Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___
____________________
Commission File Number 0-22935
PEGASUS SOLUTIONS, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 75-2605174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CAMPBELL CENTRE I, 8350 NORTH CENTRAL EXPRESSWAY, SUITE 1900, DALLAS, TEXAS
75206
(Address of principal executive office)
(Zip Code)
Registrant's telephone number, including area code: (214) 234-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
The number of shares of the registrant's common stock, par value $0.01 per
share, outstanding as of August 4, 2004 was 22,229,246.
PEGASUS SOLUTIONS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2004
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited) 3
a) Condensed Consolidated Balance Sheets as of
June 30, 2004 and December 31, 2003 3
b) Condensed Consolidated Statements of Operations
and Comprehensive Income (Loss) for the three
and six months ended June 30, 2004 and 2003 4
c) Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2004 and 2003 5
d) Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 4. Controls and Procedures 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 17
Item 4. Submission of Matters to Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
(UNAUDITED)
June 30, December 31,
2004 2003
---- ----
ASSETS
Cash and cash equivalents $ 36,354 $ 58,983
Short-term investments 6,057 4,046
Accounts receivable, net 29,334 22,298
Other current assets 11,078 11,092
----------------- -----------------
Total current assets 82,823 96,419
Goodwill, net of accumulated
amortization of $40,225 164,120 164,120
Intangible assets, net 6,829 7,831
Property and equipment, net 74,460 75,474
Other noncurrent assets 15,294 22,716
----------------- ---------------
Total assets $ 343,526 $ 366,560
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
liabilities $ 26,289 $ 24,672
Unearned income 6,465 7,213
Other current liabilities 6,257 5,477
----------------- -----------------
Total current liabilities 39,011 37,362
Noncurrent uncleared commission checks 5,032 4,545
Other noncurrent liabilities 20,995 20,997
Convertible debt 75,000 75,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value;
2,000,000 shares authorized;
zero shares issued and outstanding - -
Common stock, $0.01 par value;
50,000,000 shares authorized;
22,838,116 and 25,091,248 shares issued
and outstanding, respectively 228 251
Additional paid-in capital 263,738 290,828
Unearned compensation (467) -
Accumulated other comprehensive loss (846) (834)
Accumulated deficit (59,165) (61,589)
-------------- ----------------
Total stockholders' equity 203,488 228,656
-------------- ----------------
Total liabilities and
stockholders' equity $ 343,526 $ 366,560
============== ================
See accompanying notes to condensed consolidated financial statements.
3
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------- ---------
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Service revenues $ 45,860 $ 40,104 $ 87,705 $ 78,494
Customer reimbursements 4,141 2,827 7,620 5,350
--------- --------- --------- --------
Total revenues 50,001 42,931 95,325 83,844
Costs of services:
Cost of services 23,980 21,652 48,300 43,142
Customer reimbursements 4,141 2,827 7,620 5,350
--------- --------- --------- --------
Total costs of services 28,121 24,479 55,920 48,492
Research and development 1,128 1,083 2,531 2,596
General and administrative expenses 5,867 6,247 12,224 12,382
Marketing and promotion expenses 4,981 4,177 9,694 8,415
Depreciation and amortization 5,794 5,156 11,676 17,274
Restructure costs - 2,676 - 5,869
--------- --------- --------- ---------
Operating income (loss) 4,110 (887) 3,280 (11,184)
Other income (expense):
Gain on sale 1,961 - 1,961 -
Interest income (expense), net (524) 220 (1,025) 600
Other (86) 64 (293) 30
--------- --------- --------- ---------
Income (loss) before income taxes 5,461 (603) 3,923 (10,554)
Income tax benefit (expense) (2,058) 586 (1,499) 4,260
--------- --------- --------- ---------
Net income (loss) $ 3,403 $ (17) $ 2,424 $ (6,294)
========== -========= ========= =========
Other comprehensive income (loss):
Change in unrealized gain on
investments, net of tax (39) (3) (12) -
--------- --------- --------- ---------
Comprehensive income (loss) $ 3,364 $ (20) $ 2,412 $ (6,294)
========== -========= ========= =========
Net income (loss) per share:
Basic $ 0.15 $ (0.00) $ 0.10 $ (0.25)
========== ========== ======== =========
Diluted $ 0.14 $ (0.00) $ 0.10 $ (0.25)
========== ========== ======== ==========
Weighted average shares outstanding:
Basic 23,230 24,768 23,974 24,710
========== ========= ======== =========
Diluted 23,527 24,768 24,277 24,710
========== ========== ======== =========
See accompanying notes to condensed consolidated financial statements.
4
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30,
--------
2004 2003
---- ----
Cash flows from operating activities:
Net income (loss) $ 2,424 $ (6,294)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 11,676 17,274
Gain on sale (1,961) -
Other 1,278 1,112
Changes in assets and liabilities:
Accounts receivable (7,311) (606)
Other current and noncurrent assets (139) (4,407)
Accounts payable and accrued liabilities 1,615 (3,615)
Unearned income (748) 3,405
Other current and noncurrent liabilities 973 30
--------- --------
Net cash provided by operating activities 7,807 6,899
Cash flows from investing activities:
Proceeds from sale of Travelweb, LLC 4,167 -
Proceeds from maturity of marketable securities 3,232 2,000
Purchase of marketable securities (566) -
Purchase of property and equipment (9,034) (10,009)
Collections of note receivable 464 103
Other 35 433
--------- --------
Net cash used in investing activities (1,702) (7,473)
Cash flows from financing activities:
Purchase of treasury stock (33,049) -
Proceeds from issuance of common stock 4,598 1,144
Other (283) (100)
--------- --------
Net cash provided by (used in) financing activities (28,734) 1,044
Net increase (decrease) in cash and cash equivalents (22,629) 470
Cash and cash equivalents, beginning of period 58,983 19,893
--------- --------
Cash and cash equivalents, end of period $ 36,354 $ 20,363
======== =========
Supplemental schedule of noncash investing activities:
Landlord paid tenant improvements $ 799 $ -
See accompanying notes to condensed consolidated financial statements.
5
PEGASUS SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview and basis of presentation
Pegasus Solutions, Inc. is a leading global provider of hotel
reservations-related services and technology. Pegasus was formed in 1989 by 16
of the world's leading hotel and travel-related companies to be the world's
premier service provider of a streamlined and automated hotel reservation
process. Pegasus' services include central reservation systems, electronic
distribution services, commission processing and payment services, property
management systems, and marketing representation services. The unaudited
condensed consolidated financial statements include the accounts of Pegasus
Solutions, Inc. and its wholly owned subsidiaries ("Pegasus" or the "Company").
All significant intercompany balances have been eliminated in consolidation.
The Company operates under one reportable segment. Pegasus' common stock is
traded on the Nasdaq National Market under the symbol PEGS.
In the opinion of management, the unaudited condensed consolidated financial
statements presented herein reflect all adjustments necessary to fairly state
the financial position, operating results, and cash flows for the periods
presented. Such adjustments are of a normal recurring nature. The results for
interim periods are not necessarily indicative of results expected for the
entire fiscal year. The accompanying unaudited condensed consolidated financial
statements and the notes thereto should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003.
Stock-based employee compensation
The Company accounts for stock-based compensation utilizing the intrinsic value
method in accordance with the provisions of Accounting Principles Board Opinion
No. 25 (APB 25), "Accounting for Stock Issued to Employees" and related
Interpretations. Accordingly, no compensation expense is recognized for stock
option plans because the exercise prices of employee stock options equal or
exceed the market prices of the underlying stock on the dates of grant. The
Company also maintains an employee stock purchase plan, for which no
compensation expense is recognized pursuant to APB 25. The Company maintains a
stock incentive plan, under which compensation expense was recorded for $10,000
and $237,000 for the second quarter 2004 and 2003, respectively, and $10,000 and
$571,000 for the six months ended June 30, 2004 and 2003, respectively.
The following table represents the effect on net income (loss) and net income
(loss) per share if the Company had applied the fair value based method and
recognition provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee compensation
(in thousands, except per share amounts):
6
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss), as reported $ 3,403 $ (17) $ 2,424 (6,294)
Add: Stock-based employee
compensation expense included
in reported income (loss),
net of related tax effects 6 144 6 347
Deduct: Total stock-based
employee compensation expense
determined under fair value
based methods for all awards,
net of related tax effects (1,018) (1,525) (2,154) (3,091)
-------- ------- ------- -------
Pro forma net income (loss) $ 2,391 $ (1,398) $ 276 $(9,038)
======== ========= ======== ========
Net income (loss) per share,
as reported:
Basic $ 0.15 $ (0.00) $ 0.10 $ (0.25)
======== ========= ======== ========
Diluted $ 0.14 $ (0.00) $ 0.10 $ (0.25)
======== ========= ======== ========
Net income (loss) per share,
pro forma:
Basic $ 0.10 $ (0.06) $ 0.01 $ (0.37)
======== ========= ======== ========
Diluted $ 0.10 $ (0.06) $ 0.01 $ (0.37)
======== ========= ======== ========
The pro forma disclosures provided may not be representative of the effects on
reported net income (loss) for future years due to future grants and the vesting
requirements of the Company's stock incentive plans. For purposes of pro forma
disclosures, the estimated fair value of stock-based compensation plans is
amortized over the vesting period.
On May 25, 2004, the Compensation Committee of the Board of Directors granted
41,875 shares of restricted stock to certain executives. The restricted stock
will vest in full on May 25, 2008. Based on the market value of the Company's
common stock, the restricted stock grant was valued at approximately $477,000,
and compensation expense will be recognized ratably over the four-year period.
2. INTANGIBLE ASSETS
Pegasus has acquired identifiable intangible assets that are subject to
amortization. The following table presents carrying values of those intangible
assets at June 30, 2004 and December 31, 2003 (in thousands):
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
CARRYING ACCUMULATED CARRYING ACCUMULATED
VALUE AMORTIZATION VALUE AMORTIZATION
------- ------------- ------ -------------
Customer relationships $ 56,996 $ (52,761) $56,996 $ (52,431)
Non-compete agreements 6,120 (3,546) 6,120 (2,878)
Other 48 (28) 48 (24)
------- ---------- ------- ----------
Total $ 63,164 $ (56,335) $63,164 $ (55,333)
========= ========== ======= ==========
Amortization expense for those intangible assets was $501,000 and $192,000 for
the three months ended June 30, 2004 and 2003, respectively, and was $1.0
million and $4.6 million for the six months ended June 30, 2004 and 2003,
respectively.
7
3. STOCKHOLDERS' EQUITY
On November 5, 2003, the Board of Directors renewed its authorization for the
repurchase of up to 2.5 million shares of Pegasus' common stock. On May 25,
2004, the Board of Directors authorized the repurchase of an additional 1.5
million shares of Pegasus' common stock. As of June 30, 2004, the Company had
repurchased all 2.5 million shares under the plan authorized November 5, 2003
for an aggregate purchase price of $29.0 million and approximately 322,000
shares under the plan authorized May 25, 2004 for an aggregate purchase price of
$4.1 million. From July 1, 2004 through August 4, 2004, the Company repurchased
approximately 647,000 shares authorized under Board approved plans for an
aggregate purchase price of $8.3 million. Shares repurchased under Board
approved plans are immediately cancelled.
4. GAIN ON SALE
On May 3, 2004 (the "Closing Date"), Pegasus and four other parties
(collectively, the "Sellers") in Travelweb, LLC ("Travelweb") sold their
interests to an affiliate of Priceline.com, Inc. ("Priceline"). Among other
provisions, the purchase agreement provided that Pegasus and each other Seller
(1) assign to Priceline each of their 14.286% interests on the Closing Date, and
(2) receive (a) on the Closing Date, approximately $4.2 million in cash, and (b)
on approximately the one-year anniversary of the Closing Date, if certain
conditions are met, including Travelweb performance targets, shares of Priceline
common stock with a value of approximately $4.7 million as of the Closing Date.
The Priceline common shares are subject to certain restrictions on transfer for
a period ending on the second anniversary of the Closing Date. Pegasus'
investment in Travelweb prior to sale was $2.2 million and was included in other
noncurrent assets. Pegasus recorded a gain of approximately $2.0 million on the
sale of its investment in Travelweb during the second quarter 2004.
5. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the reporting period. For calculations of diluted net income per
share for the second quarter and six months ended June 30, 2004, weighted
average shares outstanding are increased by approximately 297,000 and 303,000
shares, respectively, reflecting the dilutive effect of stock options and
unvested restricted stock. Additionally, 2.2 million and 2.6 million shares
issuable upon the exercise of stock options were excluded from the weighted
average share calculation for the second quarter and six months ended June 30,
2004, respectively, as their effect would be anti-dilutive. The effect of 4.7
million shares issuable upon the exercise of stock options were excluded from
the weighted average share calculation for diluted net loss per share for the
second quarter and six months ended June 30, 2003, as their effect would be
anti-dilutive. No dilution for convertible debt was included in the 2004
calculations, as those securities are contingently convertible.
6. EMPLOYEE DEFINED BENEFIT PLANS
Pursuant to their employment agreements, certain Company officers are eligible
for additional retirement benefits to be paid by the Company under the
Supplemental Executive Retirement Plan ("SERP"). The SERP became effective on
January 1, 2000 and provides supplemental retirement benefits to certain
officers of the Company based on their compensation and years of service, as
defined under the SERP. As a result of changes in executive management, during
the first quarter 2004, Pegasus recognized a curtailment gain of $162,000 for
the SERP under Statement of Financial Accounting Standards No. 88 ("SFAS 88"),
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits."
In the United Kingdom, the Company operates a defined benefit plan, which is
only open to employees who were part of the Reed Elsevier Pension Scheme in
December 1997 (the "Utell Defined Benefit Plan"). The Utell Defined Benefit
Plan provides supplemental retirement benefits to its members, based on final
average compensation. As a result of the Company's 2003 strategic integration
plan, in the second quarter 2003 there was a significant decrease in the number
of participants in the Utell Defined Benefit Plan and the Company recognized a
curtailment gain of $508,000 and a settlement loss of $261,000 under SFAS 88.
8
The following table provides the components of net periodic benefit costs for
the second quarter and six months ended June 30, 2004 and 2003 (in thousands):
SERP Utell Defined Benefit Plan
------------------------------- -------------------------------
Three months Six months Three months Six months
ended June 30, ended June 30, ended June 30, ended June 30,
------------ -------------- -------------- --------------
2004 2003 2004 2003 2004 2003 2004 2003
------------ -------------- -------------- --------------
Service cost $ 50 $ 45 $101 $ 90 $ 72 $ 119 $ 144 $ 238
Interest cost 58 56 117 112 134 146 268 292
Expected return
on plan assets - - - - (171) (133) (342) (266)
Amortization of
prior service
cost . (11) (12) (22) (24) - - - -
Recognized net
actuarial loss 30 29 61 58 - 122 - 244
Curtailment gain - - (162) - - (508) - (508)
Settlement loss - - - - - 261 - 261
------------ -------------- -------------- --------------
Net periodic
benefit cost $127 $ 118 $ 95 $236 $ 35 $ 7 $ 70 $ 261
============ ============== =============== ==============
7. CONTINGENCIES
The Company is subject to certain legal proceedings, claims and disputes that
arise in the ordinary course of our business. Although management cannot
predict the outcomes of these legal proceedings, it does not believe these
actions will have a material adverse effect on the Company's financial position,
results of operations or liquidity.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto included
in our Annual Report on Form 10-K for the year ended December 31, 2003. This
discussion and analysis contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements
include statements regarding our expectations, beliefs, hopes, intentions or
strategies regarding the future. Our ability to predict results or the actual
effect of future plans or strategies is inherently uncertain and the actual
results and timing of certain events could differ materially from our current
expectations. Factors that could cause or contribute to such a difference
include, but are not limited to, the risks and uncertainties appearing under the
caption "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2003. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
OVERVIEW
Pegasus is a leading global provider of hotel reservations-related services and
technology. Founded in 1989, Pegasus' customers include a majority of the
world's travel agencies and more than 50,000 hotel properties around the globe.
Pegasus' services include central reservation systems, electronic distribution
services, commission processing and payment services, property management
systems, and marketing representation services. The company's representation
services are used by more than 7,500 member hotels in approximately 140
countries, making Pegasus the hotel industry's largest third-party marketing and
reservations provider. Pegasus has 17 offices in 12 countries, including
regional hubs in London, Scottsdale and Singapore.
DEPENDENCE ON THE HOTEL INDUSTRY
Our business is sensitive to changes in the demand for, and average daily rates
associated with, hotel rooms. Historically, after periods of low demand for
hotel rooms, average daily rates have lagged behind the recovery in transaction
volumes. Since our distribution and reservation services revenues are primarily
transaction-based, revenues for these services have recovered more quickly than
our hotel representation and financial services, which are based in large part
on a combination of reservation volume and average daily rates. In addition, we
have experienced a lengthening in the sales and implementation cycle for some of
our services.
RECENT DEVELOPMENTS
Pegasus regularly seeks to develop new services to capitalize on its existing
technology and customer base, and to provide additional electronic hotel
reservation capabilities and information services to its existing customers and
to other participants in the travel distribution process. Earlier this year,
Pegasus introduced PegsTour(TM), a new service which will automate bookings by
wholesale travel companies and tour operators with hotel reservation systems,
driving growth in our distribution services. PegsTour is expected to begin
generating revenue in late 2004.
On May 3, 2004 (the "Closing Date"), Pegasus and four other parties
(collectively, the "Sellers") in Travelweb, LLC ("Travelweb") sold their
interests to an affiliate of Priceline.com, Inc. ("Priceline"). Among other
provisions, the purchase agreement provided that Pegasus and each other Seller
(1) assign to Priceline each of their 14.286% interests on the Closing Date, and
(2) receive (a) on the Closing Date, approximately $4.2 million in cash, and (b)
on approximately the one-year anniversary of the Closing Date, if certain
conditions are met, including Travelweb performance targets, shares of Priceline
common stock with a value of approximately $4.7 million as of the Closing Date.
The Priceline common shares are subject to certain restrictions on transfer for
a period ending on the second anniversary of the Closing Date. Pegasus'
investment in Travelweb prior to sale was $2.2 million and was included in other
noncurrent assets. Pegasus recorded a gain of approximately $2.0 million on the
sale of its investment in Travelweb during the second quarter of 2004.
10
FLUCTUATION OF FOREIGN CURRENCIES
Pegasus derives a significant portion of its revenue from customers located
outside the United States. Particularly in Europe, fluctuations of foreign
currencies such as the euro and the British pound relative to the U.S. Dollar
result in Pegasus earning more or less revenue and expending more or less in
expenses than it otherwise might have earned or expended if currency rates had
remained stable.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004 AND 2003
Revenues. As reflected in the table below, total revenues for the second
quarter 2004 increased to $50.0 million from $42.9 million for the second
quarter 2003. Total service revenues increased $5.8 million, or 14 percent, to
$45.9 million for the second quarter 2004, compared to $40.1 million for the
second quarter 2003. The increase in service revenues was largely due to our
new connectivity service offering, Unirez by Pegasus, which contributed $4.0
million in revenue to representation services in the second quarter 2004.
Additionally, our full-service offering, Utell by Pegasus, contributed $1.0
million to the increase in representation services revenues and our financial
services revenues increased $1.4 million. Revenues for the second quarter 2003
were negatively impacted by the war with Iraq and the impact of SARS.
Other changes in the business are described in the paragraphs that follow the
presentation of service line revenues below (in thousands).
Three months ended June 30,
---------------------------
2004 2003
-------- --------
Representation services $ 19,292 $ 14,318
Reservation services 9,139 9,555
Financial services 8,765 7,364
Distribution services 7,302 7,164
Property services 1,362 1,703
-------- --------
Total service revenues 45,860 40,104
Customer reimbursements 4,141 2,827
-------- --------
Total revenues $ 50,001 $ 42,931
======== ========
Representation services revenues increased $5.0 million, or 35 percent, to $19.3
million for the second quarter 2004, compared to $14.3 million for the second
quarter 2003. The increase was primarily due to our new Unirez by Pegasus
representation service, which contributed $4.0 million in revenue. In addition,
a 10 percent increase in reservations and improved average daily room rates for
the company's full-service offering, Utell by Pegasus, combined with a strong
euro and British pound, also contributed to the increase in representation
service revenues. We expect the year-over-year impact of the strong euro and
British pound to be less of a factor on revenues during the remainder of 2004,
as these currencies strengthened in the second half of 2003. Partially
offsetting this increase was a decrease in Utell by Pegasus membership fees due
to a 5 percent decrease in the number of hotels represented, and a decrease in
the commission percentage earned, due to lower pricing on new contracts and
contract renewals, as expected, due to increased competition from lower-cost
competitors. We expect this trend to continue for at least the remainder of the
year.
Reservation services revenues decreased $416,000, or 4 percent, to $9.1 million
for the second quarter 2004, compared to $9.6 million for the second quarter
2003, despite a 6 percent increase in net transactions processed. The decrease
in revenues was primarily due to reduced pricing on contract renewals, as
expected. We expect this trend to continue to impact year-over-year comparisons
for the remainder of the year.
11
Financial services revenues increased $1.4 million, or 19 percent, to $8.8
million for the second quarter 2004, compared to $7.4 million for the second
quarter 2003. The increase in revenues was primarily attributable to a 12
percent increase in gross commissions processed, which resulted from both
improved average daily room rates and an increased volume. The trend of
processing more foreign currency payments, which earn additional fees, also
contributed to the increase.
Distribution services revenues increased $138,000, or 2 percent, to $7.3 million
for the second quarter 2004, compared to $7.2 million for the second quarter
2003. The increase was primarily due to increases in global distribution
system, or GDS, transactions. These increases were partially offset by the loss
of Unirez as a distribution services customer, which provided $415,000 of
revenue in the second quarter 2003, and a slight decrease in Internet bookings.
During 2004, we have been impacted by the effects of increased bookings on hotel
companies' proprietary web sites; such transactions do not utilize Pegasus'
Internet distribution services. We expect this trend to continue.
Property services revenues decreased $341,000, or 20 percent, to $1.4 million
for the second quarter 2004, compared to $1.7 million for the second quarter
2003. The decrease was primarily due to a reduction in revenues from our
Web-based property management system, PegasusCentral. One of the company's top
priorities in 2004 has been the redeployment of PegasusCentral. During the
second quarter 2004, we completed the replacement of PegasusCentral in Holiday
Inns using the product. In July 2004, we delivered the next release of
PegasusCentral to InterContinental Hotels Group for testing. We are also
finalizing the deliverables and functionality with InterContinental Hotels Group
for another release in late October.
Customer reimbursements increased to $4.1 million for the second quarter 2004,
compared to $2.8 million for the second quarter 2003, due to the operations of
our new Unirez by Pegasus representation service and an overall increase in our
customers' GDS costs because of an increase in GDS transactions.
Cost of services. Cost of services, excluding customer reimbursements, were
$24.0 million for the second quarter 2004, compared to $21.7 million for the
second quarter 2003. The $2.3 million increase was primarily due to $1.1
million of added expenses for our Unirez by Pegasus representation service, a
$938,000 increase in revenue sharing to third parties because of new contracts
and increases in transaction volumes and rates and increased consulting costs
for information technology, or IT, development. Cost of services as a
percentage of service revenues was 52 percent and 54 percent for the second
quarter 2004 and 2003, respectively.
Research and development. Research and development expenses were flat at $1.1
million for the second quarter 2004 and 2003, primarily due to cost savings
realized from the 2003 restructuring, offset by the added expenses of our Unirez
by Pegasus representation service. Research and development expenses as a
percentage of service revenues were 2 percent and 3 percent for the second
quarter 2004 and 2003, respectively.
General and administrative expenses. General and administrative expenses were
$5.9 million for the second quarter 2004, compared to $6.2 million for the
second quarter 2003. The $380,000 decrease was primarily because in the second
quarter 2003, we recorded the final $237,000 of compensation expense associated
with the June 2002 restricted stock grant. The remaining decrease was primarily
due to decreased benefit plan costs because of a decrease in benefit plan
participants. General and administrative expenses as a percentage of service
revenues were 13 percent and 16 percent for the second quarter 2004 and 2003,
respectively.
Marketing and promotion expenses. Marketing and promotion expenses were $5.0
million for the second quarter 2004, compared to $4.2 million for the second
quarter 2003. The $804,000 increase was primarily due to additional personnel
costs arising from a 10 percent increase in the number of marketing and
promotion personnel and the costs of a new sales compensation program that was
launched in January 2004, as well as added expenses of our Unirez by Pegasus
representation service. Marketing and promotion expenses as a percentage of
service revenues were 11 percent and 10 percent for the second quarter 2004 and
2003, respectively.
Depreciation and amortization. Depreciation and amortization expenses were $5.8
million for the second quarter 2004, compared to $5.2 million for the second
quarter 2003. The $638,000 increase is primarily due to $583,000 of
depreciation and amortization expense in the second quarter 2004 related to
assets from the Unirez acquisition, including intangible assets.
12
Restructure costs. During the second quarter 2003, Pegasus incurred $2.7
million of restructuring charges related to the reorganization of its operations
from a business unit structure into distinct functional areas.
Gain on sale. On May 3, 2004, Pegasus sold its interest in Travelweb, LLC to an
affiliate of Priceline.com, Inc. and received $4.2 million in cash, recognizing
a gain of approximately $2.0 million.
Interest income (expense), net. Net interest expense of $524,000 for the
second quarter 2004 was the result of interest expense of $765,000, primarily
related to interest and amortization of capitalized debt issuance costs for the
July 2003 convertible debt offering. These costs were offset by interest income
of $242,000 on the Company's investments. In the second quarter 2003, interest
income on the Company's investments was the primary component of net interest
income of $220,000.
Income tax benefit (expense). Pegasus recorded income tax expense of $2.1
million and income tax benefit of $586,000 for the second quarter 2004 and 2003,
respectively, reflecting year-to-date effective rates of 38 percent and 40
percent, respectively. The effective rate for 2004 differed from the statutory
rate of 35 percent, primarily due to nondeductible expenses, partially offset by
the benefit of lower foreign tax rates.
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
Revenues. As reflected in the table below, total revenues for the six months
ended June 30, 2004 increased to $95.3 million from $83.8 million for the six
months ended June 30, 2003. Total service revenues increased $9.2 million, or
12 percent, to $87.7 million for the six months ended June 30, 2004, compared to
$78.5 million for the six months ended June 30, 2003. The increase in service
revenues was largely due to our new connectivity service offering, Unirez by
Pegasus, which contributed $7.2 million in revenue to representation services
for the six months ended June 30, 2004. Additionally, our full-service
offering, Utell by Pegasus, contributed $1.2 million to the increase in
representation services revenues and our financial services revenues increased
$1.7 million. Revenues for the six months ended June 30, 2003 were negatively
impacted by the war with Iraq and the impact of SARS.
Other changes in the business are described in the paragraphs that follow the
presentation of service line revenues below (in thousands).
Six months ended June 30,
-------------------------
2004 2003
-------- --------
Representation services $ 35,745 $ 27,351
Reservation services 18,491 19,502
Financial services 16,346 14,598
Distribution services 14,367 13,862
Property services 2,756 3,181
-------- --------
Total service revenues 87,705 78,494
Customer reimbursements 7,620 5,350
-------- --------
Total revenues $ 95,325 $ 83,844
======== ========
Representation services revenues increased $8.4 million, or 31 percent, to $35.7
million for the six months ended June 30, 2004, compared to $27.4 million for
the six months ended June 30, 2003. The increase was primarily due to our new
Unirez by Pegasus representation service, which contributed $7.2 million in
revenue. In addition, a 9 percent increase in reservations and improved average
daily room rates for the company's full-service offering, Utell by Pegasus,
combined with a strong euro and British pound, also contributed to the increase
in representation service revenues. We expect the year-over-year impact of the
strong euro and British pound to be less of a factor on revenues during the
remainder of 2004, as these currencies strengthened in the second half of 2003.
Partially offsetting this increase was a decrease in Utell by Pegasus membership
fees due to a 5 percent decrease in the number of hotels represented, and a
decrease in the commission percentage earned, due to lower pricing on new
contracts and contract renewals, as expected, due to increased competition from
lower-cost competitors. We expect this trend to continue for at least the
remainder of the year.
13
Reservation services revenues decreased $1.0 million, or 5 percent, to $18.5
million for the six months ended June 30, 2004, compared to $19.5 million for
the six months ended June 30, 2003, despite a 9 percent increase in net
transactions processed. The decrease was primarily due to reduced pricing on
contract renewals, as expected. We expect this trend to continue to impact
year-over-year comparisons for the remainder of the year.
Financial services revenues increased $1.7 million, or 12 percent, to $16.3
million for the six months ended June 30, 2004, compared to $14.6 million for
the six months ended June 30, 2003. The increase in revenues was primarily
attributable to a 9 percent increase in gross commissions processed, which
resulted from both improved average daily room rates and an increased volume.
The trend of processing more foreign currency payments, which earn additional
fees, also contributed to the increase.
Distribution services revenues increased $505,000, or 4 percent, to $14.4
million for the six months ended June 30, 2004, compared to $13.9 million for
the six months ended June 30, 2003. The increase was primarily due to increases
in GDS and Internet transactions. These increases were partially offset by the
loss of Unirez as a distribution services customer, which provided $770,000 of
revenue in the six months ended June 30, 2003, and a decrease in revenue per
transaction. During 2004, we have been impacted by the effects of increased
bookings on hotel companies' proprietary web sites; such transactions do not
utilize Pegasus' Internet distribution services. We expect this trend to
continue.
Property services revenues decreased $425,000, or 13 percent, to $2.8 million
for the six months ended June 30, 2004, compared to $3.2 million for the six
months ended June 30, 2003. The decrease was primarily due to a reduction in
revenues from our Web-based property management system, PegasusCentral.
Customer reimbursements increased to $7.6 million for the six months ended June
30, 2004, compared to $5.4 million for the six months ended June 30, 2003, due
to operations of our new Unirez by Pegasus representation service and an overall
increase in our customers' GDS costs because of an increase in GDS transactions.
Cost of services. Cost of services, excluding customer reimbursements, were
$48.3 million for the six months ended June 30, 2004, compared to $43.1 million
for the six months ended June 30, 2003. The $5.2 million increase was primarily
due to $2.0 million of added expenses for our Unirez by Pegasus representation
service, $1.9 million of severance and related costs incurred in the first
quarter 2004 related to a strategic change in the Company's information
technology organization and a $1.9 million increase in revenue sharing to third
parties because of new contracts and increases in transaction volumes and rates
and increased consulting costs for IT development. Cost of services as a
percentage of service revenues was 55 percent for the six months ended June 30,
2004 and 2003.
Research and development. Research and development expenses were $2.5 million
for the six months ended June 30, 2004, compared to $2.6 million for the six
months ended June 30, 2003. The decrease was primarily due to cost savings
realized from the 2003 restructuring, slightly offset by the added expenses of
our Unirez by Pegasus representation service. Research and development expenses
as a percentage of service revenues were 3 percent for the six months ended June
30, 2004 and 2003.
General and administrative expenses. General and administrative expenses were
$12.2 million for the six months ended June 30, 2004, compared to $12.4 million
for the six months ended June 30, 2003. The $158,000 decrease was primarily
because in the six months ended June 30, 2003, we recorded the final $571,000 of
compensation expense associated with the June 2002 restricted stock grant.
Additionally, during the second quarter 2004, there was a decrease in benefit
plan costs because of a decrease in benefit plan participants. These decreases
were partially offset by $465,000 of severance and related costs incurred in the
first quarter 2004 related to a strategic change in the company's IT
organization, the added expenses of Unirez and increased audit fees. General
and administrative expenses as a percentage of service revenues were 14 percent
and 16 percent for the six months ended June 30, 2004 and 2003, respectively.
Marketing and promotion expenses. Marketing and promotion expenses were $9.7
million for the six months ended June 30, 2004, compared to $8.4 million for the
six months ended June 30, 2003. The $1.3 million increase was primarily due to
additional personnel costs arising from a 10 percent increase in the number of
marketing and promotion personnel and the costs of a new sales compensation
program that was launched in January 2004, as well as added expenses of our
Unirez by Pegasus representation service. Marketing and promotion expenses as a
percentage of service revenues were 11 percent for the six months ended June 30,
2004 and 2003.
14
Depreciation and amortization. Depreciation and amortization expenses were
$11.7 million for the six months ended June 30, 2004, compared to $17.3 million
for the six months ended June 30, 2003. The $5.6 million decrease is primarily
due to the March 2003 completion of amortization of certain intangible assets
related to the REZ, Inc. acquisition, partially offset by amortization expense
in the six months ended June 30, 2004 related to intangible assets from the
Unirez acquisition.
Restructure costs. During the six months ended June 30, 2003, Pegasus incurred
$5.9 million of restructuring charges related to the reorganization of its
operations from a business unit structure into distinct functional areas.
Gain on sale. On May 3, 2004, Pegasus sold its interest in Travelweb, LLC to an
affiliate of Priceline.com, Inc. and received $4.2 million in cash, recognizing
a gain of approximately $2.0 million.
Interest income (expense), net. Net interest expense of $1.0 million for the
six months ended June 30, 2004 was the result of interest expense of $1.6
million, primarily related to interest and amortization of capitalized debt
issuance costs for the July 2003 convertible debt offering. These costs were
offset by interest income of $540,000 on the Company's investments. In the six
months ended June 30, 2003, interest income on the Company's investments was the
primary component of net interest income of $600,000.
Income tax benefit (expense). Pegasus recorded income tax expense of $1.5
million and income tax benefit of $4.3 million for the six months ended June 30,
2004 and 2003, respectively, reflecting effective rates of 38 percent and 40
percent, respectively. The effective rate in the six months ended June 30, 2004
differed from the statutory rate of 35 percent, primarily due to nondeductible
expenses, partially offset by the benefit of lower foreign tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Pegasus' principal sources of capital at June 30, 2004 included cash and cash
equivalents of $36.4 million, short-term marketable securities of $6.1 million
and long-term marketable securities of $3.0 million. Pegasus has two existing
irrevocable standby letter of credit agreements with JPMorgan Chase Bank
collateralizing the leases for the Dallas and Scottsdale offices. On March 1,
2004, as a result of the annual decrease to one of the letters of credit, the
total amount available under these letters of credit was reduced by $450,000 to
$1.7 million.
Pegasus had working capital of $43.8 million at June 30, 2004, compared to
working capital of $59.1 million at December 31, 2003. This decrease in working
capital from December 31, 2003 to June 30, 2004 was primarily due to repurchases
of Pegasus' common stock for an aggregate purchase price of $33.0 million,
partially offset by proceeds from the Company's sale of its ownership in
Travelweb, LLC, an increase in cash flows from operations and other factors
discussed below.
Net cash provided by operating activities increased to $7.8 million for the six
months ended June 30, 2004, from $6.9 million for the six months ended June 30,
2003, primarily due to the results of operations.
Net cash used in investing activities decreased to $1.7 million for the six
months ended June 30, 2004, from $7.5 million for the six months ended June 30,
2003. This decrease in cash used was primarily the result of $4.2 million of
proceeds from the Company's sale of its ownership in Travelweb, LLC. The
remaining decrease is due to less property and equipment purchases and an
increase in net maturities of marketable securities.
Net cash used in financing activities was $28.7 million for the six months ended
June 30, 2004, compared to net cash provided by financing activities of $1.0
million for the six months ended June 30, 2003. During 2004, Pegasus received
$4.6 million from the issuance of common stock associated with stock options and
the employee stock purchase plan and repurchased 2.8 million shares of common
stock for an aggregate purchase price of $33.0 million. From July 1, 2004
through August 4, 2004, the Company repurchased approximately 647,000 shares
authorized under Board approved plans for an aggregate purchase price of $8.3
million. These shares were all repurchased under Board-approved corporate
10b5-1 stock repurchase plans.
15
Our future liquidity and capital requirements will depend on numerous factors,
including:
- - Our profitability
- - Operational cash requirements
- Competitive pressures
- Development of new services and applications
- - Acquisition of and investment in complementary businesses or technologies
- - Common stock repurchases
- - Response to unanticipated cash requirements
We believe that the Company's financial condition is strong and that its cash
and cash flows from operations will be sufficient to meet its foreseeable
operating and capital requirements through at least the next twelve months.
Although we do not expect to raise any external capital in the next year,
Pegasus could in the future consider other financing alternatives to fund its
requirements, including possible public or private debt or equity offerings.
However, there can be no assurance that any financing alternatives sought by
Pegasus will be available or will be on terms that are attractive to Pegasus.
Further, any debt financing may involve restrictive covenants, and any equity
financing may be dilutive to stockholders.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
it is able to collect the information it is required to disclose in the reports
it files with the SEC, and to process, summarize and disclose this information
within the time periods specified in the rules of the SEC. The Company's Chief
Executive and Chief Financial Officers are responsible for establishing and
maintaining these procedures, and, as required by the rules of the SEC,
evaluating their effectiveness. Based on their evaluation of the Company's
disclosure controls and procedures which took place as of the end of the period
covered by this report, the Chief Executive and Chief Financial Officers believe
that these procedures are effective to ensure that the Company is able to
collect, process and disclose the information it is required to disclose in the
reports it files with the SEC within the required time periods.
In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
The Company maintains a system of internal controls designed to provide
reasonable assurance that transactions are executed in accordance with
management's general or specific authorization and that transactions are
recorded as necessary:
- - to permit preparation of financial statements in conformity with generally
accepted accounting principles, and
- - to maintain accountability for assets.
Since the date of the most recent evaluation of the Company's internal controls
by the Chief Executive and Chief Financial Officers, there have been no
significant changes in such controls or in other factors that could have
materially affected those controls, including any corrective actions with regard
to significant deficiencies and material weaknesses.
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pegasus is subject to certain legal proceedings, claims and disputes that arise
in the ordinary course of business. Although management cannot predict the
outcomes of these legal proceedings, we do not believe these actions will have a
material adverse effect on our financial position, results of operations or
liquidity.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Issuer Purchases of Equity Securities (1)
-------------------------------------
Total number of
shares Maximum number
purchased of shares that
as part may yet be
Total number Average of publicly purchased
of shares price paid announced plans under the plans
Period purchased per share or programs or programs
- ------ --------- ---------- ------------ ------------
April 1, 2004 through
April 30, 2004 654,599 $ 11.69 654,599 239,058
May 1, 2004 through
May 31, 2004 239,058 $ 10.97 239,058 1,500,000
June 1, 2004 through
June 30, 2004 322,474 $ 12.63 322,474 1,177,526
________ ________
Total (2) 1,216,131 $ 11.80 1,216,131 1,177,526
========= ======= ========= =========
(1) During the quarter ended June 30, 2004, the Company repurchased
approximately 894,000 shares of the Company's common stock under a 10b5-1
stock repurchase plan authorized on March 9, 2004, as disclosed in our Form
10-K for the year ended December 31, 2003. On June 8, 2004, the Company
announced its intention to repurchase an additional 1.5 million shares of
the Company's common stock after a 10b5-1 stock repurchase plan had been
authorized by the Board on May 25, 2004, and repurchased approximately
322,000 shares under this plan through June 30, 2004. From July 1, 2004
through August 4, 2004, the Company repurchased approximately 647,000
shares authorized under the 10b5-1 stock repurchase plan authorized on May
25, 2004 for an aggregate purchase price of $8.3 million. Repurchases have
and will be made in accordance with applicable securities laws in the open
market or in private transactions from time to time, depending on market
conditions.
(2) All shares were purchased pursuant to the publicly announced programs.
17
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Pegasus held its annual meeting of stockholders on May 3, 2004. At the annual
meeting, Pegasus stockholders took the following actions:
1) By a vote of 20,453,749 for, none against and 386,422 withheld, the
stockholders elected William C. Hammett as Class I Director for a term expiring
at the annual meeting to be held in 2007 and until his successor is elected and
qualified.
2) By a vote of 19,808,770 for, none against and 1,031,401 withheld, the
stockholders elected Thomas F. O'Toole as Class I Director for a term expiring
at the annual meeting to be held in 2007 and until his successor is elected and
qualified.
3) By a vote of 20,524,545 for, 276,333 against and 39,293 withheld, the
stockholders ratified the appointment of PricewaterhouseCoopers, LLP as
independent auditors of the Company to audit its consolidated financial
statements for 2004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 10.1 - Securities Purchase Agreement dated May 3, 2004 between
Lowestfare.com, Inc. (buyer) and Hilton Electronic Distribution
Systems, LLC, HT-HDS, Inc., MI Distribution, LLC, Starwood
Resventure, LLC and Pegasus Business Intelligence, LP (the
sellers), and Travelweb, LLC.
Exhibit 10.2 - Employment Agreement dated August 1, 2004 between the
Company and Andrew Stringer.
Exhibit 31.1 - Certification of Chief Executive Officer, Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 - Certification of Chief Financial Officer, Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 - Certification of Chief Executive Officer and Chief
Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K
On April 27, 2004 Pegasus Solutions, Inc. filed a report on Form 8-K
which furnished information under Item 12 - Results of Operations and
Financial Condition for its press release announcing its financial results
for the first quarter ended March 31, 2004.
On May 6, 2004 Pegasus Solutions, Inc. filed a report on Form 8-K which
furnished information under Item 12 - Results of Operations and Financial
Condition for its press release announcing the sale of its stake in
Travelweb, LLC to Priceline.com.
On July 27, 2004 Pegasus Solutions, Inc. filed a report on Form 8-K which
furnished information under Item 12 - Results of Operations and Financial
Condition for its press release announcing its financial results for the
second quarter and year-to-date ended June 30, 2004.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEGASUS SOLUTIONS, INC.
August 9, 2004 /s/ JOHN F. DAVIS, III
John F. Davis, III,
-------------------------------------
President, Chief Executive Officer
and Chairman
(Principal Executive Officer)
August 9, 2004 /s/ SUSAN K. COLE
Susan K. Cole,
-------------------------------------
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
19
EXHIBIT INDEX
Exhibit Number Description
- -------------- ----------------------------------------------------------------
10.1 Securities Purchase Agreement dated May 3, 2004 between
Lowestfare.com, Inc. (buyer) and Hilton Electronic
Distribution Systems, LLC, HT-HDS, Inc., MI Distribution,
LLC, Starwood Resventure, LLC and Pegasus Business
Intelligence, LP (the sellers), and Travelweb, LLC.
10.2 Employment Agreement dated August 1, 2004 between the
Company and Andrew Stringer.
31.1 Certification of Chief Executive Officer, Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial
Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 3, 2004,
between Lowestfare.com Incorporated, a Delaware corporation (the "Buyer"), and
Hilton Electronic Distribution Systems, LLC, a Delaware limited liability
company ("Hilton"), HT-HDS, Inc., a Delaware corporation ("HT"), MI
Distribution, LLC, a Delaware limited liability company ("Marriott"), Starwood
Resventure LLC, a Delaware limited liability company ("Starwood"), and Pegasus
Business Intelligence, LP, a Delaware limited partnership ("Pegasus," and
together with Hilton, HT, Marriott and Starwood, each, a "Seller" and
collectively, the "Sellers"), and Travelweb LLC, a Delaware limited liability
company formerly known as Hotel Distribution System, LLC (the "Company").
W I T N E S S E T H:
WHEREAS, the Buyer currently owns 14.284%, and each Seller currently owns
14.286%, of the issued and outstanding equity interests in the Company (the
"Company Interests"); and
WHEREAS, the Buyer desires to purchase from each Seller, and each Seller,
severally and not jointly and severally, desires to sell to the Buyer, its
Company Interests;
NOW, THEREFORE, in consideration of the premises and the mutual representations,
warranties, covenants and agreements set forth in this Agreement and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS; INTERPRETATIONS.
(a) The following capitalized terms, as used in this Agreement,
will have the following meanings:
"Accommodation" means a lodging accommodation (exclusive of lodging
accommodations at a hotel owned by Six Continents Hotels, Inc.) for a fixed
number of nights on a pre-paid basis, with such other terms and conditions,
including cancellation policy, as the hotel at which such lodging accommodation
is to take place may determine, and which accommodation is presented to the
guest in a Non-Opaque Manner and is subject to a rate other than a Packaged Rate
or a Restricted Rate.
"Accountant" has the meaning ascribed thereto in Section 2.4(a).
"Administaff" means Administaff Companies II, L.P.
"Affiliate" means, with respect to a given Person (the "Subject Person"),
Any other Person which, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Subject Person. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. With respect to HT, "Affiliate" will also include
Pritzker Affiliates solely for purposes of Section 6.6.
"Agreement" has the meaning ascribed thereto in the preamble.
"Balance Sheet" has the meaning ascribed thereto in Section 4.7(a).
"Balance Sheet Date" has the meaning ascribed thereto in Section 4.7(a).
"Benchmark Fixed-Rate Bookings" has the meaning ascribed thereto in
Section 2.4(a).
"Beneficial Ownership" means, in respect of any Securities, those
Securities that a Person or any of its Affiliates is deemed to "beneficially
own" within the meaning of Rule 13d-3 under the Exchange Act.
"Blackstone" has the meaning ascribed thereto in Section 4.18.
"Blackstone Letter" has the meaning ascribed thereto in Section 4.18.
"Business Day" means any day other than a Saturday or Sunday which is not
a day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
"Buyer" has the meaning assigned to such term in the preamble.
"Buyer Parties" has the meaning ascribed thereto in Section 7.1.
"Capital Lease" means a lease with respect to which the lessee is required
concurrently to recognize the acquisition of an asset and the incurrence of a
liability in accordance with GAAP.
"Change of Control" has the meaning ascribed thereto in Section 2.4(e).
"Claim" has the meaning ascribed thereto in Section 7.3.
"Client Service Agreement" means that certain Client Service Agreement
Between the Company and Administaff dated July 1, 2002.
"Closing" has the meaning ascribed thereto in Section 2.2.
"Closing Date" has the meaning ascribed thereto in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Co-employees" means those individuals who are employees of Administaff
and the Company who are worksite employees assigned to the Company's
worksite, as contemplated in the Client Service Agreement.
2
"Commitments" has the meaning ascribed thereto in Section 3.5.
"Company" has the meaning ascribed thereto in the preamble.
"Company Interests" has the meaning assigned to such term in the recitals.
"Company Licensed Intellectual Property" has the meaning ascribed thereto
in Section 4.15(a).
"Company Owned Intellectual Property" has the meaning ascribed thereto in
Section 4.15(a).
"Company Web Sites" has the meaning ascribed thereto in Section 4.15(d).
"Contingent Payment" has the meaning ascribed thereto in Section 2.4(c).
"Contingent Period" has the meaning ascribed thereto in Section 2.4(b).
"Domain Names" has the meaning ascribed thereto in Section 4.15(d).
"Earn-Out Fixed-Rate Bookings" has the meaning ascribed thereto in
Section 2.4(b).
"Encumbrance" means, with respect to any Person, any mortgage, lien,
pledge, charge, claim, option, proxy, voting trust, security interest or
other encumbrance, or any interest or title of any vendor, lessor, lender or
other secured party to or of such Person under any conditional sale or other
title retention agreement or Capital Lease, upon or with respect to any
property or asset of such Person (including in the case of stock, stockholder
agreements, voting trust agreements and all similar arrangements or in the
case of limited liability company membership interests, the limited liability
company equivalents thereof, or in the case of limited partnership interests,
the limited partnership equivalents thereof).
"Environmental Law" means any Laws (including common law) regulating or
Relating to the protection of human health and safety or the environment,
including laws relating to releases or threatened releases of Hazardous
Materials into the environment.
"Environmental Permits" means all federal, state, local and foreign
franchises, approvals, authorizations, licenses, orders, registrations,
certificates, filings, variances, notices and other similar permits or rights
obtained from any Governmental Entity, under or relating to any Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Issuance" has the meaning ascribed thereto in Section 2.4(d).
"Financial Statements" has the meaning ascribed thereto in Section 4.7(a).
3
"Fixed-Rate Bookings" means, during any given period of time, the number of
Accommodations sold by the Company during such period of time, net of
cancellations, for which the compensation to the hotel is based upon the margin
between the rate to be remitted to the hotel by the Company and the rate charged
to the guest.
"GAAP" has the meaning ascribed thereto in Section 4.7(a).
"Global Distribution System" means a "system" within the meaning of
14 C.F.R. Section 255.3 or any successor provision thereto, as the same may
from time to time be amended.
"Governmental Entity" means any foreign, federal, state or local
judicial, legislative, executive, administrative or regulatory body or
authority.
"Hazardous Materials" means any substance or material that is classified or
regulated as "hazardous" or "toxic" or similar designation pursuant to any
Environmental Law, including asbestos, polychlorinated biphenyls, petroleum and
urea-formaldehyde insulation.
"Hilton" has the meaning assigned to such term in the preamble.
"HT" has the meaning assigned to such term in the preamble.
"Indemnified Party" has the meaning ascribed thereto in Section 7.3.
"Indemnifying Party" has the meaning ascribed thereto in Section 7.3.
"Initial Notice" has the meaning ascribed thereto in Section 2.4(a).
"Initial Purchase Price" has the meaning ascribed thereto in
Section 2.3(a).
"Intellectual Property" means the United States and foreign trademarks,
Service marks, trade names, trade dress, domain names, Internet and World Wide
Web URLs or addresses, logos, business and product names, and slogans
Including registrations and applications to register or renew the registration
of any of the foregoing; copyrights and registrations or renewals thereof;
United States and foreign letters patent and patent applications, including
all reissues, continuations, divisions, continuations-in-part or renewals or
extensions thereof; inventions, processes, designs, formulae, trade secrets,
know-how, confidential business and technical information; software and computer
programs of any kind whatsoever (including all modeling software in both source
code and object code versions) and all documentation relating thereto; Internet
websites; mask works and other semiconductor chip rights and registrations or
renewals thereof; and all other intellectual property and proprietary rights,
tangible embodiments of any of the foregoing (in any form or medium including
electronic media), and licenses of any of the foregoing.
"Knowledge", with respect to the Company, means the knowledge of
Caryn Smith, Scott Hyden, Tom Marsan, Aaron Coleman and Jaynne Allison, or any
of them, and the knowledge that any of them would have after reasonable
inquiry of appropriate employees of the Company, and with respect to any Seller,
means the knowledge of the officers of such Seller involved in the transactions
contemplated by this Agreement and the knowledge that any of them would have
after reasonable inquiry of appropriate employees of such Seller.
4
"Laws" means all foreign, federal, state, and local laws, statutes,
ordinances, rules, regulations, orders, judgments, decrees and bodies of law.
"Licenses" has the meaning ascribed thereto in Section 4.5.
"Litigation" has the meaning ascribed thereto in Section 4.6(a).
"LLC Agreement" means the Limited Liability Company Operating Agreement of
Travelweb LLC, made as of February 8, 2002, as amended on March 18, 2003.
"Losses" has the meaning ascribed thereto in Section 7.1.
"Manager" has the meaning assigned to such term in the LLC Agreement.
"Marriott" has the meaning assigned to such term in the preamble.
"Material Adverse Effect" means, with respect to any Person, a material
Adverse change, event or effect on the business, operations, assets,
properties, condition (financial or otherwise) or results of operations of such
Person, and, with respect to any party hereto, a material adverse effect on
the ability of such party to perform any of its obligations under this
Agreement or the other Transaction Documents to which it is a party or for such
party to consummate the transactions contemplated by this Agreement and the
other Transaction Documents to which it is a party, except to the extent
that any such change, event or effect is attributable to or results from the
direct effect of the pendency of the transactions contemplated hereby (other
than the breach by any party hereto of its representations, warranties,
covenants or agreements hereunder).
"Member" has the meaning assigned to such term in the LLC Agreement.
"Non-Opaque Manner" means the provision of information to a user concerning
hotel lodging accommodations where the user is able to see the identity of the
hotel prior to booking the accommodation.
"Other Sellers" has the meaning ascribed thereto in Section 6.7.
"Packaged Rate" means the rate provided to a user for a lodging
Accommodation which requires the purchase of other products or services and
for which the total price of the package on the date first offered for sale is
higher than the highest price commercially available to the consumer of
the lodging accommodation alone on such date.
"Pegasus" has the meaning assigned to such term in the preamble.
"Permitted Encumbrances" refers to (i) liens for current Taxes not yet due
and payable, and (ii) such imperfections of title, easements, rights-of-way and
other similar restrictions on the Company's real property, if any, as (A) are
insubstantial in character, amount or extent, (B) do not materially detract from
the value or interfere with the use of the affected property, as presently used,
and (C) do not and would not, individually or in the aggregate, reasonably be
expected to otherwise materially adversely affect the business or operations of
the Company.
5
"Person" means any individual, firm, corporation, limited liability
company, partnership, company, trust or other entity.
"Plan" means any bonus, pension, post-retirement benefit, profit sharing,
deferred compensation, incentive compensation, stock (or membership interest)
ownership, stock (or membership interest) purchase, stock (or membership
interest) option, phantom stock (or membership interest), retirement, vacation,
severance, disability, death benefit, hospitalization, medical, dental or other
plan, arrangement or understanding providing compensation or benefits generally
to current Co-employees or Managers of the Company (in their capacities as
such), retirees or former employees.
"Priceline" means priceline.com Incorporated, a Delaware corporation.
"Priceline Common Stock" has the meaning ascribed thereto in
Section 2.4(c).
"Priceline Guaranty" has the meaning ascribed thereto in Section 2.2(b).
"Priceline Shares" has the meaning ascribed thereto in Section 2.4(c).
"Pritzker Affiliate" means (i) all lineal descendants of
Nicholas J. Pritzker, deceased, and all spouses and adopted children of such
descendants; (ii) all trusts for the benefit of any Person described in
clause (i) and trustees of such trusts; (iii) all legal representatives of any
Person or trust described in clauses (i) or (ii); and (iv) all partnerships,
corporations, limited liability companies or other entities controlling,
controlled by or under common control with any Person, trust or other entity
described in clauses (i), (ii) or (iii). "Control" as used in this definition
means the ability to influence, direct or otherwise significantly affect the
major policies, activities or action of any Person or entity.
"Purchase Price" has the meaning ascribed thereto in Section 2.3.
"Regulatory Approvals" means all approvals, consents, waivers,
certificates, and other authorizations and notices required to be obtained or
made by the Company or any party hereto from or to any federal, state, local or
foreign Governmental Entity in order to consummate the transactions
contemplated by this Agreement and the other Transaction Documents.
"Reorganization" has the meaning ascribed thereto in Section 2.4(e).
"Restricted Rate" means a rate provided to a user for a lodging
Accommodation that is not generally available for purchase by the general
public, including corporate discounted rates, tour operator rates, group
rates, meeting and incentive rates, or rates targeted to a select group of
travelers such as a rate offered to members of a club, affinity program or
other membership organization (e.g., AAA), where there is a good faith effort
by the hotel (or entity acting on behalf of the hotel) to limit the
availability of such rate to the targeted group.
"SCH Agreement" has the meaning ascribed thereto in Section 6.4(b).
6
"SEC" has the meaning ascribed thereto in Section 3.7.
"SEC Documents" has the meaning ascribed thereto in Section 5.8.
"Securities" means, with respect to: (a) any corporation, any of the equity
securities of such corporation and any obligations to purchase or options or
warrants to acquire such equity securities but excluding debt instruments which
are not convertible into or exchangeable for equity securities; and (b) any
partnership, limited liability company, association, joint-stock company, trust,
fund or any organized group or Person whether incorporated or not, any ownership
interest or right or obligation to acquire such ownership interest, whether or
not evidenced by a written instrument, but excluding debt instruments which are
not convertible into or exchangeable for such ownership interests.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" and "Sellers" has the meaning assigned to such term in the
preamble.
"Seller Guaranties" has the meaning ascribed thereto in Section 2.2(b).
"Seller Parent" has the meaning ascribed thereto in Section 2.2(b).
"Seller Parties" has the meaning ascribed thereto in Section 7.2.
"Seller Related Person" has the meaning ascribed thereto in Section 3.6.
"Software" has the meaning ascribed thereto in Section 4.15(c).
"Starwood" has the meaning assigned to such term in the preamble.
"Subsequent Notice" has the meaning ascribed thereto in Section 2.4(b).
"Subsidiary" means, with respect to the Company, any corporation, limited
liability company, partnership, business association or other Person with
respect to which the Company has, directly or indirectly, ownership of or rights
with respect to securities or other interests having the power to elect a
majority of such Person's board of directors or analogous or similar governing
body, or otherwise having the power to direct the management, business or
policies of that corporation, limited liability company, partnership, business
association or other Person.
"Tax" means any tax, assessment or other governmental charge imposed by any
Governmental Entity, including any income, alternative minimum, accumulated
earnings, personal holding company, franchise, capital stock, profits, windfall
profits, gross receipts, transaction, sales, use, value added, transfer,
registration, stamp, premium, excise, customs duties, severance, real property,
personal property, ad valorem, hotel, occupancy, license, occupation,
employment, payroll, social security, disability, unemployment, workers'
compensation, withholding, estimated or other similar tax, assessment or other
governmental charge, including penalties, interest and additions thereto.
7
"Tax Return" means any return, report or similar statement required to be
Filed with respect to any Tax (including any attached schedules), including any
information return, claim for refund, amended return or declaration of estimated
Tax.
"Transaction Documents" means this Agreement and all other agreements,
schedules, certificates and other documents referenced in Section 2.2(b).
"Travel Site" has the meaning ascribed thereto in Section 6.7.
"Web" has the meaning ascribed thereto in Section 4.15(d).
(b) For all purposes of this Agreement, unless otherwise expressly
Provided or unless the context requires otherwise: (i) the terms defined in this
Section 1.1 and elsewhere in this Agreement may include both the plural and
singular, as the context may require; (ii) the words "herein", "hereto" and
"hereby", and other words of similar import, refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision of this
Agreement; (iii) unless otherwise specified, references to Articles, Sections,
paragraphs, clauses, subclauses, subparagraphs, Exhibits and Schedules are
references to Articles, Sections, paragraphs, clauses, subclauses,
subparagraphs, Exhibits and Schedules of this Agreement; (iv) the words
"including" and "include" and other words of similar import will be deemed
to be followed by the phrase "without limitation"; (v) any reference herein
to a statute, rule or regulation of any Governmental Entity (or any provision
thereof) will include such statute, rule or regulation (or provision thereof)
as in effect on the date hereof; and (vi) whenever the context may require,
any pronouns used herein will include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns will include the
plural and vice versa.
ARTICLE II
PURCHASE AND SALE OF COMPANY INTERESTS
2.1 PURCHASE AND SALE.
Pursuant to the terms and subject to the conditions set forth herein, at
the Closing, the Buyer will purchase from each Seller, and each Seller will sell
to the Buyer, all of such Seller's Company Interests, which Company Interests of
all Sellers collectively constitute 71.43% of the issued and outstanding equity
interests of the Company, for the aggregate Purchase Price set forth in Section
2.3. The nature and amount of the Company Interests of each Seller and the
ownership thereof are set forth in Exhibit A to this Agreement.
----------
2.2 THE CLOSING; DELIVERIES.
(a) The closing of the purchase and sale of all of the Sellers' Company
Interests (the "Closing") will take place at the offices of Hughes & Luce,
L.L.P., located at 1717 Main Street, Suite 2800, Dallas, Texas 75201 on the date
of this Agreement, or at such other date and place as is mutually agreed
among the parties (such date being herein called the "Closing Date").
8
(b) At the Closing (i) each Seller (or the applicable Affiliate of such
Seller), is executing and delivering to the Company an amendment to such
Seller's (or its Affiliate's) current distributor agreement with the Company, in
the form of Exhibit B; (ii) the ultimate parent company (or, in the case of HT,
---------
Hyatt Corporation) of each Seller ("Seller Parent"), is executing and
delivering to the Buyer a guaranty in the form of Exhibit C (collectively, the
---------
"Seller Guaranties"); (iii) Priceline is executing and delivering to the Sellers
the guaranty in the form of Exhibit D (the "Priceline Guaranty"); (iv) the Buyer
---------
will pay to each Seller the portion of the aggregate Initial Purchase Price
specified in Exhibit A as payable to such Seller; (v) each Seller will execute
---------
and deliver to the Buyer an assignment of interests substantially in the form of
Exhibit E; (vi) each party hereto will deliver an opinion of counsel, which
- ----------
counsel may be an employee of such party, on the matters set forth in Exhibit F;
---------
and (vii) the Buyer and each Seller will deliver a cross-receipt acknowledging
payment in full of the Initial Purchase Price and delivery of the Sellers'
Company Interests.
2.3 CONSIDERATION.
As consideration in full for the sale and purchase of the Sellers' Company
Interests, the Buyer will (a) at the Closing, pay in cash to the Sellers an
aggregate of Twenty Million Eight Hundred Thirty-Three Thousand Three Hundred
Thirty-Three Dollars ($20,833,333.00), in the respective pro rata amounts set
forth in Exhibit A (collectively, the "Initial Purchase Price") and (b) deliver
---------
to the Sellers the Priceline Shares, to the extent required by and in the manner
set forth in Section 2.4 (the Priceline Shares, together with the Initial
Purchase Price, the "Purchase Price"). The Initial Purchase Price will be
payable at Closing by wire transfer of immediately available funds to the
respective accounts specified in writing by the Sellers to the Buyer prior to
the Closing.
2.4 CONTINGENT PAYMENT.
(a) "Benchmark Fixed-Rate Bookings" means the Fixed-Rate Bookings for
the 365 consecutive calendar day period ending on the day immediately preceding
the Closing Date. Within ten (10) Business Days after the Closing Date, the
Company will calculate the Benchmark Fixed-Rate Bookings, and notify the Sellers
In writing of such calculation, together with supporting information in
Reasonable detail (the "Initial Notice"). If the Sellers dispute the
accuracy of the Company's calculation within ten (10) Business Days after the
Initial Notice has been given, and the Company and the Sellers are unable to
settle such dispute within an additional ten (10) Business Days, then the
dispute will be submitted promptly to a nationally known independent certified
public accounting firm reasonably acceptable to the Company, on the one hand,
and the Sellers, on the other hand (the "Accountant"), which will determine
the Benchmark Fixed-Rate Bookings, which determination will be final, binding
and conclusive between and among Buyer and Sellers. The fees and expenses
of the Accountant will be allocated one-half to the Company, on the one hand,
and one-half to the Sellers, on the other hand.
(b) Within ten (10) Business Days after the first anniversary of the
Closing Date, the Company will calculate the Fixed-Rate Bookings for the 365
Consecutive calendar day period beginning on the Closing Date (the "Contingent
Period"), and notify the Sellers in writing of such calculation, together
with supporting information in reasonable detail (the "Subsequent Notice").
If the Sellers dispute the accuracy of the Company's calculation within ten
(10) Business Days after the Subsequent Notice has been given, and the Company
and the Sellers are unable to settle such dispute within an additional ten (10)
Business Days, then the dispute will be submitted promptly to the Accountant,
which will determine the Fixed-Rate Bookings for the Contingent Period, which
determination will be final, binding and conclusive between and among Buyer and
Sellers. The fees and expenses of the Accountant will be allocated one-half to
the Company, on the one hand, and one-half to the Sellers, on the other hand.
The final determination of the Fixed-Rate Bookings for the Contingent Period
(whether determined by agreement among the parties or by the Accountant,
as provided herein) is referred to as the "Earn-Out Fixed-Rate Bookings."
9
(c) If the Earn-Out Fixed-Rate Bookings equals or exceeds ninety
Percent (90%) of the Benchmark Fixed-Rate Bookings, then, no later than the date
that is five (5) Business Days after the final determination of the Earn-Out
Fixed-Rate Bookings in accordance with Section 2.4(b), Buyer will issue and
deliver to the Sellers stock certificates representing an aggregate number of
shares of common stock, par value $0.008 per share, of Priceline ("Priceline
Common Stock") equal to the quotient of Twenty-Three Million Seven Hundred
Thirty-Nine Five Hundred Eighty-Three Dollars ($23,739,583.00) divided by
the closing price of the Priceline Common Stock on the Nasdaq National Market
on the Closing Date, in the respective pro rata amounts set forth in Exhibit A
---------
(collectively, the "Priceline Shares"). All fractional shares will be rounded
up to the nearest whole share. Such issuance and delivery of Priceline
Shares, if any, will be referred to herein as the "Contingent Payment."
Each Seller will take commercially reasonable actions, and do such things,
as may be reasonably required to permit Buyer to effect the issuance and
delivery of the Priceline Shares in such manner as will be (i) exempt from the
registration requirements of the Securities Act, and the registration and
qualification requirements of any applicable state securities laws, and (ii)
in compliance with applicable Nasdaq National Market rules (or other stock
exchange on which Priceline Common Stock is then traded).
(d) Notwithstanding the foregoing, if prior to the issuance of the
Priceline Shares, the Priceline Common Stock is changed into or exchanged for a
different number or kind of shares of stock of Priceline or another entity
(whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares or otherwise), or in the
event a stock split or stock dividend occurs on shares of Priceline Common
Stock, then in any such event, Priceline will substitute for each Priceline
Share issued or to be issued the number and kind of shares of stock into
which each share of Priceline Common Stock is so changed or exchanged, or
the number of Priceline Shares will be adjusted as is equitably required to
provide anti-dilution protection to the Sellers. Notwithstanding the foregoing,
Priceline will have no obligation to effect any such substitutions as a
result of or attributable to any Excluded Issuance. For purposes of this
Agreement, the term "Excluded Issuance" means any shares of Priceline Common
Stock issued or issuable pursuant to any equity incentive plan, warrant,
convertible Securities or any Securities issued or issuable to any Person
that provides services or supplies to Priceline or its Affiliates.
10
(e) If during the Contingent Period, there occurs (i) a Change of
control (as hereinafter defined), (ii) any acquisition of Buyer, the
Company or Priceline by means of merger or other form of corporate
reorganization in which outstanding shares of Buyer, the Company or
Priceline are exchanged for Securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary
(other than a mere reincorporation transaction), or (iii) the sale or transfer
of all or substantially all of the assets of Buyer, the Company or Priceline to
another Person (in each case as set forth in clauses (i), (ii) and (iii),
a "Reorganization"), the Contingent Payment will, without regard to the
conditions set forth in the foregoing subsection (c), be immediately due and
payable to the Sellers, provided that a Reorganization will not be deemed to
have occurred in the event of a merger or corporate reorganization among
Priceline and/or any of its Affiliates if Priceline or a wholly-owned
subsidiary of Priceline is the surviving entity. If there is a Reorganization
of Priceline, the Contingent Payment will, without regard to the conditions
set forth in the foregoing subsection (c), be immediately due and payable
to the Sellers in the form of whatever Securities or cash the Priceline Common
Stock is converted into in the Reorganization at the same conversion ratio
utilized in the Reorganization, including (x) in the stock of any other
publicly traded common stock into which Priceline Common Stock outstanding at
the time of the Reorganization is converted; or (y) in cash using the average
per share closing price of Priceline Common Stock on the Nasdaq
National Market (or other stock exchange that Priceline Common Stock becomes
listed on) for the five (5) trading days immediately preceding the
Reorganization. In addition, if during the Contingent Period, Priceline
breaches its obligations under Section 6.10, the Contingent Payment will,
without regard to the conditions set forth in the foregoing subsection (c), be
immediately due and payable to the Sellers. For purposes of this Agreement,
"Change of Control" means the acquisition by any Person or group (as such term
is defined in Section 13(d)(3) of the Exchange Act) of Beneficial Ownership of
more than fifty percent (50%) of the outstanding voting Securities of Priceline,
Buyer or the Company; provided that a Change of Control will not be deemed to
have occurred upon the acquisition of more than fifty percent (50%) of the
outstanding voting Securities of Priceline by Hutchison Whampoa Limited and/or
Cheung Kong (Holdings) Limited. Notwithstanding any provision hereof to the
contrary, no Reorganization, including any Change of Control, will be deemed to
have occurred with respect to any Person unless, as a result thereof, Persons
holding a majority of the outstanding voting Securities of such Person
immediately prior to the consummation of such acquisition, sale or transfer fail
to own or otherwise hold a majority of the outstanding voting Securities of such
Person or its successor by operation of law immediately after the consummation
of such acquisition, sale of transfer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
Each Seller, severally and not jointly and severally with the other
Sellers, hereby represents and warrants to the Buyer as follows:
3.1 ORGANIZATION.
Such Seller is a corporation, limited partnership or limited liability
company duly organized, validly existing and in good standing under the Laws of
its state of incorporation or formation.
11
3.2 DUE AUTHORIZATION.
Such Seller has all requisite corporate, limited partnership or limited
liability company, as applicable, right, power and authority to execute and
deliver this Agreement and each of the other Transaction Documents to which it
is a party, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by such Seller of this Agreement and each of the
other Transaction Documents to which it is a party, and the performance by such
Seller of its obligations hereunder and under the other Transaction Documents to
which it is a party and the consummation by such Seller of the transactions
contemplated hereby and thereby (a) are within the corporate, limited
partnership or limited liability company, as applicable, power and authority of
such Seller, and (b) have been duly authorized by all requisite corporate,
limited partnership or limited liability company, as applicable, action on the
part of such Seller and no other corporate, limited partnership or limited
liability company action is necessary for the execution and delivery of this
Agreement by each Seller, the performance by each Seller of its obligations
hereunder or the consummation by each Seller of the transactions contemplated
hereby. This Agreement has been, and at the Closing the other Transaction
Documents will be, duly executed and delivered by such Seller (to the extent it
is a party thereto). This Agreement is, and, upon execution and delivery by
such Seller at the Closing, each of the other Transaction Documents will be, a
legal, valid and binding obligation of such Seller (to the extent it is a party
thereto), enforceable against such Seller in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting the enforcement of creditors'
rights generally and subject to general principles of equity (regardless of
whether enforcement is sought in a proceeding of law or in equity).
3.3 CONSENTS; NO VIOLATIONS.
Except as set forth on Schedule 3.3, neither the execution, delivery or
performance by such Seller of its obligations under this Agreement or any of the
other Transaction Documents to which it is a party nor the consummation of the
transactions contemplated hereby or thereby by such Seller will: (a) conflict
with, or result in a breach or a violation of, any provision of the certificate
of incorporation, certificate of formation, by-laws, partnership agreement or
other organizational documents of such Seller; (b) result in or constitute, with
or without notice or the passage of time or both, a breach, violation or
default, or give rise to any right of termination, modification, cancellation,
prepayment, suspension, limitation, revocation or acceleration, under any Law or
any provision of any Commitment to which such Seller is a party or pursuant to
which such Seller or any of its assets or properties is subject; or (c) require
such Seller to obtain or make any consent, approval or authorization of,
notification to, filing with, or exemption or waiver by, any Governmental Entity
or any other Person.
3.4 TITLE TO COMPANY INTERESTS.
Such Seller owns its Company Interests, as set forth on Exhibit A, of
record and beneficially, free and clear of any Encumbrance. Upon sale of such
Seller's Company Interests and delivery of the transfer documents included in
the Transaction Documents to the Buyer hereunder, the Buyer will acquire the
entire legal and beneficial interests in such Seller's Company Interests from
such Seller, free and clear of any Encumbrance and subject to no legal or
equitable restrictions of any kind.
3.5 BROKERS AND FINDERS FEES.
Such Seller has no binding contracts, instruments, agreements, arrangements
or commitments, whether written or oral, including all amendments thereof and
supplements thereto ("Commitments"), with any broker, finder, investment banker
or similar agent with respect to the transactions contemplated by this
Agreement.
12
3.6 RELATED PARTY AGREEMENTS.
Except as set forth on Schedule 3.6, (a) none of such Seller, any of such
Seller's Affiliates, or such Seller's representative serving as a Manager of the
Company (each a "Seller Related Person") is or has been since March 18, 2003 a
party to or bound by any Commitment with the Company; (b) there is no
indebtedness of the Company to any such Seller's Seller Related Person; and (c)
there is no indebtedness of any such Seller's Seller Related Person to the
Company. Such Seller has delivered to the Buyer a true and correct copy of each
such Commitment (or a written summary if such Commitment is oral) set forth on
Schedule 3.6.
3.7 INVESTMENT REPRESENTATIONS.
Such Seller is an "accredited investor" as such term is defined in Rule
501(a) of Regulation D of the rules of the Securities and Exchange Commission
(the "SEC"). Such Seller is acquiring the Priceline Shares for investment, for
its own account only and not with a view to, or for resale in connection with,
any "distribution" thereof within the meaning of the Securities Act. Such
Seller acknowledges and understands that the Priceline Shares constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of such
Seller's investment intent as expressed herein. Such Seller understands that
the Priceline Shares must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Such Seller further acknowledges and understands that Priceline is
under no obligation to register the Priceline Shares. Such Seller understands
that the certificate evidencing the Priceline Shares will be imprinted with a
legend which (a) prohibits the transfer of the Priceline Shares unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to Priceline and any other legend required under applicable Laws
and (b) sets forth the restriction provided in Section 6.6. Such Seller is
familiar with the provisions of Rule 144 promulgated under the Securities Act,
which, in substance, permits limited public resale of "restricted securities"
acquired, directly or indirectly, from an issuer or an affiliate thereof, in a
non-public offering subject to the satisfaction of certain conditions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Buyer as follows:
4.1 ORGANIZATION.
(a) The Company is a limited liability company duly organized, validly
existing and in good standing under the Laws of the State of Delaware and has
all requisite limited liability company power and authority to own, lease and
operate its properties and assets and to carry on its business as currently
conducted. The Company is duly qualified and licensed to do business and is in
good standing (and has paid all relevant franchise or analogous Taxes that are
due and owing) in each jurisdiction where the ownership, lease or operation of
its properties and assets or the conduct of its business makes such
qualification necessary, except where the failure to be so qualified or licensed
has not since March 18, 2003 had and would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company.
13
(b) The Company does not have and has not since March 18, 2003 had any
Subsidiaries. Except as set forth on Schedule 4.1(b), the Company does not own
and has not since March 18, 2003 owned, directly or indirectly, any interest in
any corporation, limited liability company, partnership, business association or
other Person.
4.2 DUE AUTHORIZATION.
The Company has all requisite limited liability company right, power and
authority to execute and deliver this Agreement and each of the other
Transaction Documents to which it is a party, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the Company of
this Agreement and each of the other Transaction Documents to which it is a
party, and the performance by the Company of its obligations hereunder and under
the other Transaction Documents to which it is a party and the consummation by
the Company of the transactions contemplated hereby (a) are within the limited
liability company power and authority of the Company, and (b) have been duly
authorized by all requisite limited liability company action of the Company and
no other limited liability company action is necessary for the execution and
delivery of this Agreement by the Company, the performance by the Company of its
obligations hereunder or the consummation by the Company of the transactions
contemplated hereby. This Agreement has been, and at the Closing, each of the
other Transaction Documents will be, duly executed and delivered by the Company
(to the extent it is a party thereto). This Agreement is and, upon execution
and delivery by the Company at the Closing, each of the other Transaction
Documents will be, a legal, valid and binding obligation of the Company (to the
extent it is a party thereto), enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance or similar laws affecting the
enforcement of creditors' rights generally and subject to general principles of
equity (regardless of whether enforcement is sought in a proceeding of law or in
equity).
4.3 CONSENTS; NO VIOLATIONS.
Except as set forth on Schedule 4.3, neither the execution, delivery or
performance by the Company of its obligations under this Agreement or any of the
other Transaction Documents to which the Company is a party nor the consummation
of the transactions contemplated hereby or thereby by the Company will: (a)
conflict with, or result in a breach or a violation of, any provision of the
Company's Certificate of Formation or the LLC Agreement; (b) result in or
constitute, with or without notice or the passage of time or both, a breach,
violation or default, or give rise to any right of termination, modification,
cancellation, prepayment, suspension, limitation, revocation or acceleration, or
result in the creation of an Encumbrance, other than a Permitted Encumbrance, on
any of the Company's assets or properties, under (i) any Law or (ii) any
provision of any Commitment to which the Company is a party or pursuant to which
it or any of its assets or properties is subject, except, with respect to the
matters set forth in this clause (ii), for breaches, violations, defaults,
Encumbrances, other than Permitted Encumbrances, or rights of termination,
modification, cancellation, prepayment, suspension, limitation, revocation or
acceleration, which would not reasonably be expected, individually or in the
aggregate, to materially impair Buyer's ability to own or operate the business
of the Company after the Closing; or (c) except for (i) the Regulatory Approvals
(all of which are set forth on Schedule 4.3), and (ii) any consents of third
parties required under any agreement or other instrument to which the Company is
a party or pursuant to which it or any of its assets or properties is subject
(all of which are set forth on Schedule 4.3), require the Company to obtain or
make any consent, approval or authorization of, notification to, filing with, or
exemption or waiver by, any Governmental Entity or any other Person, except
where the failure to obtain or make, as applicable, any such consent, approval,
authorization, notification, filing, or exemption or waiver would not reasonably
be expected, individually or in the aggregate, to materially impair Buyer's
ability to own or operate the business of the Company after the Closing. None
of the (i) execution, delivery or performance by the Company of its obligations
under this Agreement or any of the other Transaction Documents to which the
Company is a party; (ii) consummation of the transactions contemplated hereby or
thereby by the Company, including the transactions contemplated by Section 6.5
of this Agreement; or (iii) termination of the Client Service Agreement by the
Company, will conflict with, or result in a breach or a violation of, any
provision of any Commitment set forth on Schedules 4.12(a)(i) or 4.13(a)(i).
14
4.4 CAPITALIZATION.
(a) Schedule 4.4(a) sets forth the authorized and issued capital of the
Company. All issued and outstanding membership interests in the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
No membership interests in the Company are entitled to preemptive or other
similar rights under any applicable Law or pursuant to any Commitment to which
the Company is a party, except as set forth in the LLC Agreement.
(b) Except as set forth on Schedule 4.4(b), the Company has not issued
Or entered into any subscription rights, options, warrants, convertible or
exchangeable securities or other rights of any character whatsoever relating,
directly or indirectly, to issued or unissued capital stock, membership
interests or other equity interests in the Company, or any Commitments of any
character whatsoever relating to issued or unissued capital stock, membership
interests or other equity interests in the Company or pursuant to which the
Company is or may become bound to issue or grant, or to redeem, repurchase or
otherwise acquire, any capital stock, membership interests or other equity
interests or related subscription rights, options, warrants, convertible or
exchangeable securities or other rights, or to grant preemptive rights.
(c) Except as set forth on Schedule 4.4(c), (i) the Company has not
Agreed to register any securities, including membership interests or other
Equity interests, in the Company under the Securities Act or granted
Registration rights to any Person and (ii) there are no voting trusts,
Stockholders agreements, proxies or other Commitments or understandings in
effect to which the Company is a party with respect to the voting or transfer of
any securities, including membership interests or other equity interests,
in the Company.
15
4.5 COMPLIANCE WITH LAWS.
Except as set forth on Schedule 4.5, the Company has not received notice
(written or oral) of any violation of or liability under, or alleged violation
of or liability under, any applicable Law. Except as set forth on Schedule 4.5,
the Company is and since March 18, 2003 has been in compliance with all Laws,
except as would not reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. The Company holds all
licenses, franchises, permits (including Environmental Permits), consents,
approvals, orders, registrations, certificates, and other governmental or
regulatory permits, authorizations or approvals required for the operation of
the business as currently conducted and for the ownership, lease or operation of
the Company's properties (collectively, "Licenses"), except as would not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. Except as set forth on Schedule 4.5, or as would
not reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company, (i) all such Licenses are valid and in full force
and effect, and (ii) the Company has duly performed and is and since March 18,
2003 has been in compliance with all of its obligations under such Licenses.
4.6 LITIGATION.
(a) Except as set forth on Schedule 4.6(a), there is no claim, demand,
action, suit, investigation or proceeding of any kind or nature whatsoever, at
law or in equity (including actions or proceedings seeking injunctive relief)
("Litigation"), pending or, to the Knowledge of the Company, threatened against
the Company or to which any of its properties or assets is subject by or before
any court, arbitrator or other Governmental Entity.
(b) Except as set forth on Schedule 4.6(b), the Company is not in
Default under or in breach of any order, writ, judgment or decree of any
court, arbitrator or other Governmental Entity, and neither the Company nor any
of its properties or assets is a party or subject to any order, writ,
judgment or decree of any court, arbitrator or other Governmental Entity,
which, in either case, would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
(c) Except as set forth on Schedule 4.6(c), to the Knowledge of the
Company, there is no pending or threatened claim or Litigation against or
affecting the Company contesting its right to offer or sell any product or
service presently offered or sold by the Company.
4.7 FINANCIAL STATEMENTS.
(a) Attached hereto as Schedule 4.7(a) is a true, complete and correct
Copy of the audited balance sheet (the "Balance Sheet") of the Company at
December 31, 2003 (the "Balance Sheet Date") and the related audited
statements of operations and cash flow for the twelve (12) months then ended
and the notes thereto (collectively, the "Financial Statements"). The
Financial Statements have been prepared in conformity with United States
generally accepted accounting principles ("GAAP") and fairly present the
financial position, results of operations and cash flows of the Company as of
the date thereof and for the periods specified in all material respects.
(b) Except as set forth on Schedule 4.7(b), the Company has no
Liabilities or obligations (whether accrued, absolute, contingent,
unliquidated or otherwise, whether known or unknown, whether due or to become
due and regardless of when asserted), except (i) liabilities and obligations
in the respective amounts reflected or reserved against in the Balance Sheet,
(ii) liabilities and obligations underlying normal, period-end accruals not
included in the Balance Sheet, which are not material, individually or in
the aggregate, and (iii) liabilities and obligations incurred in the ordinary
course of business since the Balance Sheet Date which would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company.
16
4.8 ABSENCE OF CERTAIN CHANGES.
(a) Except as set forth on Schedule 4.8(a), since the Balance Sheet
Date, the Company has not suffered any change, event or development or
series of changes, events or developments which individually or in the aggregate
has had, or which would reasonably be expected to have, a Material Adverse
Effect on the Company.
(b) Except as set forth on Schedule 4.8(b), since the Balance Sheet
Date, the Company has conducted its business and operations in the ordinary
Course consistent with past practice and has not: (i) issued any membership
Interests or other securities or any rights, options or warrants with respect
thereto; (ii) borrowed any money or incurred any liabilities except current
liabilities incurred in the ordinary course of business; (iii) discharged or
satisfied any Encumbrance or paid any obligation or liability, other than
current liabilities paid in the ordinary course of business; (iv) declared or
made any distribution of cash or other property to any of its members, or
purchased, redeemed, or made any agreements so to purchase or redeem, any
membership or other equity interests; (v) mortgaged or pledged any of its
assets, or subjected them to any Encumbrance, except liens for current taxes
not yet due and payable; (vi) sold, assigned or transferred any other
tangible assets, or canceled any debts or claims, other than in the ordinary
course of business; (vii) sold, assigned or transferred any Intellectual
Property rights, other than in the ordinary course of business; (viii)
suffered any substantial financial losses, or suffered the loss of any material
amount of business; (ix) made capital expenditures or commitments therefore
that individually are in excess of $25,000 or that, in the aggregate, are in
excess of $100,000; (x) entered into any other material transaction other
than in the ordinary course of business; (xi) suffered any material damage,
destruction or casualty loss; (xii) experienced any change in the condition,
assets, liabilities or business of the Company which, either individually
or in the aggregate, has been or that would reasonably be expected
to have a Material Adverse Effect on the Company; or (xiii) made any arrangement
or commitment to do any of the foregoing.
4.9 TAXES.
(a) The Company is and has been since its inception properly
Characterized as a partnership for United States federal income tax
purposes.
(b) Except as set forth in Schedule 4.9(b), (i) the Company has timely
filed all Tax Returns required to be filed by it, and all such Tax Returns are
correct and complete in all material respects; (ii) all Taxes of the Company
that are due and owing have been paid or adequate reserves for such Taxes
have been established in the Financial Statements; and (iii) the Company
has either withheld and paid over to the relevant taxing authority or set aside
in accounts for such purpose amounts sufficient to pay all Taxes required
to have been withheld or collected by the Company in connection with payments to
or receipts from employees, independent contractors, creditors, Members or
other third parties.
17
(c) Except as set forth in Schedule 4.9(c), (i) there are no
Encumbrances for Taxes upon the assets of the Company except Encumbrances for
Taxes not yet due; (ii) to the Company's Knowledge, there are no outstanding
deficiencies for any Taxes threatened, proposed, asserted or assessed against
the Company which are not adequately provided for in the Financial
Statements; (iii) to the Company's Knowledge, no Taxes or Tax Returns of the
Company are currently under audit or examination or subject to any other
administrative or judicial proceedings by any taxing authority; (iv) the
Company is not party to any Tax sharing, Tax indemnity or other agreement or
arrangement with respect to Taxes with any entity not included in the Financial
Statements; (v) to the Knowledge of the Company, no claim has been made by any
taxing authority in any jurisdiction where the Company does not file Tax
Returns that the Company is or may be subject to taxation by that
jurisdiction; (vi) to the Knowledge of the Company, no claim has been made by
any taxing authority in any jurisdiction where the Company does not file Tax
Returns that any Member of the Company, solely by reason of being a Member
of the Company, is or may be subject to taxation by that jurisdiction; and (vii)
no agreement or other document waiving, extending, or having the effect of
waiving or extending the statute of limitations, the period of assessment
or collection of any Taxes of the Company and no power of attorney with respect
to any such Taxes, has been filed by the Company with any Governmental Entity
which waiver, extension or power of attorney is currently in effect.
4.10 COMMITMENTS.
(a) Schedule 4.10(a) sets forth a true, correct and complete list of
each Commitment of the following types (except for the Commitments called for in
the representations and warranties found in Section 3.6) to which the Company is
a party or by or to which the Company or any of its properties or assets is
bound or subject: (i) any indenture, agreement or other document relating to the
future sale or repurchase of any securities of or any membership or other equity
interest in the Company; (ii) any indentures, mortgages, promissory notes,
loan agreements, security agreements, guarantees, letters of credit or other
agreements or instruments of the Company involving indebtedness in amounts in
excess of $100,000; (iii) any contract for the furnishing, purchase or lease of
machinery, equipment, goods or services involving more than $100,000; (iv) any
distribution agreement with any Member or other Person; (v) any agreement
providing for the disposition of any line of business, assets outside the
ordinary course, or securities, membership interests or other equity interests
of the Company, or any agreement with respect to the acquisition of any line of
business, assets outside the ordinary course, or shares of any other business,
or any agreement of merger or consolidation or letter of intent with respect to
any of the foregoing; (vi) any agreement with any member, officer, director,
manager or other employee of the Company; (vii) any joint venture, partnership
or other similar arrangement; (viii) any agreement purporting to limit the
freedom of the Company to compete in any line of business in any geographic area
or to hire any individual or group of individuals; (ix) any Commitment with any
Governmental Entity; (x) any lease or sublease of real or personal property; and
(xi) any other Commitment (or series of related Commitments), the performance of
which will extend over a period of one year or involve consideration (including
any contingent obligation) in excess of $100,000.
18
(b) Except as set forth on Schedule 4.10(b), each Commitment set forth
On Schedule 4.10(a) is in full force and effect, enforceable against each party
thereto in accordance with its terms. Except as set forth on Schedule 4.10(b),
the Company is not in breach or default in any material respect of any
Commitment and, to the Knowledge of the Company, no other party to a Commitment
is in any material respect in breach thereof or intends to cancel, terminate or
refuse to renew such Commitment or to exercise or decline to exercise any option
or right thereunder. The Company has provided to Buyer a true, correct and
complete copy of each written Commitment set forth on Schedule 4.10(a) and an
accurate written summary of all material terms of each oral Commitment as set
forth on Schedule 4.10(a).
4.11 REAL PROPERTY AND OTHER FIXED ASSETS.
(a) Schedule 4.11(a) sets forth a true, correct and complete list of
(i) all real property owned or leased by the Company, and (ii) all personal
property owned by the Company with an individual book value in excess of
$100,000. The Company does not and has not since its inception owned any real
property.
(b) Except as set forth on Schedule 4.11(b), the Company has good and
Valid title to all properties and assets, real or personal, tangible or
intangible, reflected on the Balance Sheet or acquired since the Balance Sheet
Date, except personal property sold or otherwise disposed of in the ordinary
course of the business of the Company since the Balance Sheet Date. Except as
set forth on Schedule 4.11(b), all properties and assets of the Company
(real or personal, tangible or intangible) are free and clear of all
Encumbrances, except for Permitted Encumbrances. The assets and properties of
the Company represent all of the assets and properties necessary for the
operations of the business of the Company as currently conducted.
(c) Except as set forth in Schedule 4.11(c), the properties and assets
Of the Company are in good operating condition and repair (subject to ordinary
wear and tear), are free from material defects and are reasonably adequate for
the conduct of the Company's business as currently conducted.
4.12 EMPLOYMENT MATTERS.
(a) Set forth on Schedule 4.12(a)(i) is a list of all Managers of the
Company and all Co-employees and (i) their titles, (ii) their current salaries
or wages, (iii) any specific bonus, commission or incentive plans or agreements
for or with them and (iv) any Commitment they have entered into with the
Company. The Company has no employees who are not Co-employees. Except as
limited by any employment Contracts included in the Commitments listed in
Schedule 4.10(a) and except for any limitations of general application which may
be imposed under applicable employment Laws, the Company has the right to
terminate the employment of each of its employees engaged in the Company's
business at will and to terminate the engagement of any of its independent
contractors engaged in the Company's business without payment to such employee
or independent contractor, other than for services rendered through termination
and without incurring any penalty or liability. Except as set forth on Schedule
4.12(a)(i), the Company's relations with each of its employees engaged in the
Company's business are on a good and normal basis. To the Company's Knowledge,
(i) no Co-employee of the Company is in violation of the terms of any obligation
relating to the use of confidential or proprietary information of the Company;
(ii) no Co-employee of the Company is in violation of any term of any employment
contract, confidentiality agreement, assignment of inventions agreement,
non-solicitation agreement, non-competition agreement, or any other contract or
agreement known by the Company with any prior employer or any other Person or
any restrictive covenant in such an agreement, or any obligation imposed by
common law or otherwise, relating to the right of any such Co-employee to be
employed by the Company because of the nature of the business conducted by the
Company or relating to the use of trade secrets or proprietary information of
others, and (iii) the mere continued employment of the Company's Co-employees,
without more, does not subject the Company to any liability for any such
violation.
19
(b) Except as set forth on Schedule 4.12(b), the Company is not and has
Not been since March 18, 2003 party to or bound by any contract, collective
bargaining agreement or other labor union or labor organization contract.
There is not and has not been since March 18, 2003 any activity or proceeding by
any labor union, labor organization or other group seeking to represent
employees of the Company or to organize any such employees. The Company is not
and has not been since March 18, 2003 the subject of any pending or threatened
proceeding asserting that the Company has committed an unfair labor practice or
seeking to compel it to bargain with any labor union, labor organization or
other group; nor is there or has there been pending or threatened any labor
strike, dispute, walk-out, work stoppage, slow-down or lockout involving the
Company. The Company is not and has not been since March 18, 2003 in violation
of the Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2101 et
seq.
4.13 EMPLOYEE BENEFIT PLANS.
(a) Schedule 4.13(a)(i) sets forth a true, complete and correct list of
all Plans, as amended, that are sponsored, contributed to, or to which there is
an obligation to contribute, or maintained solely by the Company. Schedule
4.13(a)(ii) contains a true, complete and correct list of all Plans, as amended,
that are sponsored, contributed to, or to which there is an obligation to
contribute, or maintained by Administaff pursuant to the Client Service
Agreement. There are no Plans other than the Plans listed on Schedules
4.13(a)(i) and 4.13(a)(ii).
(b) With respect to each Plan listed on Schedule 4.13(a)(i), except as
may be set forth on Schedule 4.13(b), since March 18, 2003, there has not been
(x) any adoption of or amendment to or modification of any such Plan, (y) any
material change in any actuarial or other assumptions used to calculate funding
obligations under any such Plan (if applicable), or (z) any change in the manner
in which contributions, eligibility for benefits or participation are
determined, in each case, which, individually or in the aggregate, would result
in a material increase in the Company's liabilities thereunder.
(c) With respect to each Plan listed on Schedule 4.13(a)(ii), to the
Knowledge of the Company, except as may be set forth on Schedule 4.13(c), since
March 18, 2003, there has not been (x) any adoption of or amendment to or
modification of any such Plan, (y) any material change in any actuarial or other
assumptions used to calculate funding obligations under any such Plan (if
applicable), or (z) any change in the manner in which contributions, eligibility
for benefits or participation are determined, in each case, which, individually
or in the aggregate, would result in a material increase in the Company's
liabilities thereunder.
20
(d) With respect to each Plan, to the Knowledge of the Company, no
event has occurred and there exists no condition or set of circumstances in
connection with which the Company would be subject to any liability under ERISA,
the Code or any other applicable law, and all of the Plans are and since March
18, 2003 have been operated in compliance with their respective provisions
and all applicable Laws.
4.14 ENVIRONMENTAL MATTERS.
Except as described in Schedule 4.14, or as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company, (a) the Company is and since March 18, 2003 has been in compliance
with all applicable Environmental Laws, including compliance with all
Environmental Permits and authorizations required pursuant to all applicable
Environmental Laws; (b) neither the Company nor, to the Knowledge of the
Company, any other Person for whose acts or omissions the Company may be liable,
has any liability relating to (i) environmental conditions on, under, about or
from the real property or other properties or assets currently or formerly
owned, leased, operated or used by the Company or (ii) the past or present use,
management, handling, transport, treatment (including recycling), generation,
storage, disposal, or release or threat of release, of any Hazardous Materials
in violation of Environmental Law; and (c) the Company is not subject to any
outstanding order from, or Commitment with, or to its Knowledge, investigation
by, any Governmental Entity or other Person in respect of which the Company may
be required to incur costs or expenses arising from the release or threatened
release of a Hazardous Material in violation of Environmental Law.
4.15 INTELLECTUAL PROPERTY; TECHNOLOGY.
(a) Schedule 4.15(a) sets forth a true, complete and correct list of
all Intellectual Property owned by the Company and that is material to the
operation of Company's business ("Company Owned Intellectual Property") and all
Intellectual Property licensed to the Company and that is material to the
operation of the Company's business ("Company Licensed Intellectual Property").
Except as set forth on Schedule 4.15(a), (a) the conduct of the business of the
Company as currently conducted, Company Owned Intellectual Property, and the
past or current uses of Company Owned Intellectual Property do not infringe
upon, misappropriate, or violate the Intellectual Property rights or any other
proprietary right of any third party, and no claim or demand has been made to
the Company that the conduct of the business of the Company as currently
conducted or the Company Owned Intellectual Property infringes upon the
Intellectual Property rights or any other proprietary right of any third party;
(b) with respect to each item of Company Owned Intellectual Property, the
Company has all rights, title (including good and marketable title), and
interest, free and clear of all Encumbrances, other than Permitted Encumbrances,
and has the full, exclusive, and unrestricted right to use, make, have made,
import, export and sell for export, manufacture, reproduce, distribute, display,
perform, market, license, sell, offer to sell, modify, adapt, translate,
enhance, improve, update and create derivative works based upon such Company
Owned Intellectual Property without any consent or license from, or right of
accounting or royalty to, any Person; (c) each item of Company Owned
Intellectual Property that is registered with the United States or international
government is registered solely in the Company's name, which registration is
current and has been properly maintained; (d) all items of Company Owned
Intellectual Property were created either (i) as a work or invention for hire
(as defined under U.S. copyright or patent law, as applicable) for and of the
Company by regular full time employees of the Company, or (ii) by an author,
creator, contributor, or developer that was not a regular full-time employee of
the Company at the time such Person authored, created, contributed to or
developed such Company Owned Intellectual Property, and such author, creator,
contributor or developer has performed such services for the Company pursuant to
an agreement with a third party which, among other things, provided for the
services of such Person and which irrevocably assigned to the Company in writing
all Intellectual Property rights and other proprietary rights in such Person's
work with respect to such Company Owned Intellectual Property; (e) with respect
to each item of Company Licensed Intellectual Property, the Company has the
right to use such Company Licensed Intellectual Property in the continued
operation of its respective business as currently conducted pursuant to the
terms of the license agreement governing the use of such Company Licensed
Intellectual Property; (f) the Company Owned Intellectual Property has not been
adjudged by a court of competent jurisdiction, arbitrator or other Governmental
Entity, and to the Knowledge of the Company, no claim or demand has been made or
is pending alleging that any Company Owned Intellectual Property is, invalid or
unenforceable or not exclusively owned by the Company; (g) to the Knowledge of
the Company, no Person is engaging or has engaged in any activity that infringes
upon the Company's Intellectual Property rights or any other proprietary right
of the Company in Company Owned Intellectual Property; (h) each license
governing the use of the Company Licensed Intellectual Property is valid and
enforceable as against the Company and all other parties thereto, binding on the
Company and all other parties thereto, and in full force and effect as against
the Company and the other parties thereto; (i) the Company, the Company is not
and, to the Knowledge of the Company, no other party to any license of the
Company Licensed Intellectual Property is in breach thereof or default
thereunder; and (j) neither the execution of this Agreement nor the consummation
of the transactions contemplated hereby will create an Encumbrance upon the
Company Owned Intellectual Property or the Company Licensed Intellectual
Property, render any agreement governing the Company's rights to Company
Licensed Intellectual Property invalid, unenforceable or not binding with
respect to the Company or any other parties thereto, or constitute, with or
without notice or the passage of time or both, a breach, violation or default,
or give rise to any right of termination, modification, cancellation,
suspension, limitation, revocation or acceleration of, or prepayment or
increased payment for, or otherwise in any way affect the terms or conditions
governing, the Company's rights in any Company Licensed Intellectual Property.
21
(b) Except as set forth on Schedule 4.15(b), Company has not
Exported Company Owned Intellectual Property or Company Licensed Intellectual
Property outside the United States.
(c) For the purposes of this Section 4.15, "Software" means Company
Owned Intellectual Property or Company Licensed Intellectual Property that is
any computer program, operating or other system, application, firmware or
software of any nature, whether operational, active, under development or
design, non-operational or inactive (including all object code, source code,
comment code, algorithms, processes, formulae, interfaces, navigational
devices, menu structures or arrangements, icons, operational instructions,
scripts, commands, syntax, screen designs, reports, designs, concepts and visual
expressions), and, to the extent such exist, technical manuals, test scripts,
user manuals and other documentation therefore, whether in machine-readable
form, programming language, or any other language or symbols, and whether
stored, encoded, recorded or written on disk, tape, film, memory device, paper
or other media of any nature and any and all databases necessary or appropriate
to operate for the use of any such computer program, operating or other
system, application, firmware or software. Except as set forth on Schedule
4.15(c), with respect to the Software, (a) the Company maintains
machine-readable master-reproducible copies, source code listings, technical
documentation and user manuals for the most current releases and versions
thereof and for all earlier releases or versions thereof currently provided,
used, maintained, marketed, under development or design, or being
supported by it; (b) in each case, the machine-readable copy conforms to the
corresponding source code listing; and (c) to the Knowledge of the Company in
each case, it operates in accordance with the user manuals and technical
documentation therefore without material operating defects. Except as set forth
on Schedule 4.15(c), the Company has not disclosed or delivered to any escrow
agent or to any other Person, or permitted the disclosure to any escrow agent
or to any other Person of, and has taken all reasonable precautions to prevent
the disclosure of the source code and the object code (or any aspect or
portion thereof) for or relating to any Software that is Company Owned
Intellectual Property. Except as set forth on Schedule 4.15(c), the Software
does not include and the Company has made all commercially reasonable efforts to
prevent the introduction of and to detect and remove undocumented computer
instructions, circuitry or other means the intent of which is to access,
modify, disrupt, damage, delete or interfere with the use of the Software or the
Company's or third parties' computer or telecommunications equipment or
facilities.
(d) Except as set forth on Schedule 4.15(d), (i) the Company is the
registrant of all Internet domain names related to or used or held for use by
the Company, or licensed to or used, owned, or registered by the Company
("Domain Names"), and all registrations of Domain Names are current and in good
standing until such dates as set forth on Schedule 4.15(d); (ii) to the
Knowledge of the Company no action or activity has been taken or is pending to
challenge rights to, suspend, cancel or disable any Domain Name, the
registration therefore, or any right of the Company thereto (including the right
to use a Domain Name); and (iii) the Company has all rights, title and interest
in and to, and rights to use on the Internet and otherwise as a trademark and
trade name, the Domain Names. Except as set forth on Schedule 4.15(d), and
without limiting anything else herein, to the Knowledge of the Company the
Company is in compliance with all applicable United States laws, rules,
requirements, directives and treaties regarding operations, business,
transactions, commerce or activities operated, conducted or transacted, and
regarding communications transmitted, received or stored, in whole or in part,
via, through, over, in connection with, or related to the World Wide Web ("Web")
or the Internet, including the sale and purchase of goods and services, taxation
and customs and duties, the supply of goods and services on credit, promotional
activities and advertising, privacy and data protection, security and
encryption, distance contracts, language requirements, storing and publishing
and transferring information, and shipping and importing and exporting. Except
as set forth on Schedule 4.15(d), (i) the Company has maintained in connection
with its operations, activity, conduct, and business on the Web and any and all
other applicable Internet operations, activity, conduct and business, at all
times during such operations, activity, conduct and business, a written privacy
statement or policy governing the collection, maintenance, and use of data and
information collected from users of Web sites owned, operated, or maintained by,
on behalf of, or for the benefit of the Company ("Company Web Sites"); (ii) at
all times during the Company's Web or Internet operations, activity, conduct or
business, the Company's privacy statement or policy has been conspicuously made
available to users of Company Web Sites, and such statement or policy, along
with the Company's collection, maintenance and use of user data and information
and the execution of this Agreement and the consummation of the transactions
contemplated hereby, comply in all respects with all applicable Laws, including
Laws of the U.S. Federal Trade Commission; and (iii) the Company's privacy
statement or policy does not in any manner restrict or limit the Company's or
the Company's successors' rights to use, sell, license, distribute and disclose
such collected data.
22
(e) The Company has at all times employed all commercially reasonable
efforts to detect and prevent the unauthorized access to and use of Company Web
Sites and Company information technology systems, and no Person has obtained
such unauthorized access or made such unauthorized use at any time since March
18, 2003, except for automated inventory shopping and rate comparison tools,
such as those used by hoteliers for reporting purposes and consumers for
comparison shopping.
4.16 INSURANCE.
The properties, assets, employees, business and operations of the Company
are insured by policies against such risks, casualties and contingencies and of
such types and amounts as are customary for the size and scope of the Company's
business as currently conducted. Schedule 4.16 contains a true, complete and
correct list and description of all insurance policies maintained by or on
behalf of the Company. All such policies are occurrence policies and in full
force and effect, all premiums due and payable with respect thereto have been
paid, and no notice of cancellation or termination has been received with
respect to any such policy, nor is there any valid basis for any such
cancellation. To the Company's Knowledge, all such policies are sufficient for
compliance with all requirements of Law. All such policies are valid,
outstanding and enforceable and will remain in full force and effect through the
Closing Date. No risks with respect to the Company's business or assets have
been designated as being self-insured. The Company has not been refused any
insurance to which the Company has applied.
4.17 EXISTING AGREEMENTS.
Except for this Agreement, the Company is not a party to any Commitments
with, of or to any Person with respect to the acquisition of any securities of
the Company, or with respect to any merger, share exchange, consolidation or
similar transaction involving the Company, or with respect to the acquisition of
any material portion of the Company's assets, properties or business (other than
contracts and arrangements entered into in the ordinary course of business for
the sale of inventory or like assets or services from the Company).
4.18 BROKERS AND FINDERS FEES.
Except for the Company's Commitment with The Blackstone Group L.P.
("Blackstone") dated October 8, 2003, a true, correct and complete copy of which
has been provided to Buyer (the "Blackstone Letter"), the Company has no
Commitment with any broker, finder, investment banker or similar agent with
respect to the transactions contemplated by this Agreement. The fees and
expenses payable to Blackstone pursuant to the Blackstone Letter will not exceed
$650,000.
23
4.19 TRANSACTION FEES.
The legal fees and expenses incurred by or on behalf of the Company in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents will not exceed $100,000.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to each of the Sellers as follows:
5.1 INVESTMENT REPRESENTATIONS.
The Buyer currently owns 14.284% of the issued and outstanding equity
interests in the Company. Buyer is an "accredited investor" as such term is
defined in Rule 501(a) of Regulation D of the rules of the SEC. Buyer is
acquiring the Sellers' Company Interests for investment, for its own account
only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act. Buyer
acknowledges and understands that the Company Interests constitute "restricted
securities" under the Securities Act and have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of Buyer's investment
intent as expressed herein. Buyer understands that the Company Interests must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Buyer
further acknowledges and understands that the Company is under no obligation to
register the Company Interests.
5.2 ORGANIZATION.
The Buyer is a corporation, duly organized, validly existing and in good
standing under the Laws of the State of Delaware and has the requisite corporate
power and authority to carry on its business as it is now being conducted.
5.3 DUE AUTHORIZATION.
The Buyer has all requisite corporate right, power and authority to execute
and deliver this Agreement and each of the other Transaction Documents to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by the Buyer of this Agreement and each of
the other Transaction Documents to which it is a party, the performance by the
Buyer of its obligations hereunder and under the other Transaction Documents to
which it is a party and the consummation by the Buyer of the transactions
contemplated hereby and thereby (a) are within the corporate power and authority
of the Buyer and (b) have been duly authorized by all requisite corporate action
on the part of the Buyer and no other corporate action is necessary for the
execution and delivery of this Agreement by Buyer, the performance by Buyer of
its obligations hereunder or the consummation by Buyer of the transactions
contemplated hereby. This Agreement is, and, upon execution and delivery by
Buyer at the Closing, each of the other Transaction Documents will be, a legal,
valid and binding obligation of the Buyer (to the extent it is a party thereto)
enforceable against the Buyer in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting the enforcement of creditors' rights
generally and subject to general principles of equity (regardless of whether
enforcement is sought in a proceeding of law or in equity).
24
5.4 CONSENTS; NO VIOLATIONS.
Neither the execution, delivery or performance by the Buyer of its
obligations under this Agreement or any of the other Transaction Documents to
which it is a party nor the consummation of the transactions contemplated hereby
or thereby will: (a) conflict with, or result in a breach or a violation of,
any provision of the certificate of incorporation or by-laws of the Buyer; (b)
result in, or constitute, with or without notice or the passage of time or both,
a breach, violation or default, or give rise to any right of termination,
modification, cancellation, prepayment, suspension, limitation, revocation or
acceleration, under any Law or any provision of any Commitment to which Buyer is
a party or pursuant to which the Buyer or any of its assets or properties is
subject; or (c) require the Buyer to obtain or make any consent, approval or
authorization of, notification to, filing with, or exemption or waiver by, any
Governmental Entity or any other Person.
5.5 [RESERVED.]
5.6 BROKERS AND FINDERS FEES.
The Buyer has no Commitment with any broker, finder, investment banker or
similar agent with respect to the transactions contemplated by this Agreement.
5.7 STOCK VALIDITY.
The Priceline Shares are duly authorized shares of Priceline Common Stock,
have been duly authorized for issuance pursuant to and in accordance with the
terms of this Agreement, and if and when issued pursuant to and in accordance
with the terms of this Agreement will be validly issued, fully paid and
non-assessable. The Sellers will receive good and valid title to the Priceline
Shares upon issuance pursuant to and in accordance with the terms of this
Agreement, free and clear of any Encumbrance, except as set forth in this
Agreement.
5.8 SEC REPORTS.
Each report, proxy statement or information statement filed by Priceline
with the SEC under the Exchange Act (including exhibits, schedules and
amendments thereto and all documents incorporated by reference therein,
collectively the "SEC Documents") complied in all material respects as of their
respective dates of filing with the requirements of the Exchange Act, and the
rules and regulations of the SEC promulgated thereunder then applicable to such
SEC Documents, and none of the SEC Documents at the time filed contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except to
the extent corrected by a document subsequently filed with the SEC including any
SEC Document.
25
ARTICLE VI
COVENANTS
6.1 NONDISCLOSURE.
No Seller will, at any time after the date of this Agreement, except with
the prior written consent of Buyer, directly or indirectly, disclose,
communicate or divulge to any Person, or use for the benefit of any Person, any
confidential or proprietary knowledge or information with respect to the conduct
or details of the business of the Company, including technical know how,
Software, methods of production, processes, customers, prospects, costs,
designs, marketing methods and strategies, finances and suppliers, provided that
each Seller may disclose, communicate or divulge any such information or
knowledge (a) to its directors, officers, employees, franchisees and hotel
owners and their managers but only to the extent that such information and
knowledge does not include any technical know how, software, methods or
processes developed on behalf of the Company, or with the Company, by Pegasus,
and (b) (i) that was legally in the possession of or known by the receiving
party prior to its receipt from the disclosing party (or its representatives),
(ii) is independently developed by the receiving party without use of other such
information or knowledge, or (iii) becomes known to the receiving party from a
source other than the disclosing party (or its representatives) without breach
of this Section 6.1.
6.2 PUBLICITY.
The Buyer, on the one hand, and each Seller, on the other hand, will
reasonably cooperate with each other in the development and distribution of all
press releases and other similar public announcements concerning the
transactions contemplated by this Agreement. Neither the Buyer, on the one
hand, nor any Seller, on the other hand, will issue or make, or allow to have
issued or made, any press release or public announcement concerning the
transactions contemplated by this Agreement without giving the other party a
reasonable opportunity to comment on such release or announcement in advance,
except to the extent required by applicable Law, or any national securities
exchange or automated quotation system requirements. Internal communications by
any Seller, including communications with such Seller's franchisees, employees
or hotel owners and their managers, are not restricted by this Section 6.2.
6.3 TRANSACTION COSTS.
Each of the parties to this Agreement will pay all fees and expenses
incurred by or on behalf of such party in connection with the transactions
contemplated by this Agreement and the other Transaction Documents, including
all fees and expenses (a) incurred by or on behalf of such party in connection
with conducting any due diligence investigation and negotiating and documenting
this Agreement and the other Transaction Documents, (b) of law firms,
accountants, consultants and all other Persons engaged by such party, and (c)
incurred by or on behalf of such party in connection with any regulatory
filings.
26
6.4 CONSENT AND WAIVER UNDER LLC AGREEMENT AND PREFERRED DISTRIBUTION
AGREEMENTS.
(a) Each Seller hereby covenants and agrees, severally and not jointly
and severally with the other Sellers, that the execution of this Agreement by
such Seller will constitute the consent and agreement of such Seller to the
Transfer (as defined in the LLC Agreement) by each other Seller of that other
Seller's equity interest in the Company to the Buyer under this Agreement for
all purposes under the LLC Agreement, including under Article IX of the LLC
Agreement. Without limiting the generality of the foregoing, each Seller hereby
expressly waives, severally and not jointly and severally with the other
Sellers, its right of first refusal contained in Section 9.2(c) of the LLC
Agreement and its tag-along right contained in Section 9.4 of the LLC Agreement,
each with respect to the Transfer by each other Seller of that other Seller's
equity interest in the Company to the Buyer under this Agreement.
(b) Each Seller hereby expressly waives, severally and not jointly
and severally with the other Sellers, its rights under Section 2.7 of the
Preferred Distribution Agreement by and between such Seller and the Company
with respect to any amendments to the Preferred Distribution Agreement, by
and between the Company and Six Continents Hotels, Inc. (the "SCH Agreement"),
that allow for the early termination of the SCH Agreement.
6.5 EMPLOYEE MATTERS.
From and after the Closing, the Company (a) may, but shall not be obligated
to, employ any Co-employee as an employee at-will, whether as a Co-employee
under the Client Services Agreement or otherwise, and (b) will recognize the
right to severance payments of the Co-employees listed in Schedule 6.5 in
accordance with the terms and conditions of the Severance Agreements between
such individuals and the Company listed on Schedule 4.13(a)(i), but solely to
the extent (i) of the amounts set forth in Schedule 6.5 and (ii) that such
payments will be payable by the Company only upon the earlier to occur of (A)
December 31, 2004 and (B) the date of termination by the Company without cause
of employment with the Company of such Co-employee, it being understood that no
such termination will be deemed to have occurred solely by reason of the
termination of the Client Service Agreement in accordance with its terms.
6.6 LIMITATION ON TRANSFER OF PRICELINE SHARES.
(a) Except to Priceline pursuant to Section 7.5 and except for sales,
transfers or assignments to Affiliates, prior to the earlier to occur of (a) a
Reorganization of Priceline and (b) the second anniversary of the Closing Date,
without the prior written consent of Priceline, no Seller will, directly or
indirectly (whether through establishment of an offsetting derivative position
or otherwise), sell, transfer, give, assign, hypothecate, pledge, encumber,
grant a security interest in or otherwise dispose of any Priceline Shares or any
right, title or interest therein or thereto; and thereafter any such disposition
by any Seller of any Priceline Shares will remain at all times subject to
applicable Laws, including the resale conditions under Rule 144 promulgated
under the Securities Act.
27
(b) Each certificate for the Priceline Shares issued pursuant to this
Agreement and each certificate for any such securities issued to subsequent
transferees of any Seller shall be stamped or otherwise imprinted with a legend
in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAWS COVERING SUCH SECURITIES OR PRICELINE RECEIVES
AN OPINION OF COUNSEL (SATISFACTORY TO PRICELINE AND ITS COUNSEL),
STATING THAT SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO A CERTAIN SECURITIES PURCHASE
AGREEMENT, DATED MAY __, 2004, AND SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED, GIVEN, ASSIGNED, HYPOTHECATED, PLEDGED, ENCUMBERED, OR
OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT, COPIES
OF WHICH ARE ON FILE IN THE OFFICE OF THE SECRETARY OF PRICELINE."
6.7 NON-COMPETITION.
For a period commencing on the Closing Date and ending on December 31,
2006, each Seller will not, and will cause its Affiliates not to, act in concert
with two (2) or more Other Sellers or such Other Sellers' Affiliates in holding
or acquiring Beneficial Ownership of more than ten percent (10%) among all such
Persons in the aggregate of the Securities of any Person that, directly or
indirectly, through one or more of its Affiliates, offers the direct sale to
consumers of hotel products and services predominantly through the Internet (a
"Travel Site"). Notwithstanding anything to the contrary contained in this
Section 6.7, no Seller or any of its Affiliates will be in any way prohibited
from (i) participating as a vendor or otherwise on Web sites operated by any
Person, (ii) providing rate, inventory and other hotel information to any travel
agency or Global Distribution System, (iii) owning, operating or supporting its
own Travel Site, or (iv) obtaining Beneficial Ownership of Securities of a
Travel Site in exchange for a contribution of inventory to, or participation in,
such Travel Site; provided that prior to December 31, 2006, the Securities for
which Beneficial Ownership is obtained by any Seller, or such Seller's
Affiliate, acting in concert with the Other Sellers, or such Other Sellers'
Affiliates, as determined on the date of receipt of such Securities, does not,
in the aggregate for all such Persons, constitute more than fifteen percent
(15%) of such Travel Site's capital stock on a fully diluted basis. This
Section 6.7 does not apply to the interests any Seller may have in
WorldRes-Europe or Avendra LLC, a Delaware limited liability company. For
purposes of this Section 6.7, "Other Sellers" shall mean (a) Sellers and (b) Six
Continents Hotels, Inc.
28
6.8 REMEDIES.
The Parties agree that any breach of the covenants and agreements set forth
in Sections 6.1 and 6.7 hereto will result in irreparable injury to Buyer for
which money damages could not adequately compensate Buyer. Therefore, in the
event of any such breach, Buyer will be entitled (in addition to any other
rights and remedies which it may have at law or in equity) to have an injunction
issued by any competent court of equity enjoining and restraining each Seller
and any other Person involved therein from continuing such breach. In any
action to enforce the provisions of Sections 6.1 and 6.7 hereto, each Seller and
any other Person involved therein will, and hereby, expressly waive the defense
that Buyer's remedy at law is adequate. If Buyer is obliged to resort to the
courts for the enforcement of any of the covenants or agreements set forth
herein, or if such covenants or agreements are otherwise the subject of
litigation between the parties hereto, then the term of such covenants and
agreements will be extended for a period of time equal to the period of such
breach.
6.9 SEVERABILITY; BLUELINING.
If the final judgment of a court of competent jurisdiction determines that
any portion of the covenants or agreements set forth in Sections 6.1 and 6.7
hereto is invalid or unenforceable, (a) such determination will have no effect
on the validity or enforceability of such covenant or agreement in any other
jurisdiction and (b) the court making such determination of invalidity or
unenforceability will have the power to reduce the scope, duration, or area of
the covenant or agreement, to delete specific words or phrases, or to replace
any invalid or unenforceable covenant or agreement with a covenant or agreement
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable covenant or agreement, and this Agreement will
be enforceable in such jurisdiction as so modified after the expiration of the
time within which such determination may be appealed.
6.10 CONDUCT OF BUSINESS AFTER CLOSING; MARKETING COMMITMENT.
(a) During the Contingent Period, unless the Sellers otherwise consent
in writing, which consent will not be unreasonably withheld or delayed, Buyer
will operate the business of the Company with the good faith intent to increase
Fixed Rate Bookings during the Contingent Period over Fixed-Rate Bookings during
the immediately preceding 365 consecutive calendar day period.
(b) During the Contingent Period, Priceline will spend at least
$2,900,000 in marketing with third parties unaffiliated with Priceline for
Accommodations that could become Fixed-Rate Bookings, such amount to be expended
in good faith by Priceline with the intent to increase Fixed-Rate Bookings
during the Contingent Period over Fixed-Rate Bookings during the immediately
preceding 365 consecutive calendar day period.
6.11 RULE 144; NASDAQ.
During the period commencing on the Closing Date and ending on the second
anniversary of the Closing Date, Priceline will (a) use its commercially
reasonable efforts to file such reports and otherwise make publicly available
such information as will permit Sellers, provided that all other requirements
thereunder are satisfied, to maintain the availability of Rule 144, and (b) to
the extent required, file additional listing applications for the Priceline
Shares with the Nasdaq National Market or any other stock exchange that
Priceline Common Stock is then listed on.
29
6.12 CERTAIN TAX MATTERS.
(a) The Buyer will cause the Company to prepare and timely file all
required Tax Returns for the Tax periods ending on the Closing Date and to
prepare and distribute to the Sellers Form K-1 for the Company for the period
ending on the Closing Date. Such returns will be prepared in accordance with
applicable Laws and, subject to the foregoing requirement, consistent
with the prior practice of the Company. The cost of preparing and filing such
Tax Returns will be borne by the parties hereto in proportion to their
respective ownership of the Company on the date of this Agreement. The Buyer
will provide each such Tax Return to the Sellers at least sixty (60)
calendar days before the due date (including all applicable extensions) of such
Tax Return for the Sellers' review and comment, and make any changes reasonably
requested by the Sellers if such changes are consistent with applicable Laws
and prior practice, and will not result in any increase in Tax liability for
the Company or the Buyer, for any Tax period.
(b) The Buyer, the Company, and the Sellers will cooperate, as and to
the extent reasonably requested by any other party, in connection with the
filing of Tax returns pursuant to this Section 6.12 and any audit,
litigation or other proceeding with respect to Taxes, and the Buyer and the
Sellers will each be entitled at their own expense to participate in any such
audit, litigation or other proceeding to the extent that such party would
be liable for any additional Taxes owing. Such cooperation will include, upon
the other party's request, the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and
making employees reasonably available on a mutually convenient basis to
provide additional information and explanation as may be reasonably
requested of any material provided hereunder. The Buyer will cause the Company
to retain relevant books and records concerning Tax matters of the Company
and relating to any Tax periods prior to or including the Closing Date
until the expiration of the applicable statute of limitation and will abide by
all record retention agreements entered into with any taxing authority.
ARTICLE VII
INDEMNIFICATION AND LIMITATIONS
7.1 INDEMNIFICATION BY EACH SELLER.
Subject to the other provisions of this Article VII, from and after the
Closing Date, each Seller will severally, but not jointly with any other Seller,
indemnify and hold the Buyer, its Affiliates and its respective employees,
representatives, officers, directors and agents (collectively, the "Buyer
Parties") harmless from and against any and all direct or indirect debts,
obligations or liabilities of any nature, whether absolute, accrued, contingent,
liquidated or otherwise, and whether due or to become due, asserted or
unasserted, obligations, claims, contingencies, damages, costs and expenses,
including all court costs, litigation expenses and reasonable attorneys' fees,
but excluding incidental, indirect, consequential and punitive damages
(collectively, "Losses"), suffered by any Buyer Party arising out of:
30
(a) the breach of any representation or warranty made by such Seller in
this Agreement;
(b) the failure of such Seller or of such Seller's Seller Parent to
Perform any covenant, agreement or obligation of such Seller contained in this
Agreement;
(c) the breach of any representation or warranty made by the Company in
this Agreement; and
(d) the failure of the Company to perform any covenant, agreement or
obligation of the Company contained in this Agreement to be performed or
complied with prior to the Closing.
7.2 INDEMNIFICATION BY THE BUYER.
Subject to the other provisions of this Article VII, from and after the
Closing Date, the Buyer will indemnify and hold the Sellers and their respective
Affiliates, employees, representatives, officers, directors and agents
(collectively, the "Seller Parties") harmless from and against any Losses
suffered by any Seller Party arising out of:
(a) the breach of any representation or warranty made by the Buyer in
this Agreement; provided that Buyer will have no liability or obligation
hereunder with respect to the representations and warranties set forth in
Sections 5.7 or 5.8, including for any breach thereof, unless and until Buyer
is required by Sections 2.3 and 2.4 to issue and deliver the Priceline Shares;
(b) the failure of the Buyer or Priceline to perform any covenant,
agreement or obligation of Buyer or Priceline contained in this Agreement; and
(c) the failure of the Company to perform any covenant, agreement or
obligation contained in this Agreement to be performed or complied with after
the Closing.
7.3 NOTICE AND RESOLUTION OF CLAIMS.
(a) Each Person entitled to indemnification pursuant to Section 7.1 or
Section 7.2 (an "Indemnified Party") will promptly give written notice to the
party who has the duty of indemnification under this Article VII (the
"Indemnifying Party") after obtaining knowledge of any claim that it may have
pursuant to this Article VII (a "Claim"). Such notice will set forth in
reasonable detail the Claim and the basis for indemnification, but the
Indemnified Party's failure to give such notice will not affect the obligations
of the Indemnifying Party under this Article VII except to the extent that the
Indemnifying Party is materially prejudiced thereby.
(b) The Indemnifying Party may elect to assume and control the defense
of any Claim, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of expenses relating thereto, if: (i) the
Indemnifying Party acknowledges its obligation to indemnify the Indemnified
Party for any Losses resulting from such Claim; and (ii) the Claim does not seek
to impose any liability on the Indemnified Party other than money damages.
31
(c) If the conditions of Section 7.3(b) are satisfied and the
Indemnifying Party elects to assume and control the defense of a Claim, then (i)
the Indemnified Party may only settle such Claim with the written consent of the
Indemnifying Party, which consent will not be unreasonably withheld or delayed,
(ii) the Indemnifying Party may settle such Claim without the consent of the
Indemnified Party only if (A) all monetary damages payable in respect of the
Claim are paid by the Indemnifying Party, (B) the Indemnified Party receives a
full, complete and unconditional release in respect of the Claim without any
admission or finding of obligation, liability, fault or guilt (criminal or
otherwise) with respect to the Claim, and (C) no injunctive, extraordinary,
equitable or other relief of any kind is imposed on the Indemnified Party or any
of its Affiliates, and (iii) the Indemnifying Party may otherwise settle such
Claim only with the consent of the Indemnified Party, which consent will not
unreasonably be withheld or delayed. The Indemnified Party may employ separate
counsel and participate in the defense of any Claim, but the Indemnified Party
will be responsible for the reasonable fees and expenses of such counsel unless
(A) the Indemnifying Party has failed to assume, or if assumed, has failed to
reasonably and actively defend such Claim as provided herein or to employ
counsel reasonably satisfactory to the Indemnified Party with respect thereto,
or (B) in the reasonable opinion of the Indemnified Party (upon advice of
counsel) a conflict of interest exists between the interests of the Indemnified
Party and the Indemnifying Party that requires representation by separate
counsel, in which case the reasonable fees and expenses of one separate counsel
to the Indemnified Party will be paid by the Indemnifying Party.
(d) If the conditions of Section 7.3(b) are not satisfied, the
Indemnified Party may assume the exclusive right to defend, compromise, or
settle such Claim, but the Indemnifying Party will not be bound by any
determination of a Claim so defended or any compromise or settlement effected
without its consent (which may not be unreasonably withheld or delayed).
7.4 LIMITS ON INDEMNIFICATION.
(a) Each Seller will be liable to the Buyer Parties for Losses that are
indemnifiable by such Seller pursuant to Section 7.1(a), except for Losses
arising from the breach of representations and warranties set forth in Sections
3.2 (Due Authorization of such Seller) and 3.4 (Title to Company Interests of
such Seller), to which this limitation will not apply, only to the extent that
the aggregate amount of Losses to all Buyer Parties that are indemnifiable by
such individual Seller under Section 7.1(a) exceeds $250,000. The Sellers will
be liable to the Buyer Parties for Losses that are indemnifiable by the Sellers
pursuant to Section 7.1(c), except for Losses arising from the breach of the
representations and warranties set forth in Sections 4.2 (Due Authorization of
the Company) and 4.4 (Capitalization of the Company), to which this limitation
will not apply, only to the extent that the aggregate amount of Losses to all
Buyer Parties that are indemnifiable under Section 7.1(c) (exclusive of any
Losses claimed under Section 7.1(a)) exceeds $250,000.
(b) The maximum aggregate amount of Losses for which any Seller will be
obligated to indemnify the Buyer Parties under Sections 7.1(a) and (c), except
for Losses arising from the breach of the representations and warranties set
forth in Sections 3.2 (Due Authorization of such Seller), 3.4 (Title to Company
Interests of such Seller) and 4.4 (Capitalization of the Company), to which this
limitation will not apply, will be (i) ten percent (10%) of the Initial Purchase
Price actually paid to such Seller; plus (ii) ten percent (10%) of the number of
Priceline Shares included in the Contingent Payment, if any, actually paid to
such Seller, valued using the per share closing price of Priceline Common Stock
(or other shares included in the Contingent Payment) on the Nasdaq National
Market (or other stock exchange on which Priceline Common Stock or other shares
included in the Contingent Payment is then listed) on the date of issuance of
such shares. The maximum aggregate amount of Losses for which any Seller will
be obligated to indemnify the Buyer Parties for breaches of the representations
and warranties set forth in Sections 3.2 (Due Authorization of such Seller), 3.4
(Title to Company Interests of such Seller) and 4.4 (Capitalization of the
Company) will be the Purchase Price received by such Seller.
32
(c) Subject to the further limitations in Sections 7.4(a) and 7.4(b), no
Seller will be liable to indemnify the Buyer Parties under this Article VII for
more than one-fifth (1/5th) of any Losses owed to any Buyer Party, which
fraction represents each Seller's pro rata share of the Purchase Price.
(d) No party will have any obligation to indemnify any Seller Party or
any Buyer Party under this Article VII for any Losses (i) that are caused by the
willful misconduct or negligence of any Buyer Party (in the case of Seller
indemnification obligations) or any Seller Party (in the case of Buyer
indemnification obligations) and (ii) to the extent recovered by the Indemnified
Party from any third Person (including insurers).
(e) This Article VII sets forth the exclusive monetary remedy for the
Buyer Parties and the Seller Parties for the transactions contemplated by
this Agreement (but not the other Transaction Documents). Each of the parties
hereby knowingly and expressly waives and covenants never to assert any other
claim or cause of action, and never to pursue any other remedy, seeking
any other monetary recovery with respect to the transactions contemplated
by this Agreement, including under statutory or common law, or any other Law;
provided that this Section 7.4 is not applicable in the event of fraud or
willful misrepresentation.
7.5 INDEMNIFICATION PAYMENTS; USE OF PRICELINE SHARES.
All payments made pursuant to this Article VII (other than payments of
interest, if any) will be treated by the parties on all Tax Returns as an
adjustment to the Purchase Price. The parties agree that, notwithstanding the
provisions of Section 6.6, any indemnifiable Claim for which any Seller is
obligated pursuant to this Article VII may be partially or fully satisfied, at
the option of such Seller, by delivery by such Seller of all or a portion of the
Priceline Shares, as may be exchanged pursuant to Section 2.4, held by such
Seller, using a conversion price of the average per share closing price of
Priceline Common Stock (or other shares included in the Contingent Payment) on
the Nasdaq National Market (or other stock exchange on which Priceline Common
Stock or other shares included in the Contingent Payment is then listed) for the
five (5) trading days immediately preceding the date that such Seller's
obligation to pay such Claim is finally determined to be due and owing by such
Seller.
7.6 PAYMENT AND ASSIGNMENT OF CLAIMS.
Upon agreement by the parties hereto or final determination by a court of
competent jurisdiction that a party is entitled to indemnification under this
Article VII, the Indemnifying Party will promptly pay or reimburse, as
appropriate, the Indemnified Party for any Losses to which it is entitled to be
indemnified hereunder.
33
7.7 SURVIVAL.
The representations and warranties of the parties hereto set forth in this
Agreement or in any certificates provided for herein will expire on the date
that is thirty (30) days after the first anniversary of the Closing Date, except
that the representations and warranties set forth in Sections 3.2 (Due
Authorization of such Seller), 3.4 (Title to Company Interests of such Seller),
4.2 (Due Authorization of the Company) and 4.4 (Capitalization of the Company),
4.9 (Taxes), 4.11(b) (Real Property), 4.15 (Intellectual Property), 5.3 (Due
Authorization) and 5.7 (Stock Validity) will survive until thirty (30) days
after the expiration of the applicable statute of limitations with respect
thereto, and except to the extent a party has asserted a claim under this
Article VII for breach of any such representation or warranty prior to the
expiration of such periods, in which event any representation or warranty to
which such claim relates will survive with respect to such claim until such
claim is resolved. After the expiration of such periods, any claim by a party
hereto based upon any such representation or warranty will be of no further
force or effect. The covenants and agreements of the parties hereto contained
in this Agreement will survive the Closing until performed in accordance with
their terms. The parties acknowledge that this contractual term of limitations
is reasonable and necessary to provide conclusion to the parties' obligations
under this Agreement.
7.8 WAIVER.
Each Seller hereby (a) acknowledges that the representations and warranties
of the Company set forth herein are intended for and inure solely to the benefit
of the Buyer and (b) irrevocably and unconditionally waives (i) the right to
bring any claim or proceeding against the Company or the Buyer with respect to
the representations and warranties, of the Company in this Agreement, and (ii)
any and all defenses or counterclaims that such Seller may raise in respect of
such claims or proceedings, to the extent such defenses relate to the Company's
status as a party hereto.
ARTICLE VIII
MISCELLANEOUS
8.1 ATTORNEYS' FEES AND COSTS.
If attorney's fees or other costs are incurred to secure performance of any
obligations hereunder, or to establish damages for the breach thereof or to
obtain any other appropriate relief, whether by way of prosecution or defense,
the prevailing party will be entitled to recover reasonable attorneys' fees and
costs incurred in connection therewith.
8.2 FURTHER ASSURANCES.
At any time or from time to time after the Closing, each Seller, on the one
hand, and the Buyer, on the other hand, agree to reasonably cooperate with each
other, and at the request of the other party, to execute and deliver any further
instruments or documents and to take all such further action, including by
providing information, as the other party may reasonably request (a) in order to
evidence or effectuate the consummation of the transactions contemplated hereby
or by the other Transaction Documents and to otherwise carry out the intent of
the parties hereunder or thereunder or (b) as may be required to permit Buyer
and its Affiliates to file with the SEC the financial statements and information
required under Item 7 of Form 8-K under the Securities Exchange Act of 1934, as
amended.
34
8.3 SUCCESSORS AND ASSIGNS.
Except as provided in Section 7.8, this Agreement will bind and inure
solely to the benefit of the Company, each Seller and the Buyer, and their
respective successors and permitted assigns; provided that (a) neither the
Company nor any Seller may assign its rights or obligations under this Agreement
to any Person without the prior written consent of the Buyer, and (b) the Buyer
may not assign its rights or obligations under this Agreement to any Person
without the prior written consent of the Sellers, and provided further that the
Company, each Seller and Buyer acknowledge and agree that Priceline is an
intended third-party beneficiary of Seller representations in Section 3.7 and
Seller covenants in Section 6.6. Any attempted assignment in contravention of
this Section 8.3 will be void.
8.4 ENTIRE AGREEMENT.
This Agreement and the other Transaction Documents contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
8.5 NOTICES.
All notices, requests, consents and other communications hereunder to any
party will be deemed to be sufficient if contained in a written instrument
delivered in person or sent by telecopy, nationally recognized overnight courier
or first class registered or certified mail, return receipt requested, postage
prepaid, addressed to such party at the address set forth below or such other
address as may hereafter be designated in writing by such party to the other
parties:
if to the Buyer: with copies to:
Lowestfare.com Incorporated Blank Rome LLP
800 Connecticut Avenue One Logan Square
Norwalk, Connecticut 06854 Philadelphia, Pennsylvania 19103
Attention: Peter Millones Attention: Ronald Fisher
Telecopy: (203) 299-8915 Telecopy: (215) 832-5479
35
if to the respective Sellers: with copies to:
Hilton Electronic Distribution Systems, LLC Hilton Hotels Corporation
c/o Hilton Hotels Corporation 9336 Civic Center Drive
9336 Civic Center Drive Beverly Hills, California 90210
Beverly Hills, California 90210 Attention: Executive Vice
Attention: Bala Subramanian President and General Counsel
Telecopy: (310) 859-2513 Telecopy: (310) 205-7694
HT-HDS, Inc. Hyatt Corporation
c/o Hyatt Corporation 200 W. Madison Street, Suite 3900
200 W. Madison Street, Suite 3900 Chicago, Illinois 60606
Chicago, Illinois 60606 (after 2/1/05, street address is
(after 2/1/05, street address is 71 S. Wacker Drive
71 S. Wacker Drive Chicago, Illinois 60606)
Chicago, Illinois 60606) Attention: General Counsel
Attention: Thomas O'Toole, SVP - Telecopy: (312) 750-8581
Systems & Strategy
Telecopy: (312) 750-8007
MI Distribution, Inc. Marriott International, Inc.
c/o Marriott International, Inc. Marriott Drive, Dept. 52/923
Marriott Drive Washington, DC 20058
Washington, DC 20058 Attention: General Counsel
Attention: SVP, Sales & Marketing Telecopy: (301) 380-6727
Telecopy: (301) 380-1811
Starwood Resventure LLC Starwood Hotels & Resorts
c/o Starwood Hotels & Resorts Worldwide, Inc.
Worldwide, Inc. 1111 Westchester Avenue
1111 Westchester Avenue White Plains, New York 10604
White Plains, New York 10604 Attention: General Counsel
Attention: President, STARS Telecopy: (914) 640-2650
Telecopy: (914) 640-8575
Pegasus Business Intelligence, LP Pegasus Solutions, Inc.
c/o Pegasus Solutions, Inc. Campbell Center One
Campbell Center One 8350 North Central Expressway
8350 North Central Expressway Suite 1900
Suite 1900 Dallas, Texas 75206
Dallas, Texas 75206 Attention: General Counsel
Attention: Chief Executive Officer Telecopy: (214) 234-4054
Telecopy: (214) 234-4040
36
if to the Company: with copies to:
Travelweb LLC Hughes & Luce, L.L.P.
2777 Stemmons Freeway 1717 Main Street
Suite 675 Suite 2800
Dallas, Texas 75207 Dallas, Texas 75201
Attention: General Counsel Attention: David N. Guedry
Telecopy: (214) 424-8431 Telecopy: (214) 939-5849
All such notices, requests, consents and other communications will be
deemed to have been given or made if and when delivered personally or by
overnight courier to the parties at the above addresses or sent by electronic
transmission, with confirmation received, to the telecopy numbers specified
above (or at such other address or telecopy number for a party as will be
specified by like notice).
8.6 AMENDMENTS.
This Agreement may be amended, supplemented or modified, and any provision
hereof may be waived, only by written instrument making specific reference to
this Agreement signed by the party against whom enforcement is sought. No
waiver of any of the provisions of this Agreement will be deemed to or will
constitute a waiver of any other provision hereof (whether or not similar). No
delay on the part of any party in exercising any right, power or privilege
hereunder will operate as a waiver thereof.
8.7 COUNTERPARTS.
This Agreement may be executed in any number of counterparts (including via
facsimile), and each such counterpart hereof will be deemed to be an original
instrument, but all such counterparts together will constitute but one
agreement.
8.8 HEADINGS.
The headings of the Sections of this Agreement have been inserted for
convenience of reference only and will not be deemed to be a part of this
Agreement.
8.9 GOVERNING LAW.
This agreement will be governed by and construed in accordance with the
laws of the State of Delaware without giving effect to the principles of
conflicts of law.
8.10 VENUE AND SUBMISSION TO JURISDICTION.
EACH PARTY, FOR ITSELF AND ON BEHALF OF ITS AFFILIATES, HERETO IRREVOCABLY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT (OR IF THERE IS
NO FEDERAL JURISDICTION, STATE COURT) FOR OR WITHIN CHICAGO, ILLINOIS OVER
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE
OTHER TRANSACTION DOCUMENTS, AND WAIVES ANY OBJECTION TO VENUE OR INCONVENIENCE
OF THE FORUM IN ANY SUCH COURT.
37
8.11 WAIVER OF JURY TRIAL.
EACH SELLER AND THE BUYER HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE
OTHER TRANSACTION DOCUMENTS.
8.12 SEVERABILITY.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement will nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the fullest extent possible.
8.13 LEGAL REPRESENTATION.
HUGHES & LUCE, L.L.P. HAS REPRESENTED ONLY THE COMPANY, AND NOT ON BEHALF
OF ANY SELLER EITHER DIRECTLY OR INDIRECTLY, IN CONNECTION WITH THIS AGREEMENT
AND THE OTHER TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY, AND EACH SELLER HAS BEEN ADVISED TO SEEK SEPARATE COUNSEL.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
38
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Securities Purchase Agreement as of the date first above written.
BUYER:
LOWESTFARE.COM INCORPORATED
By: _______________________________
Name:
Title:
SELLERS:
HILTON ELECTRONIC DISTRIBUTION SYSTEMS, LLC
By: _______________________________
Name:
Title:
HT-HDS, INC.
By: _______________________________
Name:
Title:
MI DISTRIBUTION, LLC
By: Marriott Hotel Services, Inc.,
its sole member
By: _______________________________
Name:
Title:
[Signature Pages to Securities Purchase Agreement]
STARWOOD RESVENTURE LLC
By: The Sheraton Corporation,
its sole member
By: _______________________________
Name:
Title:
PEGASUS BUSINESS INTELLIGENCE, LP
By: Pegasus GP, LLC,
its sole general partner
By: Pegasus Solutions, Inc.,
its sole member
By: _______________________________
Name:
Title:
COMPANY:
TRAVELWEB LLC
By: _______________________________
Name:
Title:
[Signature Pages to Securities Purchase Agreement]
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of August, 2004, by and
between Pegasus Solutions, Inc., a Delaware corporation (the "Company") and
Andrew Stringer (the "Executive").
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Committee") has determined that it is essential and in the best
interest of the Company and its stockholders to enter into this Agreement to
retain the services of the Executive and to ensure his continued dedication and
efforts; and
WHEREAS, in order to induce the Executive to enter into and continue
employment by the Company, the Company desires to provide the Executive with
certain benefits during the term of his employment and, in the event his
employment is terminated, to provide the Executive with the benefits and
payments described herein.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. EMPLOYMENT TERM.
The "Employment Term" shall commence on August 1, 2004 (the "Effective
Date") and shall expire on the fourth anniversary of the Effective Date provided
that such term will be automatically renewed and extended indefinitely after the
fourth anniversary of the Effective Date until terminated as provided herein, in
the event Executive remains in the employ of the Company after the fourth
anniversary of the Effective Date.
2. EMPLOYMENT.
(a) Subject to the provisions of Section 8 hereof, it is mutually agreed
that this employment is "at will" and the Company or Executive may terminate
employment at any time for any or no reason. During the Employment Term, the
Executive shall perform the duties, undertake the responsibilities as assigned
by the Company and exercise the authority customarily performed, undertaken and
exercised by persons situated in a similar executive capacity. He shall also
promote, by entertainment or otherwise, the business of the Company.
(b) During the Employment Term, excluding periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during usual business hours to the business and
affairs of the Company to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder. The Executive may (1) serve on corporate,
civil or charitable boards or committees, (2) manage personal investments and
(3) deliver lectures and teach at educational institutions, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities hereunder. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the Executive
prior to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the performance
of the Executive's responsibilities to the Company.
1
3. COMPENSATION.
(a) Base Salary. The Company agrees to pay or cause to be paid to the
Executive an annual base salary as mutually agreed, and as may be increased from
time to time by mutual agreement (hereinafter referred to as the "Base Salary").
Such Base Salary shall be payable in accordance with the Company's customary
practices applicable to its executives.
(b) Annual Bonus. In addition to Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Term, an annual
discretionary bonus (the "Annual Bonus") in accordance with the terms and
conditions of the bonus plan approved by the Committee. Any actual payment or
award under such Annual Bonus plan, and the size of any payment or award, will
be in accordance with the terms of the plan. Each such Annual Bonus shall be
paid no later than the end of the third (3rd) month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded.
4. EMPLOYEE BENEFITS.
The Executive shall be entitled to participate in all employee benefit
plans, practices and programs maintained by the Company and made available to
employees generally, including, without limitation, all pension, retirement,
profit sharing, savings, medical, hospitalization, disability, dental, life or
travel accident insurance benefit plans. The Company may reduce benefit levels
if such changes are part of broad-based changes in the Company's benefit
programs offered generally to all employees. Notwithstanding the foregoing,
except as otherwise set forth herein, nothing herein shall obligate the Company
to adopt such plans, practices or programs.
5. EXECUTIVE BENEFITS.
The Executive may, in the discretion of the Company, be entitled to
participate in all executive benefit or incentive compensation plans maintained
or established by the Company for the purpose of providing compensation and/or
benefits to executives of the Company including, any stock option, deferred
compensation, or other bonus or incentive compensation plans; provided, however,
the grant of a stock option in any year is not guaranteed and will be dependent
on an evaluation of the Executive's performance. No additional compensation
provided under any of such plans shall be deemed to modify or otherwise affect
the terms of this Agreement or any of the Executive's entitlements hereunder.
Notwithstanding the foregoing, except as otherwise set forth herein, nothing
herein shall obligate the Company to adopt such plans, practices or programs.
6. OTHER BENEFITS.
(a) Fringe Benefits and Perquisites. The Executive shall be entitled to all
fringe benefits and perquisites generally made available by the Company to its
executives. Unless otherwise provided herein, the fringe benefits and
perquisites provided to Executive shall be on substantially the same basis and
terms as other similarly situated executives of the Company.
(b) Expenses. The Executive shall be entitled to receive reimbursement of
all expenses reasonably incurred by him in connection with the performance of
his duties hereunder or for promoting, pursuing or otherwise furthering the
business or interests of the Company in accordance with the accounting
procedures and expense reimbursement policies of the Company as it shall adopt
from time to time.
2
7. VACATION AND SICK LEAVE.
During the Employment Term, at such reasonable times as the Committee shall
in its discretion permit, the Executive shall be entitled without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, provided that:
(a) The Executive shall be entitled to annual vacation in accordance with
the policies as periodically established by the Committee.
(b) The Executive shall be entitled to sick leave (without loss of pay) in
accordance with the Company's policies as in effect from time to time.
8. TERMINATION.
(a) Although Executive acknowledges and agrees that the employment
relationship is "at will" and the Company or Executive may terminate employment
at any time and for any or no reason, notwithstanding such agreement, the
Company agrees that in the event Executive is terminated for Disability or death
or in the event of a Change In Control (as each of such terms are hereinafter
defined), the Company shall pay and provide the following benefits to Executive:
(1) the Company shall pay the Executive all Accrued Compensation and
a Pro Rata Bonus,
(2) the Company shall continue to pay the Executive as severance pay
and in lieu of any further compensation a monthly payment for a
period of twelve (12) months following the Termination Date equal
to the sum of (A) the Executive's monthly Base Salary in effect
for the month immediately preceding the Termination Date and (B)
one twelfth (1/12) of the Bonus. The "Bonus" is an amount equal
to the maximum bonus amount the Executive would have been
entitled to in the fiscal year of the Termination Date.
(3) except in the event of termination resulting from Executive's
death, during the twelve (12) month period immediately following
the Termination Date (the "Continuation Period"), the Company
shall at its expense continue on behalf of the Executive and his
dependents and beneficiaries medical, dental and hospitalization
benefits provided (A) to the Executive immediately prior to the
Notice of Termination or (B) to other similarly situated
executives who continue in the employ of the Company during the
Continuation Period. The coverage and benefits (including
deductibles and costs) provided in this Section 8(3) during the
Continuation Period shall be no less favorable to the Executive
and his dependents and beneficiaries, than the coverages and
benefits in effect as of the Termination Date. The Company's
obligation hereunder with respect to the foregoing benefits shall
terminate in the event the Executive obtains any such benefits
(regardless of level and scope of coverage) pursuant to a
subsequent employer's benefit plans. This Section 8(3) shall not
be interpreted as to limit any benefits to which the Executive,
his dependents or beneficiaries may be entitled under any of the
Company's employee benefit plans, programs or practices following
the Executive's termination of employment,
3
(4) any outstanding stock options granted to Executive under any
stock option plans shall become vested for an additional twelve
(12) months after the Termination Date.
(5) the Company shall reimburse to the Executive the costs of any
outplacement services incurred by Executive, up to a maximum
amount of Fifteen Thousand Dollars ($15,000.00).
(b) The amounts provided for in Section 8(a) shall be paid within thirty
(30) days after the Executive's Termination Date.
(c) The Executive hereby acknowledges that full payment and/or performance
by the Company of its obligations as set forth in Section 8 hereof shall be in
lieu of any other remedy or cause of action the Executive may have, either at
law or in equity, as a result of the termination of the Executive's employment
pursuant to such Section.
9. DEFINITIONS.
(a) Notice of Termination. Any purported termination by the Company or by
the Executive shall be communicated by written Notice of Termination to the
other. For purposes of this Agreement, no such purported termination of
employment shall be effective without such Notice of Termination.
(b) Accrued Compensation is the Base Salary, an amount equal to the Pro
Rata Bonus, reimbursement for reasonable and necessary expenses incurred by the
Executive on behalf of the Company during the period ending on the Termination
Date, vacation pay, and sick leave (collectively, "Accrued Compensation").
(c) Pro Rata Bonus is an amount equal to the maximum bonus amount the
Executive would have been entitled to in the fiscal year of the Termination Date
multiplied by a fraction, the numerator of which is the number of days in such
fiscal year through the Termination Date and the denominator of which is 365.
(d) Termination Date, Etc. For purposes of this Agreement, "Termination
Date" shall mean in the case of the Executive's death, his date of death, or in
all other cases, the date specified in the Notice of Termination subject to the
following:
(1) If the Executive's employment is terminated by the Company due to
Disability, the date specified in the Notice of Termination shall
be at least thirty (30) days from the date the Notice of
Termination is given to the Executive, provided that the
Executive shall not have returned to the full-time performance of
his duties during such period of at least thirty (30) days, and
(2) If the Executive's employment is terminated because of a Change
In Control, the date specified in the Notice of Termination shall
be not more than thirty (30) days from the date the Notice of
Termination is given to the Company.
(e) Change In Control. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
4
(1) An acquisition of any voting securities of the Company (the
"Voting Securities") by any "Person" (as the term person is used
for purposes of Section 12(d) or 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) other than any
parent, subsidiary or affiliate of the Company immediately after
which such Person has "Beneficial Ownership" (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of more than
fifty percent (50%) of the combined voting power of the Company's
then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by (A) the Company or
(B) any corporation or other Person of which a majority of its
voting power or its voting equity securities or equity interest
is owned, directly or indirectly, by the Company (for purposes of
this definition, a "Subsidiary") or (ii) the Company or its
Subsidiaries,
(2) The individuals who, as of the date this Agreement is approved by
the Board of Directors of the Company (the "Board"), are members
of the Board (the "Incumbent Board") cease for any reason to
constitute at least one half (1/2) of the members of the Board;
provided, however, that if the election, or nomination for
election of any new director was approved by a vote of the
members of the Board as provided by the Company's Bylaws, such
new director shall, for purposes of this Agreement, be considered
as a member of the Incumbent Board; provided, however, that no
individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest, or
(3) Approval by the stockholders of the Company of:
(i) A complete liquidation or dissolution of the Company, or
(ii) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person
(other than a transfer to a Subsidiary or a parent in a
Non-Control Acquisition).
(f) Disability. For purposes of this Agreement, "Disability" means a
physical or mental infirmity which impairs the Executive's ability to
substantially perform his material duties under this Agreement which continues
for a period of at least ninety (90) consecutive days. The Executive shall be
entitled to the compensation and benefits provided for under this Agreement for
any period during the Employment Term and prior to the date of Termination
resulting from the Executive being unable to work due to a physical or mental
infirmity and as otherwise provided in this Agreement in connection with
Disability. Notwithstanding anything contained in this Agreement to the
contrary, until the Termination Date specified in a Notice of Termination (as
each term is hereinafter defined) relating to the Executive's Disability, in the
event the Executive is nolonger under a Disability, the Executive will be
entitled to return to his position with the Company as set forth in this
Agreement in which event no Disability of the Executive will be deemed to have
occurred.
5
10. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns and the Company shall require any
successor or assign to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession or assignment had taken place. The term "Company"
as used herein shall include such successors and assigns. The term "successors
and assigns" as used herein shall mean a corporation or other entity acquiring
all or substantially all of the assets and business of the Company (including
this Agreement) whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
11. FEES AND EXPENSES.
The Company shall pay all legal fees and related expenses (including the
costs of experts, evidence and counsel) incurred by the Executive as a result of
the breach or default by the Company of the terms hereof.
12. NOTICE.
For purposes of this Agreement, notice and all other communications
provided for in the Agreement (including the Notice of Termination) shall be in
writing and shall be deemed to have been duly given when personally delivered or
sent by certified mail, return receipt requested, postage prepaid, addressed to
the respective addresses last given by each party to the other, provided that
all notices to the Company shall be directed to the attention of the Board with
a copy to the Secretary of the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
(3rd) business day after the mailing thereof, except that notice of change of
address shall be effective only upon receipt.
13. NON-EXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive or other plan or
program provided by the Company or any of its subsidiaries and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any other agreements with the Company or any of its
subsidiaries. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its subsidiaries shall be payable in accordance with such plan or program,
except as explicitly modified by this Agreement.
6
14. SETTLEMENT OF CLAIMS.
The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off
(except against amounts actually owed by the Executive to the Company as
evidenced by promissory notes, loan agreements and similar documents executed by
the Executive), counterclaim, defense, recoupment or other right which the
Company may have against the Executive or others.
15. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by the
Executive and the Company. No waiver by either party hereto at any time of any
breach by the 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. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.
16. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas without giving effect to the
conflict of law principles thereof. Subject to Section 19 of this Agreement,
any action brought by any party to this Agreement shall be brought and
maintained in a court of competent jurisdiction in Dallas County, Texas.
17. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provisions hereof shall not affect the
validity or enforceability of the other provisions hereof.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes all prior agreements, if any, understandings and arrangements,
oral or written, between the parties hereto with respect to the subject matter
hereof.
19. ARBITRATION.
Any dispute or controversy arising out of or relating to this Agreement
shall be determined and settled by arbitration in the City of Dallas, Texas, in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association then in effect, and judgement upon the award rendered by
the arbitrator may be entered in any court of competent jurisdiction. Such
arbitrator shall have no power to modify any of the provisions of this
Agreement, and his or her jurisdiction is limited accordingly. A party
requesting arbitration hereunder shall give ten (10) days' written notice to the
other party to request such arbitration. Unless the arbitrator decides
otherwise, the successful party in any such arbitration shall be entitled to
reasonable attorneys' fees and costs associated with such arbitration. If the
parties hereto cannot agree upon an arbitrator, then one shall be appointed by
the governing office of the American Arbitration Association. Any arbitrator so
appointed shall have extensive experience in a profession connected with the
subject matter of the dispute. Whenever any action is required to be taken
under this Agreement within a specified period of time and the taking of such
action is materially affected by a matter submitted to arbitration, such period
shall automatically be extended by the number of days plus ten (10) that are
taken for the determination of that matter by the arbitrator.
7
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its Chairman of the Board or Chairman of the Compensation Committee and the
Executive has executed this Agreement as of the date and year first above
written.
PEGASUS SOLUTIONS, INC. EXECUTIVE:
By: _____________________________ By:_____________________________
Andrew Stringer
Print: _____________________________
Title: _____________________________
8
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, John F. Davis, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pegasus Solutions,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this report
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such elevation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting
Date: August 9, 2004
/s/ JOHN F. DAVIS, III
- -----------------------------------------------
John F. Davis, III
President, Chief Executive Officer and Chairman
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Susan K. Cole, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pegasus Solutions,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this report
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such elevation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting
Date: August 9, 2004
/s/ SUSAN K. COLE
- ----------------------------------------------------
Susan K. Cole
Executive Vice President and Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pegasus Solutions, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we, the
undersigned, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
PEGASUS SOLUTIONS, INC.
August 9, 2004 /s/ JOHN F. DAVIS, III
John F. Davis, III,
-------------------------------------
President, Chief Executive Officer
and Chairman
August 9, 2004 /s/ SUSAN K. COLE
Susan K. Cole,
-------------------------------------
Executive Vice President
and Chief Financial Officer