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As filed with the Securities and Exchange Commission May 10, 2001.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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LENDINGTREE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
13-3931821
(I.R.S. Employer Identification No.)
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11115 RUSHMORE DRIVE
CHARLOTTE, NORTH CAROLINA 28277
(704) 541-5351
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of each Registrant's Principal Executive Offices)
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MR. DOUGLAS R. LEBDA
CHIEF EXECUTIVE OFFICER
LENDINGTREE, INC.
11115 RUSHMORE DRIVE
CHARLOTTE, NORTH CAROLINA 28277
(704) 541-5351
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copy to:
DAVID J. GOLDSCHMIDT, ESQ. MR. ROBERT J. FLEMMA, JR.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP GENERAL COUNSEL
4 TIMES SQUARE LENDINGTREE, INC.
NEW YORK, NEW YORK 10036 11115 RUSHMORE DRIVE
(212) 735-3574 CHARLOTTE, NORTH CAROLINA 28277
(704) 541-5351
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AT SUCH TIME OR TIMES AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
AS THE SELLING STOCKHOLDERS SHALL DETERMINE.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
PROPOSED MAXI- PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE MUM OFFERING AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED PRICE PER UNIT(1) PRICE(1) FEE
--------------------------------------- ------------ ----------------- ------------------ ------------
Common stock, $0.01 par value (2)(3) 25,050,034 $5.63 $141,031,691.42 $35,257.92
(1) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE;
COMPUTED IN ACCORDANCE WITH RULE 457(C) ON THE BASIS OF THE AVERAGE OF
THE HIGH AND LOW SALES PRICES FOR A SHARE OF LENDINGTREE COMMON STOCK
ON MAY 8, 2001 AS REPORTED ON THE NASDAQ NATIONAL MARKET.
(2) INCLUDES RIGHTS TO PURCHASE LENDINGTREE SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK, OR RIGHTS. PRIOR TO THE OCCURRENCE OF CERTAIN EVENTS,
THE RIGHTS WILL NOT BE EXERCISABLE OR EVIDENCED SEPARATELY FROM
LENDINGTREE COMMON STOCK.
(3) THE REGISTRANT IS REGISTERING FOR RESALE BY CERTAIN SELLING SECURITY
HOLDERS, SHARES OF COMMON STOCK THAT MAY BE ISSUABLE UPON CONVERSION OF
CERTAIN SHARES OF SERIES A 8% CONVERTIBLE PREFERRED STOCK OF THE
REGISTRANT AND THE EXERCISE OF CERTAIN WARRANTS OF THE REGISTRANT.
PURSUANT TO RULE 416 OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT ALSO REGISTERS SUCH ADDITIONAL NUMBER OF SHARES
OF THE REGISTRANT'S COMMON STOCK AS MAY BECOME ISSUABLE UPON EXERCISE
OF THE WARRANTS OR UPON CONVERSIONS OF THE SERIES A 8% CONVERTIBLE
PREFERRED STOCK AS A RESULT OF STOCK SPLITS, STOCK DIVIDENDS AND
SIMILAR TRANSACTIONS.
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The information in this prospectus is not complete and may be changed. We may
not sell the securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED, MAY 10, 2001
PROSPECTUS
LENDINGTREE, INC.
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This is a public offering of LendingTree's common stock. LendingTree's
stockholders are selling up to 25,050,034 shares.
The shares offered by this prospectus include:
- 12,183,276 shares owned by several of our institutional and
individual investors who hold piggyback registration rights;
- 639,077 shares that were issued in connection with our
acquisition of certain assets of HomeSpace Services, Inc. on
August 2, 2000;
- 135,000 shares underlying warrants issued to Capital Z
Partners, Ltd., through its affiliate, Specialty Finance
Partners, in connection with its purchase of an equity rights
certificate from us in September 2000;
- 6,885,715 shares into which shares of our 8% convertible
preferred stock are initially convertible, plus 3,428,817
shares of common stock which may be issuable as a result of
dividends on the 8% convertible preferred stock;
- 1,665,649 shares of common stock that are issuable upon the
exercise of the ULLICO termination fee warrants and the ULLICO
and Freddie Mac commitment fee warrants and interest fee
warrants, with the number of interest warrants being
calculated as if the full commitment amounts were drawn on
both the Freddie Mac credit facility and the ULLICO credit
facility on March 20, 2001 and not repaid until the respective
outside termination dates under such facilities; and
- 112,500 shares issuable upon exercise of warrants that will be
issued to Merrill Lynch, Fenner, Pierce & Smith, Incorporated
for financial advisory services.
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The number of shares being registered and offered hereunder is greater
than the number of shares currently beneficially owned by the selling
stockholders. We have agreed to bear all expenses, other than broker's
commissions and similar charges, in connection with the registration and sale of
the shares of common stock being offered by this prospectus.
The prices at which the selling stockholders may sell the shares of
common stock being offered by this prospectus will be determined by the
prevailing market price for the shares or in negotiated transactions. We will
not receive any of the proceeds from the sale of the shares of common stock
being offered by this prospectus.
Our common stock is quoted on Nasdaq under the symbol "TREE." On May 8,
2001 the closing sales price for the common stock as reported on Nasdaq was
$6.09 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON
PAGE 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------
The shares of common stock offered hereby are not savings accounts,
deposits or other obligations of any savings bank or non-bank subsidiary of ours
and are not insured by the Savings Association Insurance Fund or the Bank
Insurance Fund of the Federal Deposit Insurance Corporation or any other
government agency.
The date of this prospectus is _____________, 2001.
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TABLE OF CONTENTS
PROSPECTUS SUMMARY............................................... 1
RISK FACTORS..................................................... 6
FORWARD-LOOKING STATEMENTS....................................... 21
MARKET DATA...................................................... 21
USE OF PROCEEDS.................................................. 21
DIVIDEND POLICY.................................................. 22
DILUTION......................................................... 23
SELECTED FINANCIAL DATA.......................................... 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................ 28
BUSINESS......................................................... 38
MANAGEMENT....................................................... 56
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS............. 79
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT....................................... 84
DESCRIPTION OF CAPITAL STOCK..................................... 89
SELLING STOCKHOLDERS............................................. 102
PLAN OF DISTRIBUTION............................................. 103
LEGAL MATTERS.................................................... 105
EXPERTS.......................................................... 105
WHERE YOU CAN FIND MORE INFORMATION.............................. 105
PART II INFORMATION NOT REQUIRED IN PROSPECTUS.................. II-1
EXHIBIT INDEX.................................................... II-7
You should rely only on the information contained or incorporated by
reference in this prospectus and in any accompanying prospectus supplement. No
one has been authorized to provide you with different information.
The shares of common stock are not being offered in any jurisdiction
where the offer is not permitted.
You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front cover of the documents.
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PROSPECTUS SUMMARY
This summary is not complete and does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, including the more detailed
information regarding LendingTree, the risks of purchasing our common stock
discussed under "Risk Factors," and our financial statements and the
accompanying notes.
LENDINGTREE, INC.
OVERVIEW
We offer an Internet-based lending exchange for consumers and lenders.
We attract consumer demand to the exchange through our proprietary website
www.lendingtree.com, as well as through private-label and co-branded exchanges
enabled by our technology platform, Lend-XSM. In addition, through our website,
we provide access to other services related to owning, maintaining or buying and
selling a home, including a network of real estate brokers.
We also license and host our Lend-X Technology for use by other
businesses, enabling them to create their own customized co-branded or
private-label lending exchanges. Through these Lend-X partnerships, we can earn
revenue both from technology fees related to customization, licensing and
hosting the third-party exchange, as well as fees from network sources including
transmission fees, closed- loan fees and brokerage fees.
Consumers begin the LendingTree process on www.lendingtree.com by
completing a simple online information request, referred to as a qualification
form. Data from the qualification form, along with a credit score calculated
from credit reports retrieved by the system, is compared to the underwriting
criteria of lenders in our lender network. We currently have more than 100
participating lenders in our network. Consumers can receive up to four loan
offers in response to a single credit request and then compare, review and
accept the offer that best suits their needs. We believe that our participating
lenders can generate new business that meets their specific underwriting
criteria at a substantially lower cost of acquisition than they can through
traditional marketing channels. Our exchange encompasses most consumer credit
categories, including mortgages, home equity loans, automobile loans, credit
cards and personal loans.
We are not a lender. Rather, we are a lending exchange that seeks to
drive efficiency and cost savings in the consumer credit markets for both
consumers and lenders. We earn revenue from lenders that pay fees for every
qualification form that meets their underwriting criteria and is transmitted to
them, called transmission fees, and for loans that they close, called
closed-loan fees. Our website is powered by our lending exchange technology
platform, Lend-X.
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We were incorporated in the state of Delaware on June 7, 1996 and began
serving consumers across the United States on July 1, 1998. Our principal
executive offices are located at 11115 Rushmore Drive, Charlotte, North Carolina
28277, and our telephone number is (704) 541-5351.
RECENT DEVELOPMENTS
FIRST QUARTER RESULTS
On April 18, 2001, we announced that during the first quarter of 2001,
LendingTree recognized revenue of $12.3 million, which was nearly $3 million, or
28%, greater than the prior quarter and nearly 200% greater than the first
quarter of 2000. Our net loss for the first quarter of 2001 was $10.2 million,
or $0.52 per share, which declined approximately $5.0 million, or 32%, from the
prior quarter. As of March 31, 2001, LendingTree had approximately $16.5 million
in cash, cash equivalents and restricted investments available.
MARCH 2001 FINANCING TRANSACTIONS
In March 2001, we consummated a series of debt and equity financing
transactions which are summarized below.
Private Equity-Line. On March 7, 2001, we entered into a common stock
purchase agreement with Paul Revere Capital Partners, Ltd. for the potential
future issuance and sale of up to $24.0 million of our common stock. Under this
arrangement, we, at our sole discretion, may exercise up to 24 drawdowns,
pursuant to which Paul Revere is obligated to purchase that number of shares of
our common stock specified in the drawdown notice. We are limited with respect
to how often we can exercise a drawdown and the amount of each drawdown.
8% Convertible Preferred Stock. On March 20, 2001, we entered into a
preferred stock purchase agreement with various investors pursuant to which we
issued and sold 3.7 million shares of 8% convertible preferred stock for $12.95
million, or $3.50 per share. This excludes 200,000 shares that were purchased by
our Chief Executive Officer with funds he obtained from a $700,000 loan from us.
On April 30, 2001, we issued an additional 128,571 shares for $450,000. The
shares of 8% convertible preferred stock are not convertible unless and until we
receive the approval of our stockholders. If our stockholders approve this
proposal, each share will be convertible following our annual meeting, at the
option of the holder, into the number of shares of common stock determined by
dividing the then current stated value per share plus accrued but unpaid
dividends by the conversion price. The conversion price is the initial purchase
price of $3.50 per share, subject to adjustment from time to time as described
in the section "Description of Capital Stock-Preferred Stock-8% Convertible
Preferred Stock-Dilution and Price Protection" below.
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Exercise of Specialty Finance Partners Equity Rights Certificate. On
September 29, 2000, Capital Z Partners, our largest stockholder, through its
affiliate, Specialty Finance Partners, purchased an equity rights certificate
from us for $10 million. This equity rights certificate was initially
exercisable for 1,253,918 shares of our common stock, equivalent to $7.975 per
share, and warrants to purchase 225,000 shares of our common stock with an
initial exercise price of $7.975. The equity rights certificate contained
anti-dilution and price protection provisions, including provisions that
entitled Specialty Finance Partners to receive additional shares of our common
stock or other securities upon the occurrence of subsequent events. Such events
included, among others, a subsequent financing in which we received
consideration of at least $15 million. Pursuant to its terms, this equity rights
certificate was converted into 2,857,143 shares of our 8% convertible preferred
stock at an effective conversion rate equal to $3.50 per share in conjunction
with the March 2001 closing of the 8% convertible preferred stock financing
described above. No additional purchase price was required to be paid for the
shares of 8% convertible preferred stock issued upon conversion of the equity
rights certificate. Capital Z also received a commitment fee warrant to purchase
135,000 shares of our common stock with an initial exercise price of $7.975 per
share, which was reduced to $3.762 per share in conjunction with the closing of
the 8% convertible preferred stock financing.
ULLICO Revolving Line of Credit. On March 7, 2001, we entered into a
two-year $5.0 million revolving credit agreement with ULLICO. Interest on
borrowings accrues at 6% per annum in cash and additional interest at the rate
of 6% per annum payable in the form of 5-year warrants to purchase our common
stock with an exercise price of $.01 per share. The number of interest warrants
ULLICO will be entitled to receive is based on the average loan amount
outstanding multiplied by 14% per annum and divided by $3.99. In addition, as a
commitment fee, we issued ULLICO warrants to purchase 40,000 shares of our
common stock with an exercise price of $.01 per share.
Freddie Mac Revolving Loan. On March 7, 2001, we entered into a
two-year $2.5 million revolving loan agreement with Freddie Mac and amended the
terms of our existing software licensing arrangement with Freddie Mac. Interest
on borrowings accrues at 10% per annum in cash and additional interest at the
rate of 10% per annum payable in the form of 5-year warrants to purchase our
common stock with an exercise price of $.01 per share. In addition, as a
commitment fee, we issued Freddie Mac warrants to purchase 12,500 shares of our
common stock with an exercise price of $.01 per share. The number of shares
Freddie Mac will be entitled to receive is based on an average amount
outstanding on the revolving line of credit multiplied by 10% per annum divided
by $3.99.
ACQUISITION
On August 2, 2000, we acquired certain assets and assumed certain
liabilities of HomeSpace Services, Inc., a Delaware company engaged in the
business of
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maintaining a website offering consumers access to real estate broker referral
services, residential mortgage loans and a full array of related home services.
The aggregate consideration for the HomeSpace transaction was approximately
$11.2 million, consisting of $6.2 million in cash, 639,077 shares of our
restricted common stock, valued at $4.7 million and $0.3 million of assumed
liabilities. At closing, 169,851 shares of our common stock were placed in
escrow in the event of any post-closing indemnification claims and $4.2 million
in cash was placed in escrow to be paid to trade creditors of HomeSpace.
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SUMMARY FINANCIAL DATA
The following table sets forth summary financial and balance sheet data
for our business. The statement of operations data for the years ended December
31, 1998, 1999 and 2000, and the balance sheet data as of December 31, 1999 and
2000, are derived from, and are qualified by reference to, our financial
statements which have been audited by PricewaterhouseCoopers LLP and are
included in this prospectus. Historical results are not necessarily indicative
of the results to be expected in the future.
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1999 2000
------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Network .............................................. $ 273 $ 6,112 $ 27,465
Lend-X Technology .................................... 136 852 3,348
------- -------- --------
Total revenue ...................................... 409 6,964 30,813
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Cost of revenue:
Network .............................................. 235 2,209 7,568
Lend-X Technology .................................... 149 312 1,804
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Total cost of revenue .............................. 384 2,521 9,372
------- -------- --------
Gross profit ........................................... 25 4,443 21,441
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Operating Expenses:
Product development .................................. 1,051 1,109 2,677
Marketing and advertising ............................ 2,494 18,528 56,599
Sales, general and administrative .................... 2,955 10,056 28,268
------- -------- --------
Total operating expenses ........................... 6,500 29,693 87,544
------- -------- --------
Loss from operations ................................... (6,475) (25,250) (66,103)
Interest income, net ................................. 41 505 2,145
Loss on impaired investment .......................... -- -- (1,900)
Miscellaneous expense, net ........................... -- -- (145)
Accretion and dividends related to preferred stock ... (24) (2,816) (2,416)
------- -------- --------
Net loss attributable to common stockholders ........... $(6,485) $(27,561) $(68,464)
======= ======== ========
Basic and diluted net loss per common share ............ $ (1.88) $ (7.74) $ (4.15)
======= ======== ========
Weighted average shares used in computing basic and
diluted net loss per common share .................... 3,435 3,560 16,512
======= ======== ========
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AS OF DECEMBER 31,
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1999 2000
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(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents, restricted and short term
investments ............................................ $29,472 $12,716
Working capital ........................................ 26,474 7,937
Total assets ........................................... 33,767 37,957
Long-term capital lease obligations .................... -- 848
Convertible preferred stock ............................ 59,118 --
Total stockholders' equity (deficit) ................... 27,737 23,696
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RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus, before you decide to
buy our common stock. If any of the following risks actually occur, our
business, financial condition or results of operations would likely suffer. In
this case, the market price of our common stock could decline, and you may lose
all or part of the money you paid to buy our common stock.
RISKS RELATED TO OUR FINANCIAL CONDITION
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS FROM OTHER FINANCINGS WE MAY HAVE TO
SIGNIFICANTLY CURTAIL THE SCOPE OF OUR OPERATIONS AND ALTER OUR BUSINESS MODEL.
We must achieve profitability for our business model to succeed. Prior
to accomplishing this goal, we may need to raise additional funds, from equity
or debt sources. Our cash requirements are substantial, and, despite the fact
that we have raised approximately $13.4 million in a recent preferred stock
transaction, have $7.5 million available under our revolving credit facilities,
and may have additional amounts available under our equity line of credit, we
still may not have sufficient cash to meet our cash needs for the long-term. If
additional financing is not available when required or is not available on
acceptable terms, we may be unable to continue our operations at current levels.
In addition, any failure to raise additional funds in the future may result in
our inability to successfully promote our brand name, develop or enhance our
Lend-X Technology or other services, take advantage of business opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on our financial condition and results of operations.
OUR BUSINESS MODEL IS UNPROVEN AND COULD FAIL.
Our business model and profit potential are unproven and we cannot
assure you that we will be able to become profitable. To achieve profitability
in our exchange segment, our revenue per consumer must consistently exceed not
only the costs of attracting a consumer to our website, but also the costs of
inducing the consumer to use our services. Historically, this has not been the
case. Our revenue model depends heavily on revenue generated from lenders
participating in our network who pay us fees based upon their receipt of credit
requests, and fees based upon loan closings. We also license our Lend-X
Technology to other companies, who can create single and multi-lender online
exchanges. To become profitable, we must achieve and maintain broad market
acceptance of our service by both lenders and consumers who have traditionally
used other means to lend and borrow money. In addition, we must attract a
sufficient number of consumers with credit profiles that our lenders target. Our
online lending exchange model may not gain or maintain the widespread acceptance
necessary to support our business, in which case we may find it necessary to
alter our business model. We cannot accurately predict what, if any,
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changes we would make to our business model in response to the uncertainties in
the online lending market. These changes might include shifting all or a portion
of our fees to consumers or reducing fees currently charged to lenders to expand
volume more quickly. Shifting fees to consumers may not be feasible, as other
companies may be able to offer comparable services with no fees. If we are not
able to anticipate and adapt to changes in the industry or if our business
model is not successful, we may be unable to expand our business and the value
of your investment could be significantly reduced.
WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES FOR 2001.
We have never been profitable. We incurred losses from operations of
approximately $66.1 million in 2000. As of December 31, 2000, we had an
accumulated net deficit of approximately $98.1 million. We anticipate that our
future expense levels will continue to exceed future revenue based on our
operating plans for 2001. We may find it necessary to accelerate expenditures
relating to our sales and marketing efforts or otherwise increase our financial
commitment to creating and maintaining brand awareness among consumers and
lenders. If our revenue grows at a slower rate than we anticipate, or if our
spending levels exceed our expectations or cannot be adjusted to reflect slower
revenue growth, we may not achieve or sustain profitability.
OUR LIMITED OPERATING HISTORY MAKES OUR BUSINESS AND PROSPECTS DIFFICULT TO
EVALUATE.
We have a limited operating history. We were formed in 1996 and began
serving consumers across the United States in July 1998. There is no significant
historical basis to assess how we will respond to competitive, economic or
technological challenges. Our business and prospects must be considered in
light of the risks and uncertainties frequently encountered by companies in the
early stages of development, particularly companies like ours, that operate in
new and rapidly developing online exchanges. Our failure to address these risks
and uncertainties could materially impact our results of operations and
financial condition.
OUR OPERATING RESULTS MAY BE NEGATIVELY IMPACTED BY FLUCTUATIONS IN INTEREST
RATES.
During the fiscal year ended December 31, 2000, revenue earned from
mortgage lenders, traditionally a market segment that is greatly impacted by
changes in interest rates, represented approximately 38% of our total revenue.
While interest rates were rising from January 2000 through July 2000 and
relatively steady from July 2000 through December 2000, our business continued
to show increases in website traffic, transmitted qualification forms for
mortgages and revenue from closed-loan fees for mortgages over the corresponding
periods of 1999. However, during future periods of rising interest rates we may
experience a decline in consumer traffic to our website and during periods of
robust credit demand, typically
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associated with falling interest rates, lenders may have less incentive to use
our exchange. Either of these events could reduce our revenue and we cannot
assess the effects of interest rates on our business over a broad range of
interest rate environments.
SUBSTANTIALLY ALL OF OUR ASSETS ARE PLEDGED UNDER AN EXISTING REVOLVING CREDIT
ARRANGEMENT AND CAPITAL LEASE OBLIGATIONS, AND WE MAY BE REQUIRED TO
COLLATERALIZE THE BALANCE OF ONE OF OUR CAPITAL LEASES WITH CASH.
Substantially all of our assets are pledged under the ULLICO revolving
credit arrangement and existing capital lease obligations. A covenant in one of
our capital lease agreements requires that we maintain a cash balance of not
less than $5 million throughout the term of the lease. If our cash balance falls
below $5 million at the end of a period, we will be required to collateralize
the balance of the lease with cash.
In addition, important components of our intellectual property are
subject to an amended software customization, license and services agreement by
and between LendingTree and the Federal Home Loan Mortgage Corporation, pursuant
to which our code software will be released to Freddie Mac from escrow if we
fail to meet specified repayment obligations, financial covenants or reporting
requirements.
RISKS RELATED TO OUR MARKETS AND STRATEGY
OUR FUTURE SUCCESS IS DEPENDENT UPON INCREASED ACCEPTANCE OF THE INTERNET BY
CONSUMERS AND LENDERS AS A MEDIUM FOR LENDING.
If consumer and lender acceptance of our online exchange does not
increase, our business will not succeed and the value of your investment may be
adversely affected. The online lending market is new and rapidly developing. The
adoption of online lending in general, and our exchange in particular, requires
the acceptance of a new way of conducting business, exchanging information and
applying for credit by consumers, as well as acceptance by lenders that have
historically relied upon traditional lending methods. As a result, we cannot be
sure that we will be able to compete effectively with traditional borrowing and
lending methods.
LENDERS IN OUR NETWORK ARE NOT PRECLUDED FROM OFFERING CONSUMER CREDIT PRODUCTS
OUTSIDE OUR EXCHANGE.
If a significant number of our potential consumers are able to obtain
loans from our participating lenders without utilizing our service, our ability
to generate revenue may be limited. Because we do not have exclusive
relationships with the lenders whose loan products are offered on our online
exchange, consumers may obtain offers and loans from these lenders without using
our service. Our lenders can
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offer their products directly to consumers through brokers, mass marketing
campaigns, or through other traditional methods of credit distribution. These
lenders can also offer their products over the Internet without using our Lend-X
Technology, either directly to prospective borrowers, through one or more of our
online competitors, or both.
IF OUR PARTICIPATING LENDERS DO NOT PROVIDE COMPETITIVE LEVELS OF SERVICE TO
CONSUMERS, OUR BRAND WILL BE HARMED AND OUR ABILITY TO ATTRACT CONSUMERS TO OUR
WEBSITE WILL BE LIMITED.
Our ability to provide a high-quality borrowing experience depends in
part on consumers receiving competitive levels of convenience, customer service,
pricing terms and responsiveness from our participating lenders. If our
participating lenders do not provide consumers with competitive levels of
convenience, customer service, price and responsiveness, the value of our brand
may be harmed, our ability to attract consumers to our website may be limited
and the number of consumers using our service may decline.
WE MAY NOT BE ABLE TO MANAGE OUR EXPANDING OPERATIONS EFFECTIVELY.
We have recently experienced a period of rapid expansion. In order to
execute our business plan, we must continue to expand significantly. Our
inability to expand our operations in an efficient manner could cause our
expenses to grow disproportionately to our revenue, or revenue to decline or
grow more slowly than expected, or could otherwise have a material adverse
effect on our business and the value of your investment. Our anticipated future
growth, combined with the requirements we now face as a public company, will
continue to place a significant strain on our management, systems and resources.
We will need to continue to expand and maintain close coordination among our
technical, accounting, finance and sales and marketing departments. We may not
succeed in these efforts.
OUR QUARTERLY OPERATING RESULTS ARE NOT AN INDICATION OF OUR FUTURE RESULTS, AND
THE GUIDANCE WE PROVIDE TO ANALYSTS MAY PROVE TO BE INCORRECT.
Our quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors that affect our revenue or expenses
in any particular quarter. Our quarterly results will fluctuate in part based on
the demand for and supply of consumer loans which are a function of seasonal and
other fluctuations in interest rates and related economic factors, all of which
are outside of our control. These temporary fluctuations could adversely affect
our business.
In addition, we expect that as our business matures we will experience
seasonal fluctuations in our operating results as a result of fluctuations in
consumer credit markets during the year. For example, home buying behavior is
seasonal. Typically there are a greater number of mortgage closings during the
second and third quarters of a year as compared to the first and fourth
quarters. Because of our
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limited operating history, it has not been possible for us to assess the impact
of seasonal effects on our business.
From time to time, we issue guidance to analysts and the financial
community regarding our projected results for future periods and revisions to
guidance previously issued. The dissemination of guidance or revisions to
guidance previously issued may increase the volatility of our stock price.
IF WE ARE UNABLE TO MAINTAIN OUR BRAND RECOGNITION, CONSUMER AND LENDER DEMAND
FOR OUR SERVICE MAY DWINDLE.
If we fail to promote and maintain our brand successfully, or incur
significant expenses in promoting our brand and fail to generate a corresponding
increase in revenue as a result of its branding efforts, our business could be
materially adversely affected. We believe we have successfully built a
recognizable brand. We believe that continuing to build and maintain brand
awareness of the LendingTree exchange and Lend-X is critical to achieving
increased demand for our service. Brand recognition is a key differentiating
factor among providers of online lending services, and we believe it will be
increasingly important as competition intensifies. In order to increase our
brand awareness, we must succeed in our marketing efforts, provide high-quality
services and increase the number of consumers using our exchange. If visitors to
our website do not perceive our existing service to be of high quality or if we
alter or modify our existing service, introduce new services or enter into new
business ventures that are not favorably received, the value of our brand could
be diluted, which could decrease the attractiveness of our service to consumers
and lenders.
WE CANNOT ASSURE YOU THAT ANY ACQUISITIONS WE MAY ELECT TO MAKE WILL BE
SUCCESSFUL.
Our future results of operations may be dependent, in part, upon the
ability of our management to assimilate the operations of any acquisitions and
to oversee these expanded operations. Our ability to manage any acquisitions
will depend upon a number of factors, including our capital resources, our
ability to retain key employees and our ability to control operating and
production costs. We cannot assure you that we will be successful in these
efforts or that these efforts may not, in certain circumstances, adversely
affect our operating results.
OUR BUSINESS COULD SUFFER IF WE LOSE THE SERVICES OF MR. LEBDA.
If we lose the services of Douglas Lebda, our founder, Chief Executive
Officer, and a director, our ability to expand our business may be seriously
compromised. Mr. Lebda has been instrumental in determining our strategic
direction and focus and in promoting the concept of an Internet-based lending
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exchange for consumers and lenders. We do not maintain key person insurance on
Mr. Lebda.
RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY INFRASTRUCTURE
WE MAY EXPERIENCE REDUCED VISITOR TRAFFIC, REDUCED REVENUE AND HARM TO OUR
REPUTATION IN THE EVENT OF UNEXPECTED NETWORK INTERRUPTIONS CAUSED BY SYSTEM
FAILURES.
Any significant failure to maintain the satisfactory performance,
reliability, security and availability of our website, filtering systems or
network infrastructure may cause significant harm to our reputation, our ability
to attract and maintain a high volume of visitors to our website, and to attract
and retain participating consumers and lenders. Our revenue depends in large
part on the number of credit requests submitted by consumers. Any system
interruptions that result in the inability of consumers to submit these credit
requests, or more generally the unavailability of our service offerings, could
have an adverse impact on our revenue. In addition, we believe that consumers
who have a negative experience with our website may be reluctant to return to
our website or recommend LendingTree to other potential consumers.
In the past, our website has experienced outages and decreased
performance. In the worst such instance to date, in 1999 we experienced a
service outage for a period of approximately nine hours due to a database
software failure. If similar outages occur in the future, they may severely harm
our reputation and our ability to offer our service. Our computer hardware is
located in leased facilities in Beltsville, Maryland. A backup system is located
in Cupertino, California. If both of these locations experienced a system
failure, the performance of our website would be harmed. These systems are also
vulnerable to damage from fire, floods, power loss, telecommunications failures,
break-ins and similar events. Our insurance policies may not compensate us for
any losses that may occur as a result of any failures or interruptions in our
systems. Any extended period of disruptions could materially adversely affect
our business, results of operations and financial condition.
BREACHES OF OUR NETWORK SECURITY COULD SUBJECT US TO INCREASED OPERATING COSTS
AS WELL AS LITIGATION AND OTHER LIABILITIES.
Any penetration of our network security or other misappropriation of
our users' personal information could cause interruptions in our operations and
subject us to liability. Claims against us could also be based on other misuses
of personal information, such as for unauthorized marketing purposes. These
claims could result in litigation and financial liability. Security breaches
could also damage our reputation. We rely on licensed encryption and
authentication technology to effect secure transmission of confidential
information. It is possible that advances in computer capabilities, new
discoveries or other developments could result in a compromise or breach of the
technology that we use to protect consumer transaction
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data. We cannot guarantee that our security measures will prevent security
breaches. We may be required to expend significant capital and other resources
to protect against and remedy any potential or existing security breaches and
their consequences.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD IMPAIR OUR ABILITY TO
COMPETE EFFECTIVELY.
Failure to protect our intellectual property could harm our brand and
our reputation, devalue our content in the eyes of our customers and adversely
affect our ability to compete effectively. Further, enforcing or defending
LendingTree's intellectual property rights, including our service marks, patent
applications, copy rights and trade secrets, could result in the expenditure of
significant financial and managerial resources. We regard our intellectual
property as critical to LendingTree's success. To protect the rights to
LendingTree's intellectual property, we rely on a combination of patent,
trademark and copyright law, trade secret protection, confidentiality
agreements, and other contractual arrangements with our employees, affiliates,
clients and others. The protective steps we have taken may be inadequate to
deter misappropriation of our proprietary information. We may be unable to
detect the unauthorized use of, or take appropriate steps to enforce, our
intellectual property rights. We have applied for a U.S. patent and filed a
Patent Cooperation Treaty international patent application on our Lend-X
Technology and its online loan market process. While the number of software and
business method patents issued by the U.S. Patent and Trademark Office has been
growing substantially in recent years, there is still a significant degree of
uncertainty associated with these patents. It is possible that our patent
applications will be denied or granted in a very limited manner such that they
offer little or no basis for us to deter competitors from employing similar
technology or processes or allow us to defend against third party claims of
patent infringement.
RISKS RELATED TO LEGAL AND REGULATORY UNCERTAINTY
As an online lending exchange we may be liable as a result of
information retrieved from our website or the websites of businesses with which
we maintain relationships.
We may be subject to legal claims relating to information that is
published or made available on our website and the other websites linked to it.
Our service may subject us to potential liabilities or claims resulting from:
- Lost or misdirected messages from our network
lenders, consumers or vendors;
- Illegal or fraudulent use of e-mail; or
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- Interruptions or delays in transmission of
qualification forms or lenders' offers.
In addition, we could incur significant costs in investigating and
defending such claims, even if LendingTree ultimately is not found liable. If
any of these events occur, our business could be materially adversely affected.
FAILURE TO COMPLY WITH LAWS GOVERNING LENDINGTREE'S SERVICE OR MATERIAL CHANGES
IN THE REGULATORY ENVIRONMENT RELATING TO THE INTERNET COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
The loan products and services available through our website and the
real estate agent referral and other business relationships in which we operate
essentially as a non-processing mortgage broker, are subject to extensive
regulation by various federal and state governmental authorities. Because of
uncertainties as to the applicability of some of these laws and regulations to
the Internet and, more specifically, to our business, and considering our
business has evolved and expanded in a relatively short period of time, we may
not always have been, and may not always be, in compliance with applicable
federal and state laws and regulations. Failure to comply with the laws and
regulatory requirements of federal and state regulatory authorities may result
in, among other things, revocation of required licenses or registrations, loss
of approved status, termination of contracts without compensation, loss of
exempt status, indemnification liability to lenders and others doing business
with us, administrative enforcement actions and fines, class action lawsuits,
cease and desist orders, and civil and criminal liability. The occurrence of one
or more of these events could materially affect our business and results of
operations.
MANY STATES REQUIRE US TO OBTAIN LICENSES TO OFFER MANY OF OUR PRODUCTS AND WE
HAVE NOT OBTAINED THOSE LICENSES IN EVERY STATE.
Many, but not all, states require licenses to solicit or broker to
residents of those states, loans secured by residential mortgages and other
consumer loans, including credit card, automobile and personal loans. We are
currently neither licensed nor able to accept credit requests for all loan
products in every state. We are not currently accepting credit requests for loan
products from residents of states in which we are not licensed to provide those
products. In many of the states in which we are licensed, we are subject to
examination by regulators.
In addition, we are required to obtain real estate broker licenses,
additional mortgage broker licenses and individual call center personnel
licenses in numerous states. Failure to obtain these licenses and approvals
could prevent us from receiving fees from the real estate agent referral and
mortgage services programs we offer and may subject us to the types of fines,
forfeitures and litigation discussed above.
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As a computer loan origination system or mortgage broker conducting
business through the Internet, we face an additional level of regulatory risk
given that most of the laws governing lending transactions have not been
substantially revised or updated to fully accommodate electronic commerce. Until
these laws, rules and regulations are revised to clarify their applicability to
transactions conducted through electronic commerce, any company providing
loan-related services through the Internet or other means of electronic commerce
will face compliance uncertainty. Federal law, for example, generally prohibits
the payment or receipt of referral fees in connection with residential mortgage
loan transactions. The applicability of referral fee prohibitions to the
compensation provisions of fee advertising, marketing, distribution and
cyberspace rental arrangements used by online companies like us may have the
effect of reducing the types and amounts of fees that we may charge or pay in
connection with real estate-secured products.
BECAUSE SOME STATE REGULATIONS IMPOSE FILING OBLIGATIONS ON SOME OF OUR LARGEST
STOCKHOLDERS AND CUSTOMERS, IF ANY OF THESE PARTIES FAIL TO COMPLY WITH THESE
FILING OBLIGATIONS, WE MAY BE UNABLE TO OBTAIN OR MAINTAIN NECESSARY LICENSES IN
THESE STATES FOR REASONS BEYOND OUR CONTROL.
Regulations promulgated by some states may impose compliance
obligations on any person who acquires 10% or more of our common stock,
including requiring that person to periodically file financial and other
personal and business information. If any person acquires 10% or more of
LendingTree's common stock and refuses or fails to comply with these
requirements, we may not be able to obtain a license and existing licensing
arrangements in particular states may be jeopardized. The inability to obtain,
or the loss of, required licenses could have a material adverse effect on our
operations or financial condition.
The parties conducting business with us, such as lenders and other
website operators, similarly may be subject to federal and state regulation.
These parties act as independent contractors and not as our agents in their
solicitations and transactions with consumers. Consequently, we cannot ensure
that these entities will comply with applicable laws and regulations at all
times. Failure on the part of a lender or an affiliated website to comply with
these laws or regulations could result in, among other things, claims of
vicarious liability or a negative impact on our reputation. The occurrence of
one or more of these events could materially adversely affect our business,
results of operation and financial condition.
REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD INHIBIT
THE GROWTH OF THE INTERNET, DECREASE THE NUMBER OF VISITORS TO LENDINGTREE'S
WEBSITE OR OTHERWISE MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Existing laws and regulations specifically regulate communications and
commerce on the Internet. Additional laws and regulations that address issues
such as user privacy, pricing, online content regulation, online real estate
referral services, taxation, and the characteristics and quality of online
products and services are under
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consideration by federal, state and local governments and agencies. Several
telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online service providers
in a manner similar to the regulation of long distance telephone carriers and to
impose access fees on such companies. This regulation, if imposed, could
increase the cost of transmitting data over the Internet.
Moreover, it may take years to determine the extent to which existing
laws relating to issues such as intellectual property ownership and infringement
and personal privacy are applicable to the Internet. Many of these laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. The Federal Trade Commission and government agencies in
certain states have been investigating Internet companies regarding their use of
personal information. We could incur additional expenses if any new regulations
regarding the use of personal information are introduced or if these agencies
choose to investigate our privacy practices. Any new laws or regulations
relating to the Internet, or new application or interpretation of existing laws,
could inhibit the growth of the Internet as a medium for commerce or credit
procurement which could, in turn, decrease the demand for our service or
otherwise materially adversely affect our business, results of operation and
financial condition.
WE MAY BE LIMITED OR RESTRICTED IN THE WAY WE ESTABLISH AND MAINTAIN OUR ONLINE
RELATIONSHIPS BY LAWS GENERALLY APPLICABLE TO OUR BUSINESS.
The Real Estate Settlement Procedures Act, or RESPA, and related
regulations generally prohibit the payment or receipt of fees or any other item
of value for the referral of a real estate-secured loan to a loan broker or
lender. RESPA and the related regulations also prohibit fee shares or splits or
unearned fees in connection with the provision of residential real estate
settlement services, including mortgage brokerage and lending services.
Notwithstanding these prohibitions, RESPA permits payments for goods or
facilities furnished or for services actually performed, so long as those
payments bear a reasonable relationship to the market value of the goods,
facilities or services provided. Failure to comply with RESPA may result in,
among other things, administrative enforcement actions, class action lawsuits,
cease and desist orders and civil and criminal liability.
The mortgage and home equity products offered through LendingTree's
exchange are residential real estate secured loans subject to these provisions
of RESPA. Consequently, our online relationships with lenders, other companies
and websites on which we offer services are subject to RESPA's prohibitions on
payment or receipt of referral fees for referrals and for unearned fees or fee
splits. We believe that we have structured these relationships to comply with
RESPA. The applicability of RESPA's referral fee and fee splitting prohibitions
to these types of Internet-based relationships, however, is unclear and the
appropriate regulatory agency has provided limited guidance to date on the
subject.
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RISKS RELATED TO OUR STOCK PRICE AND CORPORATE CONTROL
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET, INCLUDING
THE SHARES OFFERED BY THIS PROSPECTUS, COULD REDUCE THE VALUE OF YOUR
INVESTMENT.
Sales of a substantial number of shares of our common stock in the
public market could cause a reduction in the market price of our common stock.
This prospectus covers 25,050,034 or approximately 134% of our issued and
outstanding common stock at March 31, 2001. As of March 31, 2001, we had
18,737,441 common shares issued and outstanding. Because the 8% convertible
preferred stock accrues dividends at 8% per annum and because we may pay those
dividends by increasing the number of shares issuable on conversion of the 8%
convertible preferred stock, the accrued dividends may result in additional
shares of common stock being issued upon conversion of shares of 8% convertible
preferred stock. In addition, the price protection provisions of the 8%
convertible preferred stock may result in an upward adjustment to the number of
shares of common stock issuable upon conversion of the 8% convertible preferred
stock, which would result in further dilution to our common stockholders. The
shares of 8% convertible preferred stock are not convertible unless and until we
receive the approval of our stockholders. In connection with the sale of the 8%
convertible preferred stock, stockholders representing a majority of our
outstanding voting securities entered into a voting agreement and executed
irrevocable proxies under which they agree to vote their shares in favor of the
conversion provisions of the 8% convertible preferred stock at our annual
meeting in May 2001.
At March 31, 2001, we also had outstanding stock options to purchase
5,009,944 shares and warrants to purchase 1,045,385 shares. Moreover, we may
issue additional shares in acquisitions and may grant additional stock options
to our employees, officers, directors and consultants under our stock option
plan. Any substantial sales of such shares my cause our stock price to decline.
THE ISSUANCE OF SHARES UNDER OUR EQUITY LINE OF CREDIT MAY CAUSE SIGNIFICANT
DILUTION TO OUR STOCKHOLDERS AND MAY HAVE AN ADVERSE IMPACT ON THE MARKET PRICE
OF OUR COMMON STOCK.
The resale of the common stock that we may issue under our equity line
of credit would increase the number of our publicly traded shares, which could
depress the market price of our common stock. Moreover, as all the shares we may
issue under the equity line would be available for immediate resale, the mere
prospect of our sales under the equity line could depress the market price for
our common stock. The shares of our common stock issuable under the equity line
facility will be sold to the purchaser at a 5% discount to the volume-weighted
average price of our stock over the 22 trading days preceding a drawdown request
The issuance of shares under
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the equity line will therefore dilute the equity interest of existing
stockholders and could have an adverse effect on the market price of our common
stock.
The perceived risk of dilution may cause our stockholders to sell their
shares, which would contribute to a downward movement in the stock price of our
common stock. Moreover, the perceived risk of dilution and the resulting
downward pressure on our stock price could encourage investors to engage in
short sales of our common stock. By increasing the number of shares offered for
sale, material amounts of short selling could further contribute to further
declines in the price of our common stock.
HOLDERS OF OUR RECENTLY ISSUED 8% CONVERTIBLE PREFERRED STOCK HAVE SIGNIFICANTLY
GREATER RIGHTS AND PREFERENCES THAN OUR COMMON STOCKHOLDERS.
The holders of our 8% convertible preferred stock have rights and
preferences that are senior to those of our common stockholders in many
significant respects. The existence of these rights and preferences may, in a
given situation, result in a diminution in the value of your investment in our
common stock. Among the preferential rights afforded to the holders of our 8%
convertible preferred stock are the following:
- Dividends and Distributions. Dividends must be paid to the
holders of the 8% convertible preferred stock prior to and in
preference to the common stock. Dividends not paid in cash
will accumulate and increase the stated value of the 8%
convertible preferred stock which will be realized by the
holders upon conversion or redemption of their shares.
- Redemption Premium. We are required to redeem all shares of 8%
convertible preferred stock that remain outstanding on March
20, 2006 at a 5% premium to the then current "stated value"
per share, which equals $3.50 per share, plus accrued
dividends. If a significant portion of the 8% convertible
preferred stock remains outstanding on March 20, 2006, all or
substantially all of our assets may be necessary to fund this
redemption. We also are entitled, at our option, to redeem the
8% convertible preferred stock between March 2004 and March
2006 at a premium that ranges from 120% to 105% over that
two-year period.
- Price Protection. In certain circumstances, the economic value
of the investment in our 8% convertible preferred stock is
protected against future sales of common stock by us at prices
below $3.50 per share. If we sell additional securities at a
price below $3.50 per share, the price at which the 8%
convertible preferred stock converts into common stock may be
adjusted downward, which would automatically entitle these
holders to receive additional shares of
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common stock upon conversion. No such protection exists with
respect to our common stock.
- Protective Provisions. So long as more than 1,377,143 shares
of our 8% convertible preferred stock are outstanding, we are
restricted from engaging in a variety of corporate actions
without the consent of 68.5% of the shares of 8% convertible
preferred stock then outstanding. These provisions may impede
management's ability to conclude transactions that it believes
to be in the best interests of all stockholders.
- Liquidation Preference. In the event LendingTree is liquidated
or dissolves, the holders of our 8% convertible preferred
stock will be entitled to receive a liquidation preference
equal to 105% of the then current stated value per share,
before any distributions may be made to holders of our common
stock.
- Change in Control. Upon a merger or change in control, holders
of our 8% convertible preferred stock may have the right to
receive the greater of the liquidation preference described
above or the consideration that they would have received if
they had converted their shares of 8% convertible preferred
stock into common stock immediately prior to the consummation
of the merger or change in control event. In a non-cash
transaction, the holders of 8% convertible preferred stock may
effectively require that the counterparty to such transaction
redeem the convertible preferred stock for a cash amount equal
to the liquidation preference. These provisions may inhibit
our ability to consummate a merger or change in control
transaction and will likely reduce the proceeds of any such
transaction to our common stockholders.
- Preemptive Rights. Subject to exceptions, holders of the 8%
convertible preferred stock may purchase up to 50% in the
aggregate of the shares that we may subsequently issue to
other parties.
Any of the foregoing rights and preferences may, in a given situation,
disadvantage the holders of our common stock and may reduce the market price of
our common stock.
IF OUR COMMON STOCK PRICE DROPS SIGNIFICANTLY, WE MAY BE DELISTED FROM THE
NASDAQ NATIONAL MARKET, WHICH COULD ELIMINATE THE TRADING MARKET FOR OUR COMMON
STOCK.
Our common stock is quoted on the Nasdaq National Market. In order to
continue to be included in the Nasdaq National Market, a company must meet
Nasdaq's maintenance criteria. The maintenance criteria most applicable to us
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requires a minimum bid price of $1.00 per share, $4,000,000 in net tangible
assets and $5,000,000 market value of the public float. The public float
excludes shares held directly or indirectly by any of our officers, directors
and holders of 10% or more of our outstanding common stock. As of December 31,
2000, we had approximately $17.5 million of net tangible assets, the market
value of our public float, excluding these persons, was approximately $9.2
million and the lowest bid price of our common stock since February 16, 2000 was
$1.781. We cannot assure you that we will continue to meet these listing
criteria. The issuance by us of shares of common stock to Paul Revere, or the
subsequent resale by Paul Revere of those shares, in either case at a discount
to the market price, may reduce the trading price of our common stock to a level
below the Nasdaq minimum bid price requirement. Failure to meet these
maintenance criteria may result in the delisting of our common stock from the
Nasdaq National Market. If our common stock is delisted and in order to have our
common stock relisted on the Nasdaq National Market, we would be required to
meet the criteria for initial listing, which are more stringent than the
maintenance criteria. Accordingly, we cannot assure you that if we were delisted
we would be able to have our common stock relisted on the Nasdaq National
Market.
If our common stock were delisted from the Nasdaq National Market, we
would not be able to draw down any additional funds on the equity line. Finally,
if our common stock is removed from listing on the Nasdaq National Market, it
may become more difficult for us to raise funds through the sale of our common
stock or securities convertible into our common stock.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE LENDINGTREE, WHICH COULD
DEPRESS OUR STOCK PRICE.
Delaware corporate law and our amended and restated certificate of
incorporation and by-laws contain provisions that could have the effect of
delaying, defer ring, or preventing a change in control of LendingTree or our
management and stockholders may consider favorable or beneficial. These
provisions could discourage proxy contests and make it more difficult for you
and other stockholders to elect directors and take other corporate actions.
These provisions could also limit the price that investors might be willing to
pay in the future for shares of our common stock. These provisions include:
- Authorization to issue blank check preferred stock, which is
preferred stock that can be created and issued by the board of
directors without prior stockholder approval, with rights
senior to our common stock holders;
- A staggered board of directors, so that it would take three
successive annual meetings to replace all directors;
- A requirement that business combinations with interested
stockholders either be approved by 80% of our stockholders or
a
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majority of our continuing directors, or provide consideration
to our stockholders in excess of established amounts;
- Prohibition of stockholder action by written consent; and
- Advance notice requirements for the submission by stockholders
of nominations for election to the board of directors and for
proposing matters that can be acted upon by stockholders at a
meeting.
In addition, we have entered into a stockholder rights agreement which
makes it more difficult for a third party to acquire us without the support of
our board of directors and principal stockholders.
OUR EXECUTIVE OFFICERS AND DIRECTORS AND ENTITIES AFFILIATED WITH THEM, WHOSE
INTERESTS MAY DIFFER FROM OTHER STOCKHOLDERS, HAVE THE ABILITY TO EXERCISE
SIGNIFICANT CONTROL OVER US.
Our executive officers, directors and entities affiliated with them, as
a group, beneficially own approximately 59% of our common stock. These
stockholders are able to exercise significant influence over all matters
requiring approval by our stockholders, including the election of directors and
the approval of significant corporate transactions, including a change of
control of LendingTree. The interests of these stockholders may differ from the
interests of our other stockholders.
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FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not
based on historical facts. The words "expects," "anticipates," "estimates,"
"intends," "believes," "plans" and similar expressions are intended to identify
forward-looking statements. We believe, based on information available to us on
the date of this prospectus, that our assumptions and expectations are accurate.
However, we cannot assure you that these assumptions and expectations will prove
to have been correct or that we will take any action that we may presently be
planning. We disclosed several important factors that could cause our actual
results to differ materially from our current expectations under "Risk Factors"
and elsewhere in this prospectus. You should understand that forward-looking
statements made in connection with this offering are necessarily qualified by
these factors. We are not undertaking to publicly update or revise any
forward-looking statement if we obtain new information or upon the occurrence of
future events or otherwise.
MARKET DATA
This prospectus contains market data related to our business and the
Internet. This market data includes projections that are based on a number of
assumptions. The assumptions include the following:
- no catastrophic failure of the Internet will occur;
- the number of people online and the total number of hours
spent online will increase significantly over the next five
years; and
- Internet security and privacy concerns will be adequately
addressed.
If any one or more of these assumptions turns out to be incorrect, actual
results may differ from the projections based on these assumptions. The
Internet-related markets may not grow over the next three to four years at the
rates projected by these market data, or at all. The failure of these markets to
grow at these projected rates may have a material adverse effect on our business
and the market price of our common stock.
USE OF PROCEEDS
All net proceeds from the sale of the shares of common stock covered by
this prospectus will go to the selling stockholders. We will not receive any
proceeds from the sale of the common stock by the selling stockholders.
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DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock
since inception and do not expect to pay any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
expansion of our business. The payment of dividends will be subject to the
preferences of our 8% convertible preferred stock and will depend upon factors
such as future earnings, capital requirements, our financial condition and
general business condition.
The holders of the 8% convertible preferred stock are entitled to
receive, whether or not declared by our board of directors, dividends on the 8%
convertible preferred stock equal to 8% of the stated value per share, as
defined in the preferred stock purchase agreement, payable at our option:
- in cash on each quarterly dividend date, or
- by an upward adjustment to the stated value per share on each
quarterly dividend payment date.
Dividends on the 8% convertible preferred stock are cumulative and
accrue daily from the date of original issuance.
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SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with our financial statements and accompanying notes, along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1997, 1998, 1999 and 2000, and the balance sheet data
as of December 31, 1999 and 2000, are derived from, and are qualified by
reference to, our financial statements which have been audited by
PricewaterhouseCoopers LLP and are included in this prospectus. The balance
sheet data as of December 31, 1997 and 1998 are derived from our financial
statements which have been audited by PricewaterhouseCoopers LLP but are not
included in this prospectus. The statement of operations data for the period
from inception through December 31, 1996 and the balance sheet data as of
December 31, 1996 are unaudited. Historical results are not necessarily
indicative of the results to be expected in the future.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
PERIOD FROM
INCEPTION
THROUGH
DECEMBER 31,
1996 1997 1998 1999 2000
------------ ------- -------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Network .................................................. -- $ 2 $ 273 $ 6,112 $ 27,465
Lend-X Technology ........................................ -- -- 136 852 3,348
------- ------- -------- --------- ---------
Total revenue ....................................... -- 2 409 6,964 30,813
Cost of revenue:
Network .................................................. -- -- 235 2,209 7,568
Lend-X Technology ........................................ -- -- 149 312 1,804
------- ------- -------- --------- ---------
Total cost of revenue ............................... -- -- 384 2,521 9,372
------- ------- -------- --------- ---------
Gross profit ............................................... -- 2 25 4,443 21,441
Operating Expenses:
Product development ...................................... -- 293 1,051 1,109 2,677
Marketing and advertising ................................ -- 54 2,494 18,528 56,599
administrative ........................................... 4 621 2,955 10,056 28,268
------- ------- -------- --------- ---------
Total operating expenses .............................. 4 968 6,500 29,693 87,544
------- ------- -------- --------- ---------
Loss from operations ....................................... (4) (966) (6,475) (25,250) (66,103)
Loss on impaired investment .............................. -- -- -- -- (1,900)
Interest income, net ..................................... -- 3 41 505 2,145
Miscellaneous expense, net ............................... -- -- -- -- (145)
Accretion and dividends related to preferred stock ....... -- -- (24) (2,816) (2,461)
------- ------- -------- --------- ---------
Net loss attributable to common stockholders ............... $ (4) $ (963) $ (6,458) $ (27,561) $ (68,464)
======= ======= ======== ========= =========
Basic and diluted net loss per common share ................ $ (0.02) $ (1.20) $ (1.88) $ (7.74) $ (4.15)
======= ======= ======== ========= =========
Weighted average shares used in computing
basic and diluted net loss per common share .............. 259 803 3,435 3,560 16,512
======= ======= ======== ========= =========
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PERIOD FROM
INCEPTION
THROUGH
DECEMBER 31,
1996 1997 1998 1999 2000
------------ ------- -------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents, short term
investments and restricted investments ..................... -- $ 402 $ 3,085 $ 29,472 $ 12,716
Working Capital ............................................ $ (1) 333 2,666 26,474 7,937
Total assets ............................................... -- 424 3,687 33,767 37,957
Long-term capital lease obligations ........................ -- -- -- -- 848
Mandatorily redeemable preferred
securities ................................................. -- 4,631 -- --
Convertible preferred stock ................................ -- -- 59,118 --
Total stockholders' equity (deficit) ....................... $ (1) $ 353 $ (1,695) $ 27,737 $ 23,696
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion includes "forward-looking" statements that reflect our
current views with respect to future events and financial performance. We use
words such as we "expect," "anticipate," "estimate," "intend," "believe," "plan"
and similar expressions to identify forward-looking statements. Investors should
be aware that actual results may differ materially from our expressed
expectations because of risks and uncertainties inherent in future events,
particularly those risks identified in the "Risk Factors" section of this
prospectus, and should not unduly rely on these forward looking statements. We
will not necessarily update the information in this discussion if any
forward-looking statement later turns out to be inaccurate.
OVERVIEW
We incorporated in the state of Delaware on June 7, 1996 and began
serving consumers across the United States on July 1, 1998. In August 2000, we
acquired a nationwide network of real estate agents and other assets, and
assumed certain liabilities of HomeSpace Services, Inc.
We offer an Internet-based lending exchange for consumers and lenders.
We attract consumer demand to our exchange through our proprietary website
www.lendingtree.com as well as through private-label and co-branded exchanges
enabled by our technology platform, Lend-X(SM). In addition, through our
website, we provide access to other services related to owning, maintaining or
buying and selling a home, including a network of real estate brokers.
Consumers begin the LendingTree process on www.lendingtree.com by
completing a simple online credit information request, referred to as a
qualification form. Data from the qualification form, along with a credit score
calculated from credit reports retrieved by a credit scoring firm, is compared
to the underwriting criteria of lenders in our lender network. We currently have
more than 100 participating lenders in our network. Consumers can receive
multiple loan offers in response to a single credit request and then compare,
review, and accept the offer that best suits their needs. We believe that our
participating lenders can generate new business that meets their specific
underwriting criteria at a substantially lower cost of acquisition than through
traditional marketing channels. LendingTree's exchange encompasses most consumer
credit categories, including mortgages, home equity loans, automobile loans,
credit card, and personal loans.
We are not a lender. Rather, we are a lending exchange that seeks to
drive efficiency and cost savings in the consumer credit markets for both
consumers and lenders. We earn revenue from lenders that pay fees for every
qualification form that meets their underwriting criteria and is transmitted to
them, or transmission fees, and for loans that they close, or closed-loan fees.
Our website is powered by our lending exchange technology platform, Lend-X.
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We also license and host our Lend-X technology for use by other
businesses, enabling them to create their own customized co-branded or
private-label lending exchanges. Through these Lend-X partnerships, we can earn
revenue from technology fees related to customization, licensing and hosting the
third-party exchange, as well as from network sources such as transmission fees,
closed-loan fees and brokerage fees.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUE
Total revenue was approximately $30.8 million in the year ended
December 31, 2000, an increase of $23.8 million from $7.0 million in the same
period in 1999.
Network
Our network revenue was approximately $27.5 million, or 89% of total
revenue for the year ended December 31, 2000, compared with $6.1 million or 88%
of total revenue for the same period in 1999. This growth reflects a substantial
increase in volume of qualification forms we transmitted to our lenders and a
significant increase in the amount of revenue earned from closed-loan fees. We
attribute the increase in transmission volume, from approximately 186,000
discrete transmitted qualification forms in the year ended December 31, 1999 to
approximately 716,000 in the same period of 2000, primarily to our extensive
advertising campaign run during 2000. Although advertising expense was reduced
in the third and fourth quarters of 2000, as compared to the first and second
quarters of 2000, we attribute effectiveness of the increased brand awareness
and a significant increase in website traffic during 2000 to the effectiveness
of the increased advertising spending. The increase in closed-loan fees reflects
not only the increased transmission volume, but also an increase in the number
and variety of lenders on our network.
Added lenders create additional opportunities for consumer's credit
requests to be transmitted for evaluation and possible closure by a lender,
thereby creating revenue for us. Closed loans increased from 27,000 in 1999 to
approximately 145,000 in 2000.
We derive additional network revenue from credit requests that are
received through our Lend-X partners, private-label or co-branded websites of
other businesses that are enabled by our Lend-X Technology and brokerage
services. If these qualification forms are successfully transmitted to or
fulfilled by one of our network lenders, we earn transmission fees and
closed-loan fees, if applicable, from that lender. In arrangements where we
broker loans to specific lenders for a Lend-X partner, we receive a fee at the
time the loan closes. For 2000, we recorded $2.3 million of Lend-X related
network revenue, compared to none in 1999.
Lend-X Technology
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Lend-X Technology revenue totaled $3.3 million or 11% of our revenue
for the year ended December 31, 2000 compared to $0.9 million, or approximately
12.2% of total revenue in 1999. The increase in Lend-X Technology revenue is
principally the result of a significant new customization, implementation and
licensing contract that we entered into in the second quarter of 2000. Lend-X
Technology revenue recognized during the second and third quarters of 2000 under
this contract reflects our progress towards completion. For 2000, this single
customer accounted for $2.4 million, or 71% of the total Lend-X Technology
revenue.
GROSS PROFIT AND COST OF REVENUE
Gross profit of $21.4 million, or 70% of total revenue, for the year
ended December 31, 2000 was $17.0 million higher than in 1999, when we had gross
profit of $4.4 million or 64% of total revenue. These improvements in gross
margin and gross margin percentage are the result of the substantial increase in
network revenue, as noted above, without similar proportionate increases in
network costs of revenue.
Total cost of revenue increased $6.9 million to $9.4 million in 2000
from $2.5 million in 1999, principally as a result of increases in variable
network costs of revenue. The most significant portions of our costs of revenue
are volume-based. Costs such as credit scoring fees, consumer rebates, network
hosting expenses and direct costs to Lend-X partners tend to increase as volume
and revenue increase.
Network
For the year ended December 31, 2000, variable network costs of revenue
were $6.1 million or approximately $4.3 million higher than in 1999. In 2000,
variable network cost of revenue included $1.9 million for direct consumer
promotion costs associated with consumers that requested and qualified for
rebates. These promotional costs were $0.2 million in 1999. During 2000, the
most significant direct consumer promotion cost was associated with consumers
that requested and qualified for a credit card through network and also closed a
loan through our network of lenders. Other variable network costs related to
credit scoring, network hosting and Lend-X partners increased $1.0 million, $1.1
million and $0.5 million, respectively, as a result of increases in customer
volume.
Costs of revenue that are not directly volume-based, principally
personnel costs, increased approximately $1.0 million to $1.5 million in 2000,
reflecting an increased number of personnel in our implementation and customer
care departments.
Lend-X Technology
Costs of revenue associated with Lend-X Technology are principally
personnel and consultant costs related to projects to customize and implement
Lend-X for partners, as well as ongoing server costs related to hosting Lend-X
for these partners. Because we entered into several more Lend-X Technology
arrangements
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in 2000, these types of costs were $1.5 million higher in 2000, at $1.8 million,
compared to $0.3 million in 1999.
OPERATING EXPENSES
Product development expense was approximately $2.7 million for the year
ended December 31, 2000 and $1.1 million in 1999. The increase in product
development expense is principally related to increased personnel costs. Product
development costs represent costs incurred related to the ongoing efforts to
enhance and maintain the functionality of our Lend-X Technology and our website.
Marketing and advertising expenses increased $38.1 million to
approximately $56.6 million for the year ended December 31, 2000 compared to
$18.5 million in 1999. This increase is primarily due to substantially higher
advertising expenses in 2000 incurred in an effort to build and maintain our
brand awareness and attract users to our online lending exchange. During 2000,
we ran a national network and cable television advertising campaign and expanded
our radio and outdoor advertising campaigns to significantly more markets than
we did during 1999. We currently anticipate that marketing and advertising will
continue to be our most significant expense, as we will continue to run
promotional campaigns and maintains awareness for both our LendingTree and
Lend-X brands.
Sales, general and administrative expenses increased to $28.3 million
for the year ended December 31, 2000 from $10.1 million in 1999, an increase of
$18.2 million. Approximately $9.1 million of this increase is due to higher
employee-compensation related costs which are a result of the significant growth
in the business. Another $1.6 million of the increase relates to employee
related costs such as travel, relocation and recruiting fees. Professional and
consulting fees increased $1.6 million from 1999 to 2000, reflecting increased
professional development, technology consulting costs, public relations and
increased professional fees related to regulatory and intellectual property
matters. We also incurred $1.2 million in higher facilities, telephone,
utilities and related expenses primarily as a result of our move to a larger
facility and an increase in our number of personnel in 2000. The amortization of
the excess purchase price related to the HomeSpace asset acquisition contributed
$2.1 million of the increase. Bad debt expense increased $0.8 million from 1999.
Depreciation expenses increased $0.8 million from 1999 to 2000 reflecting new
equipment and software purchased in 2000. We do not expect sales, general and
administrative spending to continue to grow at these rates in the foreseeable
future.
Included in our operating expenses for the year ended December 31, 2000
is amortization of deferred non-cash compensation charges of $2.3 million. As of
December 31, 2000, our balance sheet reflected deferred non-cash compensation
charges of $3.1 million related to certain stock option and warrant grants that
were considered compensatory. The deferred charge related to stock options, $3.0
million, is being amortized over the four-year vesting period associated with
the related options, ending principally in the third quarter of 2003 and the
first quarter of 2004.
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The deferred charge related to warrants, $0.1 million, is being amortized
through January 2001, corresponding to the initial term of the underlying
service agreement.
LOSS ON IMPAIRED INVESTMENT
In February 2000, we made a $2.5 million equity investment in a company
providing mortgage exchange services over the Internet. Our minority investment
represents approximately 8.3% of the outstanding equity of that business and
accordingly, it is accounted for using the cost method of accounting. In
December 2000, our management determined that the carrying value of this
investment was impaired as a result of a series of historical and forecasted
operating losses and the prospect that the company might be unable to fund its
operations in the future. As a result of this impairment, our management wrote
the investment down to its estimated fair value of $0.6 million, recording $1.9
million as a non-operating loss on impaired investment.
INTEREST INCOME
Interest income consists primarily of interest earned on cash and cash
equivalents and short-term investments. Interest income increased to $2.1
million in the year ended December 31, 2000 from $0.5 million in the same period
in 1999. This increase was primarily due to higher average cash, short-term
investment and restricted investment balances in 2000 as a result of the net
proceeds from our initial public offering in February 2000 and the net proceeds
from a private offering of preferred stock in September 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUE
Total revenue was approximately $7.0 million in the year ended December
31, 1999, an increase of $6.6 million from $0.4 million in 1998.
Network
Network revenue accounted for $6.1 million, or 88% of total revenue for
the year ended December 31, 1999, compared with 67% for the year ended December
31, 1998. Network revenue in 1999 increased by $5.8 million from $0.3 million in
1998 primarily as a result of higher qualification form and closed loan volume.
Transmitted qualification form volume increased over nine times from
approximately 18,000 to approximately 186,000 during this period while the
number of loans closed increased nearly forty times from about 700 to 27,000.
Lend-X Technology
Lend-X Technology revenue accounted for $0.9 million, or 12% of total
revenue for the year ended December 31, 1999, compared with $0.1 million for the
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year ended December 31, 1998. The increase in Lend-X and other technology
revenue resulted primarily from the sale of more Lend-X licenses.
COST OF REVENUE
Network
Cost of network revenue increased to $2.2 million for the year ended
December 31, 1999, up from $0.2 million for the year ended December 31, 1998.
This increase in cost was as a result of volume-related expenses such as credit
scoring and network hardware expense and from an increase in personnel in the
borrower relations department. Our gross margin increased to 64% from 6% for the
years ended December 31, 1999 and 1998, respectively.
Lend-X Technology
Cost of Lend-X increased to $0.3 million for the year ended December
31, 1999 from $0.1 million for the year ended December 31, 1998. This increase
is primarily the result of greater direct hours incurred for Lend-X projects.
OPERATING EXPENSES
Product Development
Product development expense was $1.1 million for each of the years
ended December 31, 1999 and 1998.
Marketing and Advertising
Marketing and advertising expense increased to $18.5 million for the
year ended December 31, 1999 from $2.5 million for the year ended December 31,
1998, an increase of $16.0 million. This increase is primarily the result of
higher advertising expenses in order to build brand awareness and increase
volume to our exchange.
Sales, General and Administrative
Sales, general and administrative expense increased to $10.1 million
for the year ended December 31, 1999, an increase of $7.1 million from the year
ended December 31, 1998. The increase is primarily the result of higher
employee-related costs such as compensation, recruiting and relocation expenses,
rent for a larger facility and professional fees.
QUARTERLY RESULTS OF OPERATIONS
The following table, table presented in thousands, except per share
amounts, sets forth a summary of our unaudited quarterly results of operations
for each of the eight quarters in the two-year period ended December 31, 2000.
This information
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has been derived from unaudited interim financial statements contained elsewhere
in this prospectus and includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the quarters presented. You should read this information in conjunction with our
financial statements and the accompanying notes included elsewhere in this
prospectus. Historical results for any quarter are not necessarily indicative of
the results to be expected for any future period. All share and per shares
amounts referred to in the table below have been adjusted to reflect the 1.27
for 1 stock split of our common stock effected on February 22, 2000 upon the
closing of our initial public offering.
Quarter Ended
-----------------------------------------------------------------------------------------
Mar 31 Jun 30 Sept. 30 Dec. 31 Mar 31 Jun 30 Sept. 30 Dec. 31
1999 1999 1999 1999 2000 2000 2000 2000
------- ------- -------- -------- -------- -------- -------- --------
Revenue $ 637 $ 1,073 $ 2,318 $ 2,936 $ 4,483 $ 7,699 $ 9,030 $ 9,601
Gross profit 245 609 1,621 1,968 2,820 5,632 6,433 6,556
Net loss attributable to
common stockholders (4,263) (4,724) (8,266) (10,308) (19,691) (18,796) (15,031) (14,946)
Net loss per share (basic and
diluted) $ (1.12) $ (1.25) $ (2.24) $ (3.39) $ (2.07) $ (1.04) $ (0.81) $ (0.75)
LIQUIDITY AND CAPITAL RESOURCES
During 2000, we required $59.2 million of cash to fund operations. Such
amounts were expended primarily for advertising, expansion of our infrastructure
and support personnel, and working capital needs. Since inception, we have
incurred significant losses and had an accumulated deficit of $98.1 million as
of December 31, 2000. These uses of cash, losses and accumulated deficit have
resulted from the significant costs incurred for advertising and marketing
efforts to build and maintain brand awareness. Additionally, significant costs
have been incurred for employment expenses related to the establishment of
relationships with lenders, real estate brokers and other business partners and
the development of Lend-X, as well as for other general corporate purposes.
Because we plan to continue to invest in these items, we anticipate that we will
continue to incur losses and experience negative cash flow from operations
throughout 2001. As of December 31, 2000, we had approximately $12.7 million in
cash, cash equivalents and short-term investments. Of this amount, $5.1 million
was restricted under an escrow arrangement with our advertising agency.
As more fully described in the prospectus summary and in the notes to
our financial statements incorporated by reference herein, subsequent to
December 31, 2000, we signed definitive documents for the following financing
transactions:
- A preferred stock purchase agreement with various investors,
pursuant to which we issued and sold, on March 20, 2001,
3,700,001 shares of 8% convertible preferred stock for $13.0
million or $3.50 per share, in cash. On March 20, 2001, we
also sold 200,000 shares of our 8% convertible preferred stock
to our Chief Executive Officer for $700,000, funds which he
obtained through a loan from us. On March 20, 2001 we also
sold 200,000 shares of 8% convertible preferred
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stock to our Chief Executive Officer for $700,000 through a
loan he obtained through us. On April 30, 2001, three other
investors, including our Chief Financial Officer, purchased an
additional 128,751 shares for a total consideration of
$450,000 plus accumulated but unpaid dividends to the date of
such closing.
- A two-year $5.0 million collateralized revolving credit
agreement with The Union Labor Life Insurance Company, or
ULLICO, a current stockholder. Interest on the outstanding
balance accrues at a rate of 6% per annum in cash, and
additional interest in the form of 5-year warrants to purchase
our common stock at a price of $.01 per share. The number of
warrants ULLICO is entitled to receive is based on the average
amount outstanding multiplied by 14% per annum divided by
$3.99. In addition, as a commitment fee, ULLICO received
warrants to purchase 40,000 fully paid shares of our common
stock with an exercise price of $.01 per share.
- A two-year $2.5 million revolving loan agreement with the
Federal Home Loan Mortgage Corporation, or Freddie Mac, a
current customer. Interest on the outstanding balance accrues
at a rate of 10% per annum in cash, and additional interest in
the form of 5-year warrants to purchase the our common stock
at a price of $.01 per share. The number of warrants Freddie
Mac will be entitled to receive is based on the average amount
outstanding on the revolving line of credit multiplied by 10%
per annum divided by $3.99. In addition, as a commitment fee,
Freddie Mac received warrants to purchase 12,500 fully paid
shares of our common stock with an exercise price of $.01 per
share.
- A common stock purchase agreement with Paul Revere Capital
Partners, Ltd. for the future issuance and sale of up to $24
million of our common stock. Under this arrangement, we, at
our discretion, may exercise up to 24 drawdowns, pursuant to
which Paul Revere is obligated to purchase that number of
shares of our common stock specified in the drawdown notice,
subject to shareholder approval if the aggregate number of
shares to be issued exceeds 19.9% of our common stock.
While the number of interest warrants to be issued under the $5 million
revolving line of credit and the $2.5 million revolving loan facility will be
determined as described in the notes to our financial statements, the actual
amount of interest expense will be based on the fair value of these securities
on the date that they are issued. Accordingly, for every interest warrant
issued, each dollar that the price of our common stock on each warrant issuance
date exceeds $3.99 will increase the actual interest expense recorded by us by
approximately one dollar.
Management believes that the existing cash and cash equivalents, the
proceeds from the 8% convertible preferred stock sales noted above, the
availability of the revolving credit facilities and cash generated from
operations will be sufficient to fund our operating and capital needs through
2001.
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Although we have historically experienced significant revenue growth
and plan to reduce negative cash flows from operations, the operating results
for future periods are subject to numerous uncertainties. Since there can be no
assurance that revenue growth will continue or that we will be able to achieve
or sustain profitability, our liquidity could be significantly affected.
However, if revenue does not grow as anticipated or if we are unable to
successfully raise sufficient additional funds through the $24 million
equity-line referred to above, or in another manner, management would reduce
discretionary operating expenditures, including advertising, marketing,
administrative and overhead costs. While we believe that available funds will be
sufficient to fund our operations and capital expenditures through 2001, after
which management believes we will become cash flow positive, failure to generate
sufficient revenue or to reduce costs as necessary could have a material adverse
effect on our ability to continue as a going concern and achieve our business
objectives.
Additional financing may not be available when needed or, if available,
such financing may not be on terms favorable to us. If we raise additional funds
through the issuance of equity securities, our stockholders may experience
significant dilution.
On April 18, 2001, we announced that during the first quarter of 2001,
LendingTree recognized revenue of $12.3 million, which was nearly $3 million, or
28%, greater than the prior quarter and nearly 200% greater than the first
quarter of 2000. Our net loss for the first quarter of 2001 was $10.2 million,
or $0.52 per share, which declined approximately $5.0 million, or 32%, from the
prior quarter. As of March 31, 2001, LendingTree had approximately $16.5 million
in cash, cash equivalents and restricted investments available.
Substantially all of our assets are pledged under the ULLICO revolving
credit arrangement and existing capital lease obligations. A covenant in one of
our capital lease agreements requires that we maintain a cash balance of not
less than $5 million throughout the term of the lease. If our cash balance falls
below $5 million at the end of a period, we will be required to collateralize
the balance of the lease with cash.
On September 29, 2000, we received $10 million from Capital Z Partners,
our largest investor, through its affiliate, Specialty Finance Partners, in
exchange for an equity rights certificate. In connection with the 8% convertible
preferred stock sale described above, Specialty Finance Partners converted the
equity rights certificate for 2.86 million shares of 8% convertible preferred
stock.
On February 15, 2000, we sold 4,197,500 shares of our common stock at
an initial public offering price of $12.00 per share, raising approximately
$44.8 million net of offering costs, underwriting discounts and commissions.
Excluding our initial public offering and the September 29, 2000
financing noted above, we have financed our operations primarily through private
placements of securities, raising over $64 million, net of offering costs since
inception.
Restricted cash at December 31, 2000 of $5.1 million includes
investments that are maintained in an escrow account. This escrow account was
established by us and our advertising agency to maintain funds set aside by us
for non-cancelable and approved
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expenditures and services of the advertising agency. Disbursements from the
escrow account can only be made for advertising expenditures we have approved in
advance.
On August 2, 2000, we acquired certain assets and assumed certain
liabilities of HomeSpace. The consideration paid for the acquired assets
consisted of $6.2 million in cash and 639,077 shares of our common stock.
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BUSINESS
We are a leading online lending exchange and technology provider. Our
lending exchange technology, Lend-X, powers our online lending exchange, as well
as the online lending offerings of other institutions. On our website, qualified
consumers may receive multiple loan offers, within one business day, in response
to a single loan request for home mortgages, home equity loans, personal loans,
automobile financing loans and credit cards. More than 100 banks and lenders
compete for consumers' business on our website, enabling consumers to compare
and review multiple loan solicitations and accept the loan offer that is best
for that consumer. The banks and lenders in our exchange generate new business
that meets their specific underwriting criteria at reduced acquisition costs.
INDUSTRY BACKGROUND
For lenders, the traditional lending process is paper-intensive,
time-consuming, and usually accompanied by high fixed costs and labor expense.
It generally involves defining loan product guidelines for specific segments of
consumers and establishing a pre-determined price for which the consumer
applies. This inefficient process results in significant marketing and
processing costs. In addition, the traditional lending process increases the
time it takes to implement a given lending strategy, thereby reducing
flexibility and the ability to respond to competition.
For consumers, the traditional loan process is time-consuming, requires
completion of multiple forms, and can often be frustrating and confusing.
Consumers typically search through a variety of loan products from many
different lenders, apply to one lender at a time for that lender's offered
price, and then wait for that lender to approve or reject the application.
Competing online lending sites generally mirror the traditional lending process.
Consumers visit the website, view a list of loan products, apply for one product
from one lender, and are either approved or rejected. While the consumer
proposition presented by online lending websites is the same as the traditional
offline process, the business models for online lending websites generally fall
into the following two categories:
- Lender/Broker Model. The operators of websites such as E-Loan
and QuickenMortgage generate revenue in the same way as
traditional lenders, from a mark-up over their cost of
capital, whether the source of capital is a lender, secondary
market purchaser, or warehouse line of credit. In exchange for
these mark-ups, the lender/broker undertakes all of the
document processing, verification, and customer interaction.
In addition, to the extent the lenders/brokers fund originated
loans with their own capital, they are directly exposed to
interest rate fluctuations, and must also effectively manage
their loan pipeline.
- Referral Agent Model. The operators of websites such as
GetSmart and MSN Home Advisor typically generate revenue by
providing referrals to lenders. Because referral agents
typically do not generate any revenue upon loan closings,
there is little incentive for these companies to ensure that
lenders and consumers consummate the loan transaction.
Additionally, because referral
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websites do not offer the consumers multiple offers on their sites,
they are not able to continually give best practices and pricing data
to lender participants.
LendingTree believes that the inefficiencies of the traditional lending
process and the shortcomings of other online business models, combined with the
large and recurring nature of consumer loan demand, offer a substantial
opportunity for the exchange business model.
OUR BUSINESS STRATEGY
Our mission is to become the dominant Internet-based lending exchange.
Currently, this mission is supported by the following key elements:
- Make Lend-X "the" Operating System of Internet Lending.
Becoming the dominant lending exchange software requires a
ubiquitous presence in the lending space. We license Lend-X to
traditional and non-traditional financial institutions to
originate loans in either a single-or multi-lender
environment. Most Lend-X implementations are for multi-lender
environments which utilize our exchange. As more demand flows
through the various sites, the value of our exchange increases
for participating lenders. We have licensed Lend-X to more
than 30 private-label and co-branded exchanges. Our plans for
Lend-X include deploying more multi-lender solutions at
financial institutions, aggressively marketing the product
through reseller relationships, and, installing Lend-X at
traditional points of loan origination, including bank
branches, call centers and mortgage brokers.
- Continue to Build a Lasting and Sustainable LendingTree Brand
and Leverage that Brand to Websites of Lend-X Partners Over
Time. We believe that the LendingTree brand stands for
empowerment and choice, words that have not been traditionally
associated with financial services companies. We have built
the LendingTree brand using a combination of online and
offline media that has been effective at driving awareness and
transaction volume. Over time, we will allow the LendingTree
brand to proliferate on the websites of Lend-X partners where
we believe consumers will view the "Powered By LendingTree"
symbol as a name they can trust.
To achieve our mission and objectives, we are currently undertaking
several strategic initiatives:
- Strengthen Our Position As A Multi-Product Lending Exchange.
Our multi-lender website offers a wide breadth of loan
categories. This multi-category strategy enables us to become
the consumer's primary resource for their borrowing needs. By
becoming a consumer's primary borrowing destination and
fostering repeat usage, we can increase revenue per consumer
and decrease acquisition costs for each new loan.
- Continue to Expand Lender Coverage And Product Offerings. We
seek to provide consumers throughout the United States with a
competitive exchange for consumer credit products across a
wide range of credit risk profiles. The
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availability of multiple lenders for each type of loan product
generally provides qualified consumers with a choice of
competitive offers. We will endeavor to expand lender coverage
by actively marketing the exchange solution to new lenders and
by expanding the range of product offerings of existing
lenders on the network.
- Explore New Software Functionality and Channels of Lend-X
Distribution. In an initiative called Straight Through
Processing, we are seeking to expand the functionality of
Lend-X to encompass more of the functions that lenders are
willing to outsource to third parties. Decisioning systems,
processing systems and more connectivity to settlement service
providers are among the components that we are currently
exploring. These new software functionalities will be critical
to penetrate new areas of distribution for the Lend-X product,
including real estate agents, mortgage brokers and auto
dealers.
THE LENDINGTREE LENDER NETWORK
Our exchange enables qualified consumers to receive up to four loan
offers in response to a single credit request while providing lenders with the
opportunity to generate new business that meets their specific underwriting
criteria at reduced acquisition costs. These advantages to both consumers and
lenders are available through lendingtree.com and over 30 other websites that
are powered by Lend-X.
For the year ended December 31, 2000, we derived 89% of our revenue
from transactions on our lender network, compared to 60% in 1999 and 67% in
1998.
No individual sources of network revenue exceeded 10% of our total
revenue or network segment revenue for the years ended December 31, 2000 and
1999. For the year ended December 31, 1998, four lenders comprised 27%, 13%, 12%
and 11% of our total revenue.
THE LENDINGTREE PROCESS
The LendingTree process consists of the following steps:
- Credit Request. Consumers access the exchange at
www.lendingtree.com or Lend-X enabled sites and select a loan
product from our current offering of five loan categories.
Consumers complete a single qualification form for the
selected loan product with information such as income, assets
and liabilities, loan preferences and other data. Consumers
also consent to our use of their credit report.
- Qualification Form Filtering and Transmission. A filtering
process matches the consumer's qualification form data, credit
profile, and geographic location to the preset underwriting
criteria provided by participating lenders. Lenders are able
to modify their underwriting criteria in real-time directly
through a password-protected website known as our LenderWeb.
Once qualification
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forms pass the filters, they are transmitted to up to four
lenders. In the event that after being filtered, the
qualification form meets the lending criteria of more than
four lenders, we forward information from the qualification
form to four lenders.
- Lender Evaluation and Response. Lenders evaluate and respond
to the qualification forms that pass their filters. This
response takes place on the LenderWeb or via automated
interface technology that we have developed.
- Communication of Offer. Once a lender evaluates a
qualification form, renders a decision, and responds with an
offer, our system automatically notifies the consumer via
e-mail and displays the offers on the website where the
request originated. The e-mail contains instructions to return
to the website and provides instructions directing the
consumer to the Check Status page where consumers can view and
compare the terms of each offer including: interest rate,
closing costs, monthly payment amount, lender fees and other
information.
- Offer Acceptance. The consumer has the ability to accept,
reject or request more information about any particular loan
offer. When the consumer selects one of these options, our
system automatically notifies the chosen lender and the
remainder of the process is conducted offline.
- Ongoing Consumer and Lender Support. We provide active email
and telephone follow-up and support to both lenders and
consumers during the loan transaction process. This follow-up
and support is designed to provide technical support and
increase overall satisfaction of the participants in our
exchange, as well as increase the percentage of consumers who
accept and close a loan from our lender network.
OUR LENDINGTREE LENDING EXCHANGE CUSTOMERS
Our network of lenders and real estate brokers are our customers. Our
customers pay us fees for transmitted qualification forms, closed loans and
closed real estate transactions. We do not charge consumers a fee to use our
network services. The following table summarizes the number of customers we had
providing each loan product or service on our network as of December 31, 2000:
NUMBER OF LOAN PROVIDERS OR
LOAN PRODUCTS AND SERVICES ISSUERS ON OUR NETWORK
-------------------------- ---------------------------
Home Mortgage 74
Home Equity 61
Automobile Loans 14
Credit Cards 12
Personal Loans 9
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OTHER LENDINGTREE NETWORK SERVICES
In addition to our lending exchange products, we offer other services
to our consumers:
- Real Estate Referrals. In addition to helping consumers secure
a mortgage loan, we can refer customers to real estate agents
in most states. As of December 31, 2000, we had relationships
with approximately 625 real estate brokerages and over 7,000
real estate agents trained to support referrals that we
supply.
- Other Products and Services. We also have other marketing
arrangements with a variety of providers that offer home
ownership and maintenance related products and services.
THE LENDINGTREE LEND-X TECHNOLOGY
Lend-X is our online lending exchange technology that offers a fast,
adaptable and reliable online lending solution for lenders and non-lenders
alike, providing valuable access to our online lending exchange of more than 100
banks and lenders. We license our Lend-X technology to over 30 companies who
create single and multi-lender lending exchanges using Lend-X on a private-label
or co-branded basis to leverage their own lender relationships or those that we
have established. We also perform limited brokerage services for some of our
Lend-X Technology customers. In these transactions, we typically receive a
traditional basis point fee from the lender when a loan closes.
Revenue from sales of Lend-X technology represented $0.1 million, or
33% of total revenue, $.9 million, or 12% of total revenue, and $3.3 million, or
11% of total revenue, in 1998, 1999 and 2000, respectively.
In 2000, a single customer accounted for 71% of the Lend-X technology
segment revenue and 7.7% of our total revenue. For the year ended December 31,
1999, two customers accounted for 49% and 45% of our Lend-X technology revenue,
respectively. In 1998, one customer accounted for 83% of our Lend-X technology
revenue.
THE LEND-X PLATFORM
The Lend-X technology platform is made up of six integrated components:
- BorrowerWeb. BorrowerWeb is Lend-X's consumer interface, the
primary element of which is the qualification form. The
qualification form is simple, easy to complete, and flexible
to change over time. Advanced functionality includes
Java-enabled tips for the consumer as he or she completes the
form, links to calculators and worksheets to simplify form
completion, and save-
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your-place functionality so the consumer can complete the form
over multiple sessions.
- Filtering Process. The filters enable lenders to perform
pre-qualification approvals and route potential borrowers to
the appropriate business unit within their organization. The
filtering process also allows a lender to refer certain
consumers to financial institutions more likely to close a
given loan.
- Loan Decisioning. Lend-X provides interfaces to the lenders'
in-house decisioning systems. Lend-X also retrieves credit
scores calculated from credit reports from any of the three
major credit bureaus to facilitate loan evaluation and
response. Additionally, in conjunction with the filtering
process, Lend-X enables financial institutions to
automatically provide conditional approvals of a consumer's
loan request.
- Lender Web. The Lend-X LenderWeb is a password-protected
extranet where lenders can manage their pipeline of loan
requests. LenderWeb includes workflow functionality,
communication tools to assist in customized responses to
consumers, reporting and data warehouse access, status
tracking and loan tracking throughout the closing process.
- StatusWeb. Lend-X includes a website where consumers can
manage their interactions with lenders. With StatusWeb,
consumers can view and compare loan offers, request more
information from lenders, access calculators and loan
information, view closing cost data, accept or reject loan
offers and track the status of their loan file throughout the
closing process.
- Gateway Functionality. The Lend-X gateway functionality
facilitates data interfacing needs between multiple points of
loan origination and multiple legacy systems that a lender may
have. Websites that LendingTree can connect to a legacy system
include lendingtree.com, a private-label website, competitor
websites, and many others. This functionality enables lenders
to receive and manage all of their Internet loan origination
functions with one consistent interface.
THE BENEFITS WE OFFER OUR LEND-X CLIENTS
The benefits to our Lend-X clients include:
- Incremental Revenue. Lend-X offers lenders the ability to
cross-sell lending products to a wider consumer base and
non-lenders to utilize Lend-X and LendingTree's services to
access a new market place.
- Lower Upfront Cost. The Lend-X proprietary technology results
in lower upfront cost compared to developing a web-based
lending exchange in-house. As companies seek to develop
proprietary Internet capabilities, Lend-X can meet their needs
in a more cost-effective and scalable manner.
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- Reduced Technology Obsolescence. Lend-X is continually updated
as new technologies develop. Companies that use Lend-X can
take advantage of these improvements and maintain the latest
technology.
- Multi-lender Capability. We believe that financial
institutions will adopt a multi-lender approach over time.
Lend-X facilitates transactions between financial
institutions. A multi-lender approach not only increases
consumer choice, but also provides additional transaction
revenue to the Lend-X partner.
- Time to Market Advantage. Because our Lend-X product typically
runs in an application service provider environment, a company
can have a website up and running in as little as two weeks.
This gives a valuable time-to-market advantage compared to
other solutions.
- Robust, Scalable Technology. Lend-X clients need to process
significant transaction volume. Lend-X was designed, and has
proven its ability, to handle significant volume and a wide
range of products.
- Access to Market Information. We provide Lend-X clients with
access to a comprehensive data warehouse and real-time
reporting capabilities. Additionally, we provide Lend-X
clients with the benefits of our experience and knowledge of
the Internet lending arena.
COMPETITION
ONLINE LENDER NETWORK COMPETITION
We believe that the primary competitive factors in the online financial
services market are:
- Pricing and breadth of product offering;
- Time of market entry;
- Brand awareness;
- Variety, quantity, and quality of partners and online
relationships;
- Proprietary and scalable technology infrastructure;
- Ease of use and convenience; and
- Strength of relationships and depth of technology integration
with consumers.
Our success depends upon capturing and maintaining a significant share
of consumers who obtain loans through the Internet. In order to do this, we must
continue to build on our first mover advantage, continue to increase brand
awareness among consumers and lenders, expand our network of lenders, establish
additional Lend-X relationships, and continually
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upgrade our technology. Many of our current competitors, however, have longer
operating histories, larger customer bases, and significantly greater financial,
technical, and marketing resources than we do. In addition, participants in
other areas of the financial services industry may enter the consumer lending
exchange.
LEND-X COMPETITION
Competition for Lend-X generally falls into several categories: '
- Traditional software companies and custom website development
companies. Traditional software companies and custom website
development companies, such as American Management Systems,
Alltel, Cybertek, CMSI and iXL, among others, generally
develop large-scale custom websites for financial
institutions. These companies are clearly a competitive threat
to us because of the in-depth relationships that these
companies have already established. The benefit of these
companies' products and services is that they are customized
and developed specifically for a single institution. However,
compared to Lend-X, these products and services require
substantially longer lead times, cost significantly more
money, do not have multi-lender linkage capability, and must
be updated and changed as technologies advance.
- Multi-lender and Single-Lender Websites. Several companies,
including Microsoft Home Advisor Technologies, E-Loan and
MortgageIT, operate both a consumer-branded website and
private-label technologies for portals and other points of
origination. Companies like E-Loan and MortgageIT also
process, close and fund mortgage loans. The benefits of
single-lender models are that they can provide a branded
offering quickly and, sometimes, cost-effectively. However,
because the entities behind the single-lender models are also
lenders, it is difficult for them to sell their product to
companies that are also lenders since their potential
customers are also their competitors.
- Emerging Internet Software Development Companies. Other
companies, such as Expede, Framework, S-1, Digital Insight and
Corrillion, are currently developing and marketing software to
the financial services industry. These companies generally are
focused at the front-end as customer relationship management,
or CRM., software providers, or at the back-end as loan
processing systems. Other companies are focused on other
banking-related applications like bill payment and online
banking. As these companies develop their existing products
and as we add functionality to Lend-X, competition with these
companies could emerge. We are combating this threat by making
some of these companies our business partners and getting them
to adopt the Lend-X Technology for their user base. We have
entered into reseller arrangements with S-1, Financial Fusion
and HomeAccount network, and several other arrangements are in
various stages of development.
BUSINESS DEVELOPMENT
SALES AND CUSTOMER AND CONSUMER SERVICE
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Our lender sales force consists of three lender development teams that
cover the following consumer loan categories: mortgage and home equity;
automobile; and credit cards and personal loans. Each team targets and
establishes relationships with lenders to achieve an adequate array of credit
products to meet consumer demand. Additionally, a separate Lend-X sales force
supports the lender sales effort and also targets non-lender clients. The Lend-X
sales force is divided into the following industry teams to target specific
client groups: top 100 lending institutions; mid-tier and small lending
institutions; resellers; and non-lender financial institutions such as insurance
companies. The lender and Lend-X client marketing objective is to support our
sales efforts by increasing awareness of our lender network and Lend-X platform
through trade advertising, public relations, and attendance at trade shows and
industry conferences.
ACCOUNT MANAGEMENT
We strive to provide a high level of support and service to all of our
business clients. Each client receives comprehensive training on the Lend-X
technology as well as a dedicated support team following the sale. Additionally,
a technical support hotline operates 24 hours a day, seven days per week to
provide immediate answers for most technical problems. We have developed a best
practices program that helps lenders, including both network lenders and Lend-X
clients, achieve high levels of customer service and provide competitive product
offerings. We believe that the most successful Internet lenders adhere to best
practices that include the following:
- Use of dedicated in-house teams to monitor their online loan
activities;
- Rapid response to consumer credit requests;
- Proactive solicitation of consumer feedback; and
- Personalized service through outbound call centers.
CUSTOMER SERVICE
We employ a staff of customer service and technical support personnel
who provide support to all of our key constituencies. They provide support via
email and telephone. The responsibilities of the customer service and technical
support personnel include:
- Responding to consumers' questions about the status of their
credit request, how to use our website, and other
frequently-asked questions.
- Acting as a liaison between consumers and lenders, to ensure
consumers receive prompt service from lenders.
- Acting as a facilitator for the consumer and real estate
agent.
- Providing technical support to lender technical and systems
questions 24 hours a day, seven days per week.
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- Providing technical support to Lend-X clients.
MARKETING
Our principal marketing objectives are to build brand awareness and
increase volume on our exchange. These efforts include offline advertising,
online advertising and direct marketing. We also collect and analyze consumer
data to enhance our consumer marketing programs, subject to compliance with our
privacy policy.
OFFLINE ADVERTISING
- Television Advertising. Our television advertising has proven
to be an effective medium to drive both brand awareness and
transaction volume. Utilizing network, spot, and cable
television, we have created significant brand awareness of our
brand promise of "When Banks Compete, You Win."
- Radio Advertising. Our radio advertising directly increases
transaction volume on our website as well as consumer
awareness of the LendingTree brand. Radio advertising, through
a combination of network and spot buying, enables us to reach
our target audience in a cost-effective manner both nationally
and locally. We select our spot radio markets based on a
variety of factors including population density, housing
starts, Internet-enabled households, and overall home buying
activity.
- Print Advertising. We have used print advertising in daily
news publications as well as periodicals to support our brand
awareness efforts. We will continue to explore use of the
print medium to support more targeted advertising initiatives,
such as vertical marketing, focusing on specific consumer
groups.
ONLINE ADVERTISING
- Online Advertising and Sponsorships. Online advertising and
sponsorships play an important role in our overall effort to
reach potential consumers. We focus on those websites having a
high affinity to consumer lending, such as real estate,
personal finance and, automobile-related websites. We have
also worked with major search engine companies such as Yahoo!
to sponsor keywords such as "loans," and incorporated banner
advertising into our online strategy to maximize consumer
reach at relatively low cost.
- The LendingTree Affiliate Network. We have agreements with
other websites that route consumers to www.lendingtree.com. We
pay advertising fees to our affiliates in exchange for the
placement of banner ads and links from their site to ours. Our
affiliate program has been a cost-effective source of loan
request volume.
DIRECT MARKETING
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We believe that direct marketing is an effective means of increasing
loan requests and closure rates, and a way to develop more sustainable relations
with consumers. Our direct marketing initiatives have been executed through both
offline and online channels, within the guidelines of our privacy policy. Our
direct marketing initiatives include:
- Direct Email. We use email to encourage customers to visit our
website, complete the loan request process, communicate with
consumers throughout the lending process, offer additional
product and service value and facilitate consumers' ability to
obtain loans.
- Direct Mail. We use direct mail to compliment our online email
efforts to build brand equity and increase overall transaction
volume.
- Cross-Selling. We use cross-selling and other adaptive
marketing activities to provide consumers the opportunity to
purchase related products and services from our partners at
various points in the LendingTree loan process. We recently
added the cross-sell of real estate services to consumers in
addition to existing cross-sell programs such as home, auto
and credit card products.
TECHNOLOGY
Our information technology infrastructure consists of a combination of
custom-developed application software integrated with enterprise enabling
applications. The infrastructure can be classified into three areas: Transaction
Processing, Customer Relationship Management and Business Intelligence.
- Transaction Processing. The high-volume, transaction
processing infrastructure that enables our core business is
Lend-X. The Lend-X technology infrastructure runs our
exchange and powers our client's private-label and co-branded
relationships. This technology was designed with an emphasis
on scalability, performance, reliability, and security.
- Customer Relationship Management. We have consumers shopping
for loans 24 hours a day. In order to support this demand, we
have developed a sophisticated systems monitoring capability
that tracks the performance and availability of the system.
We have established procedures to minimize the likelihood of
service interruptions, including periodic equipment and
software testing, monitoring, and maintaining error records.
We have also instituted and tested a contingency plan to limit
the duration of any database or other software-related system
failure.
- Business Intelligence. We use standard Microsoft languages and
development tools such as Visual Basic and Active Server
Pages. We also use C++ and Perl. We use Microsoft's SQL Server
as our database engine and our website and database servers
run on the Windows NT operating system. Communications to our
website are protected with Secure Sockets Layer, an
industry-standard protocol that provides data encryption,
server authentication, and message integrity. Our website
servers and database servers are protected
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by firewalls that separate them from the Internet. Our website
is hosted by Digex at its facilities in Beltsville, Maryland
and Cupertino, California. Digex operates with redundant
communication lines, emergency power backup, and 24-hour
monitoring and engineering support. Physical access to all of
our servers at Digex is strictly controlled by a
state-of-the-art physical security architecture utilizing
multi-redundant mechanics, utilities, and environmental
controls.
The combination of our data warehouse, coupled with consumer
relationship and contact management tools, will enable us to continue to
maximize the value we can provide to our consumers. For more information
regarding Lend-X functionality, see "The Lend-X Solution" section of this
prospectus.
PRIVACY POLICY
We believe that issues relating to privacy and use of personal
information of Internet users are becoming increasingly important as the
Internet and its commercial use grow. As a result, we have adopted a detailed
privacy policy that outlines how we use consumer information and the extent to
which lenders and other third parties may have access to this information. This
policy is prominently noted on our website. We do not sell, license or rent any
personally identifiable information about our consumers to any third party, and
will use the information about its customers for internal purposes only.
Generally, the privacy provisions of the recently-enacted
Gramm-Leach-Bliley Act:
- Bar financial institutions from disclosing to unaffiliated
third parties nonpublic personal information collected from
consumers, subject to several exceptions;
- Require financial institutions to develop and disclose
consumer privacy policies;
- Empower federal regulators with the authority to regulate
information sharing and enforce the provisions of the law; and
- Allow states to pass stricter financial privacy laws.
Compliance with the Gramm-Leach-Bliley Act will be mandatory on July 1,
2001. We will be required to amend our privacy policy and implement new
procedures to make privacy disclosures to consumers and provide them the
opportunity to elect not to have their non-public personal information disclosed
to third parties. We are currently addressing these issues. In addition, we are
working with our lenders to assist them in complying with their obligations, to
the extent possible, through our website.
GOVERNMENT REGULATION
The loan products and real estate agent referral services available
through our website are subject to extensive regulation by various federal and
state governmental authorities. Because of uncertainties as to the applicability
of some of these laws and regulations to the
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Internet and, more specifically, to our business, and considering our business
has evolved and expanded in a relatively short period of time, we may not always
have been, and may not always be, in compliance with applicable federal and
state laws and regulations. Failure to comply with the laws and regulatory
requirements of federal and state regulatory authorities may result in, among
other things, revocation of required licenses or registrations, loss of approved
status, termination of contracts without compensation, loss of exempt status,
indemnification liability to lenders and others doing business with us,
administrative enforcement actions and fines, class action lawsuits, cease and
desist orders, and civil and criminal liability.
Many, but not all, states require licenses to solicit or broker to
residents of those states, loans secured by residential mortgages, and other
consumer loans, including credit card, automobile and personal loans. We are not
currently licensed and able to accept credit requests for all loan products in
every state. We are not currently accepting credit requests for loan products
from residents of states in which we are not licensed to provide those products.
In many of the states in which we are licensed, we are subject to examination by
regulators. In addition, as a result of the HomeSpace transaction, we are
required to obtain real estate broker licenses, additional mortgage broker
licenses and individual call center personnel licenses in numerous states.
Failure to obtain these licenses and approvals could prevent us from receiving
fees from the real estate agent referral and mortgage services programs we offer
and may subject us to the types of fines, forfeitures and litigation discussed
above.
As a computer loan origination system or mortgage broker conducting
business through the Internet, we face an additional level of regulatory risk
given that most of the laws governing lending transactions have not been
substantially revised or updated to fully accommodate electronic commerce. Until
these laws, rules and regulations are revised to clarify their applicability to
transactions conducted through electronic commerce, any company providing
loan-related services through the Internet or other means of electronic commerce
will face compliance uncertainty. Federal law, for example, generally prohibits
the payment or receipt of referral fees in connection with residential mortgage
loan transactions. The applicability of referral fee prohibitions to the
advertising, marketing, distribution and cyberspace rental arrangements used by
online companies like ours may have the effect of reducing the types and amounts
of fees that we may charge or pay in connection with real estate-secured
products.
Regulations promulgated by some states may impose compliance
obligations on any person who acquires 10% or more of our common stock,
including requiring that person to periodically file financial and other
personal and business information. If any person acquires 10% or more of our
common stock and refuses or fails to comply with these requirements, we may not
be able to obtain a license and existing licensing arrangements in particular
states may be jeopardized.
The parties conducting business with us, such as lenders and other
website operators, may similarly be subject to federal and state regulation.
These parties act as independent contractors and not as our agents in their
solicitations and transactions with consumers. Consequently, we cannot ensure
that these entities will comply with applicable laws and regulations at all
times. Failure on the part of a lender or other website operator to comply
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with these laws or regulations could result in, among other things, claims of
vicarious liability or a negative impact on our reputation.
In addition to licensing requirements, federal and state laws regulate
residential lending activities and record keeping requirements of brokers and
lenders. At the federal level, our services are regulated by, among other laws,
the Truth in Lending Act and Regulation Z, the Equal Credit Opportunity Act and
Regulation B, the Fair Housing Act, the Fair Credit Reporting Act, federal
privacy laws, and the Real Estate Settlement Procedures Act and Regulation X.
These laws generally regulate the manner in which loan services are made
available, including advertising and other consumer disclosures, payments for
services, record keeping requirements, and the privacy and reporting of consumer
data. State and federal laws also prohibit unfair and deceptive trade practices
and require companies to adopt appropriate policies and practices to protect
consumer privacy.
Under the Truth in Lending Act, creditors are required to provide
consumers with uniform, understandable information concerning some of the terms
and conditions of loan and credit transactions being offered, which may include
disclosures in advertising. This particular federal law is generally applicable
to lenders and applies to us primarily in the context of advertising.
The Equal Credit Opportunity Act prohibits discrimination against
applicants on the basis of race, color, sex, age, religion, national origin, or
marital status, and the Fair Housing Act similarly prohibits discrimination in
residential lending. The regulations under the Equal Credit Opportunity Act also
restrict creditors from requesting various types of information from loan
applicants and require lenders to supply applicants with a notice, referred to
as an adverse action notice, when the lender denies its applicants credit. Our
lenders are generally obligated to provide the required disclosures. While the
applicability of these disclosure requirements to us is unclear, we nevertheless
provide such disclosures to consumers in the event that a qualification form
cannot be transmitted to any lender.
The Fair Credit Reporting Act is a consumer privacy statute that
generally governs the assemblage, evaluation, maintenance, and dissemination of
information on consumers that has been collected for the purpose of evaluating
their qualifications for credit. The Fair Credit Reporting Act also requires
that users of consumer credit reports notify consumers when their loan
applications are denied on the basis of those consumer credit reports. In
addition, recent consumer privacy legislation enacted as part of the
Gramm-Leach-Bliley Act will restrict the dissemination of nonpublic consumer
information to non-affiliated third parties and will require institutions to
maintain privacy policies, and give notice of such policies, when compliance
with the law becomes mandatory on July 1, 2001. As a regulated financial
institution for purposes of this law, we are currently addressing these issues.
The Real Estate Settlement Procedures Act, or RESPA, and related
regulations generally prohibit the payment or receipt of fees or any other item
of value for the referral of a real estate-secured loan to a loan broker or
lender. RESPA and the related regulations also prohibit fee shares or splits or
unearned fees in connection with the provision of residential real estate
settlement services, including mortgage brokerage and lending services.
Notwithstanding these prohibitions, RESPA permits payments for goods or
facilities furnished or for services actually performed, so long as those
payments bear a reasonable relationship to
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the market value of the goods, facilities or services provided. Failure to
comply with RESPA may result in, among other things, administrative enforcement
actions, class action lawsuits, cease and desist orders and civil and criminal
liability.
The mortgage and home equity products offered through our exchange are
residential real estate secured loans subject to these provisions of RESPA.
Consequently, our online relationships with lenders, other companies and
websites on which we offer services are subject to RESPA's prohibitions on
payment or receipt of referral fees for referrals and for unearned fees or fee
splits. We believe that we have structured these relationships to comply with
RESPA. The applicability of RESPA's referral fee and fee splitting prohibitions
to these types of Internet-based relationships, however, is unclear and the
appropriate regulatory agency has provided limited guidance to date on the
subject. See the section of this prospectus entitled "Risk Factors" for more
information.
COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES
We regard our intellectual property as critical to our success. We rely
on a combination of trademark and copyright law, and trade secret protection to
protect our proprietary rights. We pursue the protection of our intellectual
property in part through trademark and copyright registration. We have
registered "LendingTree" as a trademark in the United States and have applied
for trademark registration in the United States for "Lend-X." In addition, in
connection with the HomeSpace transaction, we were assigned applications for
registration of marks for "HomeSpace," acquired certain patent applications from
HomeSpace, and were assigned other pending trademark registrations associated
with HomeSpace, Inc. We consider the protection of our trademarks to be
important for maintenance of our brand identity and reputation. We have applied
for a U.S. patent and filed a Patent Cooperation Treaty international patent
application on our Lend-X technology and our online loan market process. We
cannot assure you that any of these registrations or applications will not be
successfully challenged by others or invalidated through administrative process
or litigation. Further, if our trademark applications are not approved or
granted due to the prior issuance of trademarks to third parties or for other
reasons, there can be no assurance that we would be able to enter into
arrangements with such third parties on commercially reasonable terms allowing
us to continue to use such trademarks. It is possible that our patent
applications will be denied or granted in a very limited manner such that they
offer little or no basis for us to deter competitors from employing similar
technology or processes or allow us to defend ourselves against third-party
claims of patent infringement. Further, effective patent, trademark, copyright,
and trade secret protection may not be available in every country in which we
may offer our services.
A substantial portion of our intellectual property is licensed to third
parties. We license the right to use Lend-X to well-known regional and national
lenders, other online companies that create online exchanges, and other websites
providing lending services. In addition, a portion of the intellectual property
used in our business is based on licenses granted to us by third parties. We
depend on the third party owners from whom we license intellectual property and
technology to protect those rights, and therefore, cannot guarantee that the
measures taken by these third parties to protect their proprietary rights will
be sufficient. In these agreements, the licensors have generally agreed to
defend, indemnify and hold us harmless with respect to any claim by a third
party that the licensed property infringes
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any patent or other proprietary right. We cannot assure you that these
provisions will be adequate to protect us from infringement claims.
In addition, we seek to protect our proprietary rights through the use
of confidentiality agreements and other contractual arrangements with our
employees, affiliates, clients, Lend-X licensees, and others. We cannot assure
you that these agreements will provide adequate protection for our proprietary
rights in the event of any unauthorized use or disclosure, that employees, our
affiliates, clients, Lend-X licensees, or others will maintain the
confidentiality of such proprietary information, or that such proprietary
information will not otherwise become known, or be independently developed, by
competitors. Occasionally, we have been, and expect to continue to be, subject
to claims in the ordinary course of our business, including claims alleging that
we have violated a patent or infringed a copyright, trademark or other
proprietary right belonging to a third party. We cannot assure you that the
steps we have taken to protect our proprietary rights will be adequate or that
third parties will not infringe or misappropriate our proprietary rights. Any
infringement claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources on our part, which could
materially adversely affect our business, results of operations, and financial
condition.
EMPLOYEES AND RECRUITMENT
As of March 31, 2001, we had approximately 220 full-time employees. Of
these, 50 were in lender and borrower relations, 41 were in sales, marketing and
business development, 84 were in technology and project management, 22 were in
financial and legal, and the remainder were in human resources and
administrative positions. None of our employees are represented under collective
bargaining agreements. We consider our relations with our employees to be good.
FACILITIES
Our principal executive offices are currently located in approximately
38,000 square feet of office space in Charlotte, North Carolina under a lease
that expires in 2010.
LEGAL PROCEEDINGS
We have been named as one of a number of defendants in a putative class
action law suit originally filed on September 7, 2000 in California Superior
Court in Contra Costa, California. This action for injunctive relief and class
action restitution was filed under Cal. Bus. Prof. Code sections 17200 and
17500. The lawsuit was removed to federal court on October 13, 2000, and was
caption Ainsworth, et al, V. Ohio Savings Bank, et at., Case No. 300-CV-3786
(N.D. Cal.). The lawsuit was remanded to California Superior Court in Contra
Costa, California on January 12, 2001, Case No. MS C00-03812, and is pending
there. The other defendants named in the action are Ohio Savings Bank, Costco
Wholesale Corp., Costco Financial Services Inc., First American Title Insurance
Company and First American Lenders Advantage. Plaintiff have sought limited
discovery from us and we in the process of complying with plaintiffs' discovery
request.
This case challenges the legality of the payment of premium spreads to
HomeSpace Services, Inc. through an affinity lending program with co-defendants
Costco Wholesale and
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Ohio Savings Bank. We acquired certain assets of HomeSpace through an asset
purchase on August 2, 2000. We intent to file a motion for summary judgement in
the case on the grounds that we are not liable for the actions of HomeSpace by
virtue of our purchase of its assets. Plaintiffs also assert that we are paid
yield spread premiums as part of the Costco relationship, and seek to enjoin our
receipt of such payments in the future and to require certain additional
disclosures and consents from borrowers. We do not receive any premium payments,
and do not anticipate receiving any premium payments in the future. We believe
that it is too early to make any judgements concerning the likelihood of an
unfavorable outcome or to make any further assessment of the amount or range of
possible loss in this action, since the complaint primarily challenges the
actions of HomeSpace for actions taken prior to our purchase of certain assets
of HomeSpace, we have not yet moved for summary judgement and the case has not
progressed. We believe that it would be incorrect for a Court to hold us liable
for the actions of HomeSpace, but such an outcome is possible. Moreover,
plaintiffs' claims as to requiring additional disclosures and consents in
connection with the Costco program loans are still in the process of being
articulated at this stage of the case. We do note that the disclosure and
consent claims appear to be raised primarily as the basis for injunctive relief,
not for relief in damages.
We have retained counsel and are vigorously defending against these
claims. Although there can be no assurances, we do not believe that the outcome
of any proceeding will have a material effect on our financial condition, cash
flows or results of operations.
We recently were the subject of a routine examination conducted by the
New York State Banking Department, or NYSBD. At the close of the examination,
during the exit interview, NYSBD examiners verbally raised an issue as to
whether we are obligated to make certain mortgage broker disclosures to
consumers under New York state law. As of this date, NYSBD has not instituted
any investigation or enforcement action. We could face a possible administrative
fine, penalty or both. We believe that the NYSBD regulation which triggers the
disclosures in question is inapplicable to us. We intend to work with the NYSBD
to clarify the application of its regulations to our activities, and, if
necessary, to contest any fine or penalty. Although there can be no assurances,
we do not believe that the outcome of any proceeding will have a material effect
on our financial condition or the results of our operations.
We are involved in other litigation from time to time that is routine
in nature and incidental to the conduct of our business. We believe that the
outcome of any such litigation would not have a material adverse effect on our
financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our
executive officers and directors as of April 5, 2001.
NAME AGE POSITION
Douglas Lebda 31 Chief Executive Officer and Director
Keith Hall 47 Senior Vice President, Chief Financial Officer and
Treasurer
Thomas Reddin 40 Senior Vice President and Chief Operating Officer
David Anderson 35 Senior Vice President of New Business Initiatives
Richard Stiegler 44 Senior Vice President and Chief Technology Officer
Stephen J. Campbell 36 Senior Vice President and Chief Information Officer
Richard Field 60 Director
W. James Tozer, Jr. 60 Director
James Carthaus 60 Director
Robert Kennedy 65 Director
Daniel Lieber 38 Director
Robert Spass 45 Director
Dale Gibbons 40 Director
DIRECTORS
Our certificate of incorporation divides our board into three classes,
denominated as Class I, Class II and Class III. Members of each class hold
office for staggered three-year terms. At each annual meeting of our
stockholders commencing in 2001, the successors to the directors whose terms
expire at that meeting will be elected to serve until their successors have been
elected and qualified. With respect to each class, a director's term will be
subject to the election and qualification of his successors, or his earlier
death, resignation or removal. These provisions, when taken in conjunction with
other provisions of our amended and restated certificate of incorporation
authorizing the board of directors to fill vacant directorships, may delay a
stockholder from removing incumbent directors simultaneously gaining control of
the board of directors by filling the vacancies with its own nominees.
Listed below are the names of all of our current directors, the
business experience during the past five years of each such person, and any
other directorships held by such person in companies that are subject to the
reporting requirements of the Securities Exchange Act of
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1934 or in any company registered as an investment company under the Investment
Company Act of 1940. Each of the following directors has served continuously as
a director since the year in which he was first elected as a director. None of
the following persons serves as a director pursuant to any arrangement or
understanding between him and any other person(s). However, in connection with
the 8% convertible preferred stock transaction in March 2001, we expanded our
board from seven to eight members and, at the request of Zions Bancorporation,
we appointed Dale Gibbons to fill the new board position.
CLASS I-TERM EXPIRING AT THE 2001 ANNUAL MEETING
RICHARD FIELD has been a director since August 1997. Mr. Field has been
a private investor since May 1997. From 1978 until 1997, Mr. Field worked at The
Bank of New York in various capacities, most recently as Senior Executive Vice
President of Retail Banking and a member of its Policy Committee. Prior to 1978,
Mr. Field served in various marketing capacities at Chase Manhattan Corporation
and Citicorp. Mr. Field is also a former member of the Executive Committee for
MasterCard International's board of directors and the former Chairman of
MasterCard's U.S. board of directors.
W. JAMES TOZER, JR. has been a director since August 1997. Since 1990,
Mr. Tozer has been the Managing Director of Vectra Management Group, a real
estate firm. He is a former Senior Vice President of Citibank and a member of
its Policy Committee, Senior Executive Vice President of Shearson Hayden Stone,
Senior Executive Vice President of Marine Midland Bank, and President of
Prudential-Bache Securities. Until its sale in January 2001, he was Chairman of
the Executive Committee of Draper Bank and Trust and was co-founder of Vectra
Bank of Colorado.
CLASS II-TERM EXPIRING AT THE 2002 ANNUAL MEETING
JAMES CARTHAUS has been a director since December 1998 and is Chairman
of LendingTree's Compensation Committee. Since 1989, Mr. Carthaus has been the
chairman of a New York investment bank, Scott-Macon, Ltd. He is a former officer
of Citibank, a Vice President and Senior Lending Officer of a predecessor of
FleetBoston Financial and an Executive Vice President and director of Shearson
Lehman Brothers where he headed its financial services division. Mr. Carthaus is
currently a director and Chairman of the Investment Committee of The Franciscan
Sisters of The Poor Foundation, Inc.
ROBERT KENNEDY has been a director since December 1998. Mr. Kennedy has
been the Director of Special Projects of ULLICO, Inc. since 1994. Mr. Kennedy is
currently a director of SuperShuttle International, Inc. and is a member of the
Advisory Board of Euclid Funds.
DANIEL LIEBER has been a director since September 1999. Mr. Lieber is a
partner at Equifin Capital Management, an investment firm affiliated with
Capital Z, where he has worked since October 1998. Prior to joining Equifin, Mr.
Lieber was a Senior Vice President at AT&T Capital. From 1995 to 1997, Mr.
Lieber was a Senior Vice President with GE Capital Services, RFS Ventures Group.
Between 1993 and 1995, he was employed as a Vice President in the Management
Consulting Group at Bankers Trust.
CLASS III-TERM EXPIRING AT THE 2003 ANNUAL MEETING
DOUGLAS LEBDA founded LendingTree in June 1996 and has served as a
director since that time. He has served as Chief Executive Officer since
September 1998. Prior to that time,
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Mr. Lebda served as Chairman of the Board and President. Prior to founding
LendingTree, Mr. Lebda was with Price Waterhouse in various capacities since
1992.
ROBERT SPASS has been a director since April 5, 2001. He has been a
director of Capital Z Management, L.L.C. and affiliated companies from 1998 to
the present, and has been Chairman of the Board of Capital Z Management, L.L.C.
since January 1, 2001. Mr. Spass has also been a Partner of Capital Z since 1998
and Managing Partner of Insurance Partners Advisors I, L.P., since 1994. Prior
to joining Insurance Partners Advisors I, L.P., Mr. Spass was President and
Chief Executive Officer of International Insurance Advisors, Inc. from 1990 to
1994. Mr. Spass is a director of Superior National Insurance Group, Inc. and
certain subsidiaries, Ceres Group, Inc., Universal American Financial
Corporation, USI Insurance Services, Corp., Highlands Insurance Group, Inc., and
Aames Financial, Corp.
DALE GIBBONS has been a director since March 2001, when he was elected
in connection with the closing of the issuance and sale of our 8% convertible
preferred stock. Mr. Gibbons has been the Chief Financial Officer of Zions
Bancorporation since August 1996. Prior to joining Zions Bancorporation, Mr.
Gibbons was a Senior Vice President of First Interstate Bancorp.
EXECUTIVE OFFICERS
Certain information regarding our executive officers is set forth
below:
DOUGLAS LEBDA has served as a director since June 1996 and as Chief
Executive Officer since September 1998. Additional information about Mr. Lebda
can be found above under the caption "Class III Directors--Term Expiring at the
2003 Annual Meeting."
THOMAS REDDIN is Senior Vice President and Chief Operating Officer.
From 1995 to 1999, he was Vice President, Consumer Marketing for Coca-Cola USA.
Mr. Reddin was responsible for leading the strategy and all marketing activities
for Coca-Cola. Prior to joining The Coca-Cola Company, Mr. Reddin spent 13 years
with Kraft General Foods in various brand management capacities. Mr. Reddin
joined LendingTree in December 1999.
KEITH HALL is Senior Vice President, Chief Financial Officer and
Treasurer. From 1997 until 1999, Mr. Hall was the Chief Financial Officer of
Broadway & Seymour, Inc., a software product and services firm. Beginning in
1995, Mr. Hall was the Chief Financial Officer of Legent Corporation, a software
and services company. Between 1983 and 1995 Mr. Hall worked in various financial
positions at United Technologies Corporation, including Chief Financial Officer
of Carrier North America. Mr. Hall has been with LendingTree since June 1999.
RICHARD STIEGLER is Senior Vice President and Chief Technology Officer.
From 1993 until 1997, Mr. Stiegler served as vice president of Advanced
Technology at Greenwich Capital Markets. From 1987 until 1993, Mr. Stiegler was
a Vice President at Morgan Stanley. Mr. Stiegler has been with LendingTree since
November 1997.
STEPHEN CAMPBELL is Senior Vice President and Chief Information
Officer. From 1987 until November 1999, Mr. Campbell worked in various
capacities with American Management Systems Inc., an international business and
information technology consulting
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company, most recently as the director of Software Development for the Consumer
Financial Services Group. Mr. Campbell has been with LendingTree since November
1999.
For information about our compensation arrangements with certain of our
executive officers, reference is made to our 2001 proxy statement filed pursuant
to Section 14 of the Securities Exchange Act, which is incorporated into this
prospectus by reference.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
FINANCING TRANSACTIONS
Specialty Finance Partners Equity Rights Transaction. In September
2000, Capital Z, through its affiliate, Specialty Finance Partners, purchased an
equity rights certificate from us for approximately $10.0 million. This
certificate was initially convertible into 1,253,918 shares of our stock,
equivalent to $7.975 per share, and warrants to purchase 225,000 shares of our
common stock with an initial exercise price of $7.975. The equity rights
certificate contained anti-dilution and price protection provisions, including,
among others, a provision that in the event we successfully consummated a series
of subsequent financing transactions with aggregate proceeds of at least $15.0
million prior to June 30, 2001, the certificate could, at the election of
Specialty Finance Partners, be converted into $10.0 million of the type of
securities issued to investors in the subsequent financing transaction, on the
same terms and conditions as afforded investors in the subsequent financing.
Capital Z also received a commitment fee warrant to purchase 135,000 shares of
our common stock, which expires on September 29, 2005 and had an initial
exercise price of $7.975 per share, subject to adjustment in the event of a
subsequent financing. In March 2001, upon the closing of our 8% convertible
preferred stock financing, Specialty Finance Partners converted its equity
rights certificate into 2,857,143 shares of our 8% convertible preferred stock
and the exercise price of the commitment fee warrant was reduced to $3.762 per
share.
8% Convertible Preferred Stock Transaction. In March 2001, we sold a
total of 3,900,001 shares of our 8% convertible preferred stock for $13.7
million or $3.50 per share to Zions Bancorporation (1,428,571 shares), Specialty
Finance Partners (1,142,857 shares), Douglas Lebda (200,000 shares), Richard
Field (200,000 shares), W. James Tozer, Jr. (200,000 shares), and a group of
eleven accredited investors (728,573 shares). On April 30, 2001, Keith Hall, W.
James Tozer, Jr. and W. James Tozer purchased an additional 28,571, 50,000 and
50,000 shares, respectively, for a total consideration of $450,000 or $3.50 per
share, plus accrued but unpaid dividends to the closing date.
ULLICO Revolving Line of Credit. On March 7, 2001, we entered into a
two-year $5.0 million revolving credit agreement with ULLICO. Borrowings under
the revolving credit agreement are secured by substantially all of our assets.
Interest on borrowings accrues at 6% per annum in cash and additional interest
in the form of 5-year warrants to purchase our common stock with an exercise
price of $.01 per share. The number of warrants ULLICO will be entitled to
receive is based on the average amount outstanding multiplied by 14% per annum
divided by $3.99. In addition, as a commitment fee, we issued ULLICO warrants to
purchase 40,000 shares of our common stock with an exercise price of $.01 per
share. No amounts have been borrowed under this line of credit as of March 31,
2001.
OFFICER LOANS
In February 2000, we granted Mr. Lebda an option to purchase an
additional 100,000 shares of our common stock at an exercise price equal to our
initial public offering price of $12.00. This option was exercised in full prior
to the commencement of trading of our common stock on the Nasdaq National
Market. In connection with the exercise of this option, Mr. Lebda issued a full
recourse promissory note to us for the full exercise price of this option of
$1.2 million. The note was initially secured by all of the shares purchased
pursuant to the option. The note bears interest at the "applicable federal rate"
as defined in Section 1274(d) of the Internal Revenue Code, compounded annually.
Interest on the unpaid principal balance,
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along with two equal principal installments, is due on January 31, 2004 and
2005, respectively.
On February 9, 2000, Mr. Lebda and Keith Hall, our Chief Financial
Officer and Senior Vice President, exercised options to purchase 68,134 and
12,260 shares of our common stock, respectively, at weighted average exercise
prices of $3.93 and $5.51 per share, respectively. In connection with these
option exercises and the payment of related income taxes, we loaned Messrs.
Lebda and Hall $500,000 and $100,000, respectively, as permitted under our
benefit plans. Each of these loans was originally evidenced by a full recourse
promissory note bearing interest at the applicable federal rate, compounded
annually, and secured by all of the shares purchased under the respective
options. Interest on the unpaid principal balance of each note, along with three
equal installments of principal, is due and payable on February 9, 2002, 2003
and 2004, respectively.
In March 2001, in connection with the sale of the 8% convertible
preferred stock, we entered into a promissory note and an amended and restated
pledge agreement with Mr. Lebda to provide him with a $700,000 loan to acquire
200,000 shares of our 8% convertible preferred stock. This loan is to be repaid
in two installments of $35,000 due on January 31, 2002 and 2003, respectively,
and three installments of $210,000, plus interest, due on January 31, 2004, 2005
and 2006, respectively. Interest on the outstanding balance accrues at the
applicable federal rate. To collateralize the loan, we have entered into an
amended and restated pledge agreement with Mr. Lebda. This amended and restated
pledge agreement amends and restates the existing pledge agreement discussed
above and covers all three loans totaling $2.4 million. Under the amended and
restated pledge agreement, we have a security interest in all of the shares of
our common and preferred stock that he beneficially owns, other than 88,900
shares held through a family trust. Mr. Lebda is precluded from selling or
transferring any of our securities or options or warrants to purchase any of our
securities without our prior consent. The shares described above are the sole
collateral securing the three loans for as long as Mr. Lebda remains our
employee. If Mr. Lebda voluntarily terminates his employment other than for
"good reason" or if we terminate his employment for "cause," as those terms are
defined in his employment agreement, the loans will become full recourse.
INVESTMENTS BY DIRECTORS AND OFFICERS.
In July 1998, we sold 42,333 shares of our common stock at a price of
approximately $4.72 per share to H. Eugene Lockhart for $200,000. Mr. Lockhart
served as a member of our board of directors until September 1999.
In November 1998, we sold 12,700 shares of our common stock at a price
of approximately $4.72 per share to James Carthaus for $60,000. Mr. Carthaus is
a member of our board of directors.
In May 1999, we sold 333,334 shares of convertible preferred stock at a
price of $6.00 per share and warrants to purchase 33,020 shares of our common
stock for $2.0 million to W. James Tozer, Jr. and Richard Field, each of whom
serves as a member of our board of directors. These warrants have an exercise
price of approximately $7.87 per share and expire in May 2004. The shares of
convertible preferred stock and accumulated dividends thereon were converted
into 434,997 shares of common stock at our initial public offering.
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In July 1999, we issued a $500,000 principal amount 8% convertible
promissory note and a warrant to purchase 15,240 shares of our common stock at
an exercise price of approximately $7.87 per share to Garrity Investment LLC,
which is controlled by a family member of Douglas Lebda, our Chief Executive
Officer. This financing was part of our issuance of 8% convertible promissory
notes in an aggregate principal amount of $1,750,000 and warrants to purchase
53,340 shares of our common stock to five investors. In September 1999, all of
the promissory notes along with accrued interest were exchanged for 214,076
shares of our Series D convertible preferred stock, of which Garrity Investments
received 61,165 shares, which, along with accumulated dividends thereon, were
converted into 80,342 shares of common stock at our initial public offering.
In September 1999, Robert G. Wilson, who served as our Chairman until
September 1999, received $3,400,000 upon our repurchase of 539,750 shares of our
common stock at a price per share of approximately $6.30. Donald Colby, who
served as a member of our board of directors until September 1999, received
$800,000 upon our repurchase of 127,000 shares of our common stock at a price
per share of approximately $6.30. Also in September 1999, we repurchased 282,222
shares of our common stock at a price per share of approximately $6.30 from
Phoenix Strategic Capital for $1,777,776. Richard Shaw was designated as a
member of our board of directors by Phoenix in March 1998 and served until
September 1999.
In January 2000, we granted options to Douglas Lebda to purchase up to
158,750 shares of our common stock at an exercise price of $9.25 per share which
vest over a four year period. In addition, we also granted Mr. Lebda an option
to purchase up to 100,000 shares of our common stock at an exercise price equal
to the initial public offering price. This option was exercised in full prior to
the commencement of trading of our common stock on the Nasdaq National Market.
In connection with the exercise of this option, Mr. Lebda issued to us a full
recourse promissory note for the full exercise price of the option. The note was
initially secured by all of the shares purchased pursuant to the option. The
note bears interest at the "applicable federal rate" as defined in Section
1274(d) of the Internal Revenue Code, compounded annually. Interest on the
unpaid principal balance, along with two equal principal installments, is due on
January 31, 2004 and 2005, respectively.
On February 9, 2000 Douglas Lebda, Keith Hall and James Bennett, Jr.,
our former Senior Vice President of Corporate Development, exercised options,
which were granted prior to December 31, 1999, to purchase 68,134, 12,260, and
12,260, shares of our common stock, at weighted average exercise prices of
$3.93, $5.51, and $5.51 per share, respectively. In connection with these option
exercises and the payment of related income taxes, we agreed to lend Messrs.
Lebda, Hall and Bennett $500,000, $100,000 and $100,000, respectively, as
permitted under our benefit plans. Each of these loans was originally evidenced
by a full recourse promissory note bearing interest at the applicable federal
rate, compounded annually, and secured by all of the shares purchased under the
respective options. Interest on the unpaid principal balance of each note, along
with three equal installments of principal, is due and payable on February 9,
2002, 2003 and 2004, respectively.
In March 2001, in connection with the sale of the 8% convertible
preferred stock, we entered into a promissory note and an amended and restated
pledge agreement with Mr. Lebda to provide him with a $700,000 loan to acquire
200,000 shares of our 8% convertible preferred stock. This loan is to be repaid
in two installments of $35,000 due on January 31, 2002 and 2003, respectively,
and three installments of $210,000, plus interest, due on January 31, 2004, 2005
and
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2006, respectively. Interest on the outstanding balance accrues at the
applicable federal rate. To collateralize the loan, we have entered into an
amended and restated pledge agreement with Mr. Lebda. This amended and restated
pledge agreement amends and restates the existing pledge agreements discussed
above and covers all three loans totaling $2.4 million. Under the amended and
restated pledge agreement, Mr. Lebda granted us a security interest in all of
the shares of our common and preferred stock that he beneficially owns, other
than 88,900 shares held through a family trust. Mr. Lebda is precluded from
selling or transferring any of our securities or options or warrants to purchase
any of our securities without our prior consent. The shares described above are
the sole collateral securing the three loans for as long as Mr. Lebda remains
our employee. If Mr. Lebda voluntarily terminates his employment other than for
"good reason" or if we terminate his employment for "cause," as those terms are
defined in our employment agreement with Mr. Lebda, the loans will become full
recourse.
As of March 31, 2001, Mr. Lebda and his wife owned 1,130,408 shares of
common and preferred stock which are pledged as collateral securing the notes
discussed above.
On March 20, 2001, Douglas Lebda, Richard Field, W. James Tozer Jr.,
purchased shares of our 8% convertible preferred stock and W. James Tozer, Jr.,
Keith Hall and W. James Tozer committed to purchase additional shares of 8%
preferred stock on April 30, 2001. For more information, see the section above
entitled "Series A 8% convertible preferred stock financing."
RELATIONSHIPS BETWEEN THE COMPANY, DIRECTORS AND STOCKHOLDERS
Robert Kennedy, a member of our board of directors, is the director of
special projects of ULLICO, Inc.
Daniel Lieber, a member of our board of directors, is a partner of
Equifin Capital Management, an entity affiliated with Capital Z.
Adam Mizel, who served as a member of our board of directors until he
resigned on April 5, 2001, is a partner of Capital Z.
Robert Spass, a member of our board of directors, is a partner of
Capital Z.
Dale Gibbons, who was elected to our board of directors in March 2001
to fill a vacancy created by expanding the board from seven to eight members, is
the Chief Financial Officer of Zions Bancorporation, a purchaser of 1,428,571
shares of our series A 8% convertible preferred stock.
OTHER RELATIONSHIPS
PRICELINE.COM
In September 1999, priceline.com acquired an equity position in
LendingTree representing less than 2% of our total outstanding shares. During
1999 and 2000, through contractual relationships with priceline.com and related
entities, we recorded revenue of $0.2 million and $0.1 million, respectively.
Also, under these arrangements with priceline.com and its related entities, we
paid $0.6 million and $1.1 million in 1999 and 2000, respectively. Subsequent to
December 31, 2000, priceline.com sold its equity interest LendingTree.
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CNBC.COM
In January 2000, we entered into an agreement with CNBC.com, an
interactive media company. CNBC.com agreed to cooperate with us exclusively in
developing and operating a series of lending exchange websites using our Lend-X
software. These websites appear to the consumer to be part of the CNBC.com
website, and will incorporate our lending exchange content and transaction
capability. The agreement also includes joint marketing and promotional
arrangements, and contains provisions requiring us to conduct television
advertising on the CNBC cable network channel. In return, we granted CNBC.com
the non-exclusive license to our intellectual property and we agreed to pay
CNBC.com a variable monthly fee based on the number of completed qualification
forms. In addition, on February 2, 2000 we granted CNBC.com warrants to purchase
up to 190,500 shares of our common stock, or approximately 1.0% of our common
stock, at an exercise price of approximately $7.87 per share. All of these
warrants are currently exercisable. CNBC.com is an affiliate of General
Electric, a stockholder in LendingTree.
INVESTMENT IN LOANTRADER.COM
On February 1, 2000 we consummated a $2.5 million equity investment in
LoanTrader.com, Inc., a company that provides mortgage exchange services over
the internet. In this transaction we acquired approximately 8.5% of
LoanTrader.com's outstanding equity. The carrying value of this investment was
written down to $600,000 in December of 2000. Capital Z Partners and Goldman
Sachs, two of our significant stockholders, also invested in this company.
PRUDENTIAL SECURITIES INCORPORATED
Prudential Securities Incorporated acted as an underwriter in the
Company's initial public offering and acted as a placement agent in connection
with a private placement of our Series D convertible preferred stock in
September 1999. Prudential Securities Incorporated received a warrant to
purchase 127,000 shares of common stock at an exercise price of $7.52 per share.
On January 25, 2000 Prudential Securities Incorporated exchanged the warrant for
a new warrant to purchase 127,000 shares of common stock at an exercise price
equal to the initial public offering price of $12.00 per share. The new warrant
is exercisable for a five-year period ending on September 21, 2004.
ACQUISITION
On August 2, 2000, we acquired certain assets and assumed certain
liabilities of HomeSpace Services, Inc., a Delaware company engaged in the
business of maintaining a website offering consumers access to real estate
broker referral services, residential mortgage loans and a full array of related
home services. The aggregate consideration for the HomeSpace transaction was
approximately $11.2 million, consisting of $6.2 million in cash, 639,077 shares
of our restricted common stock, valued at $4.7 million and $0.3 million of
assumed liabilities. At closing, 169,851 shares of our common stock were placed
in escrow in the event of any post-closing indemnification claims and $4.2
million in cash was placed in escrow to be paid to trade creditors of HomeSpace.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table provides information about the beneficial ownership
of our common stock as of March 31, 2001. We have listed each person known to us
to beneficially own more than 5% of the outstanding common stock, as well as
each of our directors and executive officers identified in the summary
compensation table and all directors and executive officers as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned.
Common stock percentage ownership is based on 18,737,441 shares of
common stock outstanding as of March 31, 2001. Preferred stock percentage
ownership is based on 6,885,715 shares of 8% convertible preferred stock
outstanding as of April 30, 2001. A total of 6,757,144 shares of our preferred
stock were actually outstanding as of March 31, 2001. We issued an additional
128,571 shares of our 8% convertible preferred stock on April 30, 2001. Shares
of common stock issuable upon the exercise or conversion of options, warrants or
preferred stock that are currently exercisable or convertible or exercisable or
convertible within 60 days of March 31, 2001 are deemed outstanding for the
purpose of computing the common stock percentage ownership of the person holding
such options, warrants or preferred stock, but are not deemed outstanding for
computing the common stock percentage ownership of any other person. Even though
our 8% convertible preferred stock will not become convertible into shares of
our common stock until the conversion terms are approved by our stockholders,
which we expect to occur at our annual meeting in May 2001, we have included
shares of common stock issuable upon conversion of the preferred stock in
calculating such ownership amounts.
In connection with the sale of 6,885,715 shares of our 8% convertible
preferred stock in March 2001, stockholders holding approximately 59% of our
outstanding common stock entered into a voting agreement and executed
irrevocable proxies pursuant to which these stockholders have agreed, among
other things, to vote their shares of common stock at our 2001 annual meeting in
favor of the approval of the conversion terms and general voting rights of our
8% convertible preferred stock and the issuance of our common stock upon
conversion of the 8% convertible preferred stock. By virtue of the voting
agreement, and only for such time as the voting agreement is in effect, the
parties to the voting agreement may be deemed to constitute a "group" within the
meaning of Rule 13d-5(b) under the Exchange Act and thereby may be deemed to be
beneficial owners of all shares of 8% convertible preferred stock and common
stock held by each member of the deemed group. The voting agreement will
terminate immediately following our annual meeting in May 2001 if the conversion
terms and general voting rights of our 8% convertible preferred stock are
approved by our stockholders. Each of the stockholders listed below that is a
party to the voting agreement has disclaimed its membership in such group and,
for purposes of Section 13(d) of the Exchange Act, has disclaimed beneficial
ownership of any shares of 8% convertible preferred stock or common stock held
by any party to the voting agreement other than itself, if applicable.
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COMMON STOCK PREFERRED STOCK
BENEFICIALLY PERCENTAGE OF BENEFICIALLY PERCENTAGE OF
NAME AND ADDRESS(1) OWNED CLASS OWNED CLASS
---------------------------------- ------------ ------------- --------------- -------------
Specialty Finance Partners(2) 7,956,420 35.0% 4,000,000 58.1%
ULLICO(3) 2,271,604 11.9% -- --
GE Capital Residential Connections 1,266,053 6.8% -- --
Corporation(4)
General Electric Capital Assurance
Company(5) 316,514 1.7% -- --
The Goldman Sachs Group, Inc.(6) 1,424,310 7.6% -- --
Zions Bancorporation(7) 1,428,571 7.1% 1,428,571 20.7%
Capital Group International, Inc.(8) 1,337,400 7.2% -- --
Douglas Lebda(9) 1,420,748 7.4% 200,000 2.9%
Keith Hall(10) 131,600 * 28,571 *
Stephen J. Campbell(11) 28,187 * -- --
Thomas Reddin(12) 73,536 * -- --
Richard Stiegler(13) 98,740 * -- --
Richard Field(14) 1,070,682 5.5% 200,000 2.9%
W. James Tozer, Jr.(15) 851,443 4.5% 250,000 3.6%
James Carthaus(16) 50,025 * -- --
Robert Kennedy(17) 2,271,604 11.9% -- --
Daniel Lieber(18) -- -- -- --
Dale Gibbons(19) 1,436,771 7.1% 1,428,571 20.7%
Robert Spass(20) 23,418 * -- --
Theodore W. Kheel(21) 213,413 1.1% 142,857 2.1%
All executive officers and directors as 15,476,003 59.2% 6,107,142 88.7%
a group (18 persons)
---------------------------------
* Less than one percent.
(1) Addresses are provided only for the beneficial owners of 5% or more of
our common stock or preferred stock.
(2) Specialty Finance Partners, an affiliate of Capital Z Partners, Ltd.,
is located at 54 Thompson Street, New York, New York. Specialty Finance
Partners beneficially owns 7,956,420 shares of common stock, which
includes 4,000,000 shares of common stock that will be issuable upon
conversion of our 8% convertible preferred stock. Specialty Finance
Partners has sole voting and dispositive power with respect to such
shares. In addition, Specialty Finance Partners may be deemed to have
the shared power to vote or direct the vote of 15,576,032 shares or
66.7% of the outstanding shares of common stock by virtue of its being
party to the voting agreement. Capital Z Financial Services Fund II,
L.P., Capital Z Partners, L.P. and Capital Z Partners, Ltd. may be
deemed to beneficially own 7,956,420 shares of our common stock by
virtue of Specialty Finance Partners' beneficial ownership of shares of
common stock and 8% convertible preferred stock discussed above. Each
of Capital Z Financial Services Fund II, L.P., Capital Z Partners, L.P.
and Capital Z Partners, Ltd. has shared voting and dispositive power
with respect to such shares. In addition, each of Capital Z Financial
Services Fund II, L.P.
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Capital Z Partners, L.P., and Capital Z Partners, Ltd. may be deemed to
have shared voting and dispositive power with respect to 15,576,032
shares of common stock by virtue of Specialty Finance Partners being
party to the voting agreement.
(3) The Union Labor Life Insurance Company, on behalf of its separate
account P (ULLICO), is located at 111 Massachusetts Avenue, N.W., 8th
Floor, Washington, D.C. ULLICO beneficially owns 2,271,604 shares of
common stock, which includes 421,000 shares that are issuable upon
exercise of currently exercisable warrants. ULLICO has sole voting and
dispositive power with respect to all of such shares. In addition, as a
result of the voting agreement, ULLICO may be deemed to have shared
voting and dispositive power with respect to 15,997,032 shares or 67.3%
of the outstanding shares of common stock.
(4) GE Capital Residential Connections Corporation (GECRCC) is located at
6601 Six Forks Road, Raleigh, North Carolina. GECRCC beneficially owns
1,266,053 shares of common stock. GECRCC has sole voting and
dispositive power with respect to all of such shares. In addition, as a
result of the voting agreement, GECRCC may be deemed to have shared
voting and dispositive power with respect to 15,576,032 shares of
common stock or 66.7% of the outstanding shares of common stock.
(5) General Electric Capital Assurance Company (GECAC) is located at 6604
West Broad Street, Richmond, Virginia. GECAC beneficially owns 316,514
shares of common stock. GECAC has sole voting and dispositive power
with respect to all of such shares. In addition, as a result of the
voting agreement, GECAC may be deemed to have shared voting and
dispositive power with respect to 15,576,032 shares of common stock or
66.7% of the outstanding shares of common stock.
(6) The Goldman Sachs Group, Inc. (Goldman Sachs) is located at 85 Broad
Street, New York, New York. Goldman Sachs beneficially owns 1,424,310
shares of common stock. Goldman Sachs has sole voting and dispositive
power with respect to all of such shares. In addition, as a result of
the voting agreement, Goldman Sachs may be deemed to have shared voting
and dispositive power with respect to 15,576,032 shares of common stock
or 66.7% of the outstanding shares of common stock. The shares
beneficially owned by Goldman Sachs may also be deemed to be
beneficially owned by Stone Street Fund 1999, L.P. and by Goldman,
Sachs & Co. Goldman Sachs & Co. is the manager of the general partner
of Stone Street Fund 1999, L.P., and Goldman Sachs & Co. is a direct
and indirect wholly-owned subsidiary of Goldman Sachs.
(7) Zions Bancorporation is located at One South Main, Suite 1660, Salt
Lake City, Utah. Zions Bancorporation beneficially owns 1,428,571
shares of common stock, all of which consists of shares of common stock
that will be issuable upon conversion of our 8% convertible preferred
stock.
(8) The information concerning beneficial ownership set forth above and in
this note is derived from a Schedule 13G dated February 12, 2001.
Capital Group International, Inc. beneficially owns 1,337,400 shares of
common stock as a parent holding company of a group of investment
management companies that hold investment power and, in some cases,
voting power over such shares. Capital Group International, Inc. does
not have voting or investment power over any of the shares. Capital
Guardian Trust Company, a bank and a wholly-owned subsidiary of Capital
Group International, Inc., beneficially
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owns the same 1,337,400 shares as a result of its serving as the
investment manager of various institutional accounts.
(9) Mr. Lebda's business address is 11115 Rushmore Drive, Charlotte, North
Carolina. Mr. Lebda beneficially owns 1,420,748 shares of common stock,
which includes (a) 200,000 shares that will be issuable upon conversion
of our 8% convertible preferred stock, (b) 173,648 shares that are
issuable upon the exercise of stock options that are currently
exercisable or exercisable within the next 60 days, (c) 589,820 shares
held jointly with his spouse, (d) 88,900 shares held by a family trust
and (e) 23,812 shares that are issuable upon the exercise of currently
exercisable stock options held by his spouse. In addition, as a result
of the voting agreement, Mr. Lebda may be deemed to have shared voting
and dispositive power with respect to 15,749,860 shares of common stock
or 67.3% of the outstanding shares of common stock. Dispositive power
over all of Mr. Lebda's shares of common stock and preferred stock is
subject to a pledge arrangement with LendingTree. See "Certain
Relationships and Related Party Transactions."
(10) Mr. Hall beneficially owns 131,600 shares of common stock, which
includes (a) 28,571 shares that will be issuable upon conversion of
shares of preferred stock purchased by Mr. Hall's IRA account on April
30, 2001, (b) 30,388 shares that are issuable upon the exercise of
currently exercisable stock options that are currently exercisable or
exercisable within the next 60 days and (c) an aggregate of 11,525
shares held by his spouse's IRA account and by trusts established for
the benefit of members of Mr. Hall's family. Mr. Hall has sole voting
and dispositive power with respect to all of such shares. In addition,
as a result of the voting agreement, Mr. Hall may be deemed to have
shared voting and dispositive power with respect to 15,617,945 shares
of common stock or approximately 66.8% of the outstanding shares of
common stock.
(11) Mr. Campbell beneficially owns 28,187 shares of common stock, which
includes 26,787 shares that are issuable upon the exercise of stock
options that are currently exercisable or exercisable within the next
60 days.
(12) Mr. Reddin beneficially owns 73,536 shares of common stock, which
includes 71,436 shares that are issuable upon the exercise of stock
options that are currently exercisable or exercisable within the next
60 days.
(13) Mr. Stiegler beneficially owns 98,740 shares of common stock, which
includes 64,557 shares of common stock that are issuable upon the
exercise of stock options that are currently exercisable or exercisable
within the next 60 days.
(14) Mr. Field's address is 49 Locust Avenue, Suite 104, New Canaan,
Connecticut. Mr. Field beneficially owns 1,070,682 shares of common
stock, which includes (a) 85,714 shares that will be issuable upon the
conversion of shares of preferred stock held by Mr. Field, (b) 114,286
shares that will be issuable upon the conversion of shares of preferred
stock held in Mr. Field's IRA account, (c) 16,510 shares that are
issuable upon the exercise of warrants that are currently exercisable
or exercisable within the next 60 days and (d) 392,511 shares that are
issuable upon the exercise of currently exercisable stock options. Mr.
Field has sole voting and dispositive power with respect to all of such
shares. In addition, as a result of the voting agreement, Mr. Field may
be deemed to have shared voting and dispositive power with respect to
16,099,339 shares of common stock or approximately 67.4% of the
outstanding shares of common stock.
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(15) Mr. Tozer beneficially owns 851,443 shares of common stock, which
includes (a) 200,000 shares that will be issuable upon conversion of
shares of preferred stock held by Mr. Tozer's IRA account, (b) 50,000
shares that will be issuable upon the conversion of shares of preferred
stock purchased by Mr. Tozer on April 30, 2001 and (c) 2,540 shares
that are issuable upon the exercise of warrants held by Mr. Tozer's
wife that are currently exercisable or exercisable within the next 60
days. Mr. Tozer has sole voting and dispositive power with respect to
the shares identified in (a) and (b) above, and shared voting and
dispositive power with respect to the shares identified in (c) above.
In addition, as a result of the voting agreement, Mr. Tozer may be
deemed to have shared voting and dispositive power with respect to
15,582,570 shares of common stock or approximately 66.7% of the
outstanding shares of common stock.
(16) Mr. Carthaus beneficially owns 50,025 shares of common stock, which
includes 32,325 shares that are issuable upon the exercise of stock
options that are currently exercisable or exercisable within the next
60 days.
(17) Amounts shown reflect shares owned by ULLICO. Mr. Kennedy disclaims
beneficial ownership of all such shares.
(18) Excludes shares owned by Specialty Finance Partners and its affiliates.
(19) Amounts shown include 1,428,571 shares of common stock and preferred
stock beneficially owned by Zions Bancorporation. Mr. Gibbons
disclaims beneficial ownership of all such shares. Mr. Gibbons is the
Chief Financial Officer of Zions Bancorporation. Amounts shown also
include 8,200 shares owned by Mr. Gibbons.
(20) Consists of shares that are issuable upon exercise of warrants.
Excludes shares owned by Specialty Finance Partners and its affiliates.
(21) Amounts shown include 142,857 shares of preferred stock beneficially
owned by the TASK Foundation, a family-owned, not-for-profit foundation
of which Mr. Kheel is the President. Mr. Kheel disclaims beneficial
ownership of all such shares. In addition, as a result of the voting
agreement, Mr. Kheel may be deemed to have shared voting and
dispositive power with respect to 15,718,889 shares of common stock or
approximately 66.9% of the outstanding shares of common stock.
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SELLING STOCKHOLDERS
PIGGYBACK REGISTRATION RIGHTS HOLDERS
From our founding in 1996 through our initial public offering in
February 2000, we issued shares of common stock and preferred stock to our
founders, financial institutions and private investors in privately negotiated
transactions. All shares of preferred stock outstanding at the time of our
initial public offering were converted into common stock at that time. Several
of our early investors negotiated for the right to have us register their shares
of common stock in any eligible registration statement that we subsequently
file. The holders of these registration rights have requested that we include an
aggregate of 12,183,276 shares of common stock in this registration statement.
HOMESPACE SHARES
In connection with our acquisition of certain assets from HomeSpace
Services in August 2000, we issued to HomeSpace Services an aggregate of 639,077
shares of our common stock, all of which are included in this registration
statement. Under the HomeSpace asset purchase agreement, dated as of July 31,
2000, we agreed to file this registration statement with the Securities and
Exchange Commission to register these shares of common stock and to use our
reasonable best efforts to keep this registration statement current and
effective until the earliest of:
- October 31, 2001;
- such time as all of the shares registered on the registration
statement have been sold; or
- such time as all of the shares may be publicly resold by the
holders thereof under Rule 144 of the Securities Act, without
any volume limitations, provided the holders have received an
opinion from our counsel to that effect.
EQUITY RIGHTS FINANCING
In September 2000, we entered into a securities purchase agreement with
affiliates of Capital Z, our largest stockholder, pursuant to which we sold an
equity rights certificate and, in connection with which we issued commitment fee
warrants to purchase 135,000 shares of our common stock. In conjunction with the
closing of the 8% convertible preferred stock transaction described below,
Specialty Finance Partners, an affiliate of Capital Z, converted the equity
rights certificate into 2,857,143 shares of 8% convertible preferred stock at an
effective conversion rate equal to $3.50 per share. The common shares underlying
both the 8% convertible preferred stock, together with the aggregate number of
shares of common stock which may be issuable as a result of dividends on the 8%
convertible preferred stock, and the commitment fee warrants are included in
this registration statement.
MARCH 2001 FINANCING TRANSACTIONS
In March 2001, we issued and sold 3,900,001 shares of 8% convertible
preferred stock. In April 2001, we issued and sold an additional 128,571 shares
of 8% convertible preferred stock. In addition, as partial compensation for
financial advisory services provided to us in
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connection with the March 2001 financing transactions, we verbally agreed to
issue to Merrill Lynch warrants to purchase 112,500 shares of our common stock.
Also in March 2001, we entered into revolving credit facilities with
ULLICO and Freddie Mac. In connection with these facilities we issued to ULLICO
and Freddie Mac commitment fee warrants to purchase 40,000 and 12,500 shares,
respectively, of our common stock. In addition, interest on any borrowings under
each facility is payable, in part, in the form of 5-year warrants to purchase
our common stock. All of the warrants issued under these facilities or which may
be issued under these facilities have an exercise price of $.01 per share.
Under a registration rights agreement dated as of March 7, 2001, we
agreed to register the following:
- 6,885,715 shares of common stock into which the 8% convertible
preferred stock are initially convertible, plus 3,346,095
shares of common stock which may be issuable as a result of
dividends on the 8% convertible preferred stock;
- 1,665,649 shares of common stock that are issuable upon the
exercise of the ULLICO termination fee warrants and the ULLICO
and Freddie Mac commitment fee warrants and interest fee
warrants, with the number of interest warrants being
calculated as if the full commitment amounts were drawn on
both the Freddie Mac credit facility and the ULLICO credit
facility on March 20, 2001 and not repaid until the respective
outside termination dates under such facilities; and
- 112,500 shares issuable upon exercise of warrants that will be
issued to Merrill Lynch, Fenner, Pierce & Smith, Incorporated
for financial advisory services.
We agreed with these stockholders to file this registration statement
with the Securities and Exchange Commission to register their shares of common
stock and to use our reasonable best efforts to keep this registration statement
current and effective until the earliest of:
- such time as all of the shares registered on this registration
statement have been sold; or
- five (5) years from the later of (x) the date this
registration statement becomes effective or (y) the date on
which the 8% convertible preferred stock can be converted into
common stock.
APRIL 2001 FINANCING TRANSACTIONS
In April 2001 we issued and sold an additional 128,571 shares of our 8%
convertible preferred stock.
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The following table sets forth, as of the date of this prospectus, the
names of the selling stockholders, the number of our shares that the selling
stockholders own as of such date, the number of our shares owned by selling
stockholders that may be offered for sale from time to time by this prospectus,
and the number of our shares to be held by such selling stockholder assuming the
sale of all of the shares offered hereby. As used in this prospectus, "selling
stockholder" includes the donees, transferees or others who may later hold the
selling stockholders' interests. Certain of the selling stockholders are either
affiliates of LendingTree or serve as members of our management or board of
directors. For further information, reference is made to the footnotes which
follow the table and the section of this prospectus entitled "Certain
Relationships and Related Party Transactions."
We may amend or supplement this prospectus from time to time to update
the disclosure hereunder.
Percent of
Outstanding Shares Unregistered Percent of
Shares Lending That May Shares Outstanding
Name of Beneficially Tree Be Owned After Lending Tree
Selling Stockholder Owned Stock Offered(1) Offering Stock
-----------------------------------------------------------------------------------------------------------------------------------
Bulgroup Properties 71,429 * 106,998 -- *
Pei-Yuan Chia 71,429 * 106,998 -- *
Craton Capital, L.P. 57,143 * 85,598 -- *
Terrence D. Daniels 71,429 * 106,998 -- *
Federal Home Loan Mortgage Corporation(2) -- * 332,233 -- *
Richard D. Field(3) 1,070,682 5.5% 761,255 16,510 *
Richard D. Field IRA 114,286 * 171,197 -- *
Financial Institution Partners II, L.P. 15,005 * 15,005 -- *
Garrity Investments LLC 95,582 * 80,342 15,240 *
General Electric Capital Assurance Company 316,514 1.7% 316,514 -- *
GE Capital Residential Connections Corporation 1,266,053 6.8% 1,266,053 -- *
Peter and Barbara Georgescu(4) 111,250 * 117,858 7,620 *
The Goldman Sachs Group, Inc. 1,281,881 6.8% 1,281,881 -- *
HomeSpace Services, Inc.(5) 639,077 3.4% 639,077 -- *
Hovde Investment Corp., L.L.C. 25,076 * 9,836 15,240 *
Jeffrey P. Hughes(6) 71,429 * 106,998 -- *
John B. Prince 74,589 * 66,969 7,620 *
John B. Prince ACF Courtney Prince U/UT/UTMA 21,877 * 21,877 -- *
John B. Prince ACF Matthew Prince U/UT/UTMA 21,877 * 21,877 -- *
John Prince Family INV. LLC 71,429 * 106,998 -- *
Keith Hall IRA(7) 79,371 * 68,189 25,400 *
Victor F. Keen 42,857 * 64,198 -- *
Theodore W. Kheel 70,556 * 70,556 -- *
Enjar Knudsen 42,857 * 64,198 -- *
Douglas R. Lebda(8) 1,420,748 7.4% 1,322,702 -- *
Tara Lebda 1,420,748 7.4% 1,322,702 -- *
Marsh & McLennan Risk Capital Holdings, Ltd. 633,025 3.4% 633,025 -- *
Merrill Lynch, Fenner, Pierce & Smith, Incorporated(9) -- * 112,500 -- *
Partners or Assignees of Capital Z(10) -- * 135,000 -- *
Phoenix Strategic Capital Corporation 291,746 1.5% 282,221 -- *
William Sheibler 135,319 * 156,154 7,620 *
Specialty Finance Partners(11) 7,956,420 * 9,948,289 -- *
Stone Street Fund 1999, L.P. 142,429 * 142,429 -- *
TASK Foundation, Inc.(12) 142,857 * 213,995 -- *
W. James Tozer, Sr 50,000 * 74,882 -- *
W. James Tozer, JR. IRA(13) 119,778 * 144,660 -- *
W. James Tozer, Jr.(14) 851,443 4.5% 836,193 2,540 *
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Percent of Unregistered
Outstanding Shares Percent of
Shares Lending That May Shares Outstanding
Name of Beneficially Tree Be Owned After Lending Tree
Selling Stockholder Owned Stock Offered(1) Offering Stock
-----------------------------------------------------------------------------------------------------------------------------------
The Union Labor Life Insurance Company, on behalf of its
Separate Account P(15) 2,231,604 11.7% 3,183,918 381,000 2.0%
Robert Wilson(16) 100,000 * 50,165 -- *
Zions Bancorporation(17) 1,428,571 7.1% 2,139,953 -- *
----------------------
* Less than one percent.
(1) Includes securities which may be issued upon exercise or
conversion of securities which may be issued under our
existing agreement. Includes the number of shares of common
stock that each selling stockholder may acquire pursuant to
the exercise of warrants, whether or not such warrants are
currently exercisable, some or all of which may be sold from
time to time pursuant to this prospectus. Accordingly, in
certain instances, the number of securities which may be
offered by a stockholder may exceed the number of securities
beneficially owned by such stockholder.
(2) Includes 12,500 shares of our common stock that are issuable
upon the exercise of commitment fee warrants and 319,723
shares of our common stock that may be issuable upon the
exercise of interest warrants, with the number of interest
warrants being calculated as if the full commitment amounts
were drawn on the Freddie Mac credit facility on March 20,
2001 and not repaid until the outside termination date under
such facility. Freddie Mac is a customer of LendingTree.
Freddie Mac is not permitted to exercise the commitment fee
warrants. However, they are able to transfer such warrants and
a transferee would be able to exercise such warrants.
(3) Includes 85,714 shares of our common stock into which shares
of our 8% convertible preferred stock are initially
convertible, plus 42,683 shares of common stock which may be
issuable as a result of dividends on the 8% convertible
preferred stock. Mr. Field is a director of LendingTree.
(4) Includes 28,571 shares of our common stock into which shares
of our 8% convertible preferred stock are initially
convertible, plus 14,228 shares of common stock which may be
issuable as a result of dividends on the 8% convertible
preferred stock.
(5) In August 2000 we acquired certain assets from HomeSpace
Services, Inc. in exchange for cash and stock.
(6) Includes 71,429 shares of our common stock into which shares
of our 8% convertible preferred stock are initially
convertible, plus 35,569 shares of common stock which may be
issuable as a result of dividends on the 8% convertible
preferred stock.
(7) Mr. Hall is LendingTree's Chief Financial Officer.
(8) Mr. Lebda is LendingTree's Chief Executive Officer and a
director. Includes 200,000 shares of our common stock into
which shares of our 8% convertible preferred stock are
initially convertible, plus 99,594 shares of common stock
which may be issuable as a result of dividends on the 8%
convertible preferred stock.
(9) Merrill Lynch acts as our financial advisor. Merrill Lynch
also served as the lead under writer of our initial public
offering in February 2000.
(10) These shares relate to the commitment fee warrants that were
assigned by an affiliate of Capital Z to Roland Bernardon,
Laurence Cheng, Brad Cooper, Elizabeth Danes, Scott Delman,
Susan Fleming, Elizabeth Flisser, Steven Gluckstern, Mark
Gormley, Spencer Greenwald, Susan Harris, Sharissa Jones,
Philip Larson, Eric Leathers, Suneel Mandava, Adam Mizel,
Kevin Nee, Eric Rahe, Robert Spass and David Spuria. Mr. Spass
is a partner of Capital Z and currently serves as a member of
our Board of Directors. Mr. Mizel
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served as a member of our Board of Directors from September
1999 until his resignation on April 5, 2001.
(11) Includes 4,000,000 shares of our common stock into which
shares of our 8% convertible preferred stock are initially
convertible plus 1,991,869 shares of common stock which may be
issuable as a result of dividends on the 8% convertible
preferred stock. Specialty Finance Partners, our largest
stockholder, is an affiliate of Capital Z.
(12) Includes 142,857 shares of our common stock into which shares
of our 8% convertible preferred stock are initially
convertible, plus 71,138 shares of common stock which may be
issuable as a result of dividends on the 8% convertible
preferred stock.
(13) The shares listed here are held in two separate IRA accounts
on behalf of Mr. Tozer, Jr. Includes 50,000 shares of common
stock into which shares of our 8% convertible preferred stock
are initially convertible, plus 24,882 shares of common stock
which may be issuable as a result of dividends on the 8%
convertible preferred stock.
(14) Includes 250,000 shares of our common stock into which shares
of our 8% convertible preferred stock are initially
convertible, plus 124,475 shares of common stock which may be
issuable as a result of dividends on the 8% convertible
preferred stock. Mr. Tozer currently serves as a member of our
Board of Directors.
(15) Includes 40,000 shares of our common stock that are issuable
upon the exercise of ULLICO's commitment fee warrants, 40,000
shares of our common stock that may be issuable upon the
exercise of termination fee warrants and 1,253,314 shares of
our common stock that may be issuable upon the exercise of
interest fee warrants, with the number of interest warrants
being calculated as if the full commitment amounts were drawn
on the ULLICO credit facility on March 20, 2001 and not repaid
until the outside termination date under such facility.
(16) Mr. Wilson has been a consultant to LendingTree and from 1997
to 2000, held various executive positions, including chief
executive officer, chairman of the board, chairman emeritus
and chief financial officer.
(17) Zions Bancorporation beneficially owns 1,428,571 shares of
common stock, all of which consists of shares of common stock
that will be issuable upon conversion of our 8% convertible
preferred stock. An additional 711,382 shares of common stock
may be issuable as a result of dividends on the 8% convertible
preferred stock.
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DESCRIPTION OF CAPITAL STOCK
Our amended and restated certificate of incorporation authorizes us to
issue up to 100,000,000 shares of common stock, $0.01 par value per share, and
10,000,000 shares of preferred stock, par value $0.01 per share, 1,000,000
shares of which are designated as series A junior participating preferred stock,
and 6,885,715 shares of which are designated as 8% convertible preferred stock
As of March 31, 2000, 19,653,956 shares of common stock were issued, including
916,515 shares of treasury stock, for a net total of 18,737,441 shares of common
stock outstanding. All of the outstanding capital stock is and will be, fully
paid and non-assessable.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available for this purpose
at the times and in the amounts as the board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not provided for in our amended and restated
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon the occurrence of a liquidation, dissolution or
winding-up of LendingTree, the holders of shares of common stock would be
entitled to share ratably in the distribution of all of the LendingTree's assets
remaining available for distribution after satisfaction of all its liabilities
and the payment of the liquidation preference of any outstanding preferred
stock.
PREFERRED STOCK
BLANK CHECK PREFERRED STOCK
The board of directors has the authority to provide by resolution for
the issuance of shares of preferred stock, in one or more classes or series, and
to fix the rights, preferences, privileges and restrictions of this preferred
stock, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock and could
adversely affect the voting and other rights of the holders of common stock.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
We have entered into a stockholder rights agreement designated to
protect stockholders from attempts to acquire control of LendingTree at an
inadequate price. Under our stockholder rights agreement, each outstanding share
of LendingTree common stock has attached to it one right to purchase
one-hundredth of a share of junior participating preferred stock at an exercise
price of four times the average closing price of our common stock for the first
five days trading. The rights are not currently exercisable or transferable, and
no separate certificates evidencing such rights will be distributed, unless
certain events occur.
- A holder can exercise the rights to purchase shares of the
junior participating preferred
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stock if a person, group, or other entity acquires from
sources other than us or commences a tender offer or an
exchange offer for 15% or more of our common stock.
After the rights become exercisable, the rights generally will entitle
the holders to purchase either LendingTree common stock or the common stock of
the potential acquiror, in lieu of the junior participating preferred stock, at
a substantially reduced price.
We can generally redeem the rights at $0.01 per right at any time prior
to the earlier of:
- the time that an acquiror obtains 15% or more of our
outstanding common stock from sources other than us; or
- the final expiration date of the rights agreement.
Our rights agreement provides that the provisions of the rights
agreement may be amended by the board of directors prior to 10 days after
someone acquires or commences a tender offer for 15% of our outstanding common
stock without the approval of the holders of the rights. However, after that
date, the rights agreement may not be amended in any manner which would
adversely effect the interests of the holders of the rights, excluding the
interests of any acquiror. In addition, our rights agreement provides that no
amendment may be made to adjust the time period governing redemption at a time
when the rights are not redeemable.
8% CONVERTIBLE PREFERRED STOCK
On March 20, 2001, we issued and sold 3.7 million shares of 8%
convertible preferred stock for $12.95 million, or $3.50 per share. This
excludes 200,000 shares that were purchased by our Chief Executive Officer with
funds he obtained from a $700,000 loan from us. On April 30, 2001, we issued an
additional 128,571 shares for $450,000. In conjunction with the closing of the
8% convertible preferred stock transaction, Specialty Finance Partners' equity
rights certificate was converted into 2,857,143 shares of 8% convertible
preferred stock at an effective conversion rate equal to $3.50 per share. No
additional purchase price was required to be paid for the shares of 8%
convertible preferred stock issued upon conversion of the equity rights
certificate.
The material terms of our 8% convertible preferred stock are as
follows:
Title, Authorized Shares; Priority. There are 6,885,715 authorized
shares of our 8% convertible preferred stock, all of which are currently issued
and outstanding. Our 8% convertible preferred stock ranks senior to our common
stock and to any other classes or series of preferred stock the terms of which
specifically provide that they are junior to our 8% convertible preferred stock,
or junior securities, with respect dividend rights and with respect to rights
upon liquidation, winding up or dissolution.
Dividends. The holders of our 8% convertible preferred stock are
entitled to receive dividends on the preferred stock equal to 8% of the stated
value per share payable at our option:
- in cash on a quarterly dividend payment date; or
- by an upward adjustment to the stated par value per share on a
quarterly dividend payment date.
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The stated value per share is equal to the original purchase price for
the 8% convertible preferred stock of $3.50 per share, subject to adjustment for
dividends that are not paid in cash. Dividends on the 8% convertible preferred
stock are cumulative and accrue daily from the date of original issuance.
Dividends are payable on the last day of March, June, September and December of
each year, commencing June 30, 2001. If our stockholders do not approve the
conversion terms of the 8% convertible preferred stock at our annual meeting and
we have not obtained such stockholder approval by June 23, 2001, the dividend
rate on the 8% convertible preferred stock will increase to 12% until such time
as our stockholders approve the conversion terms.
The holders of common stock and other junior securities may not receive
dividends or have their shares repurchased or redeemed unless the holders of the
8% convertible preferred stock approve the dividend, repurchase or redemption
and all accumulated but unpaid dividends on the 8% convertible preferred stock
have been paid. Dividends that are paid by increasing the stated value of the
preferred stock will be recorded based on the fair value of the underlying
common stock into which the additional value is convertible.
Redemption. The shares of 8% convertible preferred stock will be
redeemable at our option for cash commencing on and after March 31, 2004 at a
price per share equal to the product of the applicable percentage described
below, multiplied by the then current stated value per share. The applicable
percentage is initially 120% and declines to 105% ratably on a quarterly basis
as follows:
PERIOD APPLICABLE PERCENTAGE
----------------------------------------- ---------------------
March 20, 2004 through June 30, 2004 118.333%
July 1, 2004 through September 30, 2004 116.666%
October 1, 2004 through December 31, 2004 115.000%
January 1, 2005 through March 31, 2005 113.333%
April 1, 2005 through June 30, 2005 111.666%
July 1, 2005 through September 30, 2005 110.000%
October 1, 2005 through December 31, 2005 108.333%
January 1, 2006 through March 21, 2006 106.666%
On and after March 21, 2006 105.000%
We are required to redeem all shares of 8% convertible preferred stock
that remain outstanding on March 20, 2006 at a price of 105% of the then current
stated value per share. If we do not redeem the 8% convertible preferred stock
on that date, the dividend rate will increase to 15% of the stated value per
share for so long as such shares remain outstanding.
Conversion. The shares of 8% convertible preferred stock are not
convertible unless and until we receive the approval of our stockholders. If our
stockholders approve this proposal, each share will be convertible following our
annual meeting into the number of shares of common stock determined by dividing
the then current stated value per share plus accrued but unpaid dividends by the
conversion price. The conversion price is the initial purchase price of $3.50
per share, subject to adjustment from time to time as described in the section
"Dilution and Price Protection" below.
Dilution and Price Protection. The shares of 8% convertible preferred
stock are subject to
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protection from certain dilutive events. If any of these dilutive events occurs,
the conversion price of the 8% convertible preferred stock will be adjusted in
the manner described below. Dilutive events that would trigger an adjustment in
the conversion price include the following:
- the issuance of shares of common stock or common stock
equivalents in financing transactions involving greater than
$5.0 million in net proceeds to us before we have reported
positive cash flow, as defined below, for any two consecutive
fiscal quarters, in which case the conversion price would be
adjusted as follows:
- if the net proceeds of such financing transactions
are between $5.0 million and $10.0 million, the
conversion price may be decreased to the net
volume-weighted average purchase price per share of
the common stock or common stock equivalents sold in
such financings;
- if the net proceeds are greater than $10.0 million,
the conversion price will be adjusted to the net
volume-weighted average purchase price per share of
the common stock or common stock equivalents issued
in any dilutive transaction or series of dilutive
transactions with proceeds equal to any $10.0 million
that would yield the lowest net volume-weighted
average purchase price per share; and
- in no such event, however, will the conversion price
be reduced below $2.00 per share or increased above
$3.50 per share.
- stock dividends, subdivisions, splits or combinations, in
which case the conversion price will be proportionately
increased or decreased; and
- mergers, consolidations, reorganizations or other similar
business combinations or any other change of control event
described in "Liquidation Preference" below that results in
our common stock being changed into securities of another
company or a sale of substantially all of our assets, in which
case the conversion terms will be adjusted to provide the
holders of our 8% convertible preferred stock with the right
to convert their shares of preferred stock into the cash,
securities or property that they would have been entitled to
receive had they converted their preferred stock into common
stock immediately prior to such transaction.
Cash flow is generally defined to mean our consolidated net income
determined in accordance with generally accepted accounting principles, but
excluding gain realized upon the sale of assets not in the ordinary course of
business, extraordinary and non-recurring gains and extraordinary and
non-recurring non-cash losses, plus the following items to the extent they were
deducted:
- certain non-cash interest expenses;
- depreciation and certain amortization expenses;
- all non-cash charges for compensation attributable to options,
warrants and other equity instruments; and
- certain paid-in-kind dividends and other non-cash dividends or
equity-related charges.
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The dilution and price protection provisions described above do not
extend to the following transactions:
- any issuance of securities to our employees, officers,
consultants or directors pursuant to employee benefit plans in
the ordinary course of business;
- any issuance of securities pursuant to the conversion or
exercise of securities outstanding on or as of March 20, 2001;
- any issuance of securities pursuant to the provisions
described above providing dilution protection to the holders
of our 8% convertible preferred stock;
- any issuance of securities pursuant to the terms of our
revolving credit facilities with ULLICO and Freddie Mac; and
- any issuance of securities to business partners in
transactions approved by the board of directors that do not
have capital raising as their principal objective.
General Voting Rights. The shares of 8% convertible preferred stock do
not and will not have general voting rights unless and until we receive the
approval of our stockholders. In connection with the sale of the 8% convertible
preferred stock, stockholders representing a majority of our outstanding voting
securities entered into a voting agreement and executed irrevocable proxies
under which they agree to vote their shares in favor of the conversion
provisions of the 8% convertible preferred stock at our annual meeting in May
2001. When and if our stockholders approve the voting rights provisions of the
8% convertible preferred stock, each share of our 8% convertible preferred stock
will vote together with our common stock on an as-if-converted basis on all
matters that are presented to our common stockholders.
Protective Provisions. So long as more than 1,377,143 shares of our 8%
convertible preferred stock are outstanding, we cannot do any of the following
without the prior approval of 68.5% of the shares of 8% convertible preferred
stock then outstanding, voting separately as a class:
- amend our certificate of incorporation or bylaws in a manner
adverse to the holders of our 8% convertible preferred stock;
- increase or decrease the authorized number of shares of our
common or preferred stock;
- authorize, create or issue any class or series of capital
stock ranking senior to or on parity with our 8% convertible
preferred stock in any respect;
- repurchase, redeem or pay any dividends on any equity
securities, other than on our 8% convertible preferred stock
and repurchases pursuant to employee benefit plans;
- subject our assets to any lien other than
- liens in connection with revolving credit facilities
or sales of accounts receivable in transactions
approved by our board of directors; or
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- liens arising in the ordinary course of business that
do not materially impair the value of the assets they
encumber;
- incur any indebtedness for borrowed money in excess of $10.0
million, other than in connection with revolving credit
facilities approved by our board of directors;
- issue any debt security or class or series of capital stock
that is not common stock or convertible into or exercisable
for common stock, called a non-equity security, or issue or
become subject to any debt-type obligation, in either case,
that bears an annual interest rate, dividend rate or yield
greater than the six-month LIBOR rate plus 15%;
- issue any non-equity security or issue or become subject to
any debt-type obligation that provides for both:
- an annual interest rate, dividend rate or yield
greater than the six-month LIBOR rate plus 10%; and
- the issuance of or the right to receive 1,000,000 or
more shares of our common stock or any other class or
series of our common or preferred stock that is not a
non-equity security; or
- increase the size of our board of directors to more than 10
directors.
Preemptive Rights. Holders of our 8% convertible preferred stock have a
preemptive right to acquire up to 50% of any equity securities that we propose
to issue in the future on terms and conditions no less favorable than those that
we are offering to a third party. Each holder of preferred stock has the
preemptive right to acquire his or her proportional share of such 50% amount,
subject to increase for over-allotment if some holders do not fully exercise
their rights.
The following issuances of equity securities are not subject to the
preemptive rights:
- the issuance of securities to our employees, officers,
consultants and directors pursuant to employee benefit plans
in the ordinary course of business;
- any issuance of securities upon the conversion of securities
outstanding on or as of March 20, 2001;
- underwritten public offerings of securities;
- issuances of common stock under the Paul Revere equity line;
- any issuance of securities as part of revolving credit
facilities;
- any issuance of securities in connection with acquisitions;
and
- any issuance of securities to business partners in
transactions approved by our board of directors that do not
have capital raising as their principal objective.
Liquidation Preference. In the event LendingTree is liquidated or
dissolves, the holders of
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our 8% convertible preferred stock will be entitled to receive a liquidation
preference before any distributions may be made to holders of our common stock
or any other junior securities. This liquidation preference will be equal to
105% of the then current stated value per share.
In connection with certain change in control events, holders of our 8%
convertible preferred stock may have the right at their option to:
- treat the change in control event as a liquidation and receive
the greater of
- the liquidation preference described above; or
- the consideration that they would have received if
they had converted their shares of 8% convertible
preferred stock into common stock immediately prior
to the consummation of the change in control event;
- require as a condition to any change of control transaction in
which the consideration is other than cash that the
counterparty to such transaction redeem the convertible
preferred stock for a cash amount equal to the then current
liquidation preference; or
- continue to hold the convertible preferred stock in which
case, the change of control event may result in or trigger an
adjustment to the conversion price as disclosed above.
These change in control events generally include:
- the sale of all or substantially all of our assets;
- the consummation of a transaction in which any person or
group, other than Capital Z and its affiliates, becomes the
owner of 50% or more of our voting stock;
- during any period of two consecutive years, directors in
office at the beginning of a period together with other
directors approved by our board of directors cease to
constitute a majority of our board; and
- mergers or business combinations, other than certain mergers
or business combinations in which holders of our voting
securities hold the same voting power after the merger or
business combination as they held before the transaction and
mergers effected to change our jurisdiction of organization.
WARRANTS
As of March 31, 2001, we had the following outstanding warrants to
purchase shares of common stock:
(1) a warrant to purchase up to 381,000 shares at an exercise
price of approximately $4.72 per share that is held by ULLICO
on behalf of its Separate Account P;
(2) seven warrants to purchase up to a total of 16,510 shares at
an exercise price of approximately $7.87 per share that are
held by Katherine Tozer Roddy; James Roddy, Jr.; Farran Tozer
Brown; Robert Brown; Elizabeth Tozer; Charlotte Tozer
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and Raju Shah;
(3) a warrant to purchase up to a total of 16,510 shares at an
exercise price of approximately $7.87 per share that is held
by Richard Field;
(4) a warrant to purchase up to 15,240 shares at an exercise price
of approximately $7.67 per share that is held by a family
member of Douglas R. Lebda;
(5) warrants to purchase an aggregate of 38,100 shares at an
exercise price of approximately $7.87 per share that are held
by Hovde Financial Institution Partners II, L.P., Hovde
Investment Corp., L.L.C., William N. Schiebler, Barbara A. and
Peter A. Georgescu, and John B. Prince;
(6) a warrant to purchase up to 63,500 shares at an exercise price
of approximately $4.72 per share that is held by Seacris
Group, Ltd.;
(7) a warrant to purchase up to 127,000 shares at an exercise
price equal to $12.00 per share that is held by Prudential
Securities, as amended on January 25, 2000;
(8) a warrant to purchase up to 9,525 shares at an exercise price
of approximately $4.72 per share that is held by Phoenix
Strategic Capital;
(9) warrants to purchase up to 190,500 shares at an exercise price
of approximately $7.87 per share that are held by CNBC.com;
(10) a warrant to purchase up to 40,000 shares at an exercise price
of $0.01 per share that is held by ULLICO on behalf of its
Separate Account P;
(11) a warrant to purchase up to 12,500 shares at an exercise price
of $0.01 per share that is held by Freddie Mac; and
(12) warrants to purchase up to an aggregate of 135,000 shares at
an exercise price of $3.762 per share that are held by persons
associated with Capital Z.
OPTIONS
As of March 31, 2001:
(i) options to purchase a total of 5,009,944 shares of common stock
were outstanding of which 1,506,314 have vested;
(ii) up to 3,316,228 additional shares of common stock may be subject
to options granted in the future; and
(iii) 412,044 shares reserved for issuance under our employee stock
purchase plan.
For more information, see the section of this prospectus entitled
"Management--Executive Compensation."
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ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND LENDINGTREE'S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS.
Some provisions of our amended and restated certificate of
incorporation and amended and restated bylaws, which provisions are summarized
in the following paragraphs, may be deemed to have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider it its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
Classified Board of Directors. Our board of directors is divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the board of directors will be elected each year.
These provisions, when coupled with the provision of our amended and restated
certificate of incorporation authorizing the board of directors to fill vacant
directorships or increase the size of the board of directors, may deter a
stockholder from removing incumbent directors and simultaneously gaining control
of the board of directors by filling the vacancies created by such removal with
its own nominees.
Cumulative Voting. Our amended and restated certificate of
incorporation expressly denies stockholders the right to cumulate votes in the
election of directors.
Stockholder Action; Special Meeting of Stockholders. Our amended and
restated certificate of incorporation eliminates the ability of stockholders to
act by written consent. It further provides that special meetings of our
stockholders may be called only by the chairman of the board of directors, the
president or a majority of the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our amended and restated bylaws provide that stockholders seeking
to bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders, must
provide timely notice in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at our principal executive offices not less
than 90 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders. However, in the event that the annual meeting is called
for a date that is not within thirty (30) days before or after such anniversary
date, notice by the stockholder in order to be timely must be received not later
than the close of business on the 10th day following the date on which notice of
the date of the annual meeting was mailed to stockholders or made public,
whichever first occurs. In the case of a special meeting of stockholders called
for the purpose of electing directors, notice by the stockholder in order to be
timely must be received not later than the close of business on the tenth (10th)
day following the day on which notice of the date of the special meeting was
mailed or public disclosure of the date of the special meeting was made,
whichever first occurs. Our amended and restated bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.
Super Majority Vote Requirements. The Delaware General Corporation Law
provides generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or bylaws, unless either a corporation's certificate of
incorporation or bylaws require a greater percentage. Our amended
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and restated certificate of incorporation imposes supermajority vote
requirements to amend any provisions of our amended and restated certificate of
incorporation, including those provisions relating to the classified board of
directors, action by written consent and the ability of stockholders to call
special meetings. In addition, our amended and restated certificate of
incorporation provides that certain business combinations such as mergers and
stock and asset sales with an interested stockholder, typically a beneficial
owner of more than 15% of the outstanding voting shares of our capital stock, be
approved by:
- the holders of 80% or more of the voting power of the then
outstanding voting shares voting together as a single class,
and
- at least the majority of the voting power of the then
outstanding voting shares voting as a single class which are
not owned beneficially, directly or indirectly by the
interested stockholder, unless the transaction approved by a
majority of certain directors or meets certain share price
provisions.
Authorized but Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
DELAWARE GENERAL CORPORATION LAW SECTION 203.
LendingTree is subject to Section 203 of the Delaware General
Corporation Law. Under Section 203, an interested stockholder, defined generally
as a person owning 15% or more of a corporation's outstanding voting stock, is
prevented from engaging in a business combination with the corporation for three
years after becoming an interested stockholder unless:
- the board approved the transaction in which the interested
stockholder became an interested stockholder,
- the interested stockholder owns more than 85% of the stock
after the consummation of the transaction in which the
stockholder became interested; or
- the board approves the business combination and two-thirds of
the outstanding voting stock of the corporation not owned by
the interested stockholder approves the business combination.
RIGHTS AGREEMENT.
Under Delaware law, every corporation may create and issue rights
entitling the holders of such rights to purchase from the corporation shares of
its capital stock of any class or classes, subject to any provisions in its
certificate of incorporation. The price and terms of such shares must be stated
in the certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights.
We have entered into a stockholder rights agreement. As with most
stockholder rights
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agreements, the terms of our rights agreement are complex and not easily
summarized, particularly as they relate to the acquisition of our common stock
and to exercisability. This summary may not contain all of the information that
is important to you. Accordingly, you should carefully read our rights
agreement, which has been filed as an exhibit to the registration statement of
which this prospectus forms a part.
Our rights agreement provides that each share of our common stock
outstanding has one right to purchase one-hundredth of a preferred share
attached to it. The purchase price per on- hundredth of a share of series A
junior participating preferred stock under the stockholder rights agreement is
four times the average closing price of our common stock for the first five days
of trading after the consummation of our initial public offering.
Initially, the rights under our rights agreement are attached to
outstanding certificates representing our common stock and no separate
certificates representing the rights will be distributed. The rights will
separate from our common stock and be represented by separate certificates
approximately 10 days after someone acquires or commences a tender offer for 15%
of our outstanding common stock other than through purchases directly from us.
After the rights separate from our common stock, certificates
representing the rights will be mailed to record holders of our common stock.
Once distributed, the rights certificates alone will represent the rights.
All shares of our common stock issued prior to the date the rights
separate from the common stock will be issued with the rights attached. The
rights are not exercisable until the date the rights separate from the common
stock. The rights will expire on the tenth anniversary of the date of the
completion of this offering unless earlier redeemed or exchanged by us.
If an acquiror obtains or has the rights to obtain 15% or more of our
common stock, then each right will entitle the holder to purchase a number of
shares of our common stock equal to two times the purchase price of each right.
Each right will entitle the holder to purchase a number of shares of
common stock of the acquiror having a then current market value of twice the
purchase price if an acquiror obtains 15% or more of our common stock other than
through purchases directly from us and any of the following occurs:
- we merge into another entity;
- an acquiring entity merges into us; or
- we sell more than 50% of our assets or earning power.
Under our rights agreement, any rights that are or were owned by an acquiror of
more than 15% of our outstanding common stock will be null and void.
Our rights agreement contains exchange provisions which provides that
after an acquiror obtains 15% or more, but less than 50% of our respective
outstanding common stock other than through purchases directly from us, our
board of directors may, at its option, exchange all or part of the then
outstanding and exercisable rights for shares of our common stock. In such an
event, the exchange ratio is one common share per right, adjusted to reflect any
stock split, stock
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dividend or similar transaction.
Our board of directors may, at its option, redeem all of the
outstanding rights under our rights agreement prior to the earlier of (1) the
time that an acquiror obtains 15% or more of our outstanding common stock or (2)
the final expiration date of the rights agreement. The redemption price under
our rights agreement is $0.01 per right, subject to adjustment. The right to
exercise the rights will terminate upon the action of our board ordering the
redemption of the rights and the only right of the holders of the rights will be
to receive the redemption price.
Holders of rights will have no rights as our stockholders including the
right to vote or receive dividends, simply by virtue of holding the rights.
Our rights agreement provides that the provisions of the rights
agreement may be amended by the board of directors prior to 10 days after
someone acquires or commences a tender offer for 15% of our outstanding common
stock without the approval of the holders of the rights. However, after that
date, the rights agreement may not be amended in any manner which would
adversely effect the interests of the holders of the rights, excluding the
interests of any acquiror. In addition, our rights agreement provides that no
amendment may be made to adjust the time period governing redemption at a time
when the rights are not redeemable.
Our rights agreement contains rights that have anti-takeover effects.
The rights may cause substantial dilution to a person or group that attempts to
acquire us without conditioning the offer on a substantial number of rights
being acquired. Accordingly, the existence of the rights may deter acquirors
from making takeover proposals or tender offers. However, the rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of our board to negotiate with an acquiror on behalf of all the stockholders. In
addition, the rights should not interfere with a proxy contest.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is First Union
National Bank. Its address is 1525 W. WT, Harris Blvd, 3C3, Charlotte, NC
28288-1153.
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PLAN OF DISTRIBUTION
LendingTree is registering the shares of common stock covered by this
prospectus for the selling stockholders. As used in this prospectus, "selling
stockholder" includes the donees, transferees or others who may later hold the
selling stockholders' interests. LendingTree agreed, under various agreements
described in the section of this prospectus entitled "Selling Stockholders," to
register the common stock owned or issuable upon the conversion or exercise of
securities owned by the selling stockholders and to indemnify several of the
selling stockholders against certain liabilities related to the selling of the
common stock, including liabilities arising under the Securities Act of 1933
(the "1933 Act"). LendingTree also agreed to pay the costs and fees of
registering the shares of common stock; however, the selling stockholders will
pay any brokerage commissions, discounts or other expenses relating to the sale
of the shares of common stock.
The selling stockholders may sell the common stock being offered hereby
in one or more of the following ways at various times:
- to underwriters for resale to the public or to institutional
investors;
- directly to institutional investors; or
- through agents to the public or to institutional investors.
The selling stockholders will act independently of LendingTree in
making decisions with respect to the timing, manner and size of each sale. The
selling stockholders may sell the common stock on the Nasdaq National Market or
otherwise, at market prices prevailing at the time of sale, at prices related to
the prevailing market prices, or at negotiated prices. If underwriters are used
in the sale, the common stock will be acquired by the underwriters for their own
account and may be resold at various times in one or more transactions,
including negotiated transactions, at a fixed public offering price or prices,
which may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, or at negotiated prices. A
distribution of the common stock by some of the selling stockholders may also be
effected through the issuance by the selling stockholders or others of
derivative securities, including without limitation, warrants, exchangeable
securities, forward delivery contracts and the writing of options. Section 16 of
the Securities Act may prohibit or limit sales for the selling stockholders who
are subject to Section 16.
In addition, the selling stockholders may sell some or all of the
shares of common stock covered by this prospectus through:
- a block trade in which a broker-dealer will attempt to sell as
agent, but may position or resell a portion of the block, as
principal, in order to facilitate the transaction;
- purchases by a broker-dealer, as principal, and resale by the
broker-dealer for its account;
- ordinary brokerage transactions and transactions in which a
broker solicits purchasers; or
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- privately negotiated transactions.
When selling the common stock, the selling stockholders may enter into
hedging transactions. For example, the selling stockholders may:
- enter into transactions involving short sales of the common
stock by broker-dealers;
- sell common stock short itself and redeliver such shares to
close out its short positions;
- enter into option or other types of transactions that require
the selling stockholders to deliver common stock to a
broker-dealer, who will then resell or transfer the common
stock under this prospectus; or
- loan or pledge the common stock to a broker-dealer, who may
sell the loaned shares or, in the event of default, sell the
pledged shares.
Among the shares being registered are 112,500 shares which represent
shares subject to warrants which we verbally agreed to issue to Merrill Lynch,
Pierce, Fenner & Smith, Incorporated. Merrill Lynch acted as lead underwriter
in connection with our IPO and provides financial consulting and advisory
services to us from time to time.
The selling stockholders may negotiate and pay broker-dealers
commissions, discounts or concessions for their services. Broker-dealers engaged
by the selling stockholders may allow other broker-dealers to participate in
resales. The selling stockholders and any broker-dealers involved in the sale or
resale of the common stock may qualify as "underwriters" within the meaning of
the Section 2(a)(11) of the 1933 Act. In addition, the broker-dealers'
commissions, discounts or concession may qualify as underwriters' compensation
under the 1933 Act. If a selling stockholder qualifies as an "underwriter," it
will be subject to the prospectus delivery requirements of Section 5(b)(2) of
the 1933 Act.
In addition to selling shares of common stock under this prospectus,
the selling stock holders may:
- agree to indemnify any broker-dealer or agent against certain
liabilities related to selling the common stock, including
liabilities arising under the 1933 Act;
- transfer shares of common stock in other ways not involving
market makers or established trading markets, including
directly by gift, distribution, or other transfer;
- sell shares of common stock under Rule 144 of the 1933 Act
rather than under this prospectus, if the transaction meets
the requirements of Rule 144; or
- sell shares of common stock by any other legally available
means.
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LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for LendingTree by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York.
EXPERTS
The financial statements incorporated by reference in this prospectus
have been audited by PricewaterhouseCoopers LLP, independent public accountants,
as indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said report.
WHERE YOU CAN FIND MORE INFORMATION
Government Filings. We file annual, quarterly and special reports and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy any document that we file at the SEC's public reference rooms
in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also available to you free of charge at the SEC's web site at
http://www.sec.gov. or at the Company's web site at http://www.lendingtree.com.
Stock Market. Our common stock is quoted on the Nasdaq National Market.
Reports, proxy and information statements, and other information concerning our
company may be inspected at the offices of the Nasdaq Stock Market, Inc. at 1735
K Street, NW, Washington, D.C. 20006.
Information Incorporated by Reference. The SEC allows us to
"incorporate by reference" the information we file with them, which means that
we can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be part of
this prospectus, and information that we file later with the SEC will
automatically update and supersede previously filed information, including
information contained in this document.
We incorporate by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until this offering has been completed:
1. Our Annual Report on Form 10-K for the year ended December 31,
2000.
2. Our Proxy Statement on Schedule 14A for the year ended
December 31, 2000.
We will furnish without charge to you, on written or oral request, a
copy of any or all of the documents incorporated by reference, including
exhibits to these documents. You should direct any requests for documents to
Investor
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Relations, LendingTree, Inc.,11115 Rushmore Drive, Charlotte, North Carolina
28277. Our telephone number is (704) 541-5351, and our facsimile number is (415)
541-1824.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses relating to the registration of the shares of common stock
will be borne by the registrant. Such expenses are estimated to be as follows:
Registration Fee - Securities and Exchange Commission $ 35,257.92
Accountant's Fees $ 25,000.00
Legal Fees $ 50,000.00
Miscellaneous $ 10,000.00
-------------
Total $ 120,257.92
Item 15. Indemnification of Directors and Officers.
Section 102 of the Delaware General Corporation Law (DGCL), as amended,
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that the Company
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding, other
than an action by or in the right of the Company, by reason of the fact that the
person is or was a director, officer, agent or employee of the Company or is or
was serving at the Company's request as a director, officer, agent, or employee
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgment, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit
or proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The power to
indemnify applies to actions brought by or in the right of the Company as well,
but only to the extent of defense expenses, including attorneys' fees but
excluding
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amounts paid in settlement, actually and reasonably incurred and not to any
satisfaction of judgment or settlement of the claim itself, and with the further
limitation that in such actions no indemnification shall be made in the event of
any adjudication of negligence or misconduct in the performance of his duties to
the Company, unless the court believes that in light of all the circumstances
indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director,
who willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to such
actions to be entered in the books containing the minutes of the meetings of the
board of directors at the time such action occurred or immediately after such
absent director receives notice of the unlawful acts.
Our Amended and Restated Certificate of Incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to
LendingTree or its stockholders;
- for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation
of law;
- under the section 174 of the Delaware General
Corporation Law regarding unlawful dividends and
stock purchases; or
- for any transaction from which the director derived
an improper personal benefit.
These provisions are permitted under Delaware law.
Our Amended and Restated Bylaws provide that:
- we must indemnify our directors and officers to the
fullest extent permitted by Delaware law;
- we may indemnify our other employees and agents to
the same extent that we indemnified our officers and
directors, unless otherwise determined by our Board
of Directors; and
- we must advance expenses, as incurred, to our
directors and executive officers in connection with a
legal proceeding to the fullest extent permitted by
Delaware Law.
The indemnification provisions contained in the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws are not
exclusive of any other rights to which a person may be entitled by law,
agreement, vote of stockholders or disinterested directors or otherwise. In
addition, the Company maintains insurance on behalf of its directors and
executive officers insuring them against any liability asserted against them in
their capacities
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as directors or officers or arising out of such status.
Item 16. List of Exhibits.
The Exhibits to this registration statement are listed in the Index to
Exhibits on page II-7.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section
10(a)(3) of the 1933 Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in this registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may, in reliance upon Rule 430A, be
reflected in the form of prospectus filed with the
SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a
20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
this registration statement or any material change to
such information in this registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by LendingTree pursuant to Section 13
or Section 15(d) of the Exchange Act that are incorporated by
reference in this registration statement.
2. That, for the purpose of determining any liability under the
1933 Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
4. For purposes of determining any liability under the 1933 Act,
each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's
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annual report pursuant to Section 15(d) of the Exchange Act)
that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bonafide offering thereof.
5. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Charlotte, State of North Carolina on May 10, 2001.
LENDINGTREE, INC.
By /s/ DOUGLAS R. LEBDA
---------------------------------------
Name: Douglas R. Lebda
Title: Chief Executive Officer and
Director
Each person whose signature appears below hereby constitutes and
appoints each of Douglas R. Lebda and Keith B. Hall or any of them, each acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
under the Securities Act and to sign any instrument, contract, document or other
writing of or in connection with the Registration Statement and any amendments
and supplements thereto (including post-effective amendments) and to file the
same, with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
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Signature Title(s) Date
--------- -------- ----
Chief Executive Officer and Director May 10, 2001
/s/ DOUGLAS R. LEBDA (Principal Executive Officer)
---------------------------------
Douglas R. Lebda
Chief Financial Officer, Senior Vice May 10, 2001
President, and Treasurer (Principal
/s/ KEITH B. HALL Financial and Accounting Officer)
---------------------------------
Keith B. Hall
Senior Vice President and Chief May 10, 2001
Operating Officer (Principal Operating
/s/ THOMAS REDDIN Officer)
---------------------------------
Thomas Reddin
Director May 10, 2001
/s/ JAMES CARTHAUS
---------------------------------
James Carthaus
Director May 10, 2001
/s/ RICHARD FIELD
---------------------------------
Richard Field
Director May 10, 2001
/s/ ROBERT KENNEDY
---------------------------------
Robert Kennedy
Director May 10, 2001
/s/ DANIEL CHARLES LIEBER
---------------------------------
Daniel Charles Lieber
Director May 10, 2001
/s/ ROBERT SPASS
---------------------------------
Robert Spass
Director May 10, 2001
/s/ W. JAMES TOZER, JR.
---------------------------------
W. James Tozer, Jr.
Director May 10, 2001
/s/ DALE GIBBONS
---------------------------------
Dale Gibbons
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EXHIBIT INDEX
Exhibit
Number Description of Exhibits
------- -----------------------
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality
of securities being registered.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).*
24.1 Powers of Attorney (included on signature page of the Registration Statement).
* To be filed by amendment.
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