Formation And Funding Agreement

EXHIBIT 10.39


CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.


FORMATION AND FUNDING AGREEMENT


by and between


PRICELINE.COM INCORPORATED


and


ALLIANCE PARTNERS, LP


Dated as of March 17, 2000


FORMATION AND FUNDING AGREEMENT


FORMATION AND FUNDING AGREEMENT (this "Agreement") dated as of March 17, 2000, by and between PRICELINE.COM INCORPORATED, a Delaware corporation ("Priceline"), and ALLIANCE PARTNERS, LP, a Delaware limited partnership ("Alliance"). Priceline and Alliance are hereunder also referred to collectively as the "Parties" and individually as a "Party."


RECITALS


WHEREAS, Priceline is a public e-commerce company that facilitates the sale of products and services over the Internet by means of the Priceline Business Model; and


WHEREAS, Priceline has developed an Internet web site, currently located at http://www.Priceline.com (the "Priceline Site"), which facilitates the marketing of various products and services using the Priceline Business Model; and


WHEREAS, Alliance is a privately held financial services holding company which owns and operates a number of businesses in the mortgage lending and consumer loan origination industries; and


WHEREAS, Alliance has formed an operating subsidiary for the primary purpose of acting as a broker and/or lender of residential mortgage loans through an Internet marketing channel (the "Plan") and, in connection therewith, desires to use the Priceline Business Model and certain intellectual property of Priceline; and


WHEREAS, Priceline desires to license to an Affiliate of Alliance the Priceline Business Model and certain intellectual property of Priceline in furtherance of the Plan, and to invest certain funds in the operating subsidiary formed by Alliance for the primary purpose of effectuating the Plan.


NOW, THEREFORE, in consideration of the foregoing and the covenants, representations and warranties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:


1. DEFINITIONS


1.1 "Advertising Agreement" means the Advertising and Services Agreement between Priceline and PricelineMortgage dated as of the date hereof, as amended from time to time.


1.2 "Advertising Fees" means any and all fees payable under the Advertising Agreement.


1.3 "Affiliate" means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person and (ii) any officer or director of such Person. For purposes of this definition, the terms "controls," "is controlled by," or "is under common control with" shall mean possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person or entity, whether through the ownership of voting securities, by contract or otherwise.


1.4 "Alliance" means Alliance Partners, LP, a Delaware limited partnership, as set forth in the Preamble to this Agreement.


1.5 "Alliance Call" shall have the meaning set forth in Section 9.3(a) hereof.


1.6 "Alliance Call Notice" has the meaning set forth in Section 9.3(b) hereof.


1.7 "Alliance Mortgage" means Alliance Mortgage Company, a Florida corporation and an indirect wholly owned subsidiary of Alliance.


1.8 "Alliance Put" has the meaning set forth in Section 9.2(a) hereof.


1.9 "Alliance Put Notice" has the meaning set forth in Section 9.2(b) hereof.


1.10 "AllPrice" means AllPrice Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of AMC Acquisitions.


1.11 "AllPrice Certificate" means the Certificate of Incorporation of AllPrice, as amended from time to time.


1.12 "AllPrice Common Stock" means the common stock, par value $.01 per share, of AllPrice.


1.13 "AllPrice Directors" has the meaning set forth in Section 5.4 hereof.


1.14 "AMC Acquisitions" means AMC Acquisitions, Inc., a Florida corporation and a wholly owned subsidiary of Alliance.


1.15 "Annual Plan" means a business operations plan detailing PricelineMortgage's goals and procedures for personnel, technical, financial, administrative, marketing, and other significant activities for PricelineMortgage's next succeeding fiscal year, as approved each year and revised from time to time by the Board.


1.16 "Applicable Law" means, as to any Person, any statute, law, rule, regulation, directive, treaty, judgment, order, decree or injunction of any Governmental Authority that is applicable to or binding upon such Person or any of its properties.


1.17 "Board" means the Board of Directors of PricelineMortgage as described in the LLC Agreement.


1.18 "Business" means the business of PricelineMortgage, as described in the LLC Agreement, as amended from time to time.


1.19 "Business Day" means each day of the calendar year other than a Saturday, a Sunday or a day on which banks are authorized or required to close in the States of Connecticut or Florida.


1.20 "Call Price" has the meaning set forth in Section 9.1(a) hereof.


1.21 "Capital Stock" means (i) in the case of a corporation, capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company, shares, interests, units or any other equity interests in such limited liability company and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.


1.22 "Cash Payment" has the meaning set forth in Section 9.4(b)(i) hereof.


1.23 "Change in Control Transaction" means, as to any Person, (i) any Initial Public Offering of any class of capital stock of such Person following which the holders of such Person's capital stock immediately prior to such Initial Public Offering shall cease to own, beneficially and of record, shares representing at least fifty percent (50%) of the aggregate ordinary voting power represented by the issued and outstanding voting securities of such Person; (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of such Person; (iii) any sale, pledge, exchange or other transfer (in one transaction or a series of related transactions) of shares of capital stock of such Person such that any Person or group of Persons (other than the holders of such capital stock immediately prior to such transaction or series of transactions) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than fifty percent (50%) of the aggregate ordinary voting power represented by the issued and outstanding voting securities of such Person; (iv) any merger, consolidation, recapitalization or similar transaction in which the outstanding voting capital stock of such Person is converted into or exchanged for cash, securities or other property, such that immediately after such transaction any Person or group of Persons (other than the holders of such capital stock immediately prior to such transaction or series of transactions) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than fifty percent (50%) of the aggregate ordinary voting power represented by the issued and outstanding voting securities of such Person; (v) the replacement of a majority of the Board of Directors of such Person over a two-year period from the directors who constituted the Board of Directors of such Person at the beginning of such period, where such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of such Person who either were members of such Board of Directors at the beginning of such period or whose election as members of such Board of Directors was previously so approved; or (vi) the liquidation or dissolution of such Person.


1.24 "Closing" has the meaning set forth in Section 4.1 hereof.


1.25 "Confidential Information" has the meaning set forth in Section 6.8(a) hereof.


1.26 "Consents" has the meaning set forth in Section 7.1(c) hereof.


1.27 "Conversion" means the conversion, at any time and at the option of Priceline, of the principal amount and interest due and owing under the Note into One Thousand (1,000) duly authorized, validly issued, fully paid and nonassessable shares of AllPrice Common Stock.


1.28 "Conversion Date" means the date of exercise by Priceline, or any successor thereto or assignee thereof, of its right of Conversion pursuant to the terms and provisions of the Note.


1.29 "Development Assets" means, collectively, all software and customer interfaces developed by Alliance and/or Priceline for use by PricelineMortgage.


1.30 "Development Costs" means the costs paid or incurred and capitalized by Alliance and Priceline or any of their respective Affiliates in connection with the acquisition and/or development of the Development Assets.


1.31 "Director" means a member of the Board with the powers and duties as specified in the LLC Agreement.


1.32 "Disclosing Party" has the meaning set forth in Section 6.8(a) hereof.


1.33 "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).


1.34 "FAB" means First Alliance Bank, a federal savings association chartered by the OTS.


1.35 "FAB Directors" has the meaning set forth in Section 5.4 hereof.


1.36 "Fair Market Value" means the average of the daily closing prices per share of Priceline Common Stock, as reported on the NASDAQ Stock Market (or, if the Priceline Common Stock shall not trade on the NASDAQ Stock Market on such date, as reported on such other national securities exchange or automated quotation system on which the Priceline Common Stock shall trade), for the thirty (30) trading days immediately preceding the date as of which Fair Market Value is to be calculated.


1.37 "Governmental Authority" means any domestic or foreign government, governmental authority, court, tribunal, agency or other regulatory, administrative or judicial agency, commission or organization, and any subdivision, branch or department of any of the foregoing.


1.38 "Independent Auditor" means the independent certified public accounting firm engaged by PricelineMortgage to act as its independent auditor.


1.39 "Initial Public Offering" means, as to any Person, an initial public offering of any class of such Person's capital stock or other equity interests pursuant to an effective Registration Statement filed under the Securities Act.


1.40 "Investment Date" means the date on which AllPrice makes its initial investment in PricelineMortgage, as contemplated by Section 2.3(b) hereof.


1.41 "LendingTree" means LendingTree, Inc., a Delaware corporation.


1.42 "Licensing Agreement" means the Licensing Agreement by and among Priceline, PricelineMortgage and AllPrice dated as of the date hereof, as amended from time to time.


1.43 "LLC Agreement" means the limited liability company agreement of PricelineMortgage dated as of the date hereof, as amended from time to time.


1.44 "Loan Path" means any screen flow or customer interface that is powered by PricelineMortgage.


1.45 "Note" means the 5.11% Convertible Secured Note dated as of the date hereof in the aggregate principal amount of Three Million Six Hundred Twenty Thousand Dollars ($3,620,000) evidencing the obligation of AllPrice to repay the Priceline Funds to Priceline upon the terms and subject to the conditions set forth therein.


1.46 "Option" means the option granted by AMC Acquisitions to Priceline under the Option Agreement pursuant to which Priceline shall have the right, at any time from and after the Conversion Date, to purchase all of the Equity Interests of AllPrice then held by AMC Acquisitions at an exercise price of One Dollar ($1.00) such that, following the exercise of the Conversion and the Option, Priceline shall own one hundred percent (100%) of the issued and outstanding Equity Interests of AllPrice.


1.47 "Option Agreement" means the Option Agreement, dated as of the date hereof, between Priceline and AMC Acquisitions, pursuant to which AMC Acquisitions has granted the Option to Priceline.


1.48 "OTS" means the Office of Thrift Supervision.


1.49 "Party" and "Parties" have the meanings set forth in the Preamble to this Agreement.


1.50 "Permitted Transfer" has the meaning set forth in Section 8.1 hereof.


1.51 "Person" means an individual, Governmental Authority, partnership, limited liability company, firm, corporation, or other business association.


1.52 "Pilot Program" means the pilot program established by Alliance and Priceline on October 10, 1999 for the purpose of implementing the Plan on a preliminary basis in a limited number of jurisdictions.


1.53 "Pilot Program Assets" means all assets acquired or developed by Alliance Mortgage and/or Priceline for use in connection with the formation, development or operation of the Pilot Program.


1.54 "Pilot Program Costs" means, collectively, all costs and expenses paid or incurred by Alliance and Priceline or any of their respective Affiliates in forming, developing and operating the Pilot Program, but excluding the net book value of the Pilot Program Assets.


1.55 "Plan" has the meaning set forth in the Recitals to this Agreement.


1.56 "Pledge Agreement" means the Pledge Agreement dated as of the date hereof between Priceline, as secured party, and AllPrice, as grantor, as amended from time to time.


1.57 "Pre-Advertising Income" means, with respect to any period, the net income of PricelineMortgage before deduction for taxes, plus the amount of any Advertising Fees attributable to such period.


1.58 "Priceline" means priceline.com Incorporated, a Delaware corporation, as set forth in the Preamble to this Agreement.


1.59 "Priceline Business Model" means the product distribution model utilized by Priceline on the Priceline Site pursuant to which a consumer identifies a specific price and terms under which he or she will purchase a product or service, and Priceline attempts to find a seller willing to sell the product or service to the consumer on the terms identified by the consumer.


1.60 "Priceline Call" has the meaning set forth in Section 9.1(a) hereof.


1.61 "Priceline Call Notice" has the meaning set forth in Section 9.1(b) hereof.


1.62 "Priceline Common Stock" means the common stock, par value $.008 per share, of Priceline.


1.63 "Priceline Funds" has the meaning set forth in Section 3.3(b) hereof.


1.64 "Priceline Site" has the meaning set forth in the Recitals to this Agreement.


1.65 "PricelineMortgage" means National Mortgage Center LLC (d.b.a. "pricelinemortgage"), a limited liability company organized under the laws of the State of Delaware for the purpose of carrying on the Business.


1.66 "PricelineMortgage Interest" means, as to any Person, the percentage interest represented by the Shares held by such Person, determined by dividing the number of Shares then held by such Person by all then outstanding Shares.


1.67 "Put Price" has the meaning set forth in Section 9.2(b) hereof.


1.68 "Receiving Party" has the meaning set forth in Section 6.8(a) hereof.


1.69 "Registration Rights Agreement" has the meaning set forth in Section 9.4(a) hereof.


1.70 "RESPA" means the Real Estate Settlement Procedures Act, 12 U.S.C. section 2601 et seq., and the Department of Housing and Urban Development's implementing regulation, Regulation X, 24 C.F.R. section 3500 et seq.


1.71 "Securities Act" means the Securities Act of 1933, as amended from time to time.


1.72 "Shares" means equity interests in PricelineMortgage as authorized by the LLC Agreement.


1.73 "Start-up Expenses" means, collectively, any attorneys' fees paid or incurred by Alliance or Priceline for or on behalf of PricelineMortgage in connection with the formation of PricelineMortgage as a limited liability company or any related licensing, RESPA or other compliance issues; provided, however, that Start-up Expenses shall not include any amounts expended by any Party in connection with the preparation, negotiation or execution of this Agreement and the other Transaction Documents.


1.74 "Tax Payment" has the meaning set forth in Section 9.4(b)(ii) hereof.


1.75 "Term" has the meaning set forth in Section 10.1 hereof.


1.76 "Transaction Documents" means this Agreement, the LLC Agreement, the Note, the Licensing Agreement, the Advertising Agreement, the Pledge Agreement and the Option Agreement.


1.77 "Transfer" means, as a noun, any voluntary or involuntary transfer, sale, assignment, pledge, encumbrance or other disposition; and, as a verb, voluntarily or involuntarily to sell, assign, transfer, grant, give away, hypothecate, pledge, encumber or otherwise dispose of, and shall include any transfer by will, gift or intestate succession.


1.78 "Year 4" means the calendar year ended December 31, 2003.


1.79 "Year 5" means the calendar year ended December 31, 2004.


1.80 "Year 5 Income" has the meaning set forth in Section 9.1(a) hereof.


2. PRICELINEMORTGAGE


2.1 Establishment of PricelineMortgage. Prior to the date hereof, Alliance has filed, or caused to be filed, with the Secretary of State of the State of Delaware a Certificate of Formation pursuant to which PricelineMortgage was formed as a limited liability company organized under the laws of the State of Delaware. At the Closing, Alliance shall cause FAB to execute the LLC Agreement and, except as expressly set forth herein, the operations of PricelineMortgage shall thereafter be governed by the LLC Agreement.


2.2 Purpose of PricelineMortgage. PricelineMortgage has been formed for the primary purpose of effectuating the Plan. Pursuant to the Plan, PricelineMortgage shall offer its loan products and the loan products of FAB, its Affiliates and of other lenders under a variety of delivery channels. PricelineMortgage shall pursue mortgage loan investor, correspondent and wholesale relationships with non-affiliated companies as well as participation by other lending concepts (such as LendingTree) in order to provide optimal product and pricing alternatives for PricelineMortgage's customers.


2.3 Capitalization of PricelineMortgage. PricelineMortgage shall have the authority to issue an aggregate of One Hundred (100) Shares with the rights set forth in the LLC Agreement. PricelineMortgage's initial equity shall be funded as follows:


(a) FAB Initial Subscription. In one or more payments at or prior to the date hereof, FAB has contributed Three Million Dollars ($3,000,000) to PricelineMortgage in exchange for Fifty-One (51) Shares, which Shares shall initially represent a one-hundred-percent (100%) PricelineMortgage Interest; provided, however, that from and after the Investment Date, such Shares shall represent a fifty-one-percent (51%) PricelineMortgage Interest.


(b) AllPrice Purchase. On a date within fifteen (15) days after the date hereof mutually agreed to by the Parties (the "Investment Date"), Alliance shall cause AllPrice to contribute to PricelineMortgage an amount in cash equal to (i) the Priceline Funds minus (ii) (A) the aggregate amount of all Pilot Program Costs reimbursed by AllPrice to Priceline and Alliance pursuant to Section 6.7(b) hereof and (B) the amount of interest payable to Priceline by AllPrice under the Note during the year 2000 in exchange for Forty-Nine (49) Shares, which Shares shall represent a forty-nine-percent (49%) PricelineMortgage Interest. On or prior to the Investment Date, Alliance shall cause AllPrice to execute the LLC Agreement, thereby agreeing to be bound by the terms thereof.


2.4 Purchase of Pilot Program Assets. Within five (5) Business Days of the later to occur of (a) termination of the Pilot Program and (b) the Investment Date, Alliance shall cause PricelineMortgage to purchase the Pilot Program Assets from each of Alliance Mortgage and Priceline at a purchase price equal to the net book value of such assets.


2.5 Financial Assistance. Pursuant to the terms of the LLC Agreement, the Board may, by written notice to FAB and AllPrice, request that FAB and AllPrice provide additional financial assistance to PricelineMortgage in order to meet the regulatory capital requirements of the OTS directly applicable to PricelineMortgage, including financial assistance in the form of credit support or loans. Subject to the terms of the LLC Agreement, any such financial assistance provided shall be provided on a pro rata basis by FAB and AllPrice.


2.6 FAB Interest. The Parties acknowledge that it is their intent that FAB's PricelineMortgage Interest shall, at all times during the Term, be not less than fifty-one percent (51%).


3. ALLPRICE


3.1 Establishment of AllPrice. Prior to the date hereof, Alliance has caused AMC Acquisitions to file a Certificate of Incorporation with the Secretary of State of the State of Delaware pursuant to which AllPrice was formed as a corporation organized under the laws of the State of Delaware.


3.2 Purpose of AllPrice. AllPrice shall be formed for the purpose of (i) acquiring and holding Shares representing a forty-nine-percent (49%) PricelineMortgage Interest, (ii) borrowing the Priceline Funds from Priceline pursuant to the Note and (iii) entering into the Licensing Agreement with Priceline and PricelineMortgage.


3.3 Capitalization of AllPrice. AllPrice shall have authorized capital stock consisting of one class of shares designated as Common Stock with the rights set forth in the AllPrice Certificate. The AllPrice Certificate shall initially provide for One Million (1,000,000) authorized shares of AllPrice Common Stock. AllPrice's initial equity shall be funded as follows:


(a) AMC Acquisitions Initial Subscription. Prior to the Closing, AMC Acquisitions shall have purchased One Hundred (100) shares of AllPrice Common Stock, representing a one-hundred-percent (100%) interest in AllPrice, for an aggregate purchase price of $1.00.


(b) Priceline Investment. At the Closing, (i) Priceline shall provide financing to AllPrice in the aggregate principal amount of Three Million Six Hundred Twenty Thousand Dollars ($3,620,000) (the "Priceline Funds") by wire transfer of immediately available funds to an account designated by AllPrice and (ii) AllPrice shall execute and deliver the Note in favor of Priceline.


4. THE CLOSING


4.1 Closing. A closing (the "Closing") shall be held at 10:00 a.m., local time, on the date hereof at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, located at One Rodney Square, Wilmington, Delaware 19801, for the purpose of consummating the transactions contemplated by this Agreement.


4.2 Closing Deliveries.


(a) Deliveries by Alliance. At or before the Closing, Alliance shall, or shall cause its Affiliates, as designated below, to, take the following actions:


(i) Alliance shall execute and deliver this Agreement;


(ii) FAB shall transfer Three Million Dollars
($3,000,000) to PricelineMortgage as a capital contribution;


(iii) PricelineMortgage shall issue to FAB a
certificate representing 51 Shares;


(iv) AMC Acquisitions shall transfer One Dollar ($1.00)
to AllPrice as a capital contribution;


(v) AllPrice shall issue to AMC Acquisitions a
certificate representing One Hundred (100) shares of AllPrice
Common Stock;


(vi) AllPrice shall execute and deliver the Note;


(vii) PricelineMortgage shall execute and deliver
the Advertising Agreement;


(viii) AllPrice and PricelineMortgage shall each
execute and deliver the Licensing Agreement;


(ix) FAB shall execute and deliver the LLC Agreement;


(x) AMC Acquisitions shall execute and deliver the
Option Agreement;


(xi) AllPrice shall execute and deliver the Pledge
Agreement;


(xii) FAB shall provide Priceline with
documentation, in form and substance reasonably satisfactory to
Priceline, evidencing the approval by the OTS of the formation of
PricelineMortgage as an operating subsidiary of FAB; and


(xiii) FAB shall provide Priceline with
documentation, in form and substance reasonably satisfactory to
Priceline, evidencing the approval of any other Governmental
Authority required to be obtained by Alliance, FAB,
PricelineMortgage or any Affiliate of any of the foregoing in
connection with the formation and/or operation of
PricelineMortgage.


(b) Deliveries by Priceline. At the Closing, Priceline shall take the following actions:


(i) Priceline shall execute and deliver this
Agreement;


(ii) Priceline shall transfer the Priceline Funds to
AllPrice by wire transfer of immediately available funds to an
account designated by AllPrice;


(iii) Priceline shall execute and deliver the
Advertising Agreement;


(iv) Priceline shall execute and deliver the Licensing
Agreement;


(v) Priceline shall execute and deliver the Pledge
Agreement; and


(vi) Priceline shall execute and deliver the Option
Agreement.


5. OPERATION AND MANAGEMENT OF PRICELINEMORTGAGE


5.1 Operation of PricelineMortgage. Alliance and, from and after the Conversion Date, Priceline hereby agree to take, and to cause each of their respective Affiliates to take, all actions necessary to ensure that PricelineMortgage shall be operated in accordance with the terms of this Agreement and the other Transaction Documents, including, without limitation, to vote all Shares held directly or indirectly by any such entity (and to cause all Shares held by its permitted transferees under Section 8.1 hereof to be voted) to effect the terms hereof and thereof.


5.2 Actions of Members. In order to effectuate ...