a customer as part of the purchase of a ticket from PriceLine under Section 4261(a) and 4261(e)(5) of the Code. ATPCO will transmit the base fares to WorldSpan and WorldSpan will add in the Section 4261 Taxes. These fares will be secured to the PriceLine IATA number. The Airline may file fare and/or rule changes up to 3 times a day Mon-Fri and once a day on weekends. The Airline will consider PriceLine notified of any changes when WorldSpan has completed loading the ATPCO file. The following chart illustrates the approximate filing times:
Day of week ATPCO sends file to Approximate update time in WorldSpan WorldSpan - ----------- --------- Mon-Fri 10:00 am Noon - 1:00 PM 12.30 pm 2:00 pm - 4:00 pm 8:00 pm 12:30 am (next day) Sat/Sun 4:00 pm 12:30 am (next day)
The most current fares and rules may be accessed by PriceLine as authorized by the Airline, through the following CRS entries: Fares & Rules Display: 4FMSPMIA SR - NW Pricing Entry: 4P FSR 4P*FSR (to store fare) Ticketing Entry: Tickets must be issued as Bulk. [**] = Confidential treatment requested for redacted portion. 20 AIRLINE PARTICIPATION AGREEMENT Northwest Airlines, Inc. and PRICELINE - -------------------------------------------------------------------------------- Information on how to issue bulk tickets can be found in WorldSp2n under: Help Bulk Help Custtkt Info Bulk [**] = Confidential treatment requested for redacted portion. 21 ATTACHMENT B PRICELINE ALLOCATION MODEL Overview and Summary [**] [**] = Confidential treatment requested for redacted portion. EX-10.11-1 11 EXHIBIT 10.11.1 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. GENERAL AGREEMENT This General Agreement (this "AGREEMENT"), dated August 31, 1998, is by and among priceline.com Incorporated, a Delaware corporation with an address at Five High Ridge Park, Stamford, Connecticut 06905 ("PRICELINE INC."), PriceLine Travel, Inc., a Delaware corporation with an address at 5 High Ridge Park, Stamford, Connecticut 06905 ("PRICELINE TRAVEL" and, together with Priceline Inc., being collectively referred to herein as "PRICELINE"), and Delta Air Lines, Inc., a Delaware corporation, having a principal place of business at 1030 Delta Boulevard, Hartsfield Atlanta International Airport, Atlanta, Georgia 30320 ("DELTA"). RECITALS: Delta is a major carrier providing scheduled air transportation services to domestic and international destinations. Priceline provides a service that allows consumers to purchase airline tickets at an offer price determined by the consumer (the "PRICELINE SERVICE"). Priceline desires that Delta become a participating carrier in the Priceline Service pursuant to the terms of this Agreement and two related agreements dated as of the date hereof between Delta and Priceline: (i) a Participating Carrier Agreement (the "PCA") and (ii) a Participation Warrant Agreement (the "PWA") (this Agreement, the PCA and the PWA are collectively referred to herein as the "Transaction Documents"). Delta desires to participate in the Priceline Service, subject to the terms and conditions set forth in the Transaction Documents. In consideration of the covenants and agreements set forth in the Transaction Documents, the parties agree as follows: 1. DEFINITIONS [**] = Confidential treatment requested for redacted portion. As used in this Agreement, terms with their initial letters capitalized (or otherwise defined) shall have the meanings assigned to them in this Agreement or, if not defined herein, the meanings assigned in the other Transaction Documents. 2. TEST AND EVALUATION OF PRICELINE SERVICE 2.1 Delta will make available a limited number of unpublished fares to Priceline in select origin and destination city pairs identified by Delta for a test period. The test period shall begin following the execution of this Agreement and continue thereafter for a period of not greater than 60 days (the "TEST PERIOD"). 2.2 The purpose of the Test Period is to permit Delta to test and evaluate the Priceline Service, and address staffing and technical issues prior to the implementation of Delta's full participation in the Priceline Service. 2.3 During the Test Period, and following the successful completion of the Test Period, Delta's participation in Priceline will be subject to the terms of the Transaction Documents. 2.4 At the close of the Test Period, Delta will notify Priceline as to its determination of whether the test of Delta's participation in the Priceline Service is successful, which determination shall be binding on Priceline. (i) If the test is successful, then Delta shall continue its participation in the Priceline Service in accordance with the terms of the Transaction Documents. (ii) If the test is not successful, then the parties shall meet to determine if any modification to the Priceline Service or Delta's participation can be made to cause Delta's participation to be successful. If no agreement can be reached then, notwithstanding any provision to the contrary in the Transaction Documents, Delta or Priceline may terminate the Transaction Documents on written notice to the other party. Delta and [**] = Confidential treatment requested for redacted portion. 2 Priceline agree that, if Delta determines that the test is not successful and the Transaction Documents are terminated, then neither Delta nor Priceline will claim any damages against the other, and each party will return all Confidential Information to the disclosing party. 3. CARRIER PARTICIPATION, CHANGES TO RESTRICTIONS AND SOFTWARE LICENSE Subject to Section 3.5 below, Delta and Priceline agree that, during the term of the PCA: 3.1 (i) all airlines which have signed an agreement with Priceline to participate in the Priceline Service as of the date hereof (as identified in the attached Schedule 3.1 hereof) may continue such participation; (ii) for a six (6) month period following the completion of the Test Period (the "TRANSITION PERIOD") Priceline will not add any additional airlines to the Priceline Service without Delta's prior written consent; PROVIDED, HOWEVER, that Delta agrees to consent to the inclusion (on a test basis with Delta's approval of the test O&D markets) of any one additional carrier with a domestic market share greater than [**] [as measured in revenue passenger miles reported on U.S. Department of Transportation ("DOT") Form 41 ("RPMS")] if such carrier's participation is limited to an extent that its participation, in Delta's reasonable business judgment, will not interfere with Delta's evaluation of the Priceline Service during the Transition Period; (iii) Priceline will use its best efforts to recruit [**] as a Priceline Service participant prior to the inclusion of any other major airline, excepting [**]; and (iv) after the Transition Period, Priceline may add additional U.S. domestic carriers to the Priceline Service which are acceptable to Delta (as reflected by Delta's written consent), with a goal of including in the Priceline Service a total number of domestic airline participants so that the sum total domestic market share of all such participating airlines will, in an annual measuring period, represent [**] of all U.S. domestic RPMs (the "RANGE"). Notwithstanding the foregoing, but subject in all cases to the Range, Priceline may, (x) during and after the Transition Period, include in the Priceline Service [**]; (y) following the Transition Period, Delta may require, as a condition to the inclusion in the Priceline Service of any additional U.S. domestic [**] = Confidential treatment requested for redacted portion. 3 carrier which has a domestic market share of greater than [**] of U.S. domestic RPMs, the exclusion of specific markets (including cities served to/from specified airports) from such carrier's participation, and (z) the inclusion of additional international carriers in the Priceline Service will be subject to the prior written approval of Delta. 3.2 All Priceline Tickets issued on Delta and all other airlines participating in the Priceline Service (the "PARTICIPATING CARRIERS") shall be subject to the Restrictions. 3.3 If during any two consecutive months during the term of the PCA, the number of Priceline Tickets sold on Participating Carriers that do not include a Saturday night stay is greater than 10% of all Priceline Tickets sold on Participating Carriers during such period, then Priceline shall include and shall require as part of the Restrictions a Saturday night stay for all Priceline Ticket sales. 3.4 LICENSE OF PRICELINE SOFTWARE. In the event that one of the eight largest U.S. airlines or five largest foreign flag carriers (measured in each case using total revenue passenger miles) offers a service that allows consumers to purchase airline tickets at an offer price determined by the consumer that is comparable to the Priceline Service, then Priceline will, at Delta's request, grant to Delta a non exclusive license to independently use the software developed by Priceline for the Priceline Service (the "PRICELINE SOFTWARE"') and, if requested by Delta, will operate the Priceline Software on behalf of Delta, in each case on commercially reasonable terms prevailing at the time. Notwithstanding anything to the contrary set forth in this Section 3.4, (i) Priceline will not sell, transfer, license or operate the Priceline Software to or for the benefit of any other airline, travel agent, travel provider, computer reservation system ("CRS"), or the affiliates of such companies (each, including affiliates, a "TRAVEL COMPANY") for use in the United States without Delta's prior written consent, and (ii) Priceline will not sell, transfer, license or operate the Priceline Software to or for the benefit of any other Travel Company, without Delta's prior written consent, for use outside the United States; provided, Delta will consent to a sale, transfer, license or operation outside the United States where such Travel Company (x) gives Delta [**] = Confidential treatment requested for redacted portion. 4 the fight to participate in the Travel Company's program on commercially reasonable terms that are no less favorable than those offered to any other participating airline, (y) agrees that the Restrictions shall apply to any flights to or from the United States, and (z) does not, directly or indirectly, through an affiliate or otherwise, have an existing contractual or agency relationship with Delta. Further, insofar as Priceline licenses or operates the Priceline Software to or for the benefit of any other party, any license or operation of the Priceline Software to or for the benefit of Delta as permitted by this Section 3.7 shall be on no less favorable terms and conditions than those granted by Priceline to any such third party. In addition, any sale, transfer or license of the Priceline Software shall restrict the third party from selling, transferring, licensing or operating the software for the use or benefit of any Travel Company. As used herein, the term "Priceline Software" shall include, without limitation, materials, databases, development environment, modifications and associated intellectual property pertaining to embodied in, comprising, used or necessary for the operation or support of the Priceline Software or its derivative works. 3.5 LIMITATION ON SECTION 3 RIGHTS. The rights of Delta as set forth in Sections 3.1-3.4 above and any license or operation of the Priceline Software granted or provided by Priceline under Section 3.4 shall automatically terminate, and shall be of no further force or effect, in the event that Delta fails to achieve the "MINIMUM THRESHOLD." For the period beginning January 1, 1999 through December 31, 2004, Delta will fail to achieve the Minimum Threshold if domestic Priceline Tickets sold on Delta are (i) less than [**] and (ii) constitute less than [**] of total domestic U.S. Priceline Ticket sales on all airlines (including Delta), in each case during any two consecutive calendar quarters commencing with the calendar quarter beginning January 1, 1999. For the period beginning January 1, 2005 through December 31, 2009, Delta will fail to achieve the Minimum Threshold if Priceline Tickets sold for travel on Delta constitute less than [**] of total domestic U.S. Priceline Ticket sales on all airlines (including Delta), in each case during any two consecutive calendar quarters commencing with the calendar quarter beginning January 1, 2005. For purposes of this section, sales on Delta shall include sales [**] = Confidential treatment requested for redacted portion. 5 on Delta and its code share partners. Notwithstanding the foregoing, Delta shall continue to enjoy the rights granted under Sections 3.1-3.4 above if this Agreement (or the PCA) is terminated solely as a result of Priceline's material breach (which breach was not cured as required by Paragraph VIII.2 of the PCA), and Delta has met the Mini mum Threshold as required by this Section 3.5. In calculating the dollar amount and percentage amount specified in this Section 3.5, in the event that an additional U.S. domestic carrier is added as a Participating Carrier any time after the date hereof and during the term of this Agreement, the parties agree that the Minimum Threshold shall be reduced proportionately to reflect the proportionate decrease in Delta's resulting U.S. domestic market share as compared with all other Participating Carriers. The dollar and/or percentage amount shall be adjusted upon the admission of an additional U.S. domestic carrier by multiplying such amount by a fraction, the numerator of which shall be Delta's U.S. domestic RPMs and the denominator of which shall be Delta's U.S. domestic RPMs and the aggregate U.S. domestic RPMs of the new additional U.S. domestic carrier and all other U.S. domestic Participating Carriers. During the period of any Force Majeur Event, the measuring periods herein shall be extended by one day for each day of such Force Majeur Event. For purposes of the Transaction Documents, if DOT Form 41 is discontinued, such measurement will be based on domestic revenue passenger miles as reported in industry publications. 4. CONFIDENTIAL The confidentiality provisions of the PCA shall fully apply to this Agreement as if set forth herein and shall remain in force during the term of this Agreement. 5. PROPRIETARY MARKS This Agreement shall not be construed to give Priceline or Delta the right to use the other party's trademarks, trade names, service marks, logos, emblems, symbols or other brand identifiers in advertising or marketing materials, without the prior written approval of the other party. [**] = Confidential treatment requested for redacted portion. 6 6. TERM OF AGREEMENT 6.1 This Agreement will commence on the date set forth above and will continue for the term of the PCA. 6.2 The obligations of the parties under Sections 4 and 8 of this Agreement shall indefinitely survive the expiration or any termination of this Agreement. 7. PCA RELATED MATTERS Unless otherwise agreed in writing by Delta and Priceline, during the term of the PCA: 7.1 Priceline shall use reasonable best efforts to include Delta's marketing partners (as identified by Delta from time to time) in any packaged tour, hotel and/or rental car services or products offered by Priceline through the Priceline Service on terms and conditions no less favorable than those offered to any other competing participant. 7.2 Priceline agrees to fulfill all Priceline ticket requests allocable to Delta under the first look and second look as set forth in Paragraph III of the PCA, at the "Highest Qualifying Fare" available from Delta. As used herein, the term "HIGHEST QUALIFYING FARE" means the highest priced Delta unpublished fare meeting the Priceline customer's offer price and other terms, plus the amount of Priceline's minimum ticket sale margin as established from time to time by Priceline and notified to Delta. 7.3 All Priceline tickets sold on Delta will be settled through ARC; provided, the parties agree to work diligently and in good faith to establish and implement a direct settlement arrangement between PriceLine Travel and Delta within six months following the completion of the Test Period. 7.4 [**] [**] = Confidential treatment requested for redacted portion. 7 7.5 Priceline will require Participating Carriers to file unpublished fares for Priceline Tickets through the WORLDSPAN CRS; provided, Delta will have the option to file its fares through Delta's internal reservation system, provided further, that, on an exception basis where necessary to obtain the participation of a carrier that has an ownership interest in a competing CRS, Priceline may offer such carrier(s) the opportunity to file unpublished fares for Priceline Tickets through a competing CRS. 7.6 If Delta provides Priceline with access to Delta's unpublished fares through WORLDSPAN, Priceline shall work with Delta to reach a satisfactory arrangement with respect to the exclusion of Priceline reservation and booking data on Delta from WORLDSPAN's B-IDT/MIDT data compilations. 7.7 [**] 7.8 Priceline shall not advertise prices or fares in any O&D below Delta's published fares in the applicable O&D. 7.9 In the event that Priceline is unable to fulfill a Priceline ticket request from unpublished fares and seat inventory provided from Participating Carriers, and Priceline decides to purchase an airline ticket using a published fare, then Priceline shall purchase the published fare from Participating Carriers based on a formula which allocates such purchases in proportion to the aggregate domestic or international market share (as applicable) offered by each Participating Carrier in the O&D requested; provided, that the Participating Carrier has seats available for sale at published fares comparable to the published fares available from other Participating Carriers in such O&D. 7.10 At the request of Delta, Priceline will incorporate into the Priceline Service a "hot link" to the designated Internet site of Delta; PROVIDED, HOWEVER, that Priceline will have a reasonable period of time following any such request to accomplish any system changes, additions or enhancements necessary or appropriate for the inclusion of any such "hot link." [**] = Confidential treatment requested for redacted portion. 8 7.11 Participating Carriers will be given the first opportunity to fill a customer ticket request based on a formula [**]. If a Participating Carrier fails to respond to a ticket request on its designated first look, then Priceline will allocate the request through a second round of preferred looks [**] for each O&D requested (but excluding the Participating Carrier that failed to fulfill the ticket request on the first look). 7.12 REVENUE SHARING. If Priceline's total margin (defined as Priceline Ticket sales on Delta net of payments to Delta and applicable credit card merchant fees) on aggregate ticket sales of Delta exceeds 12% (the "EXCESS REVENUE"), for any calendar quarter during the term of the PCA, Priceline will pay Delta a percentage of such Excess Revenue based on the following formula:
If Revenue for the Priceline will pay as a Commission Quarter is greater than: the following percentage: ------------------------ ------------------------ $[**] million [**]% $[**] million [**]% $[**] million [**]% $[**] million [**]% $[**] million or greater [**]%
Within 15 days after the close of each such calendar quarter, Priceline will remit to Delta the amount payable to Delta under this Section 7.12, which amount shall be accompanied by Priceline's calculation of Excess Revenue for the period in question. 7.13 Priceline will provide Delta with a daily electronic report in a format designated by Delta, summarizing, information concerning Priceline customer offers that were not fulfilled by Delta, including (i) O&D requested, (ii) offer price and (iii) number of offers at each offer price; such reports to begin within 30 days following the initiation of the Test Period. 8. INDEMNIFICATION [**] = Confidential treatment requested for redacted portion. 9 8.1 For purposes of this Section 8, "LOSSES" shall mean any and all costs, demands, losses, claims (including any claim by a third party), liabilities, fines, penalties, assessments, damages, including, without limitation, interest, penalties, reasonable attorneys' fees and expenses and all amounts paid in proceedings, claims, complaints, disputes, arbitrations, investigations, defense or settlement of any of the foregoing. 8.2 Except as otherwise provided in this Article 8, Delta agrees to indemnify, defend and hold harmless Priceline and its affiliates and their respective officers, directors, agents, employees and subsidiaries (each, a "PRICELINE INDEMNIFIED PARTY ") to the fullest extent permitted by law from and against any and all Losses resulting from, arising out of or relating to any breach of any representation, warranty, covenant or agreement by Delta in the Transaction Documents; PROVIDED, that Delta shall not be liable under this Section 8.2 to any Priceline Indemnified Party to the extent that it is finally judicially determined that such Losses resulted primarily from the material breach by any Priceline Indemnified Party of any representation, warranty, covenant or agreement of such Priceline Indemnified Party contained in the Transaction Documents, and PROVIDED, FURTHER, that if and to the extent that such indemnification is unenforceable for any reason, Delta shall make the maximum contribution to the payment and satisfaction of such Losses which shall be permissible under applicable laws. 8.3 Except as otherwise provided in this Article 8, Priceline agrees to indemnify, defend and hold harmless Delta and its affiliates and their respective officers, directors, agents, employees, and subsidiaries (each, a "DELTA INDEMNIFIED PARTY") to the fullest extent permitted by law from and against any and all Losses resulting from, arising out of or relating to any breach of any representation or warranty, covenant or agreement by Priceline in the Transaction Documents, including, without limitation, any legal, administrative or other actions (including actions brought by Delta or Priceline or any equity holders of Priceline or derivative actions brought by any person claiming through or in Priceline's name), proceedings or investigations (whether formal or informal), or written threats thereof, based upon, relating to or arising out of the Transaction Documents, the transactions contemplated [**] = Confidential treatment requested for redacted portion. 10 hereby and thereby, or any Delta Indemnified Party's role therein or in transactions contemplated thereby; PROVIDED, that Priceline shall not be liable under this Section 8.3 to any Delta Indemnified Party to the extent that it is finally judicially determined that such Losses resulted primarily from the material breach by any Delta Indemnified Party of any representation, warranty, covenant or agreement of an Delta Indemnified Party contained in the Transaction Documents; and PROVIDED, FURTHER, that if and to the extent that such indemnification is unenforceable for any reason, Priceline shall make the maximum contribution to the payment and satisfaction of such Losses which shall be permissible under applicable laws. 8.4 Each Priceline Indemnified Party or Delta Indemnified Party, as the case may be (for purposes of this Section 8.4, an "INDEMNIFIED PARTY"), under this Section 8 shall, promptly after the receipt of notice of the commencement of any action, investigation, claim or other proceeding against such Indemnified Party in respect of which indemnity may be sought from Delta or Priceline (for purposes of this Section 8.4, an "INDEMNIFYING PARTY") under this Section 8, notify the Indemnifying Party in writing of the commencement thereof. The omission of any Indemnified Party so to notify the Indemnifying Party of any such action shall not relieve the Indemnifying Party from any liability which it may have to such Indemnified Party unless, and only to the extent that, such Indemnifying Party has been prejudiced thereby. In case any such action, claim or other proceeding shall be brought against any Indemnified Party, and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to assume the defense thereof at its own expense, with counsel satisfactory to such Indemnified Party in its reasonable judgment; PROVIDED, HOWEVER, that any Indemnified Party may, at its own expense, retain separate counsel to participate in such defense at its own expense. Notwithstanding the foregoing, in any action, claim or proceeding in which both the Indemnifying Party, on the one hand, and an Indemnified Party, on the other hand, are, or are reasonably likely to become, a party, such Indemnified Party shall have the right to employ separate counsel at the expense of the Indemnifying Party and to control its own defense of such action, claim or proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a [**] = Confidential treatment requested for redacted portion. 11 conflict or potential conflict exists between the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, that would make such separate representation advisable; PROVIDED, HOWEVER, that the Indemnifying Party shall not be liable for the fees and expenses of more than one counsel to all Indemnified Parties. The Indemnifying Party agrees that it will not, without the prior written consent of the Indemnified Party, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated hereby (if any Indemnified Party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of the Indemnified Party from all liability arising or that may arise out of such claim, action or proceeding. The Indemnifying Party shall not be liable for any settlement of any claim, action or proceeding effected against an Indemnified Party without the Indemnifying Party's written consent, which consent shall not be unreasonably withheld. 9. REGISTRATION RIGHTS AGREEMENT Within thirty (30) days of the date hereof, Delta and Priceline shall enter into a Registration Rights Agreement in the form of the Registration Rights Agreement dated as of July 31, 1998, executed among Priceline Inc., General Atlantic Partners 48 L.P., GAP Coinvestment Partners, L.P. and certain stockholders named therein. 10. GENERAL PROVISIONS 10.1 No waiver or breach of any of the provisions of this Agreement shall be construed as a waiver of any succeeding breach of the same or any other provision. 10.2 If any paragraph, sentence or clause of this Agreement shall be adjudged illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the legality, validity or enforceability of this Agreement as a whole or of any paragraph, sentence or clause hereof not so adjudged. [**] = Confidential treatment requested for redacted portion. 12 10.3 Any notice required or permitted hereunder shall be deemed sufficient if given in writing and delivered personally, by facsimile transmission, by reputable overnight courier service or United States mail, postage prepaid, to the addresses shown below or to such other addresses as are specified by similar notice, and shall be deemed received upon personal delivery, upon confirmed facsimile receipt, two (2) days following deposit with such courier service, or three (3) days from deposit in the United States mails, in each case as herein provided: If to PriceLine Tr If to Delta: Pricellne Inc.: Priceline.com Inco Delta Air Lines, Inc. Five High Ridge Pa 1030 Delta Boulevard Stamford, CT 06905 Hartsfield Atlanta International Airport Atlanta, GA 30320 Attention: Chief Financial Officer Attention: VP-Reservations Sales & Distribution Planning Phone: 203-705-302 Phone.- 404-715-4079 Fax: 203-595-8344 Fax: 404-715-2277 WITH A COPY TO: WITH A COPY TO: Priceline.com Incorporated Delta Air Lines, Inc. Five High Ridge Park 1030 Delta Boulevard Stamford, CT 06905 Hartsfield Atlanta International Airport Atlanta, GA 30320 Attention: General Counsel Attention: General Counsel Phone: 404-715-2387 Fax: 404-773-1657
A party may change its address and the name of its designated recipient of copies of notices for purposes of this Agreement by giving the other parties written notice of the new name and the address, phone and facsimile number of its designated recipient in accordance with this Paragraph XI(3). [**] = Confidential treatment requested for redacted portion. 13 10.4 This Agreement and the Attachments hereto supersede and replace all previous understandings or agreements, whether oral or written, with respect to the subject matter hereof. The captions in this Agreement are for convenience only and do not alter any terms of this Agreement. 10.5 This Agreement may be amended or modified only by a written amendment executed by the parties. 10.6 The formation, construction, performance and validity of this Agreement shall be governed by the internal laws of the State of New York. Each party agrees that any civil suit or action brought against it as a result of any of its obligations under this Agreement may be brought against it either in the state or federal courts of the principal place of business of either party, and each party hereby irrevocably submits to the jurisdiction of such courts and irrevocably waives, to the fullest extent permitted by law, any objections that it may now or hereafter have to the laying of the venue of such civil suit or action and any claim that such civil suit or action has been brought in an inconvenient forum, and each party further agrees that final judgment in any such civil suit or action shall be conclusive and binding upon it and shall be enforceable against it by suit upon such judgment in any court of competent jurisdiction. 10.7 This Agreement may be executed in counterparts, each of which shall be deemed an original, and together, shall constitute one and the same instrument. Execution may be effected by delivery of facsimiles of signature pages (and the parties shall follow such delivery by prompt delivery of originals of such pages). 10.8 No party will in any manner or by any device, either directly or indirectly, act in violation of any applicable law, governmental order or regulation. Priceline Travel shall comply at all times with the provisions of Delta's tariffs (except where such tariffs are specifically amended by Delta under the terms of this Agreement) and the terms of the Airlines Reporting Corporation ("ARC") Agent Reporting Agreement and any addenda thereto. [**] = Confidential treatment requested for redacted portion. 14 10.9 Priceline agrees to notify Delta promptly, in writing, in the event there is a change of control in the ownership of PriceLine Inc. For purposes of this Agreement, a "change of control" with respect to a party means (i) the acquisition by any other person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act (except an employee group of such party, any of its subsidiaries or a holding company of such party)), of the beneficial ownership of securities representing 20% or more of the combined voting power of the securities entitled to vote generally in the election of the board of directors of such party, or (ii) the sale, mortgage, lease or other transfer of assets or earning power constituting more than 50% of the assets or earning power of such party (other than ordinary course financing); provided that in no event shall a "change of control be defined to include (i) an initial public offering of shares of a party's capital stock, (ii) the formation by a party of a holding company, or (iii) an intra-corporate transaction with a company under common control with a party. 10.11 No party hereto shall assign or transfer or permit the assignment or transfer of this Agreement without the prior written consent of the other parties. 10.12 This Agreement shall not be deemed to create any partnership or joint venture between Delta and Priceline, nor to create any rights in favor of any person or entity other than the parties hereto. This Agreement is for the sole benefit of the parties and nothing herein expressed or implied shall give or be construed to give any other person any legal or equitable rights hereunder. 10.13 NO PARTY WILL BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOST REVENUES, LOST PROFITS, OR LOST PROSPECTIVE ECONOMIC ADVANTAGE, ARISING FROM THIS AGREEMENT OR ANY BREACH HEREOF. 10.14 THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR IN THE EVENT ANY PROVISION OF THIS AGREEMENT IS NOT PERFORMED IN ACCORDANCE WITH THE TERMS HEREOF AND THAT THE PARTIES SHALL BE [**] = Confidential treatment requested for redacted portion. 15 ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS AGREEMENT. 10.15 Each party has participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 10.16 In the event that either party hereto is prevented from fulfilling any of its obligations under this Agreement for a period not exceeding one hundred twenty (120) consecutive days for a reason beyond its control, including, but not limited to, strikes, lockouts, work stoppages or other labor disputes, riots, civil commotions, acts of God, fire, flood and other weather-related reasons, governmental action or directive (a "FORCE MAJEUR EVENT"), such party shall not, by reason of being so prevented, be in breach of this Agreement and such condition shall not be cause of termination by the other party. If a Force Majeur Event continues for a period in excess of one hundred twenty (120) consecutive days as to one party which prevents that party from fulfilling in any material way its obligations under this Agreement to the other party, the other party shall have the right to terminate this Agreement upon thirty (30) days' advance written notice to the other party. [Signatures on next page] [**] = Confidential treatment requested for redacted portion. 16 [Signatures to the General Agreement dated August 31, 1998] IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the date indicated above. PRICELINE TRAVEL, INC. DELTA AIR LINES, INC. /s/ Tim Brier /s/ Frederick W. Reid - -------------------------- ---------------------- By: Tim Brier By: Frederick W. Reid Title: President Tittle: Executive Vice President and Chief Marketing Officer PRICELINE.COM INCORPORATED /s/ Tim Brier - -------------------------- By: Tim Brier Title: Executive Vice President [**] = Confidential treatment requested for redacted portion. 17 SCHEDULE 3.1 AIRLINES WHICH HAVE SIGNED AN AGREEMENT TO PARTICIPATE IN THE PRICELINE SERVICE AS OF THE DATE OF THE GENERAL AGREEMENT DOMESTIC CARRIERS 1. America West 2. Trans World Airlines INTERNATIONAL CARRIERS 1. Aer Lingus 2. Air France 3. Air New Zealand 4. Cathay Pacific Airways 5. Iberia 6. Iceland Air 7. Lufthansa 8. Malaysia Airlines 9. SAS 10. Singapore Airlines 11. South African Air (final discussions) 12. Varig 13. Virgin Atlantic [**] = Confidential treatment requested for redacted portion. 18 EX-10.(11)(2) 12 EXHIBIT 10.11.2 Exhibit 10.11.2 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. AIRLINE PARTICIPATION AGREEMENT THIS AGREEMENT (this "Agreement"), dated August 31, 1998, is by and among priceline.com Incorporated, a Delaware corporation with an address at Five High Ridge Park, Stamford, Connecticut 06905 ("PRICELINE INC."), PriceLine Travel, Inc., a Delaware corporation with an address at 5 High Ridge Park, Stamford, Connecticut 06905 ("PriceLine Travel" and, together with Priceline Inc., being collectively referred to herein as "PRICELINE"), and the undersigned airline, whose principal place of business is set forth on the signature page of this agreement ("Airline"). PRELIMINARY STATEMENT: Priceline provides a service that allows consumers to purchase airline tickets at an offer price determined by the consumer (the "PRICELINE SERVICE"). The consumer identifies the departure and return dates for travel and the price the consumer is willing to pay for the airline ticket(s). Priceline then determines if it is able to fulfill the customer's offer and, if it is able to do so, PriceLine Travel issues a ticket to the customer on the applicable carrier. Airline desires to participate in the Priceline Service and, in connection therewith, will provide Priceline with unpublished fares subject to the Restrictions (defined herein) for select origin and destination city pairs (each, an "O&D") identified by Airline in accordance with the terms and conditions set forth in this Agreement. Priceline desires to include Airline as a participating carrier in the Priceline Service and to have access to such unpublished fares in accordance with the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the covenants and agreements set forth in this Agreement, the parties agree as follows: [**] = Confidential treatment requested for redacted portion. I. TICKET RESTRICTIONS AND RELATED MATTERS 1. Airline shall make available unpublished fares to Priceline for O&Ds identified by Airline in accordance with the terms and conditions set forth in this Agreement. Unpublished fares provided to Priceline must be issued in accordance with rules and restrictions provided to Priceline from time to time. By way of example, unpublished fares on certain O&D's may require specific routings or be flight/day specific. At all times during the term of this Agreement, Airline will control and determine the unpublished fares and levels of inventory provided to Priceline. It is expressly understood and agreed that Airline makes no commitment whatsoever regarding the level of inventory, number of O&Ds or the level of unpublished fares that will be provided to Priceline. 2. All tickets issued by Priceline for carriage on Airline (each, a "PRICELINE TICKET") shall be subject to the following restrictions (the "RESTRICTIONS"): (a) All Priceline Tickets will be non-refundable, non-endorsable and non- changeable; (b) All travel will be round-trip with no stopovers or open-jaw travel permitted; (c) Frequent Flyer mileage and upgrades will not be permitted; provided, Airline may offer such benefits to the extent that it is impractical to impose frequent flyer restrictions on Priceline Tickets; (d) Priceline customers must agree to (i) make at least one stop or connection on both their departing and return flights, (ii) accept a ticket on any Participating Carrier, and (iii) travel on any flight on the specified date of travel (x) for domestic U. S. flights, during the 6 a.m. - 10 p.m. time period [unless the customer has specified a request to include flights departing outside those periods], and (y) for international flights, at any time (i.e., 12:01 a.m. to 11:59 p.m.); (e) All Priceline travel reservations and bookings shall be made without Priceline customers specifying a preferred (or [**] = Confidential treatment requested for redacted portion. 2 requested) carrier, flight or time of day travel preference(s) on the specified date(s) of travel; (f) All Priceline Tickets require instant ticketing guaranteed with a major credit card if Priceline is able to provide an airline ticket within the customer's requested price, departure and return date parameters; and (g) Priceline Ticket reservations are limited to no more than eight persons traveling in the same itinerary. (h) In any seven day calendar period, a Priceline customer shall be limited to making one offer price for airline ticket(s) for a Trip. A "TRIP" is defined as travel between the same airports on the same dates of travel. A Priceline customer may, within a seven calendar day period, make an offer for travel in a different airport pair or on different dates of travel. Priceline will not sell a ticket to a Priceline customer in response to a second (or subsequent) offer for a Trip within a seven calendar day period; provided, that Priceline may sell a ticket in connection with a second offer if the Priceline customer (i) raises the offer by a minimum of [**] and (ii) accepts, as part of the second offer, (x) a travel package which includes a hotel or rental car offer, or (y) a product or service co-marketed by Priceline such as a credit card or long distance telephone service; provided further, that Priceline shall limit the number of such second offers to not greater than twenty percent (20%) of first offers. 3. Airline may include, in addition to the Restrictions, other fare rules and conditions for Priceline Tickets issued on Airline such as advance purchase or Saturday night stay requirements. Priceline also reserves the right to impose additional restrictions on Priceline Tickets, including a Saturday night stay requirement, as part of the Restrictions. 4. The Restrictions will apply to all tickets issued through the Priceline Service on Airline. Airline may waive, at its own cost and expense, one or more of the Restrictions pursuant to a direct arrangement made by Airline with the applicable customer holding a Priceline Ticket. On an exception basis where necessary or appropriate to promote customer good will, Priceline may refund the price of a Priceline [**] = Confidential treatment requested for redacted portion. 3 Ticket pursuant to a direct arrangement made by Priceline with the applicable customer. Priceline shall provide Airline with a monthly report detailing the number and amount of refunded Priceline Tickets involving air transportation services on Airline. 5. The Restrictions will be communicated by Priceline to the customer via the Internet (or through Priceline's customer service representatives if the consumer contacts Priceline through its toll free customer service number), and will be set forth on ticketing and/or itinerary documentation issued by PriceLine Travel. 6. All Priceline Tickets issued for carriage on Airline shall be subject to the published conditions of carriage and the fare rules of Airline, to the extent such conditions and fare rules are consistent with the Restrictions. Airline will honor all Priceline Tickets issued for travel on Airline in accordance with the Restrictions and other rules and conditions established by Airline for Priceline Tickets. II. PRICELINE TICKET RESERVATIONS, BOOKINGS, PAYMENT AND FULFILLMENT 1. Airline will file unpublished fares and rules for Priceline Tickets with the computer reservation system ("CRS") used by Priceline Travel. 2. Priceline will determine the price at which tickets are sold based on customer offers received through the Priceline Service. Priceline shall not advertise prices or fares below Airline's published fares. As used herein, "published fare" means an Airline fare published through the Airline Tariff Publishing Company (ATP) and available for sale by Airline appointed agents for scheduled air transportation. 3. All unpublished fares made available by Airline for sale through the Priceline Service shall not be commissionable and shall be inclusive of the domestic 9% federal transportation excise tax. All such unpublished fares shall be exclusive of any domestic federal segment taxes, and any domestic or international fuel, departure, arrival, passenger facility, airport, terminal and/or security taxes or surcharges which, when applicable, must be added to the fare amount collected from the passenger and shown on the Priceline Ticket. [**] = Confidential treatment requested for redacted portion. 4 4. Upon locating a unpublished fare satisfying a Priceline customer's ticket request, PriceLine Travel shall immediately ticket the customer's ticket price against a valid credit card provided by the Priceline customer. 5. In all Priceline Ticket transactions, PriceLine Travel will be the merchant of record and will pay all associated merchant credit card fees. All Priceline tickets sold on Airline will be settled through ARC. 6. All tickets of Airline issued through the Priceline Service will be issued by PriceLine Travel using Agency ARC: 07-50854-6. In collecting payment for Priceline Tickets, PriceLine Travel will act as the agent of Airline pursuant to Agent's ARC Agent Reporting Agreement with the Airlines Reporting Corporation ("ARC"). 7. Unless otherwise directed by a Priceline customer, all Priceline Tickets issued on Airline will be issued electronically. After issuance, Priceline will promptly forward to the customer a receipt of proof of purchase, contract of carriage on Airline and a copy of the Restrictions (including any additional restrictions imposed by Airline). In the event a Priceline customer requests Airline to provide a separate electronic ticket receipt for an electronic ticket issued by PriceLine Travel, Priceline agrees that the price shown on Airline's receipt will reflect the unpublished fare to PriceLine Travel until such time as Airline is reasonably able to produce "bulk" electronic tickets. Insofar as the disclosure of unpublished net fare information to the customer may create customer relations issues for Airline, Airline may direct PriceLine Travel to issue paper tickets until such time as Airline is reasonably able to produce "bulk" electronic tickets. To the extent the disclosure of such unpublished fare information to the Priceline customer creates ongoing customer relations issues for Priceline, PriceLine Travel may, upon reasonable notice to Airline, independently issue paper tickets to customers purchasing tickets on Airline until such time as Airline produces "bulk" electronic tickets. [**] = Confidential treatment requested for redacted portion. 5 8. Subject to the provisions of Paragraph II.7 above, Priceline will encourage its customers to accept electronic ticketing for all PriceLine Ticket requests by imposing an additional charge for the issuance of paper tickets and maintaining the issuance of electronic tickets as the default option on the Priceline Service. 9. Subject to the provisions of Paragraph II.5 above, all Priceline paper tickets for carriage on Airline will be issued by PriceLine Travel on standard ARC traffic documents and will be validated with Airline's validation in accordance with ARC requirements. The passenger coupon will show "bulk" for the fare amount and will include all additional collections noted in Paragraph II.3 above. The auditor's coupon will show the Airline's unpublished fare as authorized by PriceLine Travel. 10. In the event that Priceline is unable to fulfill a Priceline ticket request from unpublished fares and seat inventory provided from airlines participating in the Priceline Service, Priceline reserves the right to sell tickets on Airline using published fares used by travel agents generally as reflected in CRSs, in accordance with the rules and conditions associated with such fares. 11. At the request of Airline, Priceline will incorporate into the Priceline Service a "hot link" to the designated Internet site of Airline; PROVIDED, HOWEVER, that Priceline will have a reasonable period of time following any such request to accomplish any system changes, additions or enhancements necessary or appropriate for the inclusion of any such "hot link." III. PRICELINE TICKET ALLOCATION METHODOLOGY All airlines participating in the Priceline Service will be given the first opportunity to fill a customer ticket request based on a formula [**]. If a participating airline fails to respond to a ticket request on its designated first look, then Priceline will allocate the request through a second round of preferred looks, [**] for each O&D requested (but excluding the participating airline that failed to fulfill the ticket request on the first look). [**] = Confidential treatment requested for redacted portion. 6 IV. PRICELINE CUSTOMER SERVICE; JOINT MARKETING 1. Priceline will provide twenty-four hour customer support services to all Priceline customers through a toll-free number at the customer support center designated by Priceline from time to time. The customer support center will be adequately staffed with personnel trained to take Priceline Ticket requests by phone and respond to all customer inquiries for related service and support. 2. Priceline will use commercially reasonable efforts to ensure that its customer service representatives provide quality customer service and support to Priceline customers in a prompt, reliable and courteous manner. 3. Priceline will respond to Priceline customer questions and issues pertaining to special handling requirements for Priceline Tickets including processing any special customer handling requirements in respect of Priceline Tickets issued on Airline. V. CONFIDENTIALITY 1. Priceline and Airline will each hold in confidence and, without the prior written consent of the other, will not reproduce, distribute, transmit, transfer or disclose directly or indirectly, in any form, by any means or for any purpose, any Confidential Information of the other party. As used herein, the term "CONFIDENTIAL INFORMATION" shall mean this Agreement and its subject matter, and proprietary information that is provided to or obtained from one party to the other party including any information which derives economic value, actual or potential, from not being generally known to, and not generally ascertainable by proper means by, other persons, including the unpublished fares provided by Airline to Priceline pursuant to this Agreement. The recipient of Confidential Information may only disclose such information to its employees on a need-to-know basis. 2. The obligations of a recipient party with respect to Confidential Information shall remain in effect during and after the term of this [**] = Confidential treatment requested for redacted portion. 7 Agreement (including any renewals or extensions hereof) and for a period of five (5) years thereafter, except to the extent such data: (a) is or becomes generally available to the public other than as a result of a disclosure by the recipient, or its directors, officers, employees, agents or advisor; (b) becomes available to the recipient on a non-confidential basis from a source other than the disclosing party or its affiliated companies, provided that such source is not bound by any confidentiality obligations to the disclosing party or its affiliated companies (as applicable); or (c) is necessary to comply with applicable law or the order or other legal process of any court, governmental or similar authority having jurisdiction over the recipient. 3. In the event that the recipient becomes legally compelled to disclose any of such Confidential Information by any governmental body or court, recipient will provide the disclosing party with prompt notice so that the disclosing party may seek a protective order or other appropriate remedy and/or waive compliance (in writing) with the provisions hereof. In the event that such protective order or other remedy is not obtained, or the disclosing party waives (in writing) compliance with the provisions hereof, recipient will furnish only that portion of such Confidential Material which is legally required and will exercise its reasonable business efforts to obtain appropriate assurance that confidential treatment will be accorded such Confidential Information. 4. The recipient of Confidential Information will exercise reasonable commercial care in protecting the confidentiality of the other party's Confidential Information. 5. Priceline will not disclose (including, without limitation, by sale) to any third party information obtained through the Priceline Service concerning a customer who has acquired a ticket on Airline using the Priceline Service. [**] = Confidential treatment requested for redacted portion. 8 6. Priceline will not identify Airline's participation in the Priceline Service until a customer is booked and confirmed for ticketing. Further, Priceline will not, in any media (including its Internet site), indicate that Airline is participating or has participated in the Priceline Service except to indicate that as a consumer proposition, a Priceline customer must accept a routing on one of the major U.S. full service airlines or, in the case of international travel, other airline carriers available through the Priceline Service. Except as set forth above, Priceline will not disclose Airline's participation in the Priceline Service without Airline's prior consent. Airline will not disclose its participation in the Priceline Service without Priceline Inc.'s prior consent. VI. PROPRIETARY MARKS During the term of this Agreement neither Priceline nor Airline shall use the other party's trademarks, trade names, service marks, logos, emblems, symbols or other brand identifiers in advertising or marketing materials, unless it has obtained the prior written approval of the other party. The consent required by this Paragraph VI shall extend to the content of the specific advertising or marketing items as well as the placement and prominence of the applicable trademark, trade name, service mark, logo, emblem, symbol or other brand identifier of the other party. Priceline or Airline, as applicable, shall cause the withholding, discontinuance, recall or cancellation, as appropriate, of any advertising or promotional material not approved in writing by the other party, that differs significantly from that approved by the other party, or that is put to a use or used in a media not approved by the other party. VII. REPORTING; AUDIT RIGHTS 1. Priceline will provide monthly reports in a format designated by Airline summarizing (i) information concerning each ticket issued by PriceLine Travel on Airline; (ii) aggregate information (i.e. non airline specific) for all tickets issued by PriceLine Travel in each O&D that Airline participates; and (iii) aggregate information for all Priceline offers [**] = Confidential treatment requested for redacted portion. 9 from customers not ticketed in each O&D that Airline participates. 2. Priceline will provide to Airline an annual statement by Priceline's independent accounting firm or other qualified third-party concerning Priceline's compliance with the Priceline Ticket Allocation Methodology specified in Section III and all reporting obligations required by this Agreement. 3. Airline may, upon reasonable notice to Priceline and during normal business hours, audit the financial books and records of Priceline and the information specified in Sections VII.I and 2. Any such audit shall be at the sole cost and expense of Airline and shall be conducted in a manner that does not unduly disrupt or interfere with the normal business operations of Priceline. VIII. TERM OF AGREEMENT 1. Subject to the provisions of this Paragraph VIII, this Agreement will commence on the date set forth on the first page of this Agreement (the "Commencement Date") and will continue for a period of ten (10) years thereafter. Notwithstanding the foregoing, Airline may terminate this Agreement for any reason whatsoever after the third anniversary of the Commencement Date upon 180 days' prior written notice of termination delivered to Priceline. Airline may terminate this Agreement at any time after the Commencement Date in the event of a change of control of Priceline Inc., other than a change of control resulting from an initial public offering of shares of Priceline Inc. capital stock. 2. Any party may terminate this Agreement at any time after the Commencement Date if another party is in material breach of its obligations hereunder and has failed to fully cure such breach within thirty (30) days following its receipt of notice of such breach. 3. The obligations of the parties under Paragraphs V and IX of this Agreement shall indefinitely survive the expiration or any termination of this Agreement. [**] = Confidential treatment requested for redacted portion. 10 4. In the event of written notice of termination of this Agreement in accordance with the terms of this Paragraph VIII, all Priceline Tickets issued on Airline prior to the effective date of termination specified in such notice will be honored by Airline under the terms of this Agreement. IX. INDEMNIFICATION 1. PriceLine Travel and Priceline Inc. will jointly and severally indemnify, defend and hold harmless Airline, its officers, directors, employees and agents, from and against all damages, losses and causes of action including, without limitation, damage to property or bodily injury, to the extent caused by Priceline Inc.'s or PriceLine Travel's breach of this Agreement or the ARC Agent Reporting Agreement, or by the negligence or willful acts of either party or any of their respective employees or agents. 2. Airline will indemnify, defend and hold harmless Priceline, Inc. and PriceLine Travel, and their respective its officers, directors, employees and agents from and against all damages, losses and causes of action including, without limitation, damage to property or bodily injury, to the extent caused by Airline's breach of this Agreement or by the negligence or willful acts of Airline or any of its employees or agents. X. NO EXCLUSIVE The relationship by and among Airline, Priceline Inc. and PriceLine Travel as set forth in this Agreement shall be non-exclusive. As such, Airline may participate in other programs similar to the Priceline Service. XI. GENERAL PROVISIONS 1. No waiver or breach of any of the provisions of this Agreement shall be construed as a waiver of any succeeding breach of the same or any other provision. [**] = Confidential treatment requested for redacted portion. 11 2. If any paragraph, sentence or clause of this Agreement shall be adjudged illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the legality, validity or enforceability of this Agreement as a whole or of any paragraph, sentence or clause hereof not so adjudged. 3. Any notice required or permitted hereunder shall be deemed sufficient if given in writing and delivered personally, by facsimile transmission, by reputable overnight courier service or United States mail, postage prepaid, to the addresses shown below or to such other addresses as are specified by similar notice, and shall be deemed received upon personal delivery, upon confirmed facsimile receipt, two (2) days following deposit with such courier service, or three (3) days from deposit in the United States mails, in each case as herein provided: If to PriceLine Travel or to If to Airline, Priceline Inc.: Priceline.com Incorporated Delta Air Lines, Inc. Five High Ridge Park 1030 Delta Boulevard Stamford, CT 06905 Hartsfield Atlanta International Airport Atlanta, GA 30320 Attention: Chief Financial Officer Attention: VP-Reservations Sales & Distribution Planning Phone: 203-705-3027 Phone: 404-715-4079 Fax: 203-595-8344 Fax: 404-715-2277 WITH A COPY TO: WITH A COPY TO: Priceline.com Incorporated Delta Air Lines, Inc. Five High Ridge Park 1030 Delta Boulevard Stamford, CT 06905 Hartsfield Atlanta International Airport Atlanta, GA 30320
[**] = Confidential treatment requested for redacted portion. 12 Attention: General Counsel Attention: General Counsel Phone: 404-715-2387 Fax: 404-773-1657
A party may change its address and the name of its designated recipient of copies of notices for purposes of this Agreement by giving the other parties written notice of the new name and the address, phone and facsimile number of its designated recipient in accordance with this Paragraph XI(3). 4. This Agreement and the Attachments hereto supersede and replace all previous understandings or agreements, whether oral or written, with respect to the subject matter hereof . The captions in this Agreement are for convenience only and do not alter any terms of this Agreement. 5. This Agreement may be amended or modified only by a written amendment executed by the parties. 6. The formation, construction, performance and validity of this Agreement shall be governed by the internal laws of the State of New York. Each party agrees that any civil suit or action brought against it as a result of any of its obligations under this Agreement may be brought against it either in the state or federal courts of the principal place of business of either party, and each party hereby irrevocably submits to the jurisdiction of such courts and irrevocably waives, to the fullest extent permitted by law, any objections that it may now or hereafter have to the laying of the venue of such civil suit or action and any claim that such civil suit or action has been brought in an inconvenient forum, and each party further agrees that final judgment in any such civil suit or action shall be conclusive and binding upon it and shall be enforceable against it by suit upon such judgment in any court of competent jurisdiction. 7. This Agreement may be executed in counterparts, each of which shall be deemed an original, and together, shall constitute one and the same instrument. Execution may be effected by delivery of facsimiles of signature pages (and the parties shall follow such delivery by prompt delivery of originals of such pages). [**] = Confidential treatment requested for redacted portion. 13 8. No party will in any manner or by any device, either directly or indirectly, act in violation of any applicable law, governmental order or regulation. PriceLine Travel shall comply at all times with the provisions of Airline's tariffs (except where such tariffs are specifically amended by Airline under the terms of this Agreement) and the terms of the Airlines Reporting Corporation (ARC) Agent Reporting Agreement and any addenda thereto. 9. Priceline agrees to notify Airline promptly, in writing, in the event there is a change of control in the ownership of PriceLine Inc. For purposes of this Agreement, a " change of control" with respect to a party means (i) the acquisition by any other person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act (except an employee group of such party, any of its subsidiaries or a holding company of such party)), of the beneficial ownership of securities representing 20% or more of the combined voting power of the securities entitled to vote generally in the election of the board of directors of such party, or (ii) the sale, mortgage, lease or other transfer of assets or earning power constituting more than 50% of the assets or earning power of such party (other than ordinary course financing); PROVIDED that in no event shall a "change of control be defined to include (i) an initial public offering of shares of a party's capital stock, (ii) the formation by a party of a holding company, or (iii) an intra-corporate transaction with a company under common control with a party. 10. No party hereto shall assign or transfer or permit the assignment or transfer of this Agreement without the prior written consent of the other parties. 11. This Agreement shall not be deemed to create any partnership or joint venture between Airline and Priceline, nor to create any rights in favor of any person or entity other than the parties hereto. This Agreement is for the sole benefit of the parties and nothing herein expressed or implied shall give or be construed to give any other person any legal or equitable rights hereunder. [**] = Confidential treatment requested for redacted portion. 14 12. NO PARTY WILL BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOST REVENUES, LOST PROFITS, OR LOST PROSPECTIVE ECONOMIC ADVANTAGE, ARISING FROM THIS AGREEMENT OR ANY BREACH HEREOF. 13. THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR IN THE EVENT ANY PROVISION OF THIS AGREEMENT IS NOT PERFORMED IN ACCORDANCE WITH THE TERMS HEREOF AND THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS AGREEMENT. 14. Each party has participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement 15. In the event that either party hereto is prevented from fulfilling any of its obligations under this Agreement for a period not exceeding one hundred twenty (120) consecutive days for a reason beyond its control, including, but not limited to, strikes, lockouts, work stoppages or other labor disputes, riots, civil commotions, acts of God, fire, flood and other weather-related reasons, governmental action or directive (a "FORCE MAJEUR EVENT"), such party shall not, by reason of being so prevented, be in breach of this Agreement and such condition shall not be cause of termination by the other party. If a Force Majeur Event continues for a period in excess of one hundred twenty (120) consecutive days as to one party which prevents that party from fulfilling in any material way its obligations under this Agreement to the other party, the other party shall have the right to terminate this Agreement upon thirty (30) days' advance written notice to the other party. [**] = Confidential treatment requested for redacted portion. 15 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the date indicated above. AIRLINE: PRICELINE TRAVEL, INC. DELTA AIR LINES, INC. /s/ Tim Brier /s/ Frederick W. Reid - ---------------------------- ---------------------------------- By: Tim Brier By: Frederick W. Reid Title: President Title: Executive Vice President and Chief Marketing Officer AIRLINE PRINCIPAL PLACE OF BUSINESS: 1030 Delta Boulevard PRICELINE.COM Hartsfield Atlanta International Airport INCORPORATED Atlanta, GA 30320 /s/ Tim Brier - ---------------------------- By: Tim Brier Title: Executive Vice President [**] = Confidential treatment requested for redacted portion. 16 EX-10.(11)(3) 13 EXHIBIT 10.11.3 Exhibit 10.11.3 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. AMENDMENT TO THE AIRLINE PARTICIPATION AGREEMENT AND THE GENERAL AGREEMENT December 31, 1998 Ms. Brenda Barnes Vice President, Pricing & Revenue Management Delta Air Lines, Inc. 1030 Delta Boulevard Hartsfield Atlanta International Airport Atlanta, GA 30320 Dear Brenda: The following provisions shall be deemed an amendment to the Airline Participation Agreement and the General Agreement between and among Delta Air Lines, Inc. ("Delta") and priceline.com Incorporated and PriceLine Travel, Inc. (collectively, as applicable, "Priceline"), where indicated, in each case, effective as of December 31, 1998. Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Airline Participation Agreement and the General Agreement, as applicable. 1. The following provision replaces Section 7.11 of the General Agreement in its entirety: 7.11 PRICELINE TICKET ALLOCATION METHODOLOGY (a) All airlines participating in the Priceline Service will be given the first opportunity to fill a customer ticket request based on a formula [**] except for offers originating or terminating in the following markets where the [**] rule will not apply: [**] The operation of this first look methodology is reflected in the example attached hereto as Exhibit 7.11, and incorporated by reference herein. (b) Priceline shall, within 60 days of the implementation of the allocation system described in Section 7.11 (a) (which is scheduled for completion at the end of February), and thereafter as requested by Delta, [**] will apply to all O&D markets including, without limitation, the top 2,500 domestic O&D markets and the top 1,000 international O&D markets. [**] = Confidential treatment requested for redacted portion. (c) The first opportunity to fill a customer ticket request [**] in the event Delta's market share (as measured in RPMs) increases versus the rest of the Participating Carriers [**]. (d) Until technology is developed to implement the proposed first look allocation method discussed above [**]. (e) Section 7.11 (a)-(d) as set forth above shall no longer be in effect if Delta's rights under Section 3.1-3.4 of the General Agreement are terminated pursuant to Section 3.5 of the General Agreement. In such event, the following provision shall be substituted for Section 7.11 of the General Agreement: 7.11 All Participating Carriers will be given the first opportunity to fill a customer ticket request based on a formula [**]. If a Participating Carrier fails to respond to a ticket request on its designated first look, then Priceline will allocate the request through a second round of preferred looks [**] for each O&D requested (but excluding the Participating Carrier that failed to fulfill the ticket request on the first look). 2. The following provision is added as a new section 7.14 of the General Agreement: 7.14 DETERMINATION OF REASONABLE DEMAND Beginning at the end of February of 1999, and thereafter on a mutually agreed schedule, Priceline will review with Delta the methodology used by Priceline to establish reasonable demand that Priceline elects to process for both domestic and international O&D offers. 3. The following provision replaces Section 3.1 of the General Agreement in its entirety: 3.1 Subject to Section 3.5 below, Delta and Priceline agree that, during the term of the PCA: (a) (i) all airlines which have signed an agreement with Priceline to participate in the Priceline Service as of the date of the Agreement (as identified in the attached Schedule 3.1 hereof) may continue such participation; (ii) Delta consents to participation by the following airlines: [**] or such other U.S. domestic airline(s) which are acceptable to Delta (as reflected by Delta's consent) with a goal of including in the Priceline Service a total number of domestic airline participants so that the sum total domestic market share of all such participating airlines will, in an annual measuring period, not exceed [**] of all U.S. domestic RPMs (the "Range"); (iii) the following carriers will constitute "Delta Connection Carriers": [**]; and "Delta Connection Carriers" may file Priceline fares (x) under the "DL" code and (y) to/from markets in their local O&D's not served by Delta; (iv) Priceline may include [**] as a participant subject to the restrictions set forth in Section 3.1 (b) below; (v) Priceline may add the following carriers on international markets: (x) [**] (the "Atlantic Excellence Partners") (y)[**] (the "Delta Partners") and [**] = Confidential treatment requested for redacted portion. 2 (z)[**] (the carriers referred to in subsections (x), (y) and (z) being collectively referred to as the "New International Carriers"); and (vi) such other international carriers as Delta shall approve in writing, provided that Delta agrees to negotiate in good faith with respect to the addition of international carriers serving markets in which Priceline's rate of satisfying reasonable offers ("bind rate") is materially below Priceline's international average bind rate as measured over a period of not less than a calendar quarter. (b) Priceline agrees that it will not issue tickets (i) on [**] in the following markets: (x) to or from ATL, BOS, DFW, CVG and SLC (the "Delta Key Markets"), except for offers originating from MSP, DTW and MEM or O&D markets not served by Delta or a carrier operating a flight under Delta's two letter ("DL") designator code and (y) to, from or in the State of Florida, except for flights from MSP, DTW or MEM or O&D markets not served by Delta or a carrier operating a flight under Delta's two letter ("DL") designator code; (ii) on any carrier operating a flight under [**] two letter designator code flights except for [**] commuter carriers; or (iii) on the New International Carriers in the Delta Key Markets except (x) in markets not served by Delta (either directly or on a code-share basis), or (y) in markets where Priceline's rate of satisfying reasonable offers ("bind rate") is materially below Priceline's international average bind rate as measured over a period not less than one calendar quarter. (c) Priceline will continue to use its best efforts to pursue the participation of [**] in the Priceline Service. (d) Priceline agrees that for tickets sold by its international Participating Carriers (i) it will only issue tickets for international travel on flights operated by its international Participating Carriers and not on flights marketed by its international Participating Carriers but operated by other carriers except for (x) grandfathered participants under their current partner agreements listed in Schedule 3.1, (y) [**] code share partners under its current participation agreement (as identified in Schedule 3.1 hereof), and (z) tickets issued on the code share partners of international Participating Carriers providing Priceline with net fares that are calculated off of published fares that retain all of the published fare rules of that fare; provided, however, that in the event that international tickets sold through Priceline by international Participating Carriers (excluding Delta) under the international Participating Carriers' two letter designator code on flights operated by other carriers exceed [**] of the total international tickets sold through Priceline (excluding Delta) for a consecutive 30-day period, Priceline will take action to reduce this percentage below [**]; (ii) it will no issue tickets for international travel on [**] originating from the Delta Key Markets; and (iii) it will not issue tickets for international travel on any of the "Atlantic Excellence Partners" or "Delta Partners" if the airline in question ceases to participate in a qualifying marketing program with Delta (as identified by Delta), which will be effected by not extending the term of any participation agreement with such a carrier once the term expires, not to exceed one year from the time Delta provides written notice to Priceline of such a cessation of participation. In the event that Priceline is obligated to take action under this Section 3.1 (d) to reduce the [**] = Confidential treatment requested for redacted portion. 3 percentage of tickets below [**], then Priceline shall use its reasonable best efforts to develop software programs to restrict this amount below the [**] threshold. (e) As to domestic travel, in the event that the percent of domestic tickets sold under the [**] code on flights operated by carriers other than [**] exceeds [**] of total Priceline sold domestic tickets for a consecutive 30-day period, Priceline will take action to reduce this percentage below [**] during any subsequent 30 day period of this Agreement. In the event that Priceline is obligated take action under this Section 3.1 (e) to reduce the percentage of tickets below [**], then Priceline shall use its reasonable best efforts to develop software programs to restrict this amount below the [**] threshold. (f) Delta may sell Priceline tickets under Delta's two letter designator code on flights operated by other carriers. 4. The following provision replaces Article III of the Airline Participation Agreement in its entirety: III. Priceline Ticket Allocation Methodology Priceline shall establish an allocation methodology that determines when participating airlines will be given the first opportunity to fill a customer ticket request, and may give preference to one or more participants in establishing such methodology. Priceline will work in good faith with each participating airline to assist such airline in achieving its objectives for the Priceline Service within the context of the allocation system. 5. The following provision is added as a new Section 7.15 of the General Agreement. 7.15 Priceline agrees to provide Delta the following weekly reports: a. Total Delta revenue and tickets issued broken down by entity (domestic and international); b. Total Priceline tickets issued (in order to determine Delta's ticketing share); c. Total O&D's ticketed on Delta - broken down by market including the following information: revenue, travel dates and length of stay; d. Total Priceline demand data - ranked by O&D; and e. Bind rate information (i.e. number of tickets issued divided by the number of offers) 6. Except as provided herein, all other terms and conditions of the Airline Participation Agreement and the General Agreement shall remain in full force and effect. In the event any term or provision of the Airline Participation Agreement or the General Agreement is contrary to or inconsistent with this letter, the terms of this letter shall control. If the above language is acceptable, please acknowledge your consent by signing where indicated below and returning this letter to me for execution. In such case, the terms set forth herein shall be deemed effective as of December 31, 1998. [**] = Confidential treatment requested for redacted portion. 4 Sincerely, Tim Brier cc. P. Francis P. Miles J. Varley E. West J. Walker ACCEPTED AND AGREED To: PRICELINE TRAVEL, INC. DELTA AIR LINES, INC. /s/ Brenda A. Barnes - -------------------------------- ------------------------------------ By: Timothy G. Brier By: Brenda Barnes Title: President Title: Vice President - Pricing & Revenue Management PRICELINE.COM INCORPORATED - ---------------------- By: Timothy G. Brier Title: Executive Vice President [**] = Confidential treatment requested for redacted portion. 5 SCHEDULE 3.1
Grandfathered Carriers Current Partner Agreements* ---------------------- --------------------------- Aer Lingus Air France Air New Zealand America West Cathay Pacific Iberia Icelandair Lufthansa Malaysian Airlines SAS Singapore Airlines TWA Varig Virgin Atlantic South African Airways
- -------------------------------------------------------------------------------
Carrier Current Code-Share Partners* ----------- ---------------------------- Qantas
*Delta and Priceline agree to cooperate in good faith to complete this schedule within 60 days of the date hereof. [**] = Confidential treatment requested for redacted portion. 6 EXHIBIT 7.11 PRICELINE FIRST LOOK ALLOCATION METHODOLOGY [**] [**] = Confidential treatment requested for redacted portion. 7 EX-10.12 14 EXHIBIT 10.12 Exhibit 10.12 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPA- RATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. AIRLINE PARTICIPATION AGREEMENT THIS AGREEMENT (this "AGREEMENT"), dated December 31, 1998, is by and among priceline.com Incorporated, a Delaware corporation with an address at Five High Ridge Park, Connecticut 06905 ("PRICELINE INC."), PriceLine Travel, Inc., a Delaware corporation with an address at 5 High Ridge Park, Stamford, Connecticut 06905 ("PRICELINE TRAVEL" and, together with Priceline Inc., being collectively referred to herein as "PRICELINE"), and the undersigned airline, whose principal place of business is set forth on the signature page of this agreement ("Airline"). PRELIMINARY STATEMENT: Priceline provides a service that allows consumers to purchase airline tickets at an offer price determined by the consumer (the "Priceline Service"). The consumer identifies the departure and return dates for travel and the price the consumer is willing to pay for the airline ticket(s). Priceline then determines if it is able to fulfill the customer's offer and, if it is able to do so, PriceLine Travel issues a ticket to the customer on the applicable carrier. Airline desires to participate in the Priceline Service and, in connection therewith, will provide Priceline with unpublished fares subject to the Restrictions (defined herein) for select origin and destination city pairs (each, an "O&D") identified by Airline in accordance with the terms and conditions set forth in this Agreement. Priceline desires to include Airline as a participating carrier in the Priceline Service and to have access to such unpublished fares in accordance with the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the covenants and agreements set forth in this Agreement, the parties agree as follows: I. TICKET RESTRICTIONS AND RELATED MATTERS 1. Airline shall make available unpublished fares to Priceline for O&Ds identified by Airline in accordance with the terms and conditions set forth in this Agreement. Unpublished fares provided to Priceline must be issued in accordance with rules [**] = Confidential treatment requested for redacted portion. and restrictions provided to Priceline from time to time. By way of example, unpublished fares on certain O&D's may require specific routings or be flight/day specific. At all times during the term of this Agreement, Airline will control and determine the unpublished fares and levels of inventory provided to Priceline. It is expressly understood and agreed that Airline makes no commitment whatsoever regarding the level of inventory, number of O&Ds or the level of unpublished fares that will be provided to Priceline. 2. All tickets issued by Priceline for carriage on Airline (each, a "PRICELINE TICKET") shall be subject to the following restrictions (the "RESTRICTIONS"): (a) All Priceline Tickets will be non-refundable, non-endorsable and non-changeable; (b) All travel will be round-trip with no stopovers or open-jaw travel permitted; (c) Frequent Flyer mileage and upgrades will not be permitted; provided, Airline may offer such benefits to the extent that it is impractical to impose such frequent flyer restrictions on Priceline Tickets; (d) Priceline customers must agree to (i) make up to one stop or connection on both their departing and return flights, (ii) accept a ticket on any Participating Carrier, and (iii) travel on any flight on the specified date of travel (x) for domestic U.S. flights, departing during the 6 a.m. - 10 p.m. time period [unless the customer has specified a request to include flights departing outside those periods], and (y) for international flights, at any time (i.e., 12:01 a.m. to 11:59 p.m.); (e) All Priceline travel reservations and bookings shall be made without Priceline customers specifying a preferred (or requested) carrier, flight or time of day travel preference(s) on the specified date(s) of travel; (f) All Priceline Tickets require instant ticketing guaranteed with a major credit card if Priceline is able to provide an airline ticket within the customer's requested price, departure and return date parameters; (g) Priceline Ticket reservations are limited to no more than eight persons traveling in the same itinerary; and (h) In any seven-day calendar period, a Priceline customer shall be limited to making one offer price for airline ticket(s) for a Trip. A "Trip" is defined as travel between the same airports on the same dates of travel. A Priceline customer may, within a seven-calendar day period, make an offer for travel in a different airport pair or on different dates of travel. Priceline will not sell a ticket to a Priceline customer in response to a second (or subsequent) offer for a Trip within a seven calendar day period; provided, that Priceline may sell a ticket in connection with a second offer if the [**] = Confidential treatment requested for redacted portion. 2 Priceline customer (i) raises the offer by a minimum of [**] and (ii) accepts, as part of the second offer, (x) a travel package which includes a hotel or rental car offer, or (y) a product or service co-marketed by Priceline such as a credit card or long distance telephone service; provided further, that Priceline shall limit the number of such second offers to not greater than twenty percent (20%) of first offers. 3. Airline may include, in addition to the Restrictions, other fare rules and conditions for Priceline Tickets issued on Airline such as advance purchase or Saturday night stay requirements. Priceline also reserves the right to impose additional restrictions on Priceline Tickets, including a Saturday night stay requirement, as part of the Restrictions. 4. The Restrictions will apply to all tickets issued through the Priceline Service on Airline. Airline may waive, at its own cost and expense, one or more of the Restrictions set forth in Sections I.2 (a)-(f) pursuant to a direct arrangement made by Airline with the applicable customer holding a Priceline Ticket. On an exception basis where necessary or appropriate to promote customer good will, Priceline may refund the price of a Priceline Ticket pursuant to a direct arrangement made by Priceline with the applicable customer. Priceline shall provide Airline with a monthly report detailing the number and amount of refunded Priceline Tickets involving air transportation services on Airline. 5. The Restrictions will be communicated by Priceline to the customer via the Internet (or through Priceline's customer service representatives if the consumer contacts Priceline through its toll free customer service number), and will be set forth on ticketing and/or itinerary documentation issued by PriceLine Travel. 6. All Priceline Tickets issued for carriage on Airline shall be subject to the published conditions of carriage and the fare rules of Airline, to the extent such conditions and fare rules are consistent with the Restrictions. Airline will honor all Priceline Tickets issued for travel on Airline in accordance with the Restrictions and other rules and conditions established by Airline for Priceline Tickets. II. PRICELINE TICKET RESERVATIONS, BOOKINGS, PAYMENT AND FULFILLMENT 1. Airline will file unpublished fares and rules for Priceline Tickets with the computer reservation system ("CRS") used by Priceline Travel. [**] = Confidential treatment requested for redacted portion. 3 2. Priceline will determine the price at which tickets are sold based on customer offers received through the Priceline Service. Priceline shall not advertise prices or fares below Airline's published or unpublished fares. 3. All unpublished fares made available by Airline for sale through the Priceline Service shall not be commissionable and shall be inclusive, where applicable, of the applicable domestic federal transportation excise tax. All such unpublished fares shall be exclusive of any domestic federal segment taxes, and any domestic or international fuel, departure, arrival, passenger facility, airport, terminal and/or security taxes or surcharges which, when applicable, must be added to the fare amount collected from the passenger and shown on the Priceline Ticket. 4. Upon locating an unpublished fare satisfying a Priceline customer's ticket request, PriceLine Travel shall immediately ticket the customer's ticket price against a valid credit card provided by the Priceline customer. 5. In all Priceline Ticket transactions, PriceLine Travel will be the merchant of record and will pay all associated merchant credit card fees. All Priceline tickets sold on Airline will be settled through ARC. 6. All tickets of Airline issued through the Priceline Service will be issued by PriceLine Travel using Agency ARC: 07-50854-6. In collecting payment for Priceline Tickets, PriceLine Travel will act as the agent of Airline pursuant to Agent's ARC Agent Reporting Agreement with the Airlines Reporting Corporation ("ARC"). 7. Unless otherwise directed by a Priceline customer, all Priceline Tickets issued on Airline will be issued electronically. After issuance, Priceline will promptly forward to the customer a receipt of proof of purchase, contract of carriage on Airline and a copy of the Restrictions (including any additional restrictions imposed by Airline). In the event a Priceline customer requests Airline to provide a separate electronic ticket receipt for an electronic ticket, the price shown on Airline's receipt will reflect that such ticket is a "bulk" electronic ticket. 8. Priceline will encourage its customers to accept electronic ticketing for all PriceLine Ticket requests by imposing an additional charge for the issuance of paper tickets and maintaining the issuance of electronic tickets as the default option on the Priceline Service. 9. Subject to the provisions of Paragraph II.5 above, all Priceline paper tickets for carriage on Airline will be issued by PriceLine Travel on standard ARC traffic [**] = Confidential treatment requested for redacted portion. 4 documents and will be validated with Airline's validation in accordance with ARC requirements. The passenger coupon will show "bulk" for the fare amount and will include all additional collections noted in Paragraph II.3 above. The auditor's coupon will show the Airline's unpublished fare as authorized by PriceLine Travel. 10. In the event that Priceline is unable to fulfill a Priceline ticket request from unpublished fares and seat inventory provided from airlines participating in the Priceline Service, Priceline reserves the right to sell tickets on Airline using published fares used by travel agents generally as reflected in CRSs, in accordance with the rules and conditions associated with such fares. 11. At the request of Airline, Priceline will incorporate into the Priceline Service a "hot link" to the designated Internet site of Airline; PROVIDED, HOWEVER, that Priceline will have a reasonable period of time following any such request to accomplish any system changes, additions or enhancements necessary or appropriate for the inclusion of any such "hot link." III. PRICELINE TICKET ALLOCATION METHODOLOGY Priceline shall establish an allocation methodology that determines when participating airlines will be given the first opportunity to fill a customer ticket request, and may give preference to one or more participants in establishing such methodology. Priceline will work in good faith with each participating airline to assist such airline in achieving its objective for the Priceline Service within the context of the allocation system. IV. PRICELINE CUSTOMER SERVICE; JOINT MARKETING 1. Priceline will provide twenty-four hour customer support services to all Priceline customers through a toll-free number at the customer support center designated by Priceline from time to time. The customer support center will be adequately staffed with personnel trained to take Priceline Ticket requests by phone and respond to all customer inquiries for related service and support. 2. Priceline will use commercially reasonable efforts to ensure that its customer service representatives provide quality customer service and support to Priceline customers in a prompt, reliable and courteous manner. 3. Priceline will respond to Priceline customer questions and issues pertaining to special handling requirements for Priceline Tickets including processing any [**] = Confidential treatment requested for redacted portion. 5 special customer handling requirements in respect of Priceline Tickets issued on Airline. V. CONFIDENTIALITY 1. Priceline and Airline will each hold in confidence and, without the prior written consent of the other, will not reproduce, distribute, transmit, transfer or disclose, directly or indirectly, in any form, by any means or for any purpose, any Confidential Information of the other party. As used herein, the term "CONFIDENTIAL INFORMATION" shall mean this Agreement and its subject matter, and proprietary information that is provided to or obtained from one party to the other party including any information which derives economic value, actual or potential, from not being generally known to, and not generally ascertainable by proper means by, other persons, including the unpublished fares provided by Airline to Priceline pursuant to this Agreement. The recipient of Confidential Information may only disclose such information to its employees on a need-to-know basis. 2. The obligations of a recipient party with respect to Confidential Information shall remain in effect during and after the term of this Agreement (including any renewals or extensions hereof) and for a period of five (5) years thereafter, except to the extent such data: (a) is or becomes generally available to the public other than as a result of a disclosure by the recipient, or its directors, officers, employees, agents or advisors, (b) becomes available to the recipient on a non-confidential basis from a source other than the disclosing party or its affiliated companies, provided that such source is not bound by any confidentiality obligations to the disclosing party or its affiliated companies (as applicable); or (c) is necessary to comply with applicable law or the order or other legal process of any court, governmental or similar authority having jurisdiction over the recipient. 3. In the event that the recipient becomes legally compelled to disclose any of such Confidential Information by any governmental body or court, recipient will provide the disclosing party with prompt notice so that the disclosing party may seek a protective order or other appropriate remedy and/or waive compliance (in writing) with the provisions hereof. In the event that such protective order or other remedy is not obtained, or the disclosing party waives (in writing) compli- [**] = Confidential treatment requested for redacted portion. 6 ance with the provisions hereof, recipient will furnish only that portion of such Confidential Material which is legally required and will exercise its reasonable business efforts to obtain appropriate assurance that confidential treatment will be accorded such Confidential Information 4. The recipient of Confidential Information will exercise reasonable commercial care in protecting the confidentiality of the other party's Confidential Information. 5. Priceline will not disclose (including, without limitation, by sale) to any third party information obtained through the Priceline Service concerning a customer who has acquired a ticket on Airline using the Priceline Service. 6. Priceline will not identify Airline's participation in the Priceline Service until a customer is booked and confirmed for ticketing. Further, Priceline will not, in any media (including its Internet site), indicate that Airline is participating or has participated in the Priceline Service except to indicate that as a consumer proposition, a Priceline customer must accept a routing on one of the major U.S. full service airlines or, in the case of international travel, other airline carriers available through the Priceline Service. Except as set forth above, Priceline will not disclose Airline's participation in the Priceline Service without Airline's prior consent. Airline will not disclose its participation in the Priceline Service without Priceline Inc.'s prior consent. VI. PROPRIETARY MARKS During the term of this Agreement neither Priceline nor Airline shall use the other party's trademarks, trade names, service marks, logos, emblems, symbols or other brand identifiers in advertising or marketing materials, unless it has obtained the prior written approval of the other party. The consent required by this Paragraph VI shall extend to the content of the specific advertising or marketing items as well as the placement and prominence of the applicable trademark, trade name, service mark, logo, emblem, symbol or other brand identifier of the other party. Priceline or Airline, as applicable, shall cause the withholding, discontinuance, recall or cancellation, as appropriate, of any advertising or promotional material not approved in writing by the other party, that differs significantly from that approved by the other party, or that is put to a use or used in a media not approved by the other party. VII. REPORTING; AUDIT RIGHTS [**] = Confidential treatment requested for redacted portion. 7 1. Priceline will provide monthly reports in a format designated by Airline summarizing (i) information concerning each ticket issued by PriceLine Travel on Airline; (ii) aggregate information (i.e. non airline specific) for all tickets issued by PriceLine Travel in each O&D that Airline participates; and (iii) aggregate information for all Priceline offers from customers not ticketed in each O&D that Airline participates. 2. Priceline will provide to Airline an annual statement by Priceline's independent accounting firm or other qualified third-party concerning Priceline's compliance with the Priceline Ticket Allocation Methodology specified in Section III and all reporting obligations required by this Agreement. 3. Airline may, upon reasonable notice to Priceline and during normal business hours, audit the financial books and records of Priceline and the information specified in Sections VII.1 and 2. Any such audit shall be at the sole cost and expense of Airline and shall be conducted in a manner that does not unduly disrupt or interfere with the normal business operations of Priceline. VIII. TERM OF AGREEMENT 1. Subject to the provisions of this Paragraph VIII, this Agreement will commence on the date set forth on the first page of this Agreement (the "Commencement Date") and will continue indefinitely thereafter. Notwithstanding the foregoing, Priceline or Airline may terminate this Agreement for any reason on 30 days prior written notice to the other party. 2. The obligations of the parties under Paragraphs V and IX of this Agreement shall indefinitely survive the expiration or any termination of this Agreement. 3. In the event of written notice of termination of this Agreement in accordance with the terms of this Paragraph VIII, all Priceline Tickets issued on Airline prior to the effective date of termination specified in such notice will be honored by Airline under the terms of this Agreement. IX. INDEMNIFICATION 1. PriceLine Travel and Priceline Inc. will jointly and severally indemnify, defend and hold harmless Airline, its officers, directors, employees and agents, from and against all damages, losses and causes of action including, without limitation, damage to property or bodily injury, to the extent caused by Priceline Inc.'s or PriceLine Travel's breach of this Agreement or the ARC Agent Reporting Agree- [**] = Confidential treatment requested for redacted portion. 8 ment, or by the negligence or willful acts of either party or any of their respective employees or agents. 2. Airline will indemnify, defend and hold harmless Priceline, Inc. and PriceLine Travel, and their respective officers, directors, employees and agents from and against all damages, losses and causes of action including, without limitation, damage to property or bodily injury, to the extent caused by Airline's breach of this Agreement or by the negligence or willful acts of Airline or any of its employees or agents. X. NO EXCLUSIVITY The relationship by and among Airline, Priceline Inc. and PriceLine Travel as set forth in this Agreement shall be non-exclusive. As such, Airline may participate in other programs similar to the Priceline Service. XI. GENERAL PROVISIONS 1. No waiver or breach of any of the provisions of this Agreement shall be construed as a waiver of any succeeding breach of the same or any other provision. 2. If any paragraph, sentence or clause of this Agreement shall be adjudged illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the legality, validity or enforceability of this Agreement as a whole or of any paragraph, sentence or clause hereof not so adjudged. 3. Any notice required or permitted hereunder shall be deemed sufficient if given in writing and delivered personally, by facsimile transmission, by reputable overnight courier service or United States mail, postage prepaid return receipt requested, to the addresses shown below or to such other addresses as are specified by similar notice, and shall be deemed received upon personal delivery, upon confirmed facsimile receipt, two (2) days following deposit with such courier service, or three (3) days from deposit in the United States mails, in each case as herein provided: If to PriceLine Travel or to If to Airline: Priceline Inc.: [**] = Confidential treatment requested for redacted portion. 9 Priceline.com Incorporated America West Airlines, 4000 East Sky Five High Ridge Park Harbor, Phoenix, Arizona 85034 Stamford, CT 06905 Attention: Paul Francis Attention: J. Scott Kirby Chief Financial Officer Vice President-Revenue Management Phone: (203)-705-3027 Phone: (602)-693-5757 Fax: (203)-595-8344 Fax: (602)-693-5854 WITH A COPY TO: WITH A COPY TO: Attention: Timothy G. Brier Attention: Phone: (203)-705-3087 Phone:_____________________ Fax: (203)-595-8343 Fax: ______________________ A party may change its address and the name of its designated recipient of copies of notices for purposes of this Agreement by giving the other parties written notice of the new name and the address, phone and facsimile number of its designated recipient in accordance with this Paragraph XI(3). 4. This Agreement supersedes and replaces all previous understandings or agreement, whether oral or in any written form, with respect to the Airline's participation in the Priceline Service or any other subject matter addressed herein. The captions in this Agreement are for convenience only and do not alter any terms of this Agreement. 5. This Agreement may be amended or modified only by a written amendment executed by the parties. 6. The formation, construction, performance and validity of this Agreement shall be governed by the internal laws of the State of Delaware . Each party agrees that any civil suit or action brought against it as a result of any of its obligations under this Agreement may be brought against it either in the state or federal courts of the principal place of business of either party, and each party hereby irrevocably submits to the jurisdiction of such courts and irrevocably waives, to the fullest extent permitted by law, any objections that it may now or hereafter have to the laying of the venue of such civil suit or action and any claim that such civil suit or action has been brought in an inconvenient forum, and each party further agrees that final judgment in any such civil suit or action shall be conclusive and binding [**] = Confidential treatment requested for redacted portion. 10 upon it and shall be enforceable against it by suit upon such judgment in any court of competent jurisdiction. 7. This Agreement may be executed in counterparts, each of which shall be deemed an original, and together, shall constitute one and the same instrument. Execution may be effected by delivery of facsimiles of signature pages (and the parties shall follow such delivery by prompt delivery of originals of such pages). 8. No party will in any manner or by any device, either directly or indirectly, act in violation of any applicable law, governmental order or regulation. PriceLine Travel shall comply at all times with the provisions of Airline's tariffs (except where such tariffs are specifically amended by Airline under the terms of this Agreement) and the terms of the ARC Agent Reporting Agreement and any addenda thereto. 9. Priceline agrees to notify Airline promptly, in writing, in the event there is a change of control in the ownership of PriceLine Inc. For purposes of this Agreement, a "change of control" with respect to a party means (i) the acquisition by any other person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act (except an employee group of such party, any of its subsidiaries or a holding company of such party)), of the beneficial ownership of securities representing 20% or more of the combined voting power of the securities entitled to vote generally in the election of the board of directors of such party, or (ii) the sale, mortgage, lease or other transfer of assets or earning power constituting more than 50% of the assets or earning power of such party (other than ordinary course financing); PROVIDED that in no event shall a "change of control" be defined to include (i) an initial public offering of shares of a party's capital stock, (ii) the formation by a party of a holding company, or (iii) an intra-corporate transaction with a company under common control with a party. 10. No party hereto shall assign or transfer or permit the assignment or transfer of this Agreement without the prior written consent of the other parties. 11. This Agreement shall not be deemed to create any partnership or joint venture between Airline and Priceline, nor to create any rights in favor of any person or entity other than the parties hereto. This Agreement is for the sole benefit of the parties and nothing herein expressed or implied shall give or be construed to give any other person any legal or equitable rights hereunder. 12. NO PARTY WILL BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOST REVENUES, LOST PROFITS, OR [**] = Confidential treatment requested for redacted portion. 11 LOST PROSPECTIVE ECONOMIC ADVANTAGE, ARISING FROM THIS AGREEMENT OR ANY BREACH HEREOF. 13. THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR IN THE EVENT ANY PROVISION OF THIS AGREEMENT IS NOT PERFORMED IN ACCORDANCE WITH THE TERMS HEREOF AND THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS AGREEMENT. 14. Each party has participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. [**] = Confidential treatment requested for redacted portion. 12 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the date indicated above. PRICELINE TRAVEL, INC. AMERICA WEST AIRLINE, INC. /s/ Thomas D'Angelo /s/ J. Scott Kirby - ----------------------------------- --------------------------------------- By: Thomas D'Angelo By: J. Scott Kirby Title: Vice President & Controller Title: Vice President - Revenue Manage- ment AIRLINE PRINCIPAL PLACE OF BUSINESS: PRICELINE.COM INCORPORATED SEE NOTICE PROVISION. /s/ Paul E. Francis - ----------------------------------- By: Paul E. Francis Title: Chief Financial Officer [**] = Confidential treatment requested for redacted portion. 13 EX-10.13 15 EXHIBIT 10-13 Exhibit 10.13 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. INTERNET MARKETING AND LICENSING AGREEMENT BETWEEN LENDINGTREE, INC. AND PRICELINE.COM INCORPORATED THIS INTERNET MARKETING AND LICENSING AGREEMENT (this "Agreement") between LendingTree, Inc., a Delaware corporation with its principal place of business at 6701 Carmel Road, Suite 205, Charlotte, NC 28226 ("LendingTree"), and priceline.com Incorporated, a Delaware corporation with its principal place of business at Five High Ridge Park, Stamford, CT 06903 ("Priceline"). This Agreement shall be effective as of August 1, 1998 (the "Effective Date"). WITNESSETH: WHEREAS, LendingTree has developed a multiple lender consumer loan origination software program and a web site, currently located at http://www.lendingtree.com, through which it acts as a mortgage loan broker or loan broker offering consumers the opportunity to obtain competitive loan offers from participating lenders in connection with various loan products, including mortgage loans, home equity lines of credit, credit cards, automobile loans and unsecured personal loans. WHEREAS, Priceline has developed a web site, currently located at http://www.priceline.com, which markets various products and services using a "name your price" model. Priceline desires to make available to users of its web site certain mortgage loan, home equity loan and home equity line of credit products. WHEREAS, LendingTree desires to expand its distribution channel for its mortgage loan brokerage services via a co-branded web site hosted and marketed by Priceline which employs Priceline's "name your price" model. NOW, THEREFORE, in consideration of the premises, the mutual covenants, agreements and respective representations and warranties contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS 1.1 "Derivatives" means (i) for copyrightable or copyrighted material, any translation, abridgment, revision, or other form in which such material may be recast, transformed, or adapted and any new material derived from such existing copyrightable material; (ii) for patentable or patented material, any improvement thereon; and (iii) for material or information which is confidential, proprietary or trade secret, any new material or information derived from such existing confidential, proprietary or trade secret material, including new material or information that are or may be protected by copyright, patent and/or trade secret or similar laws, or agreements providing for non-disclosure of any of the foregoing. [**] = Confidential treatment has been requested for redacted portion. 1.2 "Mortgage Content" means software applications and content, in the form of various calculators and other interactive tools, as well as articles regarding consumer credit and mortgages, lender and product descriptions and other data, graphics, and material provided by LendingTree from time to time for incorporation into the Mortgage Web Pages. 1.3 "Mortgage Loan" means a loan made to a consumer borrower that is secured by a Mortgage, deed of trust or other lien on residential real property located in the United States of America, including but not limited to, a first mortgage loan, subordinate lien mortgage loan, home equity loan, and home equity line of credit. 1.4 "Mortgage Web Pages" means the area of the Priceline web site through which LendingTree will offer its mortgage brokerage services. The Mortgage Web Pages will be co-branded by the use of both parties' trademarks, tradenames, logos, or designations, as agreed to by the parties in accordance with the terms of this Agreement. 1.5 "Net Revenue" means the total of all revenue earned and received by LendingTree from lenders, including but not limited to transmission fees and loan origination fees, as a result of its mortgage brokerage services in operating the Mortgage Web Pages ("Revenue"), MINUS the actual cost of (i) credit scores and credit report fees incurred by LendingTree, and (ii) LendingTree's operation of a dedicated Mortgage Web Pages customer service center, [**] (items (i) and (ii) of this Section 1.5 being collectively referred to herein as the "Revenue Deductions"). The parties hereto acknowledge that in the start up of this relationship, there are likely to be delays in LendingTree's receipt of Revenue. As such, the parties intend and agree that any Revenue Deductions related to these delays will be carried forward and offset against Revenues received at a later date. 1.6 "Priceline Name Your Price/Conditional Purchase Model" means the product distribution model utilized by Priceline on its web site under which a consumer identifies a specific price and terms under which he or she will purchase a product or service, and Priceline attempts to find a seller willing to sell the product or service to the consumer on the terms identified by the consumer. In the context of this Agreement and the Mortgage Web Pages, the term shall refer to a business model in which (i) a consumer identifies Mortgage Loan terms, including interest rate, points and loan term, under which he or she is willing to obtain a specified Mortgage Loan. To the extent permitted by applicable law, the Priceline Name Your Price/Conditional Purchase Model may include the delivery to a lender by the consumer of a fee to be used by that lender to offset certain third party or other related costs or expenses, all or a part of which fee may be forfeited by the consumer if the loan fails to close due the substantial fault of the consumer. In addition, the Priceline Name Your Price/Conditional Purchase Model contemplates a counteroffer process, wherein a lender, although unable to offer a consumer the mortgage loan on the specific terms requested, is able to provide the consumer with an acceptable counteroffer. 1.7 "LendingTree Model" means the product distribution model utilized by LendingTree on its website wherein consumers complete a qualification form encompassing product, [**] = Confidential treatment has been requested for redacted portion. 2 rate, term and other preferences, along with traditional loan application data and other information that LendingTree may from time to time request, which information is then submitted to a network of participating lenders who have previously provided LendingTree with credit related criteria for use in LendingTree's proprietary filtering system. The qualification form along with certain credit report and credit scoring information ("Consumer Information") is then presented to the lenders who review that Consumer Information and bid for that consumer's business. 1.8 "Proprietary Marks" means the trade names, servicemarks, trademarks, tradenames, logos, emblems designations, and indicia of origin specified in EXHIBIT A or subsequently identified by written notice by the parties. 1.9 "Qualification Form" means a series of web pages utilized by LendingTree on its web site to gather information from consumers for the purpose of obtaining a prequalification or a loan offer from a lender for a variety of consumer or mortgage loans. 1.10 "Mortgage Web Pages Qualification Form" means a series of web pages utilized or to be utilized by LendingTree in connection with the Mortgage Web Pages 1.11 "Technical Contact" means the primary person from each party responsible for facilitating communications between LendingTree and Priceline and coordinating development of the Mortgage Web Pages. 1.12 "Software" means the computer software of LendingTree, which provides an on-line qualification form, certain investor information, filters and other mechanisms that may allow consumers to qualify for various consumer loan products. The term "Software" includes all interpretive script, source code, object code, screen displays, user manuals and other documentation, and all modifications, enhancements and revisions thereto. 2. LICENSES AND OWNERSHIP 2.1 PRICELINE LICENSES. During the term of this Agreement, Priceline hereby grants to LendingTree (i) the exclusive right and license in the United States to operate the Mortgage Web Pages and (ii) the non-exclusive right and license in the United States to utilize certain Priceline intellectual property, including the Priceline Proprietary Marks, software and the Priceline Name Your Price/Conditional Purchase Marketing Model, in operating the Mortgage Web Pages (collectively, the "Priceline Intellectual Property") in each case subject to the terms and conditions of this Agreement. 2.2 LENDINGTREE LICENSE. During the term of this Agreement, LendingTree hereby grants to Priceline the non-exclusive right and license in the United States to utilize certain LendingTree intellectual property, including but not limited to the LendingTree Proprietary Marks, Software, and Mortgage Content for use by Priceline in carrying out its duties under this Agreement in connection with the Mortgage Web Pages (collectively, the "LendingTree Intellectual Property"), in each case subject to the terms and conditions of this Agreement. [**] = Confidential treatment has been requested for redacted portion. 3 2.3 INTELLECTUAL PROPERTY RIGHTS. All LendingTree Intellectual Property are and will remain the sole and exclusive property of LendingTree and its suppliers, if any. All Priceline intellectual property are and will remain the sole and exclusive property of Priceline and its suppliers, if any. Any Derivatives created by either party regarding the intellectual property of the other party shall become the exclusive property of the original owner of the underlying intellectual property. 3. PRICELINE'S DUTIES 3.1 TESTING, HOSTING, DESIGN AND MAINTENANCE OF THE MORTGAGE WEB PAGES. During the term of this Agreement, Priceline in consultation with LendingTree will be responsible for testing, hosting and maintaining the Mortgage Web Pages to be designed by Priceline based upon the substantive Mortgage Content to be provided by LendingTree as required in Section 4.1 of this Agreement. Priceline will host the Mortgage Web Pages on servers that it owns or controls. Priceline will use best efforts to make available to the public vis-a- vis the Internet on the priceline.com Internet site, the Mortgage Web Pages on a continuous basis. In addition, Priceline will provide, maintain and manage by itself, or through its authorized third parties, all servers, telecommunication devices, facilities, technical support, maintenance and operations as is reasonably needed to facilitate continuous Internet access to the Mortgage Web Pages as herein described. A fuller description of the specifications for the Mortgage Web Pages shall be set forth in Exhibit B sometime prior to the date on which the Mortgage Web Pages commence operation over the Internet. 3.2 DEVELOPMENT EXPENSE. Priceline will be responsible for all internal and third party costs and expenses incurred by it and LendingTree in connection with the development and testing of the Mortgage Web Pages. Any costs or expenses paid or incurred by LendingTree as permitted by this section 3.2 shall be subject to the prior approval of Priceline, which approval shall not be unreasonably withheld or delayed. 3.3 ADVERTISING, MARKETING AND PROMOTION. Priceline will advertise, market and promote the Mortgage Web Pages through various media campaigns, including radio and print media (the "Advertising Services"). LendingTree expressly acknowledges and agrees that the Advertising Services may, in the discretion of Priceline, be provided by Priceline in a combination of (i) general brand advertising for the priceline.com Internet site, (ii) advertising for the products and services offered generally through such site, and (iii) advertising that refers to particular products, including those offered on the Mortgage Web Pages. All advertising related to the Mortgage Web Pages will be subject to the prior approval of LendingTree and its counsel, which consent and approval shall not be unreasonably withheld or delayed. Priceline is not obligated to expend any fixed sum with respect to the provision of the Advertising Services, it being understood that such Advertising Services will be provided by Priceline as it determines, in its reasonable discretion. Subject to the foregoing, the parties acknowledge and agree that the annual market value of the Advertising Services will be in an amount mutually agreed to by the parties, which amount is currently projected to be approximately $12 million. [**] = Confidential treatment has been requested for redacted portion. 4 3.4 LENDER INTRODUCTIONS. During the term of this Agreement, Priceline will direct to LendingTree any inquiries from lenders about the Mortgage Web Pages and opportunities to offer mortgage loan products on the Mortgage Web Pages. 3.5 LEGAL COMPLIANCE. During the term of this Agreement, Priceline shall be responsible for the compliance, in all material respects, with federal, state and other laws and regulations generally applicable to the priceline.com Internet site, including all general advertising related thereto, including general unfair and deceptive trade issues, consumer protection issues and customer relations issues. Under no circumstances, however, will Priceline be charged with responsibility for compliance with federal, state or other laws or regulations applicable to mortgage brokers, the offering of Mortgage Loan products or any and all disclosure, notice or other requirements applicable to mortgage brokers or the provision of Mortgage Loan services to consumers generally, such compliance being the obligation of LendingTree as provided in Section 4.6 of this Agreement. 4. LENDINGTREE'S DUTIES 4.1 MORTGAGE WEB PAGES SUBSTANTIVE CONTENT; MORTGAGE LOAN BROKERAGE SERVICES. With respect to the development of the Mortgage Web Pages, it is expressly acknowledged and agreed to between the parties that LendingTree will provide the substantive Mortgage Content of the Mortgage Web Pages Qualification Form related to the Mortgage Web Pages that are to be developed by Priceline. The Mortgage Web Pages will constitute the "front end" of LendingTree's mortgage brokerage operations at the priceline.com Internet site. To the extent permitted by applicable law, the Mortgage Web Pages will incorporate the LendingTree Qualification Form and the Priceline Name Your Price/Conditional Purchase Model. The Mortgage Web Pages will have the same "look and feel" of other areas of the priceline.com Internet site. The substantive Mortgage Content utilized in the design and development of the Mortgage Web Pages including, but not limited to, all issues related to regulatory compliance shall be subject to the review and approval of Priceline and its counsel, which shall not be unreasonably withheld or delayed. A fuller description of the specifications is set forth in EXHIBIT B. LendingTree acknowledges and agrees that the Mortgage Web Pages as designed by Priceline with the substantive content to be provided by LendingTree will allow Mortgage Loans to be offered through the Mortgage Web Pages by LendingTree in a lawful manner that does not trigger any mortgage broker or loan broker license or registration (or any consumer disclosures, compliance or other requirements related thereto) on the part of Priceline. LendingTree will operate the Mortgage Web Pages and will act as the mortgage broker in connection with all Mortgage Loan products offered on or through the Mortgage Web Pages. LendingTree will at all times maintain in all material respects compliance with applicable federal and state laws and will maintain in good standing requisite mortgage broker licenses, registrations, approvals and exemptions, as applicable. 4.2 LENDER NETWORK MANAGEMENT. During the term of this Agreement, LendingTree shall use best efforts to obtain and maintain agreements with a sufficient number of lenders that offer Mortgage Loan products through LendingTree on the Mortgage Web Pages, as are necessary to support the LendingTree/Priceline relationship. LendingTree agrees that lenders offering the Mortgage Loan products on the Mortgage Web Pages shall, [**] = Confidential treatment has been requested for redacted portion. 5 collectively, have the ability to promptly and efficiently process and close Mortgage Loans from Mortgage Web Pages Qualification Forms, submitted from consumers/ borrowers representing eighty percent (80%) of the Priceline consumer/borrower market (based upon FICO credit score). Subject to the foregoing, the parties currently project that the appropriate number of lenders is from five (5) up to and including ten (10). LendingTree agrees that the minimum number of lenders shall not be less than five (5) during the term of this Agreement. LendingTree will accept recommendations from Priceline regarding potential participating lenders and will work in good faith to enter into agreements with such lenders to enable them to offer their mortgage loan products through LendingTree and the Mortgage Web Pages. LendingTree will be responsible for all lender service issues, training of lender staff, and analyzing lender performance. LendingTree will invoice lenders and manage the collection of all fees. No agreement entered into between LendingTree and any participating lender in connection with the Mortgage Web Pages will impose any obligation, duty or responsibility whatsoever on Priceline, directly or indirectly, or limit or restrict in any manner any of Priceline's legal rights or remedies, including, without limitation, Priceline's right to terminate this Agreement under Section 11 hereof. 4.3 CUSTOMER SERVICE. LendingTree will operate a customer service center dedicated to the Mortgage Web Pages with sufficient staff and resources necessary to handle the volume of customer inquiries generated from the Mortgage Web Pages in a prompt and efficient manner and in accordance with applicable federal, state and other laws and regulations. The parties will work to establish appropriate interfaces between Priceline's existing customer service center and the LendingTree customer service center. In addition, the parties will work together to develop introductory scripts for customer service calls, subject to the review and approval of their respective attorneys. 4.4 CONTENT. As set forth in Sections 3.1 and 4.1 hereof, LendingTree will provide the substantive Mortgage Content for use on the Mortgage Web Pages. 4.5 BACK-END SOFTWARE. During the term of the Agreement, LendingTree will provide and manage the "back-end" processing software required to effect a system of communication between Priceline and LendingTree and LendingTree and its lenders in connection with the Mortgage Web Pages. LendingTree will maintain back-end software processing capacity and reliability at levels subject to the review and approval of Priceline. 4.6 LEGAL COMPLIANCE. During the term of this Agreement, LendingTree shall be responsible for compliance, in all material respects, with all applicable federal, state and other laws and regulations for the Mortgage Web Pages or the Mortgage Loan Products offered to consumers through the Mortgage Web Pages, and will maintain in good standing requisite mortgage broker licenses, registration, approvals and exemptions relating to any of the foregoing. In addition, LendingTree will review and approve all advertising developed by Priceline that is specific to the Mortgage Web Pages to achieve compliance with applicable federal, state and other laws and regulations governing the offering of Mortgage Loan products to the consumer. Further, LendingTree shall be responsible for compliance with all consumer disclosure and other laws and requirements applicable to [**] = Confidential treatment has been requested for redacted portion. 6 all of the Mortgage Web Pages and the Mortgage Loan products offered through the Mortgage Web Pages, except that should Priceline launch any advertising that impacts the Mortgage Web Pages, knowingly or otherwise, without LendingTree's review and approval, Priceline shall be solely responsible for any issues arising out of that non-compliance. 5. EXCLUSIVITY; NON-COMPETITION 5.1 EXCLUSIVITY. During the term of this Agreement, Priceline agrees not to offer any Mortgage Loans on its web site, either directly or through a third party. 5.2 NON-COMPETITION. The parties hereto acknowledge and agree that the LendingTree Model and Priceline Name Your Price/Conditional Purchase Model (hereinafter, together, the "Models") are similar in many of their components. To assist the parties in complying with this Section 5.2, the parties agree that the marketing of the Models is the optimum place to draw the relevant distinctions. Consistent with the above, the parties agree that during the term of this Agreement and indefinitely after any termination of this Agreement, (i) Priceline shall not market its mortgage services in a manner that conflicts with LendingTree's marketing message which is "by filling out one form, consumers get multiple offers from lenders who bid for their business" and (ii) LendingTree shall not market its mortgage services in a manner that conflicts with Priceline's marketing message which is "consumers name the price they want to pay for a mortgage and we will find a lender to meet your price". 6. TECHNICAL CONTACTS 6.1 TECHNICAL CONTACTS. The Technical Contacts shall meet in person or by phone as needed from time to time to assess the status of the Mortgage Web Pages development effort and to keep each other up to date on technology and new product issues related to the Mortgage Web Pages. The Technical Contacts shall be: For LendingTree: Mr. Richard M. Stiegler, CTO LendingTree, Inc. 6701 Carmel Road, Suite 205 Charlotte, North Carolina 28226 For Priceline: Mr. Richard Weinrod, CTO priceline.com Incorporated Five High Ridge Park Stamford, CT 06903 6.2 SPECIFICATIONS MODIFICATION. The Technical Contacts may from time to time modify the specifications for the Mortgage Web Pages as described in EXHIBIT B to this Agreement provided the changes are agreed to in writing by the authorized representatives of the parties. 7. SCHEDULE [**] = Confidential treatment has been requested for redacted portion. 7 The target date for commencing operation of the Mortgage Web Pages shall be September 15, 1998 (the "Target Date"). The parties agree to use best efforts to ensure that the date of commencement is not later than October 15, 1998. 8. CONSIDERATION 8.1 GENERAL. As compensation for the goods, services and facilities provided by Priceline under this Agreement, LendingTree shall pay to Priceline an amount equal to [**][**] of the monthly Net Revenue earned and received by LendingTree in operating the Mortgage Web Pages (the "Priceline Compensation"). LendingTree's obligation to pay the Priceline Compensation shall survive any termination of this Agreement insofar and to the extent that Net Revenues are earned and/or received by LendingTree after such termination. The parties acknowledge, however, that for purposes of this Section 8.1, Net Revenue will be limited to (i) those Mortgage Web Page Qualification Forms that are in the then-participating lenders' pipeline for a Mortgage Loan product, (ii) have been approved for a Mortgage Loan but the transaction has not yet closed and/or (iii) Net Revenue earned but not collected, in each case on or as of the date of termination of this Agreement. 8.2 REGULATORY COMPLIANCE. It is the intent of the parties that the Priceline Compensation shall not exceed the reasonable market value of the goods, services and facilities provided by Priceline pursuant to this Agreement and that such compensation shall at all times be in compliance with applicable federal and state laws, including without limitation, the Real Estate Settlement Procedures Act. In furtherance of these objectives, the parties agree to negotiate in good faith an alternative compensation arrangement with substantially similar economic benefits if Priceline or LendingTree, as applicable, reasonably determine or believe that such compensation arrangement is no longer in compliance with applicable federal, state or other laws and regulations, or any court or government agency having jurisdiction over the operations of either party restricts, enjoins, or threatens to restrict, enjoin or impose sanctions against either party as a result of the terms of this Section 8. 9. PROMOTION RIGHTS AND APPROVALS 9.1 GENERAL. Subject to the provisions of Section 3.3, both parties may promote, advertise and market the Mortgage Web Pages subject to the prior approval of the other party of (i) the use of the other party's Proprietary Marks, and (ii) the content and timing of any press releases. Such approval shall not be unreasonably withheld or delayed by either party. 9.2 PRESS RELEASES. The parties agree to issue within two (2) business days of the execution of this Agreement press releases, either jointly, individually, or both, announcing this Agreement and the parties' plans for the Mortgage Web Pages.Each party shall obtain the prior written approval of the other party for the issuance of any press release regarding: (i) the parties' relationship under this Agreement, or (ii) any other matters related to the Mortgage Web Pages during the term of this Agreement. Any approval requested by Priceline or LendingTree under this Section 9.2 shall not be unreasonably withheld or delayed. [**] = Confidential treatment has been requested for redacted portion. 8 10. REPORTING AND PAYMENTS 10.1 LENDINGTREE REPORTS, PAYMENTS; AUDITS. Within fifteen (15) days following the end of each month, LendingTree shall provide a report (the "LendingTree Report") to Priceline. The LendingTree Report shall detail (i) any relevant information regarding usage of the Mortgage Web Pages during the previous month, including the number of visitors to the Mortgage Web Pages, the number of Qualification Forms submitted by consumers to LendingTree, and the number of loans closed that had originated through the Mortgage Web Pages, (ii) the Net Revenue of LendingTree during the previous month, including a breakdown of the total Revenue earned and Revenue Deductions taken by LendingTree in arriving at the amount of Net Revenue, and (iii) a calculation of the amount of Priceline Compensation due for the previous month. On or by the same date, LendingTree will deliver to Priceline any payment of Priceline Compensation owed for the previous month. Upon the request of Priceline, LendingTree shall provide to Priceline all written or other documentation used by LendingTree to make any calculation or prepare any report described in this Section 10.1. Priceline shall have the right, during normal business hours and upon reasonable notice, to audit the books and records of LendingTree to verify the accuracy and completeness of all reports provided under this Section 10.1. The cost of any such audit shall be paid by Priceline unless the audit reveals an underpayment by LendingTree of ten percent (10%) or more of the applicable LendingTree Report. In such case, the audit shall be paid for fully by LendingTree. 10.2 10.2 PRICELINE REPORTS; AUDIT. Within fifteen (15) days following the end of each month, Priceline shall provide a report (the "Priceline Report") which shall detail (i) the number of page views or impressions on the Mortgage Web Pages during the previous month, and (ii) the number of consumers who submitted Qualification Forms to LendingTree via the Mortgage Web Pages during the previous month. Upon the request of LendingTree, Priceline shall provide all documentation used to prepare any report described in this Section 10.2. LendingTree shall have the right, during normal business hours and upon reasonable notice, to audit the records of Priceline to verify the accuracy and completeness of all reports provided under this Section 10.2. 11. TERM AND TERMINATION 11.1 INITIAL TERM. The term of this Agreement shall commence on the Effective Date and will continue for a period of one (1) year from the date on which the Mortgage Web Pages commence operation over the Internet unless sooner terminated under Section 11.4 below (the "Initial Term"). 11.2 SUBSEQUENT TERMS. Following expiration of the Initial Term, this Agreement shall continue in effect until either party terminates it as provided below. The Initial Term and any subsequent terms are referred to herein as the "Term." 11.3 11.3 GENERAL TERMINATION. After the Initial Term, this Agreement may be terminated at any time during the Term by either party giving ninety (90) days' prior written notice to the other party. In the event that Priceline provides notice of termination to [**] = Confidential treatment has been requested for redacted portion. 9 LendingTree under this Section 11.3 for the purpose of using a different third party mortgage broker to operate the Mortgage Web Pages, LendingTree shall have a right of first refusal to match the economic and other material terms offered by such third party PROVIDED, HOWEVER, that any such right of first refusal shall be exercised by LendingTree within ninety (90) calendar days after receipt of notice from Priceline with respect to such third party offer. The parties agree that the phrase "other material terms" is intended to ensure that during the term of this Agreement, the LendingTree network of lenders have the ability to promptly and efficiently process and close Mortgage Loans from Mortgage Web Pages Qualification Forms submitted from consumers/borrowers representing eighty percent (80%) of the Priceline consumer/borrower market (based upon FICO credit score.) Priceline will be free to engage another third party if such right is not exercised by notice received by Priceline from LendingTree within such ninety (90) day period. Subject to the limitations in Section 5 hereof, nothing set forth in this Section 11.3 shall confer on or to LendingTree any right of first refusal if Priceline elects to operate directly the Mortgage Web Pages and in connection therewith, provides notice to terminate this Agreement. 11.4 TERMINATION FOR BREACH. During the Term of this Agreement, either party will have the right to terminate this Agreement immediately upon written notice if: (i) the other party materially breaches any material term or condition of this Agreement and fails to the cure such breach in full within thirty (30) days after receiving written notice of the breach from the non-breaching party; (ii) the other party becomes the subject of a voluntary petition in bankruptcy or any voluntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors which voluntary petition or proceeding is not dismissed within thirty (30) days of filing of commencement; and (iii) the other party becomes the subject of an involuntary petition in bankruptcy or any other involuntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors. Without limiting the generality of the foregoing, either party may terminate this Agreement immediately upon notice if, in the case of Priceline, Priceline reasonably believes or determines that LendingTree has failed to comply in all material terms, with its obligations under Section 4.6, or such noncompliance is determined by any order, decree, judgment or any similar ruling having jurisdiction over LendingTree's operation of the Mortgage Web Pages or, in the case of LendingTree, LendingTree reasonably believes or determines that Priceline has failed to comply in all material terms, with its obligations under Section 3.5, or such noncompliance is determined by any order, decree, judgment or any similar ruling having jurisdiction over Priceline's operation of the priceline.com Internet site. To the extent that a breach contemplated by this Section 11.4 is curable, such cure period may be extended by the mutual written consent of the parties for an additional period of thirty (30) days, if the cure cannot be achieved after good faith efforts during the initial cure period. 11.5 EFFECT OF TERMINATION. Upon termination of this Agreement, all rights and licenses granted by Priceline and LendingTree under this Agreement to the other party shall immediately revert to and be fully vested in Priceline and LendingTree, as applicable. No termination of this Agreement, for any reason whatsoever, shall terminate any of the rights and obligations of the parties under this Agreement unless such right or obligation is limited by the express terms and provisions of this Agreement. [**] = Confidential treatment has been requested for redacted portion. 10 12. ARBITRATION Any controversy or claim arising out of or relating to this Agreement or any breach of this Agreement, including any controversy or claim as to its arbitrability or rescission shall be finally settled by arbitration before three (3) arbitrators, one chosen by each party and the third selected by the two arbitrators chosen by the parties in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA") in force at that time. Any arbitration shall be conducted in the Borough of Manhattan, New York, unless the parties mutually agree to another location. Any judgment upon the award rendered by the arbitrators may be entered in any court of competent jurisdiction. The arbitrators shall not, under any circumstances, have any authority to award punitive or exemplary damages. All expenses associated with obtaining and utilizing the services of the AAA and the arbitrators shall be shared equally by the parties hereto. The AAA and the arbitrators shall be made aware of this provision and shall agree to request payment separately from the parties for said services, including all expenses directly related to the arbitration, other than the expense of witnesses, which shall be borne by the party producing such witness. Notwithstanding the foregoing, the parties shall bear their own respective costs of preparing for and participating in the arbitration including, without limitation, their attorneys' fees, expert and/or witness fees, and their costs of complying with discovery requests. Discovery is permitted by the Federal Rules of Civil Procedure as in effect and will be allowed in connection with any such arbitration to the extent consistent with the purpose of the arbitration and permitted by the arbitrators. The majority decision of the arbitration panel shall be binding, enforceable and non-appealable. The decision of the arbitration panel shall be in writing and shall set forth in reasonable detail the basis for the panel's decision. Application may be made to any court of competent jurisdiction for a judicial acceptance of the arbitration award and enforcement, as the law of the state having jurisdiction may require or allow. No arbitration may be commenced by either party hereto for any controversy or claim arising out of or relating to this Agreement unless notice of a party's election to require arbitration is given within one (1) year from the date of the occurrence allegedly giving rise to the arbitration. The preceding sentence shall survive the expiration or termination of this Agreement by either party for any reason. 13. REPRESENTATIONS AND WARRANTIES 13.1 REPRESENTATIONS AND WARRANTIES OF LENDINGTREE. LendingTree represents and warrants as follows: 13.1.1 AUTHORITY. LendingTree is a corporation duly organized and validly existing under the laws of the state of Delaware. LendingTree has full corporate power and authority to transact any and all business contemplated by this Agreement and possesses all requisite authority, power, and material licenses, permits and franchises to conduct its business wherever conducted and to execute, deliver and comply with its obligations under the [**] = Confidential treatment has been requested for redacted portion. 11 terms of this Agreement. LendingTree has taken all necessary action to authorize its execution, delivery and performance of this Agreement. 13.1.2 CONFLICT WITH EXISTING LAWS OR CONTRACTS. The execution and delivery of this Agreement and the performance of its obligations hereunder by LendingTree will not (i) conflict with or violate (A) LendingTree's Certificate of Incorporation or By-laws, or (B) any provision of any law or regulation or any decree, demand or order to which LendingTree is subject, or (ii) conflict with or result in a breach of or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under any of the terms, conditions or provisions of any agreement or instrument to which LendingTree is a party or by which it is bound or any order or decree applicable to LendingTree or result in the creation or imposition of any lien on any of its assets or property. 13.1.3 LICENSES AND CONSENTS. LendingTree, in connection with performance of its duties related to the Mortgage Web Pages under this Agreement, has obtained or will obtain all necessary or required governmental licenses and consents requisite for the transactions contemplated by this Agreement. No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by LendingTree of or compliance by LendingTree with this Agreement, or if required, such approval has been obtained prior to the date of this Agreement. 13.1.4 LEGAL ACTION AGAINST LENDINGTREE. There is no claim, action, suit, proceeding or investigation pending or, to the best of LendingTree's knowledge, threatened against LendingTree which, either in any one instance or in the aggregate, may result in any material adverse change in the business, operations, financial condition, properties or assets of LendingTree, or in any material impairment of the right or ability of LendingTree to carry on its business substantially as now conducted, or in any material liability on the part of LendingTree, or which would draw into question the validity of this Agreement, or any of the other instruments, documents or agreements entered into by LendingTree in connection with this Agreement, or of any action taken or to be taken in connection with the obligations of LendingTree contemplated therein, or which would be likely to impair materially the ability of LendingTree to perform under the terms of this Agreement. 13.1.5 BINDING ON LENDINGTREE; ENFORCEABILITY. This Agreement, assuming due authorization, execution and delivery hereof by Priceline, and all the obligations of LendingTree hereunder, shall constitute the legal, valid and binding obligations of LendingTree, enforceable against LendingTree in accordance with the terms hereof, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights in general and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law). 13.1.6 OWNERSHIP OF INTELLECTUAL PROPERTY. LendingTree owns the copyright and any other rights to or has licensing rights to all LendingTree Intellectual Property and to the knowledge of LendingTree, such LendingTree Intellectual Property will not infringe upon, misappropriate or violate any intellectual property rights or any other right of any third party. LendingTree has sufficient rights to the Intellectual Property to grant to [**] = Confidential treatment has been requested for redacted portion. 12 Priceline the rights set forth in this Agreement, and to the knowledge of LendingTree, Priceline's exercise of any such rights as authorized hereunder will not constitute an infringement or misappropriation of any intellectual property rights of any third party. 13.2 REPRESENTATIONS AND WARRANTIES OF PRICELINE. Priceline represents and warrants as follows: 13.2.1 AUTHORITY. Priceline is a corporation duly organized and validly existing under the laws of the state of Delaware. Priceline has full power and authority to transact any and all business contemplated by this Agreement and possesses all requisite authority, power, and material licenses, permits and franchises to conduct its business wherever conducted and to execute, deliver and comply with its obligations under the terms of this Agreement. Priceline has taken all necessary action to authorize its execution, delivery and performance of this Agreement. 13.2.2 CONFLICT WITH EXISTING LAWS OR CONTRACTS. The execution and delivery of this Agreement and the performance of its obligations hereunder by Priceline will not (i) conflict with or violate (A) Priceline's Articles of Organization or By-laws, or (B) any provision of any law or regulation or any decree, demand or order to which Priceline is subject, or (ii) conflict with or result in a breach of or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under any of the terms, conditions or provisions of any agreement or instrument to which Priceline is a party or by which it is bound or any order or decree applicable to Priceline or result in the creation or imposition of any lien on any of its assets or property. 13.2.3 LICENSES AND CONSENTS. Except with respect to the mortgage brokerage activity contemplated under this Agreement, Priceline has obtained all necessary or required governmental licenses and consents to the transactions contemplated by this Agreement. Except with respect to the mortgage brokerage activity contemplated under this Agreement, no consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by Priceline of or compliance by Priceline with this Agreement, or if required, such approval has been obtained prior to the date of this Agreement. 13.2.4 LEGAL ACTION AGAINST PRICELINE. There is no claim, action, suit, proceeding or investigation pending or, to the best of Priceline's knowledge, threatened against Priceline which, either in any one instance or in the aggregate, may result in any material adverse change in the business, operations, financial condition, properties or assets of Priceline, or in any material impairment of the right or ability of Priceline to carry on its business substantially as now conducted, or in any material liability on the part of Priceline, or which would draw into question the validity of this Agreement or any of the other instruments, documents or agreements entered into by Priceline in connection with this Agreement, or of any action taken or to be taken in connection with the obligations of Priceline contemplated therein, or which would be likely to impair materially the ability of Priceline to perform under the terms of this Agreement. 13.2.5 BINDING ON PRICELINE; ENFORCEABILITY. This Agreement, assuming due authorization, execution and delivery hereof by LendingTree, and all the obligations of Priceline [**] = Confidential treatment has been requested for redacted portion. 13 hereunder, shall constitute the legal, valid and binding obligations of Priceline, enforceable against Priceline in accordance with the terms hereof, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights in general and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law). 13.2.6 OWNERSHIP OF INTELLECTUAL PROPERTY. Priceline owns the copyright and any other rights to or has licensing rights to all Priceline Intellectual Property and to the knowledge of Priceline, such Priceline Intellectual Property does not infringe upon, misappropriate or violate any intellectual property rights or any other right of any third party. Priceline has sufficient rights to the Intellectual Property to grant to LendingTree the rights set forth in this Agreement, and to the knowledge of Priceline, LendingTree's exercise of any such rights as authorized hereunder will not constitute an infringement or misappropriation of any intellectual property rights of any third party. 14. INDEMNIFICATION; LIMITATION OF LIABILITY 14.1 INDEMNIFICATION FOR ACTIONS TAKEN IN GOOD FAITH. Neither LendingTree nor any directors, officers, employees or agents of LendingTree (collectively, "LendingTree Indemnified Parties") shall be liable to Priceline, any directors, officers, employees or agents of Priceline (collectively, "Priceline Indemnified Parties"), or any third party for, and Priceline shall defend and indemnify the LendingTree Indemnified Parties and hold each of them harmless from and against, any action taken by the LendingTree Indemnified Parties, or for their refraining from taking any action, in good faith reliance upon information provided by Priceline, pursuant to this Agreement; PROVIDED, HOWEVER, that this provision shall not protect any LendingTree Indemnified Party against, and Priceline shall not be obligated to indemnify or hold harmless any LendingTree Indemnified Party from or against, any liability that would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of or failure to perform LendingTree's obligations hereunder. 14.2 INDEMNIFICATION FOR ACTIONS TAKEN IN GOOD FAITH. None of the Priceline Indemnified Parties shall be liable to the LendingTree Indemnified Parties, or any third party for, and LendingTree shall defend and indemnify the Priceline Indemnified Parties and hold each of them harmless from and against, any action taken by the Priceline Indemnified Parties, or for their refraining from taking any action, in good faith reliance upon information provided by LendingTree, pursuant to this Agreement; PROVIDED, HOWEVER, that this provision shall not protect any Priceline Indemnified Party against, and LendingTree shall not be obligated to indemnify or hold harmless any Priceline Indemnified Party from or against, any liability that would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of or failure to perform Priceline's obligations hereunder. 14.3 GENERAL INDEMNIFICATION BY LENDINGTREE. LendingTree shall defend and indemnify the Priceline Indemnified Parties and hold each of them harmless from and against any and all claims, losses, damage, penalties, fines, forfeitures, legal fees and expenses and related costs, expenses of litigation, judgments, settlements and any other costs, fees and [**] = Confidential treatment has been requested for redacted portion. 14 expenses (each, a "Liability") that were caused by or resulted from, or are otherwise arising from or related to, a breach of any of LendingTree's duties, representations, warranties, covenants and agreements contained in this Agreement, the LendingTree Intellectual Property, or by LendingTree Indemnified Parties' willful misfeasance, bad faith or negligence in the performance of or failure to perform as provided in this Agreement. 14.4 GENERAL INDEMNIFICATION BY PRICELINE. Priceline shall defend and indemnify the LendingTree Indemnified Parties and hold each of them harmless from and against any and all Liabilities that were caused by or resulted from or are otherwise arising from or related to, a breach of any of Priceline's duties, representations, warranties, covenants and agreements contained in this Agreement, the Priceline Intellectual Property, or by Priceline Indemnified Parties' willful misfeasance, bad faith, or negligence in the performance of or failure to perform as provided in this Agreement. 14.5 SURVIVAL OF INDEMNIFICATIONS. Subject to the provisions of Section 12 of this Agreement, Priceline's and LendingTree's respective obligations to indemnify any LendingTree Indemnified Party or any Priceline Indemnified Party will survive the expiration or termination of this Agreement by either party for any reason. 14.6 LIMITATIONS OF LIABILITY; CONSEQUENTIAL DAMAGES. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE PARTIES DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES WITH RESPECT TO THE OPERATION OF THE SOFTWARE UTILIZED FOR THE MORTGAGE WEB PAGES, THE MERCHANTABILITY OF SUCH SOFTWARE OR THE FITNESS OF THE SOFTWARE FOR A PARTICULAR PURPOSE OR USE. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY UNDER THIS AGREEMENT FOR ANY LIABILITY WHATSOEVER, FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (UNDER CONTRACT OR TORT THEORIES OF LAW), INCLUDING BUT NOT LIMITED TO LOST DATA, LOST REVENUE OR PROFITS OR LOST BUSINESS, HOWEVER ARISING, EVEN IF IT HAS BEEN ADVISED OF OR HAS FORESEEN THE POSSIBILITY OF SUCH DAMAGES. 14.7 LIMITATION ON LIABILITY OF OFFICERS, DIRECTORS, MEMBERS, EMPLOYEES AND AGENTS. Neither party shall make any claim against the officers, directors, members, employees or agents of the other party but instead shall look solely to the assets of the other party for satisfaction of any liability of such party under this Agreement. 14.8 NOTICE OF CLAIMS. Each party shall promptly notify the other in writing of any and all litigation, claims, notices or demands known to such party made against it or the other party in connection with this Agreement. Each party shall cooperate with the other in the defense or handling of any claim, action or investigation relating to the subject matter of this Agreement, provided that such cooperation shall not be deemed an acceptance of responsibility therefor, except as provided below. Any request for indemnification under this paragraph shall be in writing and shall state with particularity the specific facts supporting the request for indemnification and a good faith estimate of the amount of the indemnification requested. In the event responsibility for a request for [**] = Confidential treatment has been requested for redacted portion. 15 indemnification hereunder is unconditionally accepted in writing, the party accepting such responsibility may, at its option, elect to take up the defense or handling of any pending claim, action or investigation and, in such event, the party requesting indemnification shall promptly relinquish control of such defense to the accepting party. Unless and until a request for indemnification hereunder is unconditionally accepted, the requesting party may retain control of the defense or handling of the claim, action or investigation. The failure of a party to accept a request for indemnification under this paragraph shall not be binding upon the requesting party and such party's retention of the control of the defense or handling of the claim, action or investigation shall not prejudice its right to seek enforcement of this paragraph in court. 15. CHOICE OF LAW 15.1 CHOICE OF LAW. The parties agree that this Agreement shall be construed and controlled by the laws of the State of New York and the Commercial Arbitration Rules of the AAA. Should a dispute arise under this Agreement, and should the arbitration provisions herein become inapplicable, the parties agree that jurisdiction over and venue of any suit arising out of or relating to this Agreement shall be exclusively in the state and federal courts of New York. 15.2 ATTORNEYS' FEES. If either party employs attorneys to enforce any right arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees, in arbitration, litigation, or otherwise. 16. MISCELLANEOUS 16.1 NOTICES. All notices or communications required or permitted under this Agreement will be in writing and be deemed given: (i) five (5) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; (ii) one (1) business day after deposit with a commercial overnight carrier, with written verification of receipt; (iii) when sent via facsimile or electronic mail with confirmation. Notice sent by any other method shall be effective only upon actual receipt. All communications will be sent to the parties at the addresses set forth below: If to LendingTree: With a copy to: Douglas R. Lebda Pamela S. Friedman Chairman and President General Counsel LendingTree, Inc. LendingTree, Inc. 6701 Carmel Road, Suite 205 6701 Carmel Road, Suite 205 Charlotte, NC 28226 Charlotte, NC 28226 Fx: 704.541.1824 Fx: 704.541.1824 If to Priceline: With a copy to: Melissa M. Taub, Esq. Cummings & Lockwood Four Stamford Plaza Stamford, CT 06904 Fx: 203.351.4299 [**] = Confidential treatment has been requested for redacted portion. 16 No notice of change of address shall be effective unless made in compliance with this Section 16.1. 16.2 ASSIGNMENT. This Agreement shall not be assignable in whole or in part by LendingTree or Priceline without the other party's prior written consent, and any attempted assignment without such consent shall be void. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. A change in control of either party, for example, by merger or sale of stock, shall not be deemed to be an assignment under this Agreement. 16.3 WAIVER. No term or provision hereof will be deemed waived, and no variation of terms or provisions hereof shall be deemed consented to, unless such waiver or consent shall be in writing and signed by the party against whom such waiver or consent is sought to be enforced. Any delay, waiver or omission by LendingTree or Priceline to exercise any right or power arising from any breach or default of the other party in any of the terms, provisions or covenants of this Agreement shall not be construed to be a waiver by LendingTree or Priceline of any subsequent breach or default of the same or other terms, provisions or covenants on the part of either party. 16.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto relating to the subject matter hereof, except where expressly noted herein, and all prior negotiations, agreements and understandings, whether oral or written, are superseded or canceled hereby. 16.5 MODIFICATION. This Agreement and all Exhibits hereto may not be amended or modified except by a writing signed by both parties. 16.6 SEVERABILITY. If any provision of this Agreement is declared or found to be illegal, unenforceable or void, this Agreement shall be construed as if not containing that provision, and the rest of the Agreement shall remain in full force and effect, and the rights and obligations of the parties hereto shall be construed and enforced accordingly. 16.7 INDEPENDENT CONTRACTOR. Each party, in performance of this Agreement, is acting as an independent contractor, is not the partner, joint venturer or agent of the other party and has no authority to act on behalf of the other party except as expressly provided in this Agreement. 16.8 CONFIDENTIALITY. Each party agrees to keep all information related to the other party confidential, as provided in the Mutual Confidentiality Agreement signed by the parties on July 8, 1998. The provisions of the Mutual Confidentiality Agreement shall continue in and during the Term and shall survive termination of this Agreement for any reason whatsoever. 16.9 INJUNCTIVE RELIEF. The parties acknowledge and agree that their respective remedies at law for any breach by the other party of its obligations hereunder may be inadequate, and the parties agree and consent that temporary and permanent injunctive relief may be [**] = Confidential treatment has been requested for redacted portion. 17 granted in any action or proceeding which may be brought to enforce any provision hereof without the necessity of proof of actual damages. 16.10 DELAYS BEYOND CONTROL. Neither party will be liable for any delay or failure of performance of any of its obligations under this Agreement, except for the obligation to pay money, during any period in which such performance is delayed by (i) war, civil commotion and riots, fires, floods, serious work stoppages; (ii) requirements or acts of any governmental authority or agency or subdivision thereof; or (iii) acts of God; PROVIDED, HOWEVER, that the nonperforming party shall promptly notify the other party of any such delay and shall use its best efforts to resume performance as soon as reasonably possible. 16.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. [**] = Confidential treatment has been requested for redacted portion. 18 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be signed, sealed and delivered by its duly authorized officer as of the date first written above. LENDINGTREE, INC. By /s/ Douglas R. Lebda (SEAL) ------------------------------------ Name: Douglas R. Lebda Title: Chairman and President PRICELINE.COM INCORPORATED By /S/ PAUL E. FRANCIS (SEAL) ------------------------------------ Name Paul E. Francis Title Chief Financial Officer [**] = Confidential treatment has been requested for redacted portion. 19 EXHIBIT A PROPRIETARY MARKS Priceline Proprietary Marks: The actual marks will be provided sometime prior to the date on which the Mortgage Web Pages commence operation over the Internet. LendingTree Proprietary Marks: The Proprietary Marks covered under this Agreement include, but are not limited to, the domain name (www.lendingtree.com), any logos now, heretofore or to be used in the future and all of the content of the LendingTree website as it appears now, heretofore or in the future. The actual marks will be provided sometime prior to the date on which the Mortgage Web Pages commence operation over the Internet. [**] = Confidential treatment has been requested for redacted portion. 20 EXHIBIT B MORTGAGE WEB PAGES DEVELOPMENT SPECIFICATIONS This Exhibit B will be completed sometime prior to the date on which the Mortgage Web Pages commence operation over the Internet. [**] = Confidential treatment has been requested for redacted portion. 21 EX-10.(19)(1) 16 EXHIBIT 10.19.1 Exhibit 10.19.1 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION THE WARRANT ISSUED PURSUANT TO THIS PARTICIPATION WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION. PARTICIPATION WARRANT AGREEMENT To Purchase Shares of Common Stock Dated as of August 31, 1998 PRICELINE.COM INCORPORATED a Delaware Corporation Issue Date: August 31, 1998 THIS CERTIFIES THAT, Delta Air Lines, Inc. (the "Warrant Holder"), with a place of business at 1030 Delta Boulevard, Hartsfield Atlanta International Airport, Atlanta, Georgia 30320, for value received, is entitled, upon the terms and subject to the conditions of this Participation Warrant Agreement (this "Warrant Agreement"), to subscribe for and purchase fully-paid and non-assessable shares of common stock, par value $.01 per share (the "Common Stock"), of Priceline.com Incorporated, a Delaware corporation (the "Company"). 1. ISSUANCE OF WARRANTS. On the Issue Date, the Company will issue to the Warrant Holder warrants (the "Warrants") to acquire Fifteen Million One Hundred Fourteen Thousand and Eighty-Three (15,114,083) shares of the Common Stock (the "Shares"), subject to adjustment as hereinafter provided pursuant to Section 10 herein, which Shares, when issued on a proforma basis, represent 12.5% of the Fully Diluted Equity (as defined below) of the Company as of the date hereof. As used in this Warrant Agreement, the term "Fully Diluted Equity" of the Company shall mean the sum of (i) the number of shares of Common Stock issued and outstanding as of the date of this Warrant Agreement, (ii) assuming the full conversion of all Series A Convertible Preferred Stock, par value $.01 per share (the "Convertible Preferred"), issued and outstanding as of the date of this Warrant Agreement, the number of shares of Common Stock issuable upon conversion of such Convertible Preferred, and (iii) assuming the full vesting and exercise of all options and warrants granted or issued by the Company outstanding as of the date of this Warrant Agreement to acquire shares of its Common Stock, the number of shares of Common Stock issuable upon such vesting and exercise. The [**] = Confidential treatment requested for redacted portions. number of Shares subject to the Warrants shall be reduced at the time of the effectiveness of an initial registration statement covering Common Stock filed with the Securities and Exchange Commission to take into account the effect of the treasury stock method of accounting for stock options and warrants. The amount of such reduction shall be equal to the product of (i) the quotient of (x) the aggregate exercise price of all the Company stock options and warrants (including the Warrants), divided by (y) the greater of $5.00 or the public offering price per share of such offering, multiplied by (ii) .125. 2. EXERCISE PRICE. The Warrants have an exercise price of $1.156862 per share of Common Stock, as adjusted pursuant to the provisions of Section 10 of this Warrant Agreement (the "Exercise Price"). 3. TERM. Except as otherwise provided for herein, the term of the Warrants and the right to purchase Shares as granted herein shall be exercisable, at any time and from time to time, during the period commencing on the Issue Date set forth above and terminating at 5:00 p.m. New York City local time on the seventh anniversary of the Issue Date, PROVIDED, HOWEVER, that if the Company has not completed an initial public offering of shares of Common Stock of the Company pursuant to an effective Registration Statement under the Securities Act of 1933, as amended ("IPO"), prior to such termination date, then the term of the Warrants shall be extended on a year to year basis until such time as the Company has completed its IPO. 4. VESTING. a. VESTING OF THE FIRST 5% OF EQUITY. The Warrants will begin to vest when the Company has sold at least $30 million (the "Base Amount") of tickets issued for travel on the Warrant Holder and/or on the Warrant Holder's code share partners (such amount being measured by the amount paid by the Company to the Warrant Holder and its code share partners net of federal excise taxes on such amount) ("Net Fares") during the period beginning the date hereof and ending on December 31, 1999 or during calendar years 2000 or 2001 (each, a "Measuring Period"). The Warrant Holder will earn the right to exercise Warrants to acquire 1,511,408.25 Shares, subject to adjustment as hereinafter provided pursuant to Section 10 herein (which Shares, when issued on a proforma basis, represent approximately 1.25% of the Fully Diluted Equity of the Company as of the date hereof), for each $5 million in Net Fares over the Base Amount during each applicable Measuring Period up to a maximum of $50 million in Net Fares, at which point the Warrant Holder will have earned the right to exercise Warrants to acquire 6,045,633 Shares (which Shares, when issued on a proforma basis, represent approximately 5% of the Fully Diluted Equity of the Company as of the date hereof). b. VESTING OF NEXT 1.25% OF EQUITY. After the Warrant Holder has achieved $50 million in Net Fares during any applicable Measuring Period, the Warrant Holder will earn the right to exercise Warrants to acquire up to an additional 1,511,409 Shares, subject to adjustment as hereinafter provided pursuant to Section 10 herein (which Shares, when issued on a proforma basis, represent approximately 1.25% of the Fully Diluted Equity of the Company as of the date hereof), for the next $22.5 million in Net Fares during such Measuring Period. The actual number of Shares the Warrant Holder will earn shall be a number equal to the product of (a) 1,511,409 Shares, multiplied by [**] = Confidential treatment requested for redacted portions. 2 (b) a fraction, the numerator of which shall be Net Fares during a Measuring Period over $50 million (up to a maximum of $22.5 million) and the denominator of which shall be $22.5 million. c. VESTING OF REMAINING 6.25% OF EQUITY. After the Warrant Holder has achieved $72.5 million in Net Fares during any applicable Measuring Period, the Warrant Holder will earn the right to exercise Warrants to acquire up to an additional 7,557,041 Shares, subject to adjustment as hereinafter provided pursuant to Section 10 herein (which Shares, when issued on a proforma basis, represent approximately 6.25% of the Fully Diluted Equity of the Company as of the date hereof), based on the Qualified Ticket Volume (as defined below) of sales thereafter achieved. The actual number of Shares the Warrant Holder will earn shall be a number equal to the product of (a) 7,557,041 Shares (subject to adjustment as set forth in Section 10 herein) multiplied by (a) a fraction the numerator of which shall be the actual Qualified Ticket Volume so achieved during the applicable Measurement Period and the denominator of which shall be $112.5 million. As used herein, the term "Qualifying Ticket Volume" shall mean the Net Fares derived from ticket sales on the Warrant Holder and/or its code share partners on which the Company earns a Gross Margin (as defined below) of at least [**]; PROVIDED, HOWEVER, that if the Company's total Gross Margin on such ticket sales during such applicable Measuring Period is greater than or equal to [**], then all such ticket sales during such Measuring Period will be deemed to be Qualifying Ticket Volume. As used herein, the term "Gross Margin" on a ticket sale shall mean the number equal to (for each ticket sale) 100 times the quotient of (a) the price paid by the customer to the Company for the ticket, less credit card charges incurred by the Company and less the Net Fares paid by the Company to the Warrant Holder, divided by (b) the price paid by the customer to the Company for the ticket. d. ADJUSTMENT OF THRESHOLDS. The $22.5 million and $72.5 million thresholds used in the calculations set forth in Sections 4(b) and 4(c) above (the "Thresholds") for any Measuring Period will be adjusted for such applicable Measuring Period and for subsequent Measuring Periods, if any, in the event that an airline, not presently participating in the Company' airline service, commences participation at any time during such applicable Measuring Period, and such additional carrier has a domestic market share of at least 5% at the time of its initial participation (an "Adjustment Event"). Upon the occurrence of an Adjustment Event, each of the Thresholds will be adjusted by multiplying each such number by a fraction, the denominator of which shall be the sum of the Warrant Holder's domestic market share and the aggregate domestic market share of the new additional carrier and all other carriers participating in the Company's airline service, and the numerator of which shall be Warrant Holder's domestic market share. All market share data required by this Section 4(d) shall be based on U.S. domestic revenue passenger miles as reported by the Department of Transportation on Form 41 for the twelve (12) month period immediately prior to the time of the Adjustment Event. The resulting numbers shall be the adjusted Thresholds. The Thresholds as set forth herein shall be adjusted each time, if any, that an additional carrier meeting the 5% domestic market share criteria commences participation in the Company's airline service. e. MEASURING PERIODS SEPARATE NOT CUMULATIVE. Net Fares and Qualifying Ticket Volume during each Measuring Period will be measured separately, not cumulatively. For example, if the Warrant Holder has Net Fares of $40 million during the first Measuring Period and Net Fares of $45 million during the second Measuring Period, then the Warrant Holder will earn the right to exercise Warrants for 2.5% of the Fully Diluted Equity at the end of the First Measuring Period and [**] = Confidential treatment requested for redacted portions. 3 the right to exercise Warrants for an additional 1.25% of the Fully Diluted Equity at the end of the second Measuring Period. As a further example, if the Warrant Holder has Net Fares of $72.5 million during the first Measuring Period, Qualifying Ticket Volume of $36 million during the second Measuring Period (so that the sum of Net Fares and Qualifying Ticket Volume during the second Measuring Period is $108.5 million) and Qualifying Ticket Volume of $54 million during the third Measuring Period (so that the sum of Net Fares and Qualifying Ticket Volume during the third Measuring Period is $126.5 million), then the Warrant Holder will have earned the right to exercise Warrants covering 6.25% of the Fully Diluted Equity at the end of the first Measuring Period an additional 2% of the Fully Diluted Equity at the end of the second Measuring Period and an additional 1% of the Fully Diluted Equity at the end of the third Measuring Period, for an aggregate of 9.25% of the Fully Diluted Equity. For purposes of these examples, it is assumed that neither an Adjustment Event nor any adjustment pursuant to Section 10 hereof has occurred. 5. CALL UNDER CERTAIN CONDITIONS. The Company will have the right under certain conditions to repurchase Warrants to acquire up to 7,557,041 Shares or the equivalent number of Shares if such Warrants have been exercised, subject to adjustment as hereinafter provided pursuant to Section 10 herein (which Shares, when issued on a proforma basis, represent approximately 6.25% of the Fully Diluted Equity of the Company as of the date hereof), in the event that the conditions under Sections 5(a) and 5(b) below are met. a. FIRST CALL. In the event that Qualified Ticket Volume during the second Measurement Period is less than Qualified Ticket Volume during the first Measurement Period, then the Company will have a call on that number of Warrants calculated as follows. First, the amount of equity that the Warrant Holder would have received, had the calculations made in Section 4(c) been made as though the Qualifying Ticket Volume in each of the first and second Measurement Periods had been based on the two-year average of the Qualified Ticket Volume from such periods, will be calculated (the "First Two Year Equity Amount"). Then, if the amount of equity the Warrant Holder has actually earned exceeds the First Two Year Equity Amount, the Company will have a call on the amount of such excess at the Warrant Holder's cost; PROVIDED, HOWEVER, that the right to exercise Warrants to acquire the first 7,557,041 of Shares, subject to adjustment as hereinafter provided pursuant to Section 10 herein, and the underlying Shares therefor (which Shares, when issued on a proforma basis, represent approximately 6.25% of the Fully Diluted Equity of the Company as of the date hereof) earned by the Warrant Holder will not be subject to such call. b. SECOND CALL. In the event that Qualified Ticket Volume during the third Measurement Period is less than Qualified Ticket Volume during the second Measurement Period, then the Company will have a call on that number of Warrants calculated as follows. First, the amount of equity that the Warrant Holder would have received, had the calculations made in Section 4(c) been made as though the Qualifying Ticket Volume in each of the second and third Measurement Periods had been based on the two-year average of the Qualified Ticket Volume from such periods, will be calculated (the "Second Two Year Equity Amount"). Then, if the amount of equity the Warrant Holder has actually earned (if any), net of any Warrants subject to the call set forth in Section 5(a) above, exceeds the Second Two Year Equity Amount, the Company will have a call on the amount of such excess at the Warrant Holder's cost; PROVIDED, HOWEVER, that the right to exercise Warrants to acquire the first 7,557,041 of Shares, subject to adjustment as hereinafter provided pursuant to Section [**] = Confidential treatment requested for redacted portions. 4 10 herein, and the underlying Shares therefor (which Shares, when issued on a proforma basis, represent approximately 6.25% of the Fully Diluted Equity of the Company as of the date hereof) earned by the Warrant Holder will not be subject to such call. 6. EXERCISE OF PURCHASE RIGHTS. a. EXERCISE. Subject to the provisions of Section 4 of this Warrant Agreement, the purchase rights represented by this Warrant Agreement are exercisable by the Warrant Holder, in whole or in part, at any time, or from time to time during the period set forth in Section 3 above, by tendering to the Company at its principal office: a duly completed and executed notice of exercise in the form attached hereto as EXHIBIT A (the "Notice of Exercise"), the Warrants and the Exercise Price. Upon receipt of such items in accordance with the terms set forth below, the Company shall issue to the Warrant Holder a certificate for the number of shares of Common Stock purchased. The Warrant Holder, upon exercise of the Warrants, shall be deemed to have become the holder of the Shares represented thereby (and such Shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which the Warrants are exercised. In the event of any exercise of the rights represented by the Warrants, certificates for the Shares so purchased shall be delivered to the Warrant Holder or its designee as soon as practical and in any event within ten (10) business days after receipt of such notice and, unless the Warrants have been fully exercised or expired, new Warrants representing the remaining portion of the Warrants and the underlying Shares, if any, with respect to which this Warrant Agreement shall not then have been exercised shall also be issued to the Warrant Holder as soon as possible and in any event within such ten-day period. b. METHOD OF EXERCISE. The purchase rights hereby represented may be exercised, at the election of the Warrant Holder, by the tender of the Notice of Exercise and the surrender of this Warrant Agreement at the principal office of the Company and by the payment to the Company, by check, cancellation of indebtedness or other form of payment acceptable to the Company, of an amount equal to the then applicable Exercise Price per share multiplied by the number of Shares then being purchased. 7. RESERVATION OF SHARES. The Company will at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of the rights to purchase the Shares as provided in this Warrant Agreement. All of the Shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and nonassessable, and free and clear of all preemptive rights. 8. NO FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant Holder's rights to purchase the Shares. 9. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrant Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant Holder's rights to purchase the Shares as provided for herein. 10. ADJUSTMENT RIGHTS. The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment from time to time, as follows: [**] = Confidential treatment requested for redacted portions. 5 a. MERGER. If at any time there shall be a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, then, as part of such merger or consolidation, lawful provision shall be made so that the holder of the Warrants evidenced hereby shall thereafter be entitled to receive upon exercise of rights herein granted, during the period specified herein and upon payment of the aggregate Exercise Price, the number of shares of stock or other securities or property of the successor corporation resulting from such merger or consolidation, to which a holder of the stock deliverable upon exercise of the rights granted in this Warrant Agreement would have been entitled in such merger or consolidation if such rights had been exercised immediately before such merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interests of the holder after the merger or consolidation. b. RECLASSIFICATION, ETC. If the Company at any time shall, by subdivision, combination or reclassification of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such subdivision, combination, reclassification or other change. c. SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time shall split or subdivide its Common Stock, the Exercise Price shall be proportionately decreased and the number of Shares issuable pursuant to this Warrant Agreement shall be proportionately increased. If the Company at any time shall combine or reverse split its Common Stock, the Exercise Price shall be proportionately increased and the number of Shares issuable pursuant to this Warrant Agreement shall be proportionately decreased. d. STOCK DIVIDENDS. If the Company at any time shall pay a dividend payable in Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend. The Warrant Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest whole share) obtained by multiplying (i) the Exercise Price in effect immediately prior to such adjustment by (ii) the number of shares of Common Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. e. ISSUE OF ADDITIONAL STOCK. For so long as the term of this Warrant Agreement has not expired, upon each issuance or sale (or deemed issuance or sale) by the Company of any additional shares of Common Stock (or securities convertible or exercisable into Common Stock) which results or would have resulted in a reduction in the Conversion Price of the Convertible [**] = Confidential treatment requested for redacted portions. 6 Preferred (as each such term is defined in the Company's Certificate of the Powers, Designations, Preferences and Rights of the Series A Convertible Preferred Stock (the "Certificate of Designation")) under Section 7(d)(ii) of the Company's Certificate of Designation, then the Exercise Price in effect immediately prior to each such issuance or sale shall, upon such issue or sale, be reduced by a percentage equal to the same percentage that the applicable Conversion Price has been reduced (or would have been reduced) as a result of such issuance or sale. f. EXCESS OPTION ADJUSTMENT. If General Atlantic Partners 48, L.P., a Delaware limited partnership, and GAP Coinvestment Partners, L.P., a New York limited partnership (together, the "Purchasers") receive additional shares of Convertible Preferred in payment of Reimbursement Amounts (as such term is defined in that certain Stock Purchase Agreement, dated July 31, 1998 among the Company and the Purchasers (the "Stock Purchase Agreement")) owed to such Purchasers under Section 2.4 of the Stock Purchase Agreement, then Warrant Holder shall simultaneously receive that number of additional Warrants with an exercise price of zero dollars equal to the product of (x) 0.874218 and (y) the number of shares of Convertible Preferred received by the Purchasers pursuant to such Section 2.4. Such Warrants will vest proportionally to the other Warrants issued to Warrant Holder. The Company agrees that the provisions of Section 2.4 of the Stock Purchase Agreement will not be amended or changed in any way without the express consent of the Warrant Holder. g. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price or number of shares purchasable hereunder shall be adjusted pursuant to Section 6 hereof, the Company shall issue a certificate signed by its Chief Executive Officer or Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Exercise Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the holder of this Warrant. h. NO CHANGE OF WARRANT NECESSARY. Irrespective of any adjustment in the Exercise Price or in the number or kind of securities issuable upon exercise of the Warrant, unless the Warrant Holder otherwise requests, this Warrant Agreement may continue to express the same price and number and kind of shares of Common Stock as are stated in this Warrant Agreement as initially executed. 11. REDEMPTION. Subject to the Company's repurchase rights prescribed in Section 5 hereof, the Warrants represented by this Warrant Agreement are not redeemable by the Company. 12. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT OR SHARES OF COMMON STOCK. a. COMPLIANCE WITH SECURITIES ACT. The Warrant Holder, by acceptance hereof, agrees that the Warrants, and the shares of Common Stock to be issued upon exercise of the Warrants, are being acquired for investment and that such Warrant Holder will not offer, sell or otherwise dispose of the Warrants, or any shares of Common Stock to be issued upon exercise of the Warrants except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws. The Warrants and all shares [**] = Confidential treatment requested for redacted portions. 7 of Common Stock issued upon exercise of the Warrants (unless registered under) the Securities Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THEY MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION." b. RESTRICTIONS ON TRANSFERABILITY. The Warrant Holder shall be subject to all restrictions upon the sale or other disposition of the Warrants and/or the shares of Common Stock to be issued upon exercise of the Warrants, all as more fully set forth in or referred to in the Stockholders Agreement, dated July 31, 1998, by and among the Company and the stockholders named therein, as amended on the Issue Date to include the Warrant Holder as a party thereto (the "Stockholders Agreement"). The Stockholders Agreement is incorporated herein by reference and is an integral part of this Warrant Agreement. The Warrants and all shares of Common Stock issued upon exercise of the Warrants shall be stamped or imprinted with an additional legend substantially in the following form. "THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE STOCKHOLDERS AGREEMENT, DATED JULY 31, 1998, AMONG PRICELINE.COM INCORPORATED AND THE STOCKHOLDERS NAMED THEREIN, AS AMENDED. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AGREEMENT. THE COMPANY WILL MAIL A COPY OF SUCH AGREEMENT, TOGETHER WITH A COPY OF THE EXPRESS TERMS OF THE SECURITIES AND THE OTHER CLASS OR CLASSES AND SERIES OF SHARES, IF ANY, WHICH THE COMPANY IS AUTHORIZED TO ISSUE, TO THE RECORD HOLDER OF THIS CERTIFICATE, WITHOUT CHARGE, WITHIN FIVE DAYS AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR." c. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANTS. The Warrants cannot be exchanged, transferred or assigned otherwise than in accordance with the provisions of the Stockholders Agreement. If the provisions of the Stockholders Agreement are complied with, upon [**] = Confidential treatment requested for redacted portions. 8 surrender of the Warrants to the Company with the Assignment Form annexed hereto as EXHIBIT B duly executed, and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant Agreement in the name of the heir, devisee or assignee named in such instrument of assignment and this Warrant Agreement shall promptly be canceled. 13. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby incorporates herein the representations and warranties made by the Company to the Purchasers in the Stock Purchase Agreement and extends such representations and warranties to the Warrant Holder. The Company expressly confirms to the Warrant Holder that such representations and warranties are true and correct at and on the date hereof as if made at and on such date as modified by this Warrant Agreement. 14. REPRESENTATIONS AND WARRANTIES OF THE WARRANT HOLDER. The Warrant Holder hereby represents and warrants to the Company as follows: a. EXISTENCE AND POWER. The Warrant Holder is a (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and (ii) has the corporate power and authority to execute, deliver and perform its obligations under this Warrant Agreement. b. AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Warrant Holder of this Warrant Agreement and the transactions contemplated hereby (i) have been duly authorized by all necessary corporate action of the Warrant Holder and (ii) do not contravene the terms of the Certificate of Incorporation or By-laws of the Warrant Holder, each as amended as of and through the Issue Date. c. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. No approval, consent, compliance, exemption or authorization of any governmental authority or agency, or of any other person or entity, is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Warrant Holder of this Warrant Agreement or the transactions contemplated hereby. d. BINDING EFFECT. This Warrant Agreement has been duly executed and delivered by the Warrant Holder and constitutes the valid and binding obligations of the Warrant Holder, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability (regardless of whether considered in a proceeding at law or in equity). e. PURCHASE FOR OWN ACCOUNT. The Warrants issued to the Warrant Holder pursuant to this Warrant Agreement, and the Shares to be issued upon vesting and exercise thereof, are being or will be acquired for the Warrant Holder's own account and with no intention of distributing or [**] = Confidential treatment requested for redacted portions. 9 reselling such securities or any part thereof in any transaction that would be in violation of the securities laws of the United States of America, or any state. f. RESTRICTED SECURITIES. The Warrant Holder understands that the Warrants and the Shares issuable upon vesting and exercise of the Warrants, will not be registered at the time of their issuance under the Securities Act for the reason that the sale provided for in this Agreement is exempt pursuant to Section 4(2) of the Securities Act and that reliance of the Company on such exemption is predicated in part on such Warrant Holder's representations set forth herein. The Warrant Holder represents that it is experienced in evaluating companies such as the Company, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to suffer the total loss of the investment. The Warrant Holder further represents that it has had the opportunity to ask questions of and receive answers from the Company concerning the terms and conditions of the Warrants, the business of the Company, and to obtain additional information to such Warrant Holder's satisfaction. g. ACCREDITED INVESTOR. The Warrant Holder is an "Accredited Investor" within the meaning of Rule 501 of Regulation D under the Securities Act, as presently in effect. 15. AFFIRMATIVE COVENANTS. In addition to the following affirmative covenants, until the effective date of an IPO, or earlier, as applicable, the Company hereby makes to Warrant Holder the affirmative covenants made by the Company to the Purchasers in Sections 8.1, 8.2, 8.3(a), 8.3(b) (beginning with the third quarter of the fiscal year ending 1999) and 8.5 through 8.9 of the Stock Purchase Agreement. In addition, the Company will provide Warrant Holder with reports each calendar quarter during the term hereof regarding any changes in stock ownership in the Company, including changes in shares, options, warrants or other equity holdings. a. BOARD REPRESENTATION. Promptly after the execution hereof, the Company agrees to obtain an amendment to the Stockholders Agreement in form and substance satisfactory to Warrant Holder, requiring that each Stockholder (as therein defined) shall vote its Shares at any Stockholder's meeting called for the purpose to elect directors to the Board of Directors and to take all other actions necessary to ensure the election to the Board of Directors of one (1) individual designated by Warrant Holder if the Company by the third anniversary of the execution of this Warrant Agreement shall not have had declared effective by the Securities and Exchange Commission an initial registration statement covering the Common Stock and Warrant Holder owns Shares equal to or exceeding 5% of the Fully Diluted Equity. The Company shall do everything reasonably in its power to ensure that Warrant Holder is provided with such representation on the Board of Directors including, without limitation, including at least one (1) designee of Warrant Holder in any nominees of the Board of Directors of the Company as Warrant Holder is entitled to. b. MFN STATUS. If the Company enters into any transaction with another airline, hotel, rental car or other travel provider (the "Travel Provider") with provisions, taken as a whole, which are more favorable to the Travel Provider than the provisions available to Warrant Holder in the transaction of which this Warrant Agreement is a part, then Warrant Holder shall be [**] = Confidential treatment requested for redacted portions. 10 entitled to the benefit of such more favorable provisions and the applicable documents between Company and Warrant Holder shall be appropriately amended. Provisions as used in this paragraph, include, without limitation, the percentage of the equity of the Company which can be earned or acquired, the method, rate and manner of earning equity or the right to acquire equity of the Company including vesting and exercise price, antidilution adjustments, covenants, board representation, registration rights, or the provisions of the Airline Participation Agreement and side letter. c. NO EQUITY PREFERENCE TO TRAVEL PROVIDERS. The Company will not enter into any transaction with a Travel Provider in which the Company issues, or agrees to issue, equity or rights to acquire equity where the provisions in such transaction, including, without limitation, the percentage of the equity of the Company which can be earned or acquired, the method, rate and manner of earning equity or the right to acquire equity of the Company including vesting and exercise price, antidilution adjustments, covenants, board representation or registration rights, are more favorable to the Travel Provider than the provisions available to Warrant Holder in the transaction of which this Warrant Agreement is a part. 16. MISCELLANEOUS. a. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties made (or confirmed) herein shall survive the execution and delivery of this Agreement, any investigation by or on behalf of the Warrant Holder or acceptance of the Warrants, until 60 days after receipt of the Company's financial statements for the year ended December 31, 1999, and at the end of such period, such representations and warranties and related indemnification rights and obligations with respect thereto shall expire; PROVIDED, HOWEVER, that the representations and warranties set forth in Sections 3.1, 3.2, 3.4, 3.7(a) and 3.9 of the Stock Purchase Agreement and confirmed herein shall survive without any expiration and the representation and warranties set forth in Section 3.12 of the Stock Purchase Agreement and confirmed herein shall survive until the expiration of the applicable statute of limitations. b. NO CONSEQUENTIAL DAMAGES. No Party hereto shall be entitled to consequential damages as a result of any breach of a covenant, representation or warranty contained herein. c. NOTICES. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: i. if to the Company, to: priceline.com Incorporated 4 High Ridge Park Stamford, CT 06905 Telecopy: (203) 595-8344 Attention: Mr. Paul E. Francis [**] = Confidential treatment requested for redacted portions. 11 with a copy to: Cummings & Lockwood Four Stamford Plaza P.O. Box 120 Stamford, CT 06904 Telecopy: (203) 351-4299 Attention: Melissa M. Taub, Esq. and to: Skadden, Arps, Slate, Meagher, & Flom, L.L.P. One Rodney Square Wilmington, DE 19801 Telecopy: (302) 651-3001 Attention: Patricia Moran Chuff, Esq. ii. if to the Warrant Holder, to: Delta Air Lines, Inc. 1030 Delta Boulevard Hartsfield International Airport Atlanta, Georgia 30354-1987 Telecopy: (404) 715-2233 Attention: Executive Vice President - Chief Financial Officer with a copy to: Delta Air Lines, Inc. 1030 Delta Boulevard Hartsfield International Airport Atlanta, Georgia 30354-1987 Telecopy: (404) 715-2233 Attention: Senior Vice President - General Counsel All such notices and communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. d. SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. Subject to applicable securities laws, the Warrant Holder may assign any of its rights under any of the Transaction Documents to any of its Affiliates. The Company may not assign any of its rights under this Agreement without the written consent of the Warrant Holders. Except as provided in the [**] = Confidential treatment requested for redacted portions. 12 indemnification provisions governing the transactions contemplated herein and set forth in a letter between the Company and the Warrant Holder, dated the date hereof, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement. The rights of Warrant Holder with respect to representation on the Company's board set forth in Section 15(a) hereof shall not be assignable and any attempt to do so shall be void and of no further consequence. e. AMENDMENT AND WAIVER. i. No failure or delay on the part of the Company, or the Warrant Holder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company and the Warrant Holder at law, in equity or otherwise. ii. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Company or the Warrant Holder from the terms of any provision of this Agreement, shall be effective only if it is made or given in writing and signed by the Company and the Warrant Holder. f. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. g. HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION. h. SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. i. ENTIRE AGREEMENT. This Agreement, together with the exhibits and schedules hereto, the letter dated the date hereof between the Company and Warrant Holder containing, among other things, the indemnification provisions governing the transactions contemplated herein, the Airline Participation Agreement, dated the date hereof between the Company and the [**] = Confidential treatment requested for redacted portions. 13 Warrant Holder and the Warrants (together, the "Transaction Documents"), is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement, together with the exhibits and schedules hereto and the other Transaction Documents, supersedes all prior agreements and understandings between the parties with respect to such subject matter. j. PUBLICITY. Except as may be required by applicable Requirement of Law, none of the parties hereto shall issue a publicity release or public announcement or otherwise make any disclosure concerning this Agreement or the transactions contemplated hereby, without prior approval by the other parties hereto (which approval shall not be unreasonably withheld); PROVIDED, HOWEVER, that nothing in this Agreement shall restrict the Warrant Holder from disclosing information (a) that is already publicly available and (b) to its attorneys, accountants, consultants and other advisors to the extent necessary to obtain their services in connection with the Warrant Holder's investment or participation in the Company. If any announcement is required by law to be made by any party hereto concerning this Agreement or the transactions contemplated hereby, prior to making such announcement such party will deliver a draft of such announcement to the other parties and shall give the other parties an opportunity to comment thereon. k. CHARGES; TAXES AND EXPENSES. Issuance of certificates for shares upon the exercise of this Warrant Agreement shall be made without charge to the Warrant Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company. l. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or a legal holiday. m. LOST WARRANTS. The Company covenants to the Warrant Holder that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant Agreement and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation, upon surrender and cancellation of this Warrant Agreement, the Company will make and deliver a new Warrant Agreement of like tenor, in lieu of the lost, stolen, destroyed or mutilated document. n. FURTHER ASSURANCES. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any Governmental Authority or any other Person, and otherwise fulfilling, or causing the fulfillment of, the various obligations made herein, as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement and to consummate and make effective as promptly as possible the transactions contemplated by this Agreement. [**] = Confidential treatment requested for redacted portions. 14 IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and delivered by the authorized officers of each of the undersigned. PRICELINE.COM INCORPORATED By: /S/ TIMOTHY BRIER ---------------------------- Title: President ---------------------------- DELTA AIR LINES, INC. By: /S/ FREDERICK W. REID ---------------------------- Frederick W. Reid Title: Executive Vice President and Chief Marketing Officer [**] = Confidential treatment requested for redacted portions. 15 EXHIBIT A NOTICE OF EXERCISE To: Priceline.com Incorporated 1. The undersigned hereby elects to purchase __________ shares of the Common Stock of Priceline.com Incorporated pursuant to the terms of the Warrant Participation Agreement, dated as of August 17, 1998, by and between Priceline.com Incorporated and the undersigned, and tenders herewith payment of the purchase price of such shares in full. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned. DELTA AIR LINES, INC. By: ---------------------------- (Print Name of Signatory) ---------------------------- (Title of Signatory) Date: ------------------------ 1 EXHIBIT B ASSIGNMENT FORM TO: Priceline.com Incorporated The undersigned hereby assigns and transfers unto _________________ of __________________ (Please typewrite or print in block letters) the right to purchase _________ shares of the common stock of Priceline.com Incorporated subject to the Warrant Participation Agreement, dated as of August 17, 1998, by and between Priceline.com Incorporated and the undersigned (the "Warrant Agreement"). This assignment complies with the provisions of Section 12(c) of the Warrant Agreement and is accompanied by funds sufficient to pay all applicable transfer taxes. DELTA AIR LINES, INC. By: ------------------------- (Print Name of Signatory) ------------------------- (Title of Signatory) Date: ------------------- 1 EX-10.(19)(2) 17 AMEND TO WARRANT AGRMT 12/31/98 (DELTA) EXHIBIT 10.19.2 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. FIRST AMENDMENT AND WAIVER TO PARTICIPATION WARRANT AGREEMENT FIRST AMENDMENT AND WAIVER TO PARTICIPATION WARRANT AGREEMENT, dated as of December 31, 1998 (this "Amendment"), between DELTA AIR LINES, INC., a Delaware corporation (the "Warrant Holder"), and PRICELINE.COM INCORPORATED, a Delaware corporation (the "Company"). WHEREAS, the Warrant Holder and the Company are parties to a Participation Warrant Agreement, dated August 31, 1998 (the "Warrant Agreement"); and WHEREAS, the parties wish to amend the Warrant Agreement upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and the covenants and undertakings contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms used and not otherwise defined herein shall have the respective meanings assigned to them in the Warrant Agreement. 2. AMENDMENTS TO SECTION 1 OF THE WARRANT AGREEMENT. The phrase "Fifteen Million One Hundred Fourteen Thousand and Eighty-Three (15,114,083)" is hereby deleted and replaced with the following: "Fourteen Million, Eight Hundred Ninety-Five Thousand, Five Hundred Twenty-Two (14,895,522)". Warrant Holder hereby acknowledges that as a result of the reduction in the number of Shares pursuant to this Amendment, all references in the Agreement to the percentage of Fully Diluted Equity the Shares represent shall be proportionally decreased. The last two sentences of Section 1 of the Warrant Agreement are hereby deleted in their entirety. [**] = Confidential treatment requested for redacted portion. 1 3. AMENDMENT TO SECTION 3 OF THE WARRANT AGREEMENT. Section 3 of the Warrant Agreement is hereby amended and restated in its entirety to read as follows: "3. TERM. Except as otherwise provided for herein, the term of the Warrants and the right to purchase Shares as granted herein shall be exercisable, at any time and from time to time beginning after December 31, 1998 and terminating at 5:00 p.m. New York City local time on December 31, 2005; provided, however, that if the Warrants vest on December 31, 2005, the Warrant Holder will have an additional six months thereafter to exercise its purchase rights in respect of the Warrants (such seven year period and additional six months, if applicable, being referred to herein as the "Termination Date"); and PROVIDED further, HOWEVER, that if the Company has not completed an initial public offering of shares of Common Stock of the Company pursuant to an effective Registration Statement under the Securities Act of 1933, as amended ("IPO"), prior to such Termination Date, then the term of the Warrants shall be extended on a year to year basis until the date that is six months after the effective date of the Company's IPO. In the event that the Termination Date falls on a date other than a business day in New York City, then the Termination Date shall be deemed to be the next succeeding business day thereafter. 4. AMENDMENTS TO SECTION 4 OF THE WARRANT AGREEMENT. Section 4(c) of the Warrant Agreement is hereby amended by deleting all references to the number "7,557,041" and replacing such references with the number "7,338,480". Section 4 of the Warrant Agreement is hereby amended to add a new Section 4(f) to read in its entirety as follows: "(f) FULL VESTING. Notwithstanding anything to the contrary contained herein, the Warrants shall vest, to the extent not previously vested pursuant to Sections 4(a), 4(b) or 4(c) above, on December 31, 2005. [**] = Confidential treatment requested for redacted portion. 2 5. WARRANT HOLDER WAIVER. The Warrant Holder waives any rights, claims and actions it may have (i) under Sections 10(e) and (f) of the Warrant Agreement in respect of the increase in the number of shares of Common Stock available for issuance to employees and other personnel of the Company under the Priceline.com 1997 Omnibus Plan from 17.1 million shares to 19.1 million shares, such increase already having been waived by the Purchasers, and (ii) under Sections 10(e) and (f), and under Section 15(c), of the Warrant Agreement in connection with the issuance of warrants to acquire [**]shares of Common Stock at an exercise price of $4.00 per share issued to [**]. 6. COMPANY WAIVER. Section 5 of the Warrant Agreement is deleted in its entirety. 7. AMENDMENT. All references in the Warrant Agreement (and in the other agreements, documents and instruments entered into in connection therewith) to the "Warrant Agreement" shall be deemed for all purposes to refer to the Warrant Agreement, as amended by this Amendment. 8. REMAINING PROVISIONS OF WARRANT AGREEMENT. Except as expressly provided herein, the provisions of the Warrant Agreement shall remain in full force and effect in accordance with their terms and shall be unaffected by this Amendment. 9. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 10. HEADINGS. The headings in this Amendment are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 11. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law of any jurisdiction. [SIGNATURE PAGE FOLLOWS] [**] = Confidential treatment requested for redacted portion. 3 IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by the authorized officers of each of the undersigned as of the date first above written. PRICELINE. COM INCORPORATED By: /s/ Paul E. Francis ------------------- Name: Paul E. Francis --------------- Title: CFO --- DELTA AIR LINES, INC. By: /s/ Warren O. Jensen -------------------- Name: Warren O. Jensen ---------------- Title: Executive Vice President & Chief Financial Officer -------------------------- [**] = Confidential treatment requested for redacted portion. 4 EX-10.21 18 EXHIBIT 10.21 Exhibit 10.21 THE SECURITIES REPRESENTED BY THIS WARRANT AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION. FORM OF PARTICIPATION WARRANT AGREEMENT To Purchase Shares of Common Stock Dated as of PRICELINE.COM INCORPORATED a Delaware Corporation Issue Date: THIS CERTIFIES THAT, (the "Warrant Holder"), with a place of business at , for value received, is entitled, upon the terms and subject to the conditions of this Participation Warrant Agreement (this "Warrant Agreement"), to subscribe for and purchase fully-paid and non-assessable shares of common stock, par value $.01 per share (the "Common Stock"), of Priceline.com Incorporated, a Delaware corporation (the "Company"). 1. ISSUANCE OF WARRANTS. On the Issue Date, the Company will issue to the Warrant Holder warrants (the "Warrants") to acquire ( ) shares of the Common Stock (the "Shares"). 2. EXERCISE PRICE. The Warrants have an exercise price of $4.00 per share of Common Stock, as adjusted pursuant to the provisions of Section 8 of this Warrant Agreement (the "Exercise Price"). 3. TERM. Except as otherwise provided for herein, the term of the Warrants and the right to purchase Shares as granted herein shall be exercisable, at any time and from time to time, during the period commencing 210 days following the completion of an initial public offering of shares of Common Stock of the Company pursuant to an effective Registration Statement under the Securities Act of 1933, as amended (an "IPO"), and terminating at 5:00 p.m. New York City local time on the third anniversary of the Issue Date (the Expiration Date"), PROVIDED, HOWEVER, that if the Company has not completed an IPO on or prior to such Expiration Date, then the term of the Warrants and the exercise thereof shall be extended on a year to year basis thereafter until such time as the Company has completed an IPO[: and provided further, that the Warrant Holder shall have up to six months after completion of such IPO to exercise the Warrants; and the term of the Warrants should be correspondingly extended if necessary]. 4. EXERCISE OF PURCHASE RIGHTS. (a) EXERCISE. The purchase rights represented by this Warrant Agreement are exercisable by the Warrant Holder, in whole or in part, at any time, or from time to time during the period set forth in Section 3 above, by tendering to the Company at its principal office: a duly completed and executed notice of exercise in the form attached hereto as EXHIBIT A (the "Notice of Exercise"), the Warrants and the Exercise Price. Upon receipt of such items in accordance with the terms set forth below, the Company shall issue to the Warrant Holder a certificate for the number of shares of Common Stock purchased. The Warrant Holder, upon exercise of the Warrants, shall be deemed to have become the holder of the Shares represented thereby (and such Shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which the Warrants are exercised. In the event of any exercise of the rights represented by the Warrants, certificates for the Shares so purchased shall be delivered to the Warrant Holder or its designee as soon as practical and in any event within ten (10) business days after receipt of such notice and, unless the Warrants have been fully exercised or expired, new Warrants representing the remaining portion of the Warrants and the underlying Shares, if any, with respect to which this Warrant Agreement shall not then have been exercised shall also be issued to the Warrant Holder as soon as possible and in any event within such ten-day period. (b) METHOD OF EXERCISE. The purchase rights hereby represented may be exercised, at the election of the Warrant Holder, by the tender of the Notice of Exercise and the surrender of the Warrants at the principal office of the Company and by the payment to the Company, by check, cancellation of indebtedness or other form of payment acceptable to the Company, of an amount equal to the then applicable Exercise Price per share multiplied by the number of Shares then being purchased. (c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising the Warrants for cash, the Warrant Holder may elect to receive shares equal to the value (as determined below) of the Warrants (or portion thereof being canceled) by surrender of the Warrants at the principal office of the Company together with the duly executed Notice of Exercise in which event the Company shall issue to the Warrant Holder a number of shares of the Common Stock computed using the following formula: X= Y (A-B) ------- A WHERE X= the number of shares of Common Stock to be issued to the Warrant Holder; Y= the number of shares of the Common Stock purchasable under the warrants or, if only a portion of the Warrants is being exercised, the portion of the Warrants being canceled (at the date of such calculation); A= the fair market value of one share of the Company's Common Stock (at the date of such calculation); and B= Exercise Price (at the date of such calculation). For purposes of the above calculation, fair market value of one share of the Common Stock shall be equal to the closing trading price of the Company's Common Stock on the day immediately prior to the date the Notice of Exercise is tendered to the Company. 5. RESERVATION OF SHARES. The Company will at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of the rights to purchase the Shares as provided in this Warrant Agreement. All of the Shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and nonassessable, and free and clear of all preemptive rights. 6. NO FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant Holder's rights to purchase the Shares. 7. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrant Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant Holder's rights to purchase the Shares as provided for herein. 8. ADJUSTMENT RIGHTS. The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment from time to time, as follows: 2 (a) MERGER. If at any time there shall be a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, then, as part of such merger or consolidation, lawful provision shall be made so that the holder of the Warrants evidenced hereby shall thereafter be entitled to receive upon exercise of rights herein granted, during the period specified herein and upon payment of the aggregate Exercise Price, the number of shares of stock or other securities or property of the successor corporation resulting from such merger or consolidation, to which a holder of the stock deliverable upon exercise of the rights granted in this Warrant Agreement would have been entitled in such merger or consolidation if such rights had been exercised immediately before such merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interests of the holder after the merger or consolidation. The Company will not effect any such merger or consolidation unless, prior to the consummation thereof, the successor corporation shall assume, by written instrument reasonably satisfactory in form and substance to the Warrant Holder, the obligations of the Company under the Warrants[ and this Warrant Agreement]. (b) RECLASSIFICATION, ETC. If the Company at any time shall, by subdivision, combination or reclassification of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such subdivision, combination, reclassification or other change. (c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time shall split or subdivide its Common Stock, the Exercise Price shall be proportionately decreased and the number of Shares issuable pursuant to this Warrant Agreement shall be proportionately increased. If the Company at any time shall combine or reverse split its Common Stock, the Exercise Price shall be proportionately increased and the number of Shares issuable pursuant to this Warrant Agreement shall be proportionately decreased. (d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend payable in Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend. The Warrant Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest whole share) obtained by multiplying (i) the Exercise Price in effect immediately prior to such adjustment by (ii) the number of shares of Common Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) ISSUE OF ADDITIONAL STOCK. For so long as the term of the Warrants have not expired, upon each issuance or sale (or deemed issuance or sale) by the Company of any additional shares of Common Stock (or securities convertible or exercisable into Common Stock) which results or would have resulted in a reduction in the Conversion Price of the Convertible Preferred (as each such term is defined in the Company's Certificate of the Powers, Designations, Preferences and Rights of the Series A Convertible Preferred Stock (the "Certificate of Designation")) under Section 7(d)(ii) of the Company's Certificate of Designation, then the Exercise Price in effect immediately prior to each such issuance or sale shall, upon such issue or sale, be reduced by a percentage equal to the same percentage that the applicable Conversion Price has been reduced (or would have been reduced) as a result of such issuance or sale. (f) OTHER CHANGES. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 8 are not strictly applicable or if 3 strictly applicable, would not fairly protect the purchase rights of the Warrant Holder in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number of and class of shares available under the Warrants, the Exercise Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Warrant Holder upon exercise for the same aggregate Exercise Price the total number, class and kind of shares as the Warrant Holder would have owned had the Warrants been exercised prior to the event and had the Warrant Holder continued to hold such shares until after the event requiring adjustment. (g) NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price or number of shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall issue a certificate signed by its Chief Executive Officer or Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Exercise Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the holder of this Warrant. The Company shall give written notice to the Warrant Holder at least 10 [business] days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. The Company shall also give written notice to the Warrant Holder at least 30 business days prior to the date on which a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation shall take place. (h) NO CHANGE OF WARRANT NECESSARY. Irrespective of any adjustment in the Exercise Price or in the number or kind of securities issuable upon exercise of the Warrant, unless the Warrant Holder otherwise requests, this Warrant Agreement may continue to express the same price and number and kind of shares of Common Stock as are stated in this Warrant Agreement as initially executed. 9. REDEMPTION. The Warrants represented by this Warrant Agreement are not redeemable by the Company. 10. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT OR SHARES OF COMMON STOCK. (a) COMPLIANCE WITH SECURITIES ACT. The Warrant Holder, by acceptance hereof, agrees that the Warrants, and the shares of Common Stock to be issued upon exercise of the Warrants, are being acquired for investment and that such Warrant Holder will not offer, sell or otherwise dispose of the Warrants, or any shares of Common Stock to be issued upon exercise of the Warrants except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws. The Warrants and all shares of Common Stock issued upon exercise of the Warrants (unless registered under) the Securities Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THEY MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION, AND IF [REASONABLY] REQUESTED BY THE COMPANY, THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THAT EFFECT." (b) TRANSFER. Subject to the provisions of the Securities Act and any applicable state securities laws, the Warrants and any related rights hereunder may be sold, transferred, pledged or otherwise 4 disposed of (collectively, "Sold"), in whole or in part, to any person. Any transfer or sale or attempted transfer or sale of this Warrant in violation of any provision of this Warrant shall be void, and the Company shall not record such transfer on its books or treat any purported transferee of the Warrant as the owner of the Warrant for any purpose. (c) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANTS. The Warrants cannot be exchanged, transferred or assigned otherwise than in accordance with the provisions of this Agreement. If the provisions of this Agreement are complied with, upon surrender of the Warrants to the Company with the Assignment Form annexed hereto as Exhibit B duly executed, and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant Agreement in the name of the heir, devisee or assignee named in such instrument of assignment and this Warrant Agreement shall promptly be canceled. 11. RESTRICTED SECURITIES. The Warrant Holder understands that the Warrants and the Shares issuable upon vesting and exercise of the Warrants, will not be registered at the time of their issuance under the Securities Act for the reason that the sale provided for in this Agreement is exempt pursuant to Section 4(2) of the Securities Act based on the representations of the warrant Holder set forth herein. The Warrant Holder represents that it is experienced in evaluating companies such as the Company, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to suffer the total loss of the investment. The Warrant Holder further represents that it has had the opportunity to ask questions of and receive answers from the Company concerning the terms and conditions of the Warrants, the business of the Company, and to obtain additional information to such Warrant Holder's satisfaction. The Warrant Holder is an "Accredited Investor" within the meaning of Rule 501 of Regulation D under the Securities Act, as presently in effect. 12. REGISTRATION RIGHTS. [Within ninety (90) days of the date hereof,] The Company will use its best efforts to cause the Warrant Holder to become a party to that certain Amended Registration Rights Agreement, dated as of December 8, 1998, by and among the Company and the stockholders of the Company named therein[(the "Amended Registration Rights Agreement"), with the right to demand registration of the Shares issuable upon vesting and exercise of the Warrants], on such terms and conditions as may be reasonably acceptable to the Company, the Warrant Holder and the other stockholders a party to such Amended Registration Rights Agreement. [If the Company is unable to cause the Warrant Holder to become a party to the Amended Registration Rights Agreement in accordance with the immediately preceding sentence, the Company will, within 120 days after the date hereof, enter into a registration rights agreement (the "Warrant Holder Registration Rights Agreement"), with the Warrant Holder on substantially the same terms and conditions as apply to the "Demand Stockholders" under the Amended Registration Rights Agreement (but excluding any terms and conditions that are contrary to or in conflict with the terms of the Amended Registration Rights Agreement). The inclusion of the Warrant Holder as a party to the Amended Registration Rights Agreement or the entering into by the Company of the Warrant Holder Registration Rights Agreement, in each case as contemplated by this Section 12, will satisfy the Company's obligation under this Section 12.] 13. MISCELLANEOUS. (a) NO CONSEQUENTIAL DAMAGES. No party hereto shall be entitled to consequential damages as a result of any breach of a covenant, representation or warranty contained herein. (b) NOTICES. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: (i) if to the Company, to: priceline.com Incorporated 5 Five High Ridge Park Stamford, CT 06905 Telecopy: (203) 595-8345 Attention: Melissa M. Taub, Esq. and to: Skadden, Arps, Slate, Meagher, & Flom, L.L.P. One Rodney Square Wilmington, DE 19801 Telecopy: (302) 651-3001 Attention: Patricia Moran Chuff, Esq. (ii) if to the Warrant Holder, to: Telecopy: Attention: and to: Telecopy: Attention: All such notices and communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. (c) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. No person, other than the parties hereto and their successors and permitted assigns, is intended to be a beneficiary of this Agreement. (d) AMENDMENT AND WAIVER. (i) No failure or delay on the part of the Company, or the Warrant Holder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company and the Warrant Holder at law, in equity or otherwise. (ii) Any amendment, supplement or modification of or to any provision of this Warrant Agreement, any waiver of any provision of this Warrant Agreement, and any consent to any departure by the Company or the Warrant Holder from the terms of any provision of this Agreement, shall be effective only if it is made or given in writing and signed by the Company and the Warrant Holder. 6 (e) COUNTERPARTS. This Warrant Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) HEADINGS. The headings in this Warrant Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. GOVERNING LAW. THIS [WARRANT] AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF , WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION. (g) SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. (h) ENTIRE AGREEMENT. This Warrant Agreement, together with the exhibits and schedules hereto is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Warrant Agreement, together with the exhibits and schedules hereto, supersedes all prior agreements and understandings between the parties with respect to such subject matter. (i) PUBLICITY. Except as may be required by law, none of the parties hereto shall issue a publicity release or public announcement or otherwise make any disclosure concerning this Warrant Agreement or the transactions contemplated hereby, without prior approval by the other party (which approval shall not be unreasonably withheld); PROVIDED, HOWEVER, that nothing in this Warrant Agreement shall restrict the Warrant Holder from disclosing information (a) that is already publicly available and (b) to its attorneys, accountants, consultants and other advisors to the extent necessary to obtain their services in connection with the Warrant Holder's investment or participation in the Company. If any announcement is required by law to be made by any party hereto concerning this Warrant Agreement or the transactions contemplated hereby, prior to making such announcement such party will deliver a draft of such announcement to the other parties and shall give the other parties an opportunity to comment thereon. (j) CHARGES; TAXES AND EXPENSES. Issuance of certificates for shares upon the exercise of the Warrants shall be made without charge to the Warrant Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company. (k) SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or a legal holiday. (l) LOST WARRANTS. The Company covenants to the Warrant Holder that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant Agreement and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation, upon surrender and cancellation of this Warrant Agreement, the Company will make and deliver a new Warrant Agreement of like tenor, in lieu of the lost, stolen, destroyed or mutilated document. 7 (m) FURTHER ASSURANCES. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any governmental authority or any other person, and otherwise fulfilling, or causing the fulfillment of, the various obligations made herein, as may be reasonably required or desirable to carry out or to perform the provisions of this Warrant Agreement and to consummate and make effective as promptly as possible the transactions contemplated by this [Warrant] Agreement. 8 IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and delivered by the authorized officers of each of the undersigned. PRICELINE.COM INCORPORATED By: --------------------------- Name: Title: By: --------------------------- Name: Title: 9 EXHIBIT A NOTICE OF EXERCISE To: Priceline.com Incorporated 1. / / The undersigned hereby elects to purchase __________ shares of the Common Stock of Priceline.com Incorporated pursuant to the terms of the Warrant Participation Agreement, dated as of , by and between Priceline.com Incorporated and the undersigned, and tenders herewith payment of the purchase price of such shares in full. [/ / The undersigned hereby elects to convert percent (%) of the value of the Warrants pursuant to the provisions of Section 4 (c) of the Warrant Agreement.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned. By: -------------------------------- ----------------------------------- (Print Name of Signatory) ----------------------------------- (Title of Signatory) Date: ---------------- 10 EXHIBIT B ASSIGNMENT FORM TO: Priceline.com Incorporated The undersigned hereby assigns and transfers unto _____________________________ of _________________________________________________________________ (Please typewrite or print in block letters) the right to purchase ____________ shares of the common stock of Priceline.com Incorporated subject to the Warrant Participation Agreement, dated as of _________________________________________, by and between Priceline.com Incorporated and the undersigned (the "Warrant Agreement"). This assignment complies with the provisions of Section 10(c) of the Warrant Agreement and is accompanied by funds sufficient to pay all applicable transfer taxes. By: -------------------------------- ----------------------------------- (Print Name of Signatory) ----------------------------------- (Title of Signatory) Date: --------------------- 11 EX-10.(22)(1) 19 PRTCP WARRANT AGRMT 12/31/98 EXHIBIT 10.22.1 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE SECURITIES REPRESENTED BY THIS WARRANT AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION. PARTICIPATION WARRANT AGREEMENT To Purchase Shares of Common Stock Dated as of December 31, 1998 PRICELINE.COM INCORPORATED a Delaware Corporation Issue Date: December 31, 1998 THIS CERTIFIES THAT, [**] (the "Warrant Holder"), with a place of business at [**], for value received, is entitled, upon the terms and subject to the conditions of this Participation Warrant Agreement (this "Warrant Agreement"), to subscribe for and purchase fully-paid and non-assessable shares of common stock, par value $.01 per share (the "Common Stock"), of priceline.com Incorporated, a Delaware corporation (the "Company"). 1. ISSUANCE OF WARRANTS. On the Issue Date, the Company will issue to the Warrant Holder warrants (the "Warrants") to acquire [**] shares of the Common Stock (the "Shares"). 2. EXERCISE PRICE. The Warrants have an exercise price of $8.00 per share of Common Stock, as adjusted pursuant to the provisions of Section 8 of this Warrant Agreement (the "Exercise Price"). 3. TERM. Except as otherwise provided for herein, the term of the Warrants and the right to purchase Shares as granted herein shall vest in the following manner: (i) Warrants for [**] Shares will vest on December 31, 1999 ("first traunch"), and (ii) Warrants for [**] Shares will vest on December 31, 2000 ("second traunch"). Vested shares may be exercised at any time and from time to time up to 5:00 p.m. New York City local time on the fourth anniversary of the Issue Date (the "Expiration Date"), provided the Company has, prior to any such exercise, completed an initial public offering of shares of Common Stock pursuant to an effective Registration Statement under the Securities Act of 1933, as amended (an "IPO"); provided, however, that if the Company has not completed an IPO within thirty (30) days prior to such Expiration Date, then the term of the Warrants [**] = Confidential treatment requested for redacted portion. and the exercise thereof shall be extended for a period of six (6) months from the completion date of the IPO. 4. EXERCISE OF PURCHASE RIGHTS. (a) EXERCISE. Subject to the terms of this Warrant Agreement, the purchase rights represented by this Warrant Agreement are exercisable by the Warrant Holder, in whole or in part, at any time, or from time to time during the period set forth in Section 3 above, by tendering to the Company at its principal office: a duly completed and executed notice of exercise in the form attached hereto as Exhibit A (the "Notice of Exercise"), the Warrants and the Exercise Price. Upon receipt of such items in accordance with the terms set forth below, the Company shall issue to the Warrant Holder a certificate for the number of shares of Common Stock purchased. The Warrant Holder, upon exercise of the Warrants, shall be deemed to have become the holder of the Shares represented thereby (and such Shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which the Warrants are exercised. In the event of any exercise of the rights represented by the Warrants, certificates for the Shares so purchased shall be delivered to the Warrant Holder or its designee as soon as practical and in any event within ten (10) business days after receipt of such notice and, unless the Warrants have been fully exercised or expired, new Warrants representing the remaining portion of the Warrants and the underlying Shares, if any, with respect to which this Warrant Agreement shall not then have been exercised shall also be issued to the Warrant Holder as soon as possible and in any event within such ten-day period. (b) METHOD OF EXERCISE. The purchase rights hereby represented may be exercised, at the election of the Warrant Holder, by the tender of the Notice of Exercise and the surrender of the Warrants at the principal office of the Company and by the payment to the Company, by check, cancellation of indebtedness or other form of payment acceptable to the Company, of an amount equal to the then applicable Exercise Price per share multiplied by the number of Shares then being purchased. (c) WARRANT HOLDER[**] [**] = Confidential treatment requested for redacted portion. 2 (d) NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising the Warrants for cash, the Warrant Holder may elect to receive shares equal to the value (as determined below) of the Warrants (or portion thereof being canceled) by surrender of the Warrants at the principal office of the Company together with the duly executed Notice of Exercise in which event the Company shall issue to the Warrant Holder a number of shares of the Common Stock computed using the following formula: X= Y(A-B) ------ A WHERE X= the number of shares of Common Stock to be issued to the Warrant Holder; Y= the number of shares of the Common Stock purchasable under the warrants or, if only a portion of the Warrants is being exercised, the portion of the Warrants being canceled (at the date of such calculation); A= the fair market value of one share of the Company's Common Stock (at the date of such calculation); and B= Exercise Price (at the date of such calculation). For purposes of the above calculation, fair market value of one share of the Common Stock shall be equal to the closing trading price of the Company's Common Stock on the day immediately prior to the date the Notice of Exercise is tendered to the Company. 5. RESERVATION OF SHARES. The Company will at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of the rights to purchase the Shares as provided in this Warrant Agreement. All of the Shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable, and free and clear of all preemptive rights. [**] = Confidential treatment requested for redacted portion. 3 6. NO FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant Holder's rights to purchase the Shares. 7. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrant Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant Holder's rights to purchase the Shares as provided for herein. 8. ADJUSTMENT RIGHTS. The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment from time to time, as follows: (a) MERGER. If at any time there shall be a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, then, as part of such merger or consolidation, lawful provision shall be made so that the holder of the Warrants evidenced hereby shall thereafter be entitled to receive upon exercise of rights herein granted, during the period specified herein and upon payment of the aggregate Exercise Price, the number of shares of stock or other securities or property of the successor corporation resulting from such merger or consolidation, to which a holder of the stock deliverable upon exercise of the rights granted in this Warrant Agreement would have been entitled in such merger or consolidation if such rights had been exercised immediately before such merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interests of the holder after the merger or consolidation. The Company will not effect any such merger or consolidation unless, prior to the consummation thereof, the successor corporation shall assume, by written instrument reasonably satisfactory in form and substance to the Warrant Holder, the obligations of the Company under the Warrants. (b) RECLASSIFICATION, ETC. If the Company at any time shall, by subdivision, combination or reclassification of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such subdivision, combination, reclassification or other change. (c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time shall split or subdivide its Common Stock, the Exercise Price shall be proportionately decreased and the number of Shares issuable pursuant to this Warrant Agreement shall be proportionately increased. If the Company at any time shall combine or reverse split its Common Stock, the Exercise Price shall be proportionately increased and the number of Shares issuable pursuant to this Warrant Agreement shall be proportionately decreased. (d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend payable in Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such [**] = Confidential treatment requested for redacted portion. 4 dividend and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend. The Warrant Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest whole share) obtained by multiplying (i) the Exercise Price in effect immediately prior to such adjustment by (ii) the number of shares of Common Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) ISSUE OF ADDITIONAL STOCK. For so long as the term of the Warrants have not expired, upon each issuance or sale (or deemed issuance or sale) by the Company of any additional shares of Common Stock (or securities convertible or exercisable into Common Stock) which results or would have resulted in a reduction in the Conversion Price of the Convertible Preferred (as each such term is defined in the Company's Certificate of the Powers, Designations, Preferences and Rights of the Series A Convertible Preferred Stock (the "Certificate of Designation")) under Section 7(d)(ii) of the Company's Certificate of Designation, then the Exercise Price in effect immediately prior to each such issuance or sale shall, upon such issue or sale, be reduced by a percentage equal to the same percentage that the applicable Conversion Price has been reduced (or would have been reduced) as a result of such issuance or sale. (f) OTHER CHANGES. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 8 are not strictly applicable or if strictly applicable, would not fairly protect the purchase rights of the Warrant Holder in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number of and class of shares available under the Warrants, the Exercise Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Warrant Holder upon exercise for the same aggregate Exercise Price the total number, class and kind of shares as the Warrant Holder would have owned had the Warrants been exercised prior to the event and had the Warrant Holder continued to hold such shares until after the event requiring adjustment. (g) NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price or number of shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall issue a certificate signed by its Chief Executive Officer or Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Exercise Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the holder of this Warrant. The Company shall give written notice to the Warrant Holder at least 10 days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. The Company shall also give written notice to the Warrant Holder at least 30 business days prior to the date on which a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation shall take place. (h) NO CHANGE OF WARRANT NECESSARY. Irrespective of any adjustment in the Exercise Price or in the number or kind of securities issuable upon exercise of the Warrant, unless the [**] = Confidential treatment requested for redacted portion. 5 Warrant Holder otherwise requests, this Warrant Agreement may continue to express the same price and number and kind of shares of Common Stock as are stated in this Warrant Agreement as initially executed. 9. TERMINATION AND DAMAGES. (a) MATERIAL BREACH. (i) In the event that the Warrant Holder is in breach of its material obligations under this Warrant Agreement, and such breach is not cured to the reasonable satisfaction of the Company within 30 days after delivering notice of such breach to the Warrant Holder, the Company may terminate this Warrant Agreement immediately and without further notice to the Warrant Holder. Concurrent with any such termination by the Company, this Warrant Agreement, and all unexercised Warrants issued hereunder, shall automatically terminate, be canceled and of no further force and effect. In addition, upon any such termination by the Company, the Warrant Holder shall pay the Company, as liquidated damages for Warrant Holder's material breach of this Warrant Agreement and not as a penalty, the sum of 1) $1,000,000, if such termination is effected before December 31, 1999, or (2) $500,000, if such termination is effected on or after December 31, 1999 and before December 31, 2000. Any such payment shall be made in immediately available funds within thirty days from the date of any termination of this Warrant Agreement by the Company permitted by this Section 9(a). (ii) In the event that the Company is in breach of its material obligations under Section 4(c) of this Warrant Agreement, and such breach is not cured to the reasonable satisfaction of the Warrant Holder within thirty (30) days after delivering notice of such breach to the Company, the Warrant Holder may thereupon terminate the parties rights and obligations under Section 4(c) hereof; provided, that if the Company repeats a material breach after notice and the Company's cure thereof, the cure period for such repeated breach shall be five (5) days and provided further that upon the occurrence of any second repeated breach, the Warrant Holder may immediately exercise its termination rights hereunder. Upon any such termination, Warrant Holder shall retain all of its rights under this Warrant Agreement with respect to its then vested Warrants but all the then unvested warrants shall immediately terminate and expire. (b) TERMINATION WITHOUT BREACH BY FEBRUARY 4, 1999. Either party may terminate this Warrant Agreement, without cause, at anytime by written notice to the other party received on or prior to February 4, 1999. In the event this Warrant Agreement is terminated as contemplated by this Section 9(b), this Warrant Agreement, and all Warrants issued hereunder, shall automatically terminate, be canceled and of no further force and effect, and neither the Warrant Holder nor the Company shall have any further obligation under any term or provision of this Warrant Agreement. (c) TERMINATION WITHOUT BREACH AFTER FEBRUARY 4, 1999. Except as otherwise provided in this Section 9(c), either party may terminate the parties' rights and obligations under Section 4(c) hereof, without cause, at any time by written notice to the other party; provided that (i) if Warrant Holder effects such termination on or before December 31, 1999, all of the Warrants granted [**] = Confidential treatment requested for redacted portion. 6 to Warrant Holder hereunder shall immediately terminate and expire and Warrant Holder shall pay to the Company the liquidated damages prescribed in Section 9(a)(i)(1) hereof, and (ii) if Warrant Holder effects such termination after December 31, 1999, but before December 31, 2000, the second traunch granted to Warrant Holder shall immediately expire, and Warrant Holder shall pay to the Company the liquidated damages prescribed in Section 9(a)(i)(2) hereof. Notwithstanding any provision herein to contrary, Warrant Holder may not exercise a termination under this Section 9(c) on or after December 31, 2000. 10. REDEMPTION. Except as contemplated by Section 9 above, the Warrants represented by this Warrant Agreement are not redeemable by the Company. 11. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT OR SHARES OF COMMON STOCK. (a) COMPLIANCE WITH SECURITIES ACT. The Warrant Holder, by acceptance hereof, agrees that the Warrants, and the shares of Common Stock to be issued upon exercise of the Warrants, are being acquired for investment and that such Warrant Holder will not offer, sell or otherwise dispose of the Warrants, or any shares of Common Stock to be issued upon exercise of the Warrants except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws. The Warrants and all shares of Common Stock issued upon exercise of the Warrants (unless registered under) the Securities Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THEY MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION, AND IF REQUESTED BY THE COMPANY, THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THAT EFFECT." (b) TRANSFER. Subject to the provisions of the Securities Act and any applicable state securities laws, the Warrants and any related rights hereunder may be sold, transferred, pledged or otherwise disposed of (collectively, "Sold"), in whole or in part, to any person. Any transfer or sale or attempted transfer or sale of this Warrant in violation of any provision of this Warrant shall be void, and the Company shall not record such transfer on its books or treat any purported transferee of the Warrant as the owner of the Warrant for any purpose. [**] = Confidential treatment requested for redacted portion. 7 (c) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANTS. The Warrants cannot be exchanged, transferred or assigned otherwise than in accordance with the provisions of this Agreement. If the provisions of this Agreement are complied with, upon surrender of the Warrants to the Company with the Assignment Form annexed hereto as Exhibit B duly executed, and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant Agreement in the name of the heir, devisee or assignee named in such instrument of assignment and this Warrant Agreement shall promptly be canceled. 12. RESTRICTED SECURITIES. The Warrant Holder understands that the Warrants and the Shares issuable upon vesting and exercise of the Warrants, will not be registered at the time of their issuance under the Securities Act for the reason that the sale provided for in this Agreement is exempt pursuant to Section 4(2) of the Securities Act based on the representations of the warrant Holder set forth herein. The Warrant Holder represents that it is experienced in evaluating companies such as the Company, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to suffer the total loss of the investment. The Warrant Holder further represents that it has had the opportunity to ask questions of and receive answers from the Company concerning the terms and conditions of the Warrants, the business of the Company, and to obtain additional information to such Warrant Holder's satisfaction. The Warrant Holder is an "Accredited Investor" within the meaning of Rule 501 of Regulation D under the Securities Act, as presently in effect. 13. REGISTRATION RIGHTS. The Company will use its best efforts to cause the Warrant Holder to become a party to that certain Amended Registration Rights Agreement, dated as of December 8, 1998, by and among the Company and the stockholders of the Company named therein, on such terms and conditions as may be reasonably acceptable to the Company, the Warrant Holder and the other stockholders a party to such Amended Registration Rights Agreement. In the event of the Company fails to have the Warrant Holder become a party to the Amended Registration Rights Agreement on terms and conditions reasonably acceptable to Warrant Holder by February 4, 1999, the Warrant Holder shall have the right to terminate this Warrant Agreement by delivering a written notice to the Company as prescribed in Section 9(b) hereof. 14. MISCELLANEOUS. (a) NO CONSEQUENTIAL DAMAGES. No party hereto shall be entitled to consequential damages as a result of any breach of a covenant, representation or warranty contained herein. (b) NOTICES. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: (i) if to the Company, to: priceline.com Incorporated Five High Ridge Park Stamford, CT 06905 [**] = Confidential treatment requested for redacted portion. 8 Telecopy: (203) 595-8345 Attention: Melissa M. Taub, Esq. and to: Skadden, Arps, Slate, Meagher, & Flom, L.L.P. One Rodney Square Wilmington, DE 19801 Telecopy: (302) 651-3001 Attention: Patricia Moran Chuff, Esq. (ii) if to the Warrant Holder, to: [**] [**] [**] Phone: [**] Telecopy: [**] Attention: [**] and Copy to: [**] [**] [**] [**] Telecopy: [**] Attention: [**] All such notices and communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. (b) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. No person, other than the parties hereto and their successors and permitted assigns, is intended to be a beneficiary of this Agreement. (c) AMENDMENT AND WAIVER. (i) No failure or delay on the part of the Company, or the Warrant Holder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise [**] = Confidential treatment requested for redacted portion. 9 thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company and the Warrant Holder at law, in equity or otherwise. (ii) Any amendment, supplement or modification of or to any provision of this Warrant Agreement, any waiver of any provision of this Warrant Agreement, and any consent to any departure by the Company or the Warrant Holder from the terms of any provision of this Agreement, shall be effective only if it is made or given in writing and signed by the Company and the Warrant Holder. (d) COUNTERPARTS. This Warrant Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) HEADINGS. The headings in this Warrant Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION. (g) SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. (h) ENTIRE AGREEMENT. This Warrant Agreement, together with the exhibits and schedules hereto and the current Airline Participation Agreement among the Company, the Warrant Holder and PriceLine Travel, Inc., (as amended, substituted, supplemented or superseded by oral agreement of the parties anytime after the date hereof), is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Warrant Agreement, together with the exhibits and schedules hereto and the current Airline Participation Agreement among the Company, the Warrant Holder and PriceLine Travel, Inc., (as amended, substituted, supplemented or superceded by oral agreement of the parties anytime after the date hereof), supersedes all prior agreements and understandings between the parties with respect to such subject matter. (i) PUBLICITY. Except as may be required by law, none of the parties hereto shall issue a publicity release or public announcement or otherwise make any disclosure concerning this Warrant Agreement or the transactions contemplated hereby, without prior approval by the other party (which approval shall not be unreasonably withheld); provided, however, that nothing in this [**] = Confidential treatment requested for redacted portion. 10 Warrant Agreement shall restrict the Warrant Holder from disclosing information (a) that is already publicly available and (b) to its attorneys, accountants, consultants and other advisors to the extent necessary to obtain their services in connection with the Warrant Holder's investment or participation in the Company. If any announcement is required by law to be made by any party hereto concerning this Warrant Agreement or the transactions contemplated hereby, prior to making such announcement such party will deliver a draft of such announcement to the other parties and shall give the other parties an opportunity to comment thereon. (j) CHARGES; TAXES AND EXPENSES. Issuance of certificates for shares upon the exercise of the Warrants shall be made without charge to the Warrant Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company. (k) SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or a legal holiday. (l) LOST WARRANTS. The Company covenants to the Warrant Holder that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant Agreement and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation, upon surrender and cancellation of this Warrant Agreement, the Company will make and deliver a new Warrant Agreement of like tenor, in lieu of the lost, stolen, destroyed or mutilated document. (m) FURTHER ASSURANCES. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any governmental authority or any other person, and otherwise fulfilling, or causing the fulfillment of, the various obligations made herein, as may be reasonably required or desirable to carry out or to perform the provisions of this Warrant Agreement and to consummate and make effective as promptly as possible the transactions contemplated by this Agreement. IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and delivered by the authorized officers of each of the undersigned. PRICELINE.COM INCORPORATED By: ------------------------------------------- Name: -------------------------------------- Title: ------------------------------------- [**] = Confidential treatment requested for redacted portion. 11 [**] By: [**] ------------------------------------------- Name: [**] -------------------------------------- Title: [**] ------------------------------------- [**] = Confidential treatment requested for redacted portion. 12 EXHIBIT A NOTICE OF EXERCISE To: Priceline.com Incorporated 1. The undersigned hereby elects to purchase __________ shares of the Common Stock of Priceline.com Incorporated pursuant to the terms of the Warrant Participation Agreement, dated as of December 31, 1998, by and between Priceline.com Incorporated and the undersigned, and tenders herewith payment of the purchase price of such shares in full. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned. [**] By: ----------------------------------- ----------------------------------- (Print Name of Signatory) ----------------------------------- (Title of Signatory) Date: ---------------------- [**] = Confidential treatment requested for redacted portion. 13 EXHIBIT B ASSIGNMENT FORM TO: Priceline.com Incorporated The undersigned hereby assigns and transfers unto _____________________________ of ___________________________________________________________________ (Please typewrite or print in block letters) the right to purchase ____________ shares of the common stock of Priceline.com Incorporated subject to the Warrant Participation Agreement, dated as of December 31, 1998, by and between Priceline.com Incorporated and the undersigned (the "Warrant Agreement"). This assignment complies with the provisions of Section 11(c) of the Warrant Agreement and is accompanied by funds sufficient to pay all applicable transfer taxes. [**] By: ----------------------------------- ----------------------------------- (Print Name of Signatory) ----------------------------------- (Title of Signatory) Date: ---------------------- [**] = Confidential treatment requested for redacted portion. 14 SCHEDULE 4 C [**] [**] = Confidential treatment requested for redacted portion. 15 SCHEDULE 4 (D) [**] [**] = Confidential treatment requested for redacted portion. 16 EX-10.(22)(2) 20 AMEND TO WARRANT AGRMT 2/4/99 EXHIBIT 10.22.2 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. AMENDMENT NO 1. TO WARRANT PARTICIPATION AGREEMENT This Amendment No 1. to Warrant Participation Agreement (the "Amendment") is dated as of February 4, 1999, by and between priceline.com Incorporated (the "Company") and [**] ("Warrant Holder"). WHEREAS, the Company and the Warrant Holder are parties to a Warrant Participation Agreement dated December 31, 1999, under which the Company granted warrants to Warrant Holder to purchase [**] shares of the Company's common stock, par value $.01 per share (the "Warrant Agreement"); and WHEREAS, the Company and the Warrant Holder desire to amend the Warrant Agreement in accordance with the terms hereof. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follow: 1. AMENDMENTS. Sections 9(b), 9(c) and 13 of the Warrant Agreement are hereby amended by deleting each reference therein to "February 4, 1999" and substituting therefor a reference to "March 3, 1999." 2. AFFECT OF AMENDMENT. This Amendment hereby modifies and amends the Warrant Agreement solely to the extent set forth in Section 1 hereof, and except as otherwise amended hereby, all other provision of the Warrant Agreement shall remain in full force and effect in accordance with the terms thereof. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. PRICELINE.COM INCORPORATED By: -------------------------------------- Name: -------------------------------- Title: -------------------------------- [**] By: -------------------------------------- Name: -------------------------------- Title: -------------------------------- [**] = Confidential treatment requested for redacted portion. EX-10.23 21 FORM OF HOTEL AGRMT EXHIBIT 10.23 PRICELINE.COM HOTELS This Memo of Understanding is dated as of ______________, and is between PRICELINE.COM INCORPORATED ("priceline.com") and INSERT HOTEL _________________. The parties agree as follows: - - Hotel participation with priceline.com is of no cost to the Hotel - - Priceline.com will not reveal Hotel participation to the general public or to other Hotels participating in the program - - The Hotel will supply competitive rates to priceline.com - - The Hotel agrees to load rates into Worldspan SecuRate Hotel Program using priceline.com's plan code __________________________. - - Hotels must be of 2-star quality or higher; final determination on star quality is made by priceline.com - - The Hotel Company must provide reasonable advance notice of properties to be included in the program. All properties will be subject to inspection by priceline.com staff - - The allocation model for bookings will be developed during launch, whereby each property will have an equal opportunity to confirm requests - - Priceline.com will provide the Hotel with guest booking information for their records - - Priceline guests are pre-paid reservations. Should a guest be "walked" by the Hotel, all standard policies of the Hotel will be adhered to as the priceline.com guest is the customer of the Hotel. - - If a priceline.com pre-paid reservation is cancelled, Hotel may be entitled to retain payment for the first night of the reservation but shall promptly refund priceline.com for the amount of any remaining nights. Such refund shall be made without any request for a refund by priceline.com. - - Priceline.com and the Hotel will be responsible for their own acts and omissions (including the acts and omissions of their respective agents and employees), and will fully indemnify and hold harmless the other party from and against all liabilities, claims and damages (including attorneys fees) arising from any act or omission of the other party and its respective agents and employees - - This Memo of Understanding shall be governed by the internal laws of the State of Connecticut HOTEL - -------------------------------------------------------------------------------- Name Title Signature Date PRICELINE.COM, INCORPORATED - -------------------------------------------------------------------------------- Name Title Signature Date EX-23.1 22 CONSENT OF DELOITTE & TOUCHE LLP Exhibit 23.1 INDEPENDENT ACCOUNTANTS' CONSENT We consent to the use in this Pre-Effective Amendment No. 1 to Registration Statement No. 333-69657 of priceline.com Incorporated on Form S-1 of our report dated February 10, 1999 relating to the combined financial statements of priceline.com Incorporated and Priceline Travel, Inc. appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Stamford, Connecticut February 12, 1999 -----END PRIVACY-ENHANCED MESSAGE-----