<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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LENDINGTREE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7370 25-1795344
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
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6701 CARMEL ROAD, SUITE 205
CHARLOTTE, NORTH CAROLINA 28226
(704) 541-5351
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------
MR. DOUGLAS R. LEBDA
CHIEF EXECUTIVE OFFICER
LENDINGTREE, INC.
6701 CARMEL ROAD, SUITE 205
CHARLOTTE, NORTH CAROLINA 28226
(704) 541-5351
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
Copies to:
<TABLE>
<S> <C>
DAVID J. GOLDSCHMIDT, ESQ. MICHAEL J. SCHIAVONE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP ALAN L. JAKIMO, ESQ.
919 THIRD AVENUE BROWN & WOOD LLP
NEW YORK, NEW YORK 10022 ONE WORLD TRADE CENTER
(212) 735-3000 NEW YORK, NY 10048
(212) 839-5300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. []
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. []
- ---------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. []
- ---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. []
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. []
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $.01 per share (including the
associated Rights to purchase Series A Junior
Participating Stock)(2)................................... $30,000,000 $8,340
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</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.
(2) The Rights to purchase shares of our Series A Junior Participating Preferred
Stock initially are attached to and trade with the shares of our common
stock being registered hereby. Value attributed to such Rights, if any, is
reflected in the market price of our common stock.
------------------------
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 SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a U.S. and Canadian offering of the registrant's common
stock and one to be used in a concurrent international offering of the common
stock. The international prospectus will be identical to the U.S. prospectus
except that it will have a different front cover page, underwriting section and
back cover page. The U.S. prospectus is included herein and is followed by the
alternate front cover page, underwriting section and back cover page to be used
in the international prospectus, each of which has been labeled "Alternative
Page for International Prospectus."
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 1, 1999
PROSPECTUS
SHARES
LENDINGTREE, INC.
COMMON STOCK
----------------------
This is LendingTree, Inc.'s initial public offering of common stock. The
U.S. underwriters are offering shares in the United States and Canada,
and the international managers are offering shares outside the United
States and Canada. We anticipate that the initial public offering price will be
between $
and $ per share.
Currently, no public market exists for the shares. We intend to apply to
have our common stock approved for quotation on the Nasdaq National Market under
the symbol " ."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to LendingTree, Inc. ........... $ $
</TABLE>
----------------------
The U.S. underwriters may also purchase up to an additional
shares of common stock at the initial public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
aggregate of an additional shares of common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
PRUDENTIAL SECURITIES
WIT CAPITAL CORPORATION
----------------------
The date of this prospectus is , 2000.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial and Operating Data....................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 28
Management.................................................. 39
Certain Transactions........................................ 50
Principal Stockholders...................................... 52
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 58
Underwriting................................................ 60
Important United States Federal Tax Considerations for
Non-U.S. Holders of Our Common Stock...................... 65
Legal Matters............................................... 66
Experts..................................................... 66
Where You Can Find More Information......................... 67
Index to Financial Statements............................... F-1
</TABLE>
----------------------
This prospectus contains estimates of market growth and other information
related to the Internet. These estimates have been included in studies published
by Forrester Research and International Data Corporation, which are market
research firms, and by the United States Federal Reserve and the American
Bankers Association. These estimates assume that certain events, trends and
activities will occur. None of these entities guarantee the accuracy or
completeness of its information and estimates. We have not independently
verified the information and assumptions on which these market growth estimates
are based. If any of these entities is wrong about any of its assumptions, then
its market estimates may also be wrong.
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations, and prospects may have changed since that date.
----------------------
LendingTree(R) is a registered service mark of LendingTree, Inc.
[i]close(SM) is a service mark of LendingTree, Inc. Other service marks or
trademarks appearing in this prospectus are the property of their respective
holders.
<PAGE> 5
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.
We are a leading Internet-based loan marketplace for consumers and lenders.
Using a simple and powerful consumer proposition, "Lenders compete for your
business," we collect consumer credit requests and compare these requests and
related credit information to the underwriting criteria of more than 90
participating lenders in our lender network. Consumers can receive multiple
offers in response to a single loan request and then compare, review, and accept
the loan offer that best suits their needs. Lenders can generate new business
that meets their specific underwriting criteria at reduced acquisition costs.
Our marketplace encompasses most consumer credit categories, including
mortgages, home equity loans, automobile loans, credit cards, and personal
loans. Powering our website is our proprietary online loan marketplace
technology platform, [i]close(SM). We leverage our [i]close technology by also
licensing it to other companies who create single and multi-lender online
marketplaces. Because we are not a lender but a marketplace which facilitates
the lending process, we have reduced exposure to the interest rate and market
risks generally associated with traditional lending activities.
Our marketplace provides important benefits to consumers, including:
- Price. We foster a competitive bidding environment, encouraging lenders
to price loan offers aggressively as they compete for consumers'
business.
- Consumer Advocacy. Consumers view us as their advocate. The range of
online information and tools presented on our website, combined with our
support and service, reduces the confusion often experienced by consumers
during the borrowing process and the time that it takes to obtain loans.
- Choice. We provide qualified consumers with up to four loan offers from
our network lenders.
- Convenience. We save consumers valuable time by enabling them to go
online, complete one Qualification Form, and receive up to four loan
offers.
- Content. We provide consumers with educational materials about the
borrowing process, answers to frequently asked questions, informative
articles, and interactive loan calculators.
- No Fees. Our service is free to consumers.
Our marketplace provides important benefits to lenders, including:
- New Business. Leveraging the reach of the Internet, we provide lenders
with access to a significantly larger audience of qualified consumers.
- Lower Acquisition Costs. Our fees are designed to be less than the cost
of acquiring customers through traditional and other online channels. Our
filtering technology enables lenders to process loan requests more
efficiently and at significantly reduced costs.
- Market Information. We collect and distribute to our lenders valuable
information about the online lending marketplace. This information
enables our lenders to refine and improve their Internet lending
strategies and quickly respond to changing market conditions.
Our goal is to be the predominant loan marketplace on the Internet. The key
elements of our strategy are: strengthen LendingTree's position as a marketplace
offering multiple loan products; increase brand awareness and transaction
volume; establish and expand comprehensive lender coverage; expand transaction
volume through online strategic relationships; establish [i]close as the
dominant loan marketplace technology; and increase loan closing rates.
LendingTree commenced operations nationwide on July 1, 1998. Since that
time the LendingTree network has expanded to more than 90 regional and national
lenders including Bank of America Consumer
4
<PAGE> 6
Finance Group, Chase, Citibank, PNC Bank FSB, and Bank One as well as leading
online lending companies including iOwn.com, mortgage.com, and Giggo.com.
Growth of key measures on our website has been significant. For the quarter
ended September 30, 1999, we received 212,000 loan requests, representing $7.6
billion in loan demand, and our lenders closed loans totaling $266 million. This
compares with over 14,000 loan requests, representing $773 million in loan
demand, with our lenders closing loans totaling $9.9 million, for the quarter
ended September 30, 1998. From our inception through September 30, 1999, we have
accumulated a deficit of $23.4 million.
We intend to expend significant funds on building the LendingTree brand
identity through increased advertising and related promotional activity, hiring
additional personnel, and further developing our website, [i]close technology,
and network infrastructure.
5
<PAGE> 7
THE OFFERING
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<S> <C>
Common stock offered by us:
U.S. offering.............................. shares
International offering..................... shares
------------------
Total.............................. shares
Common stock to be outstanding
after the offerings........................ shares
Use of proceeds.............................. We estimate that the net proceeds from this
offering will be approximately
$ million. We expect to use these
net proceeds principally for advertising and
marketing, as well as for general corporate
purposes.
Risk factors................................. See "Risk Factors" beginning on page 8 for a
discussion of risks that you should consider
carefully before deciding to invest in shares
of our common stock.
Proposed Nasdaq National Market symbol....... " "
</TABLE>
In the above table and throughout this prospectus, except where otherwise
indicated, the number of shares of common stock that will be outstanding after
this offering is based on the number of shares outstanding as of September 30,
1999. The number of outstanding shares excludes:
- 525,500 shares issuable upon the exercise of outstanding warrants;
- 1,793,000 shares reserved for future grants under our 1999 stock option
plan; and
- 1,873,840 shares issuable at a weighted average exercise price of $4.64
per share upon exercise of stock options outstanding as of September 30,
1999.
Except where otherwise indicated, all information in this prospectus:
- assumes that a -for-one stock split is effected before completion
of this offering;
- reflects the automatic conversion of all outstanding shares of our
convertible preferred stock and accumulated dividends into shares of
our common stock upon the closing of this offering; and
- assumes that the underwriters do not exercise their over-allotment option
to purchase additional shares in this offering.
LendingTree was incorporated in Delaware on June 7, 1996. Our principal
executive offices are located at 6701 Carmel Road, Suite 205, Charlotte, North
Carolina, 28226. Our telephone number is (704) 541-5351, and our website is
located at www.lendingtree.com. Information on our website is not a part of this
prospectus.
6
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following table sets forth summary financial and operating data for our
business. You should read this information together with our financial
statements and the accompanying notes included in this prospectus and the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The "pro forma as adjusted" balance sheet data gives
effect to the automatic conversion of all outstanding shares of convertible
preferred stock and accumulated dividends into common stock and reflects our
sale of shares of common stock offered by this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------------------
1997 1998 1998 1999
------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUE:
LendingTree network....................... $ 2 $ 273 $ 157 $ 3,398
[i]close and other technology............. -- 136 125 630
------ ---------- ---------- -----------
Total revenue..................... 2 409 282 4,028
------ ---------- ---------- -----------
COST OF REVENUE:
LendingTree network....................... -- 235 146 1,330
[i]close and other technology............. -- 149 133 246
------ ---------- ---------- -----------
Total cost of revenue............. -- 384 279 1,576
------ ---------- ---------- -----------
Gross profit................................ 2 25 3 2,452
------ ---------- ---------- -----------
OPERATING EXPENSES:
Product development....................... 293 1,051 712 808
Marketing and advertising................. 54 2,494 1,028 12,069
Sales, general and administrative......... 621 2,955 1,770 5,636
------ ---------- ---------- -----------
Total operating expenses.......... 968 6,500 3,510 18,513
------ ---------- ---------- -----------
LOSS FROM OPERATIONS........................ (966) (6,475) (3,507) (16,061)
Interest income, net...................... 3 41 41 80
------ ---------- ---------- -----------
Net loss.................................. $ (963) $ (6,434) $ (3,466) $ (15,981)
====== ========== ========== ===========
Basic and diluted net loss per common
share.................................. $(1.52) $ (2.39) $ (1.31) $ (5.85)
====== ========== ========== ===========
Weighted average shares used in computing
basic and diluted net loss per common
share.................................. 632,575 2,704,517 2,638,398 2,951,093
======= ========== ========== ===========
OPERATING DATA (UNAUDITED):
Qualification Forms transmitted:
Number.................................... N/A 18,247 8,720 117,578
Dollar volume (000's)..................... N/A $1,596,662 $ 694,802 $11,235,661
Loans closed:
Number.................................... N/A 712 361 14,743
Dollar volume (000's)..................... N/A $ 25,516 $ 14,375 $ 501,072
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $37,492 $--
Working capital............................................. 35,407 --
Total assets................................................ 40,287 --
Mandatorily redeemable convertible preferred securities..... -- --
Convertible preferred stock................................. 59,317 --
Total stockholders' equity.................................. 36,101 --
</TABLE>
7
<PAGE> 9
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
any such case, the market price of our common stock could decline, and you could
lose all or part of the money you paid to buy our common stock.
RISKS RELATED TO OUR FINANCIAL CONDITION
OUR LIMITED OPERATING HISTORY MAKES OUR BUSINESS AND PROSPECTS DIFFICULT TO
EVALUATE.
LendingTree was formed in 1996 and began serving consumers across the
United States in July 1998. Accordingly, we have a limited operating history on
which to base your evaluation of our business and prospects. 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 us who operate in new and rapidly developing markets such as
online commerce. Some of these risks and uncertainties are:
- our business model is evolving and unproven;
- we may not be able to execute our business and marketing strategy
successfully, including the enhancement of our LendingTree brand
identity, in order to draw consumers and lenders to our marketplace;
- the cyclical and seasonal nature of interest rates and other economic
factors that influence home and other consumer purchases and the amount
of credit available to finance these purchases;
- our ability to continue to develop and upgrade our technology;
- our ability to maintain our current, and develop new, strategic
relationships;
- the potential development of comparable services by competitors which may
limit or reduce our market share; and
- our potential inability to manage our anticipated growth effectively and
become profitable.
Our failure to address these risks and uncertainties could cause our
operating results to suffer and result in the loss of all or part of your
investment.
WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES IN THE FUTURE.
We have never been profitable. We incurred losses from operations of
approximately $6.5 million in 1998 and $16.1 million for the nine months ended
September 30, 1999. As of September 30, 1999, we had an accumulated deficit of
approximately $23.4 million. Our strategy calls for us to expend significant
funds on:
- building the LendingTree brand identity through increased advertising and
related promotional activity;
- hiring additional personnel; and
- further developing our website, [i]close technology and network
infrastructure.
As a result of these expenditures, we anticipate further losses until at least
the latter half of 2002.
We forecast our future expense levels based on our operating plans and our
estimates of future revenue. 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
8
<PAGE> 10
exceed our expectations or cannot be adjusted to reflect slower revenue growth,
we may not achieve or sustain profitability. If we fail to become or remain
profitable, the value of your investment could be significantly reduced.
OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT BE ADAPTABLE TO A CHANGING MARKET.
Our current revenue model depends heavily on revenue generated from lenders
participating in our network and paying us transmission and closed-loan fees as
well as from licensing our [i]close software. Our revenue model and profit
potential are unproven. We must develop and market our online lending service to
achieve broad market acceptance in a timely manner by both lenders and
consumers. In addition, we must attract a sufficient number of consumers with
credit profiles targeted by our lenders. It is possible that we will be required
to further adapt our business model in response to additional changes in the
online lending market or if our current business model is not successful. If we
are not able to anticipate changes in the online lending market 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.
OUR OPERATING RESULTS MAY BE NEGATIVELY IMPACTED BY FLUCTUATIONS IN INTEREST
RATES.
Substantially all of our revenue is associated with the procurement of
loans through our online marketplace. During periods of rising interest rates,
slower growth, or a decline in transmission and closed-loan revenue may occur.
During periods of robust credit demand, typically associated with falling
interest rates, lenders may have less incentive to use our marketplace. We
expect that as our business matures we will experience seasonal fluctuations in
our operating results due to seasonal fluctuations in consumer credit markets.
Because of our limited operating history, it has not yet been possible for us to
assess the impact of seasonal effects on our business or the effects of a broad
range of interest rate environments.
YOU SHOULD NOT RELY ON OUR QUARTERLY OPERATING RESULTS AS AN INDICATION OF OUR
FUTURE RESULTS BECAUSE THEY ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND THESE
RESULTS MAY NEGATIVELY IMPACT THE PRICE OF OUR COMMON STOCK.
Our quarterly operating results may fluctuate significantly in the future
due to 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 cyclical trends
and seasonal and other fluctuations in interest rates and related economic
factors, all of which are outside of our control. These fluctuations could have
the effect of masking or exaggerating trends in our business. As a result, it is
possible that in some future periods our results of operations may be below the
expectations of public market analysts and investors. This could cause the
market price of our common stock to decline. In addition, we plan to increase
our operating expenses significantly to expand our sales and marketing,
administration, maintenance and technical support, and product management
groups. If revenue falls below our expectations in any quarter and we are unable
to quickly reduce our spending in response, our operating results would be lower
than expected.
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT FUNDS TO EXPAND OUR BUSINESS AND ANY
ADDITIONAL FINANCING MAY BE ON TERMS ADVERSE TO YOUR INTERESTS.
We may need to raise additional funds in the future, from equity or debt
sources, in order to fund our anticipated growth, more aggressive marketing
programs or the acquisition of complementary businesses, technologies and
services. Obtaining additional financing will be dependent upon our financial
condition, operating performance, and prospects, as well as on general market
and economic conditions. If we raise additional funds by issuing equity
securities, you may experience significant dilution of your ownership interest
and such securities may have rights senior to your rights. If we obtain
additional financing by issuing debt securities, the terms of these securities
could restrict or prevent us from paying dividends and could restrict our
flexibility in making business decisions. If additional financing is not
available when required or is not available on acceptable terms, we may be
unable to successfully promote our brand name, develop or enhance our service,
take advantage of business opportunities or respond to competitive
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<PAGE> 11
pressures, any of which could have a material adverse effect on our business and
significantly reduce the value of your investment.
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 online lending 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 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.
In addition, rapid growth in the use of the Internet is a recent phenomenon
and it may not continue. Internet usage may be inhibited by any of the following
factors:
- the Internet infrastructure may not be able to support the demands placed
on it, or its performance and reliability may decline as usage grows;
- websites may not be able to provide adequate security and authentication
of confidential information contained in transmissions over the Internet;
and
- Internet-based companies may not be able to respond adequately to privacy
concerns of potential users.
IF WE ARE UNABLE TO EXPAND OUR BRAND RECOGNITION, CONSUMER AND LENDER DEMAND FOR
OUR SERVICE WILL BE LIMITED.
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 our branding efforts, our business and the
value of your investment could be materially adversely affected. We believe that
continuing to build brand awareness of the LendingTree marketplace 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 the
online lending market. In order to increase our brand awareness, we must succeed
in our marketing efforts, provide high-quality service, and increase the number
of consumers using our marketplace. 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.
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 and the number of consumers using our service may decline.
WE MAY HAVE DIFFICULTY INTEGRATING LENDERS INTO OUR ONLINE MARKETPLACE, WHICH
COULD IMPEDE OUR ABILITY TO OFFER A COMPETITIVE SERVICE TO CONSUMERS.
Integration of a lender into our online marketplace requires a significant
commitment of time and resources on our part and on the part of the lender. This
integration process typically takes up to three months to complete. Potential
lenders may not be willing to invest the time and resources necessary to achieve
this integration, and we may not have sufficient personnel to devote the time
necessary to
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<PAGE> 12
successfully integrate lenders into our online marketplace. The failure to
integrate lenders could limit the variety of products that we can offer to our
customers.
WE MAY HAVE DIFFICULTY ATTRACTING A COMPREHENSIVE GROUP OF LENDERS WHICH
COMPLEMENT OUR CURRENT CONSUMER LOAN PRODUCT COVERAGE.
The success of our online loan marketplace depends on our ability to
attract and retain a comprehensive group of lenders to service consumer needs
across a wide array of product lines, consumer credit profiles, and geographic
locations. If we are unable to broaden our offering of consumer credit products
for a wide array of credit profiles and locations, we may be unable to attract
additional consumers or may lose our existing consumers to other online
competitors.
OUR LENDERS ARE NOT PRECLUDED FROM OFFERING CONSUMER LOAN PRODUCTS OUTSIDE OUR
MARKETPLACE.
We do not have exclusive relationships with the lenders whose loan products
are offered on our online marketplace, and thus, consumers may obtain offers and
loans from these lenders without using our service. Our lenders 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, either directly to prospective
borrowers, through one or more of our online competitors, or both.
IF WE ARE UNABLE TO DEVELOP AND RETAIN OUR STRATEGIC RELATIONSHIPS, OUR BUSINESS
WILL BE HARMED.
We depend on establishing and maintaining relationships with a large number
of high-traffic websites for a significant portion of our consumers. For
example, in October 1999, Autobytel.com generated approximately 55% of our
automobile loan requests. The loss of this strategic relationship would
materially reduce our revenue in this product area. There is intense competition
for relationships with companies maintaining these websites, and we may have to
pay significant fees to establish additional relationships or maintain existing
relationships in the future. Additionally, we may be limited or restricted in
the way we establish and maintain these relationships by regulations generally
applicable to our business. See "Business -- Government Regulation." As a
result, we may be unable to enter into relationships with these firms or
websites on commercially reasonable terms or at all. Even if we enter into these
relationships, they may not attract significant numbers of consumers. If we are
unable to establish or maintain strategic relationships that increase traffic to
our website, our business and the value of your investment could be materially
adversely affected.
WE WILL NOT BE ABLE TO ATTRACT CONSUMERS OR LENDERS IF WE DO NOT CONTINUALLY
ENHANCE AND DEVELOP OUR SERVICE TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES
AND CONSUMER NEEDS.
To remain competitive, we must continually improve the responsiveness,
functionality, and features of our service and develop other services that are
attractive to consumers and lenders. We must also continually meet the evolving
technological developments that characterize Internet commerce. If we are unable
to accomplish this, our business and the value of your investment could be
materially adversely affected.
WE MAY BE UNABLE TO HIRE AND RETAIN HIGHLY SKILLED PERSONNEL THAT ARE IN HIGH
DEMAND.
Our future success depends on our ability to attract, train, motivate, and
retain highly skilled employees. Competition for highly skilled employees is
intense, particularly among Internet-based companies. If we are unable to
attract, assimilate, and retain skilled personnel, our growth may be restricted
and the quality of our products and services may be reduced.
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. We had
seven employees in July 1998. As of November 1, 1999, that number increased to
approximately 100. We expect that the number of our employees will continue to
increase for the foreseeable future. This growth has placed, and our anticipated
future growth combined with the requirements we will face as a public company
will continue to place, a significant strain on our
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<PAGE> 13
management, systems, and resources. We are currently improving and expect that
we will need to continue to improve our financial and managerial controls and
reporting systems and procedures. We will also need to continue to expand and
maintain close coordination among our technical, accounting, finance, and sales
and marketing organizations. We may not succeed in these efforts. Our inability
to expand our operations in an efficient manner could cause our expenses to grow
disproportionately to our revenue, our revenue to decline or grow more slowly
than expected, and could otherwise have a material adverse effect on our
business and the value of your investment.
COMPETITION MAY REDUCE OUR MARKET SHARE AND HARM OUR PERFORMANCE.
The online lending market is a new industry and, like the broader
electronic commerce market, is rapidly evolving and highly competitive. We
expect this competition will increase. Our current competitors include:
- online and offline banks, brokers, and credit card issuers, many of whom
operate websites from which consumers can obtain online interest rate
quotes; and
- online and offline referral agents that display rates and products for
multiple lenders and refer consumers to individual lenders.
Our ability to compete depends on many factors, including: pricing and
breadth of product offering; time of market entry; brand awareness; variety,
quantity, and quality of partners and strategic relationships; proprietary and
scalable technology infrastructure; ease of use and convenience; and strength of
relationships and depth of technology integration with customers. In addition,
changes in the methods by which loans are made through traditional channels of
distribution may make electronic commerce a less attractive means for obtaining
loans and could reduce our ability to generate revenue.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases, and significantly greater financial, technical, and marketing
resources than we do. These competitors may engage in more extensive product
development, undertake more far-reaching marketing campaigns, adopt more
aggressive pricing policies than our participating lenders, and make more
attractive offers to existing and potential employees and companies with which
we have strategic relationships. Increased competition could result in reduced
margins or loss of market share, either of which could materially adversely
affect our business, results of operations, and financial condition.
OUR BUSINESS COULD SUFFER IF WE LOSE THE SERVICES OF KEY EXECUTIVES.
Our future success depends to a significant extent on the continued
services of a number of our key executive personnel, particularly Douglas Lebda,
our founder, Chief Executive Officer, and a director. Mr. Lebda has been
instrumental in determining our strategic direction and focus and in promoting
the concept of an Internet-based loan marketplace for consumers and lenders. If
we lose the services of Mr. Lebda, or any of our other executive officers or key
employees, our ability to expand our business would be seriously compromised and
the value of your investment may be adversely affected. We have not entered into
employment agreements with any of our key personnel except Mr. Lebda. We do not
maintain key person insurance on any of our key executives.
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE INTO OUR
CURRENT BUSINESS, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE, AND ADVERSELY
AFFECT OUR OPERATING RESULTS.
We may acquire or make investments in complementary businesses,
technologies, services, or products if appropriate opportunities arise. These
acquisitions and investments could disrupt our ongoing business, distract our
management and employees, and increase our expenses. If we acquire a company, we
could have difficulty in assimilating that company's personnel, operations,
technology, and software. In addition, the key personnel of the acquired company
may decide not to work for us. Future acquisitions could result in potentially
dilutive issuances of equity securities or the incurrence of debt, contingent
liabilities or amortization of expenses related to goodwill and other intangible
assets, any of which could materially adversely affect our business, results of
operations, and financial condition.
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<PAGE> 14
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.
A key element of our strategy is to generate a high volume of traffic on,
and use of, our website. Accordingly, the satisfactory performance, reliability,
security, and availability of our website, filtering systems, and network
infrastructure are critical 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 loan requests submitted by consumers. Any system interruptions that
result in the inability of consumers to submit these loan 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 or recommend
LendingTree to other potential consumers.
Our computer hardware is located in leased facilities in Beltsville,
Maryland. A full 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 due to
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.
The secure transmission of personal information as well as other
confidential information over the Internet is essential in maintaining consumer
confidence in our website. Substantial or ongoing security breaches on our
system or other Internet-based systems could significantly harm our business. We
may incur substantial expense to protect against and remedy security breaches
and their consequences. 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 also could 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 data. We cannot guarantee that our security measures will prevent
security breaches.
RISKS RELATED TO LEGAL UNCERTAINTY
FAILURE TO COMPLY WITH LAWS GOVERNING OUR SERVICE OR MATERIAL CHANGES IN THE
REGULATORY ENVIRONMENT RELATING TO THE INTERNET COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS.
Many of the loan products available through our website are subject to
extensive regulation by various federal and state governmental authorities. We
have obtained mortgage broker licenses in 35 states and are subject to
examination by regulators in those states. Failure to comply with the laws and
regulatory guidance of federal and state regulatory authorities may result in,
among other things, revocation of required licenses or registrations, loss of
approved status, loss of exempt status, indemnification liability to lenders and
others doing business with us, administrative enforcement actions, class action
lawsuits, cease and desist orders, and civil and criminal liability. The
occurrence of one or more of these events could materially adversely affect our
business, results of operations, and financial condition.
As a computer loan origination system doing 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,
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<PAGE> 15
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 of referral fees in connection with
mortgage loan transactions. The applicability of referral fee prohibitions to
the compensation provisions of fee arrangements used by online companies like us
may have the effect of reducing the types and amount of fees that we may charge
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. Because we will be a public company following this offering, we
will be unable to control who purchases our common stock in the open market. 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
inability to obtain, or the loss of, required licenses could have a material
adverse effect on our operations or financial condition.
Failure to comply with the laws and regulatory guidance of federal and
state regulatory authorities may result in, among other things, revocation of
required licenses or registrations, loss of approved status, loss of exempt
status, indemnification liability to lenders and others doing business with us,
administrative enforcement actions, class action lawsuits, cease and desist
orders, and civil and criminal liability. In addition, the parties doing
business with us, such as lenders and affiliated websites, 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 negatively impact our
reputation. The occurrence of one or more of these events could materially
adversely affect our business, results of operations, and financial condition.
REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD INHIBIT
THE GROWTH OF THE INTERNET, DECREASE VISITORS TO OUR WEBSITE, AND OTHERWISE
MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Existing laws or regulations specifically regulate communications and
commerce on the Internet. Further laws and regulations that address issues such
as user privacy, pricing, online content regulation, taxation, and the
characteristics and quality of online products and services are under
consideration by federal, state, local, and foreign governments and agencies.
Several telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online services 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 certain 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 operations, and financial condition.
WE MAY BE LIABLE AS A RESULT OF INFORMATION RETRIEVED FROM OR TRANSMITTED OVER
THE INTERNET.
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. These
types of claims have been brought, sometimes
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<PAGE> 16
successfully, against online services in the past. Our service may subject us to
potential risks, such as liabilities or claims resulting from:
- lost or misdirected messages;
- security breaches;
- illegal or fraudulent use of e-mail; or
- interruptions or delays in e-mail service.
In addition, we could incur significant costs in investigating and
defending such claims, even if we ultimately are not found liable. If any of
these events occur, our business and the value of your investment could be
materially adversely affected.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BRAND-BUILDING EFFORTS AND ABILITY TO COMPETE EFFECTIVELY.
Failure to protect our intellectual property could harm our brand, devalue
our proprietary content, and affect our ability to compete effectively. Further,
enforcing or defending our intellectual property rights could result in the
expenditure of significant financial and managerial resources, which could
materially adversely affect our business, results of operations, and financial
condition. We regard our intellectual property as critical to our success. To
protect the rights to our 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 [i]close
technology and our 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.
WE MAY HAVE TO DEFEND AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WHICH
MAY RESULT IN SIGNIFICANT OPERATIONAL LIMITATIONS AND EXPENDITURES.
We may from time to time be subject to claims that we have violated other
parties' patents or infringed a copyright, trademark, or other proprietary right
belonging to them. Other parties may also claim that our own patents,
trademarks, or other intellectual property rights are invalid. Any infringement
claims, even if not meritorious, could be time-consuming to defend, result in
costly litigation, divert management attention and resources, or require us to
enter into royalty or license agreements, any of which could materially
adversely affect our business, results of operations, and financial condition.
RISKS RELATED TO THIS OFFERING, OUR STOCK PRICE, AND CORPORATE CONTROL
WE MAY USE THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT AGREE.
Net proceeds to us from this offering are anticipated to be approximately
$ million, after deducting the underwriting discount and estimated offering
expenses. We currently intend to use our net proceeds principally for
advertising and marketing to enhance awareness of our LendingTree brand and
attract consumers to our marketplace. However, as of the date of this
prospectus, we have not allocated any specific amount of our net proceeds for
any particular purpose. Consequently, our management will have broad discretion
with respect to the expenditure of the net proceeds of this offering, including
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<PAGE> 17
discretion to use the proceeds in ways with which you may not agree. Investors
will be relying on the judgment of our management and directors regarding the
application of the proceeds of this offering.
OUR COMMON STOCK MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS AND
INVESTORS IN OUR STOCK MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE
OFFERING PRICE.
We cannot predict the extent to which investors' interest in us will lead
to the development of a trading market in our common stock or how liquid the
market might become. If you purchase shares of our common stock in this
offering, you will pay a price that was not established in a competitive market,
but was negotiated between us and the underwriters. The stock market in general
and the market prices of shares in newly public technology companies,
particularly those such as ours that offer Internet-based services, have been
extremely volatile and have experienced fluctuations that have often been
unrelated or disproportionate to the operating performance of such companies.
The market price of our common stock could be highly volatile and subject to
wide fluctuations in response to many factors, some of which are largely beyond
our control. These factors include:
- quarterly variations in our results of operations;
- adverse business developments;
- changes in financial estimates by securities analysts;
- investor perception of us and online lending services in general;
- announcements by our competitors of new products and services; and
- general economic conditions, including interest rate fluctuations.
AN AGGREGATE OF SHARES, OR % OF OUR OUTSTANDING STOCK, WILL
BECOME ELIGIBLE FOR RESALE IN THE PUBLIC MARKET WITHIN ONE YEAR AFTER THIS
OFFERING, AND FUTURE SALES OF SUCH STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
Sales of substantial amounts of our common stock in the public market after
this offering could reduce the prevailing market prices for our common stock. Of
the shares of common stock to be outstanding upon the closing of this
offering, the shares offered by this prospectus will be freely
tradable without restriction or further registration, other than shares
purchased by our officers, directors, or other "affiliates" within the meaning
of Rule 144 under the Securities Act, which will be restricted from sale until
180 days after the date of this prospectus pursuant to agreements between these
affiliates and the underwriters. The remaining shares of our common stock will
become eligible for resale in the public market subject to the lapse of
applicable holding periods pursuant to Rule 144.
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act approximately 90 days after the date of this offering to
register an aggregate of shares of common stock issued or reserved for
issuance under our various stock option plans. Some holders of our common stock
will also have certain demand and piggyback registration rights enabling them to
register their shares under the Securities Act for sale.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY AND THIS COULD
DEPRESS OUR STOCK PRICE.
Delaware corporate law and our amended and restated certificate of
incorporation and by-laws which will become effective upon the closing of this
offering, will contain provisions that could have the effect of delaying,
deferring, or preventing a change in control of LendingTree or our management
that 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
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<PAGE> 18
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
stockholders;
- a staggered board of directors, so that it would take three successive
annual meetings to replace all directors;
- 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 will enter into a stockholder rights agreement which will
make 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, WILL HAVE THE ABILITY TO EXERCISE
SIGNIFICANT CONTROL OVER US.
Our executive officers and directors and entities affiliated with them
will, as a group, beneficially own approximately 78% of our common stock
following this offering. These stockholders will be 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 our company. The interests of these
stockholders may differ from the interests of our other stockholders.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION OF THE VALUE OF YOUR
INVESTMENT.
The initial public offering price per share will be substantially higher
than the net tangible book value per share of the common stock outstanding
immediately prior to this offering. As a result, if you purchase shares in this
offering, you will incur immediate dilution of approximately $ per
share from the price you paid per share. In the past, we issued options and
warrants to acquire common stock at prices significantly below the initial
public offering price. To the extent these outstanding options or warrants are
ultimately exercised, your investment will be further diluted.
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 that are not based on historical facts. The words
"expects," "anticipates," "estimates," "intends," "believes," and similar
expressions are intended to identify forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors." The forward-looking statements made in this
prospectus are based on events through the date on which the statements are
made.
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USE OF PROCEEDS
The net proceeds from the sale of shares of common stock offered
by this prospectus, assuming an initial public offering price of $ per
share, less the underwriting discount and estimated offering expenses, will be
approximately $ million, or $ million if the underwriters'
over-allotment option is exercised in full.
We intend to use the net proceeds of this offering principally for
advertising and marketing to increase brand awareness and attract consumers to
our marketplace, as well as for general corporate purposes, including:
- enhancing our technology, including our filtering system, network
infrastructure, and the functionality of our website;
- hiring additional personnel;
- establishing and developing strategic relationships; and
- working capital.
As of the date of this prospectus, we have not allocated any specific
amount of the net proceeds to be received upon completion of this offering to
the purposes identified above. We plan to spend more than $ million on
advertising and marketing during 2000. The amount we actually spend for this
purpose will depend on a number of factors, including the growth of our consumer
base, the types of efforts we make to build our brand and competitive
developments in the home mortgage and consumer credit markets. Therefore, we
cannot specify with certainty the particular uses of the net proceeds of this
offering. Accordingly, management will have significant flexibility and
discretion in applying the net proceeds of this offering. Pending any use, we
will invest the net proceeds of this offering in short-term, investment grade,
interest-bearing securities.
From time to time, in the ordinary course of business, we evaluate possible
acquisitions of, or investments in, businesses, technologies, services, or
products that are complementary to our business. A portion of the net proceeds
may be used to fund acquisitions or investments; however, we have no commitments
or agreements and we are not currently involved in any negotiations with respect
to any such transaction.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock 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. Any future payment of dividends will be at the discretion of our board
of directors and will depend upon factors such as future earnings, capital
requirements, our financial condition, and general business conditions.
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<PAGE> 20
CAPITALIZATION
The following table shows our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all of our outstanding
shares of convertible preferred stock and accumulated dividends into
shares of common stock upon the closing of this offering; and
- on a pro forma as adjusted basis to reflect our sale of the
shares of common stock offered by us at an assumed initial
public offering price of $ per share, less the underwriting discount
and estimated offering expenses.
You should read this information in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
financial statements, and the accompanying notes and the other financial
information included in this prospectus.
The table excludes:
- 525,500 shares issuable upon the exercise of outstanding warrants;
- 1,793,000 shares reserved for future grants under our stock option plans;
and
- 1,873,840 shares issuable at a weighted average exercise price of $4.64
per share upon exercise of stock options outstanding on September 30,
1999.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Convertible preferred stock, $.01 par value, 8%
cumulative, 10,467,194 shares authorized:
Series A -- 1,666,667 shares issued and outstanding
actual, none issued and outstanding pro forma and pro
forma as adjusted....................................... $ 9,885 $ -- $ --
Series D -- 6,238,172 shares issued and outstanding
actual, none issued and outstanding pro forma and pro
forma as adjusted....................................... 49,432 -- --
-------- -------- --------
Total convertible preferred stock....................... 59,317 -- --
-------- -------- --------
Common stock, $.01 par value, 30,000,000 shares
authorized, 3,098,218 shares issued and outstanding
actual; 11,003,057 shares issued pro forma; and
shares issued pro forma as adjusted..................... 31 110
Additional paid-in capital.............................. 6,375 65,613
Deferred compensation................................... (262) (262) (262)
Treasury stock, cost (747,222 shares)................... (5,978) (5,978) (5,978)
Accumulated deficit..................................... (23,382) (23,382) (23,382)
-------- -------- --------
Total stockholders' equity...................... 36,101 36,101
-------- -------- --------
Total capitalization............................ $ 36,101 $ 36,101 $
======== ======== ========
</TABLE>
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DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $36,101,000, or approximately $3.52 per share of common stock. Pro
forma net tangible book value per share represents the amount of our total
tangible assets reduced by the amount of our total liabilities and divided by
the total number of shares of common stock outstanding, after giving effect to
the conversion of all outstanding shares of convertible preferred stock and
accumulated dividends into shares of common stock. Assuming the sale by us of
the shares of common stock in this offering at an assumed initial
public offering price of $ per share and after deducting the underwriting
discount and estimated offering expenses, the pro forma net tangible book value
of our common stock as of September 30, 1999 would have been $ , or $
per share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate and
substantial dilution in pro forma net tangible book value of $ per share to
new public investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999........................................ $3.52
Increase attributable to this offering....................
-----
Adjusted pro forma net tangible book value per share after
this offering.............................................
----
Net tangible book value dilution per share to new public
investors................................................. $
====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999 described above, the differences between existing stockholders and new
public investors in this offering with respect to the number of shares of common
stock purchased from us, the total consideration paid for those shares and the
average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 10,255,835 % $61,173,000 % $5.96
New public investors............
---------- --- ----------- ---
Total................. 100% 100%
========== === =========== ===
</TABLE>
The foregoing tables and calculations assume no exercise of outstanding
options or warrants. As of September 30, 1999, there were 1,873,840 shares of
common stock issuable upon exercise of outstanding options at a weighted average
exercise price of $4.64 per share and 1,793,000 shares of common stock reserved
for future grants under our stock option plan. As of September 30, 1999, there
were warrants outstanding to purchase 525,500 shares of common stock with a
weighted average exercise price of $7.19 per share. In addition, we may agree to
issue additional warrants to acquire common stock to companies with which we
maintain strategic relationships. To the extent that these options or warrants
are exercised, there will be further dilution to new public investors.
20
<PAGE> 22
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following table sets forth selected financial and operating data for
our business. You should read the information together with our financial
statements and the accompanying notes included in this prospectus and the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The statement of operations data for the years ended
December 31, 1997 and 1998 and for the nine month period ended September 30,
1999, and the balance sheet data as of December 31, 1997 and 1998 and September
30, 1999 are derived from, and are qualified by reference to, our financial
statements which have been audited by PricewaterhouseCoopers LLP and are
included elsewhere in this prospectus. The statement of operations data for the
nine month period ended September 30, 1998, is derived from, and is qualified by
reference to, unaudited interim financial statements of LendingTree included
elsewhere 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, and results of interim
periods are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
PERIOD FROM DECEMBER 31, SEPTEMBER 30,
INCEPTION THROUGH -------------------- -----------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------ ------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUE:
LendingTree network......................... $ -- $ 2 $ 273 $ 157 $ 3,398
[i]close and other technology............... -- -- 136 125 630
-------- ------- ---------- --------- -----------
Total revenue........................ -- 2 409 282 4,028
-------- ------- ---------- --------- -----------
COST OF REVENUE:
LendingTree network......................... -- -- 235 146 1,330
[i]close and other technology............... -- -- 149 133 246
-------- ------- ---------- --------- -----------
Total cost of revenue................ -- -- 384 279 1,576
-------- ------- ---------- --------- -----------
Gross profit.................................. -- 2 25 3 2,452
-------- ------- ---------- --------- -----------
OPERATING EXPENSES:
Product development......................... -- 293 1,051 712 808
Marketing and advertising................... -- 54 2,494 1,028 12,069
Sales, general and administrative........... 4 621 2,955 1,770 5,636
-------- ------- ---------- --------- -----------
Total operating expenses............. 4 968 6,500 3,510 18,513
-------- ------- ---------- --------- -----------
LOSS FROM OPERATIONS.......................... (4) (966) (6,475) (3,507) (16,061)
Interest income, net........................ -- 3 41 41 80
-------- ------- ---------- --------- -----------
Net loss.................................... $ (4) $ (963) $ (6,434) $ (3,466) $ (15,981)
======== ======= ========== ========= ===========
Basic and diluted net loss per common
share..................................... $ (0.02) $ (1.52) $ (2.39) $ (1.31) $ (5.85)
======== ======= ========== ========= ===========
Weighted average shares used in computing
basic and diluted net loss per common
share....................................... 204,000 632,575 2,704,517 2,638,398 2,951,093
======== ======= ========== ========= ===========
OPERATING DATA:
Qualification Forms transmitted:
Number...................................... N/A N/A 18,247 8,720 117,578
Dollar volume (000's)....................... N/A N/A $1,596,662 $694,802 $11,235,661
Loans closed:
Number...................................... N/A N/A 712 361 14,743
Dollar volume (000's)....................... N/A N/A $25,516 $14,375 $501,072
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1996 1997 1998 1999
---- ---- ------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $-- $402 $ 3,085 $37,492
Working capital............................................. (1) 333 2,666 35,407
Total assets................................................ -- 424 3,687 40,287
Mandatorily redeemable preferred securities................. -- -- 4,631 --
Convertible preferred stock................................. -- -- -- 59,317
Total stockholders' equity (deficit)........................ (1) 353 (1,695) 36,101
</TABLE>
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and the notes to those statements that appear elsewhere
in this prospectus. The following discussion and analysis contains
forward-looking statements that reflect our plans, estimates, and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this prospectus, particularly in "Risk Factors."
OVERVIEW
LendingTree is a leading Internet-based loan marketplace for consumers and
lenders. Using a simple and powerful consumer proposition, "Lenders compete for
your business," we collect consumer credit requests and compare these requests
and related credit information to the underwriting criteria of more than 90
participating lenders in our lender network. Consumers can receive multiple
offers in response to a single loan request and then compare, review, and accept
the loan offer that best suits their needs. Lenders can generate new business
that meets their specific underwriting criteria at reduced acquisition costs.
Our marketplace encompasses most consumer credit categories, including
mortgages, home equity loans, automobile loans, credit cards, and personal
loans. Powering our website is our proprietary online loan marketplace
technology platform, [i]close. We leverage our [i]close technology by also
licensing it to other companies who create single and multi-lender online
marketplaces. Because we are not a lender but a marketplace which facilitates
the lending process, we have reduced exposure to the interest rate and market
risks generally associated with traditional lending activities.
LendingTree was founded on June 7, 1996. From June 1996 until July 1998, we
conducted research, developed core technology, and conducted initial lender
marketing efforts. Our website, www.lendingtree.com, commenced operations
nationally on July 1, 1998. Since that time, the LendingTree network has
expanded to over 90 regional and national lenders, and during the third quarter
of 1999, we have collected on average more than 70,000 consumer loan requests
per month. For the quarter ended September 30, 1999, we received 212,000 loan
requests representing $7.6 billion in loan demand and our lenders closed loans
totaling $266 million. This compares with over 14,000 loan requests representing
$773 million in loan demand with our lenders closing loans totaling $9.9 million
for the quarter ended September 30, 1998.
We derive revenue from two primary sources: fees from the LendingTree
network; and fees from licensing our [i]close software and other technologies.
All of our revenue is derived from lenders -- consumers do not pay for our
service.
Our network revenue is generated principally from the transmission of
Qualification Forms and the closing of loans. We receive transmission revenue
when consumers complete Qualification Forms that are transmitted to lenders.
This transmission revenue is recognized at the time Qualification Forms are sent
to lenders, and fees are payable regardless of whether Qualification Forms
result in closed loans. We recognize closing revenue when a loan is closed by a
lender. Closing revenue generally lags the transmission of Qualification Forms
from several days to up to four months, depending upon the loan type. Other
network revenue includes set-up fees and monthly maintenance fees.
We also generate revenue by licensing [i]close and other technologies to
third parties, to create private-label single and multi-lender loan
marketplaces. [i]close and other technology revenue is recognized on the
percentage of completion basis.
Currently, mortgages and home equity loans represent the largest segments
of our network revenue. No single lender currently represents more than 10% of
our revenue. Revenue from our other loan categories is expected to increase as
consumer acceptance of the Internet continues to grow and as we continue to add
lenders.
22
<PAGE> 24
Our network cost of revenue includes salary and benefit costs of the
borrower relations and lender implementation groups, credit scoring expenses,
revenue-sharing costs, consumer promotion costs for closed loans, and the cost
of hardware for the LendingTree network. Our [i]close and other technology cost
of revenue includes direct costs of modifying our proprietary software for
license to [i]close users, as well as the related cost of hardware for these
customers.
Product development expenses primarily include costs incurred by us to
develop our proprietary software and filtering technologies and enhance, manage,
monitor, and operate our website. These expenses consist primarily of salaries
and benefits for our technology department, third-party software upgrades and,
from time to time, outside technology consultants and/or contractors. We intend
to continue to expand our online marketplace by adding other product offerings
and new lenders and, consequently, expect these activities may require
additional personnel. Accordingly, we expect that our product development
expenses will continue to increase for the foreseeable future.
Marketing and advertising expenses consist primarily of costs of
advertising, trade shows, affiliate service fees, and certain indirect costs.
Marketing and advertising expenses also include costs, including salaries and
benefits, of all personnel involved in the marketing and advertising department
as well as outside advertising agency fees. All advertising costs are expensed
as incurred.
Sales, general and administrative expenses consist primarily of salary,
benefits, and related expenses for our management, sales, administrative, legal,
and accounting personnel, expenses relating to our facilities, professional
fees, and other general corporate expenses. We expect that, in support of the
continued growth of our business and our operations as a public company, sales,
general and administrative expenses will continue to increase for the
foreseeable future.
Since our inception on June 7, 1996, we have incurred significant losses
and, as of September 30, 1999, we had an accumulated deficit of $23.4 million.
These losses have resulted from the significant costs incurred for advertising,
employment expenses primarily for the development of our [i]close technology
platform, establishment of lender relationships, and integration of lenders
within our website. We intend to continue to invest heavily in advertising,
product development, and marketing. As a result, we believe that we will
continue to incur substantial operating losses for the foreseeable future.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUE
Total revenue amounted to $4.0 million for the nine month period ended
September 30, 1999, an increase of $3.7 million from $0.3 million for the
corresponding period in 1998.
LendingTree Network. LendingTree network revenue accounted for $3.4
million, or 84% of total revenue for the nine month period ended September 30,
1999, compared with 56% for the corresponding period in 1998. Network revenue
increased by $3.2 million from $0.2 million for the nine month period ended
September 30, 1998 primarily due to higher Qualification Form and closed loan
volume. Qualification Form volume increased nearly thirteen times from
approximately 32,000 to over 436,000 during this period while the number of
loans closed increased nearly forty times from about 360 to over 14,700.
[i]close and Other Technology. [i]close and other technology revenue
accounted for $0.6 million, or 15.6% of total revenue for the nine month period
ended September 30, 1999, compared with $0.1 million for the corresponding
period in 1998. The increase in [i]close and other technology revenue resulted
primarily from the issuance of [i]close licenses.
COST OF REVENUE
LendingTree Network. Cost of LendingTree network revenue increased to $1.3
million for the nine month period ended September 30, 1999 from $0.1 million for
the corresponding period in 1998. The
23
<PAGE> 25
increase was primarily attributable to the introduction of revenue-share
agreements with other consumer websites such as priceline.com, increases in
other volume-related expenses such as credit scoring fees, and an increase in
headcount in the borrower relations department. Our network gross margin
increased to 61% from 7% for the nine month periods ended September 30, 1999 and
1998, respectively.
[i]close and Other Technology. Cost of [i]close and other technology
revenue increased to $0.2 million for the nine month period ended September 30,
1999 from $0.1 million for the corresponding period in 1998. This increase is
primarily due to greater direct hours incurred for [i]close projects.
OPERATING EXPENSES
Product Development. Product development expense increased to $0.8 million
for the nine month period ended September 30, 1999 compared with $0.7 million
for the corresponding period in 1998.
Marketing and Advertising. Marketing and advertising expense increased to
$12.1 million for the nine month period ended September 30, 1999 from $1.0
million for the corresponding period in 1998, an increase of $11.1 million. The
increase is primarily due to higher advertising expenses in order to build brand
awareness and increase volume to our marketplace.
Sales, General and Administrative. Sales, general and administrative
expense increased to $5.6 million for the nine month period ended September 30,
1999, an increase of $3.8 million from the corresponding period in 1998. The
increase is primarily due to higher employee-related costs such as compensation,
recruiting and relocation expenses, rent for a larger facility, and professional
fees.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE
Total revenue amounted to $0.4 million in 1998, an increase of $0.4 million
from 1997, which resulted from the national launch of our website, on July 1,
1998.
LendingTree Network. LendingTree network revenue accounted for $0.3
million in 1998, compared with $2.0 thousand in 1997.
[i]close and Other Technology. [i]close and other technology revenue
accounted for $0.1 million in 1998, the first year [i]close was licensed.
COST OF REVENUE
LendingTree Network. Cost of LendingTree network revenue was $0.2 million
in 1998.
[i]close and Other Technology. Cost of [i]close and other technology
revenue was $0.1 million in 1998.
OPERATING EXPENSES
Product Development. Product development expense amounted to $1.1 million
in 1998 compared with $0.3 million in 1997. The increase is primarily due to
employment costs and technology consulting fees.
Marketing and Advertising. Marketing and advertising expense increased to
$2.5 million in 1998 from $0.1 million in 1997. The increase is primarily due to
higher advertising expenses.
Sales, General and Administrative. Sales, general and administrative
expense increased to $3.0 million in 1998, an increase of $2.3 million from
1997. The increase is primarily due to higher employee-related costs such as
compensation, recruiting and relocation expenses, rent, and professional fees.
24
<PAGE> 26
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of our unaudited quarterly results
of operations for each of the eight quarters in the two-year period ended
September 30, 1999, as well as selected data expressed as a percentage of total
revenues for each quarter. This information has been derived from unaudited
interim financial statements. In management's opinion, this unaudited
information has been prepared on a basis consistent with 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.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- --------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
REVENUE:
LendingTree network...... $ 2 $ 15 $ 42 $ 100 $ 116 $ 475 $ 1,049 $ 1,874
[i]close and other
technology............. -- -- -- 125 11 162 24 444
-------- -------- -------- -------- -------- ---------- ---------- ----------
Total revenue...... 2 15 42 225 127 637 1,073 2,318
-------- -------- -------- -------- -------- ---------- ---------- ----------
COST OF REVENUE:
LendingTree network...... -- 39 42 65 89 217 448 665
[i]close and other
technology............. -- -- -- 133 16 175 16 55
-------- -------- -------- -------- -------- ---------- ---------- ----------
Total cost of
revenue.......... -- 39 42 198 105 392 464 720
-------- -------- -------- -------- -------- ---------- ---------- ----------
Gross profit............... 2 (24) -- 27 22 245 609 1,598
OPERATING EXPENSES:
Product development...... 194 223 420 69 339 142 394 272
Marketing and
advertising............ 30 105 274 649 1,466 2,883 2,956 6,230
Sales, general and
administrative......... 461 539 577 654 1,185 1,344 1,763 2,529
-------- -------- -------- -------- -------- ---------- ---------- ----------
Total operating
expenses......... 685 867 1,271 1,372 2,990 4,369 5,113 9,031
-------- -------- -------- -------- -------- ---------- ---------- ----------
LOSS FROM OPERATIONS....... (683) (891) (1,271) (1,345) (2,968) (4,124) (4,504) (7,433)
Interest income, net....... 4 -- 25 16 -- 22 3 55
-------- -------- -------- -------- -------- ---------- ---------- ----------
Net loss................... $ (679) $ (891) $ (1,246) $ (1,329) $ (2,968) $ (4,102) $ (4,501) $ (7,378)
======== ======== ======== ======== ======== ========== ========== ==========
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue:
LendingTree network...... 100% 100% 100% 44% 91% 75% 98% 81%
[i]close and other
technology............. -- -- -- 56 9 25 2 19
-------- -------- -------- -------- -------- ---------- ---------- ----------
Total revenue...... 100 100 100 100 100 100 100 100
-------- -------- -------- -------- -------- ---------- ---------- ----------
Total cost of revenue...... -- 260 100 88 83 62 43 31
-------- -------- -------- -------- -------- ---------- ---------- ----------
Gross margin............... 100 (160) -- 12 17 38 57 69
Total operating expenses... 34,250 5,780 3,026 610 2,354 686 477 390
-------- -------- -------- -------- -------- ---------- ---------- ----------
Loss from operations....... (34,150)% (5,940)% (3,026)% (598)% (2,337)% (648)% (420)% (321)%
======== ======== ======== ======== ======== ========== ========== ==========
OPERATING DATA:
Qualification Forms
transmitted:
Number................... N/A 1,276 2,544 4,900 9,527 22,253 33,762 61,563
Dollar volume (000's).... N/A $ 80,172 $190,747 $423,883 $901,859 $3,144,612 $3,289,217 $4,801,832
Loans closed:
Number................... N/A 21 125 215 351 731 4,472 9,540
Dollar volume (000's).... N/A $ 134 $ 4,308 $ 9,933 $ 11,142 $ 47,733 $ 187,163 $ 266,176
</TABLE>
25
<PAGE> 27
Our total revenue has increased steadily over the last eight quarters,
primarily as a result of consistent growth in network revenue. [i]close and
other technology revenue has fluctuated based on the percentage of work
completed on the projects during a quarter. The growth in the cost of revenue
reflects the higher level of revenue.
Quarterly increases in operating expenses reflect the continued expansion
of our operations during the two-year period. The increase in marketing and
advertising is primarily due to higher advertising expenses in order to attract
more consumers to our website, and higher employee-related costs such as
compensation, recruiting and relocation expenses, rent for facilities, and
professional fees.
We expect to experience significant fluctuations in future quarterly
operating results due to a variety of factors, many of which are outside of our
control. Our limited operating history and the emerging nature of the markets in
which we compete makes it difficult for us to accurately forecast our operating
results. Our operating results in one or more future quarters may fall below the
expectations of securities analysts and investors, which could cause the price
of our common stock to decline.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through private placements of
securities. Through September 30, 1999 proceeds from the sale of our securities
totaled $64.1 million, net of financing fees. In conjunction with the sale of
Series D convertible preferred stock, approximately $6.0 million of these
proceeds were used to repurchase outstanding common stock. On September 20,
1999, we received approximately $50.0 million in gross proceeds from the sale of
convertible preferred stock to a group of corporate and institutional investors
including Capital Z Partners, GE Capital, Goldman Sachs, priceline.com and Marsh
& McLennan Risk Capital.
Net cash used in operating activities was $13.6 million for the nine month
period ended September 30, 1999 and $5.7 million and $0.6 million in 1998 and
1997, respectively. In each period the use of cash primarily consisted of our
net operating losses before non-cash items. Non-cash items in each period
included the issuance of common stock, stock options and warrants, and increases
in accounts receivable, partially offset by increases in trade payables and
accrued expenses.
Net cash used in investing activities was $0.5 million for the nine month
period ended September 30, 1999 and $0.2 million and less than $0.1 million in
1998 and 1997, respectively. Net cash used in investing activities in these
periods primarily consisted mostly of capital expenditures for the purchase of
computer equipment and furniture.
Net cash provided by financing activities was $48.6 million for the nine
month period ended September 30, 1999 and $8.6 million and $1.0 million in 1998
and 1997, respectively. Cash provided by financing activities for the nine month
period ended September 30, 1999 consisted primarily of proceeds from the sale of
preferred stock and convertible notes, offset by the repurchase of common stock.
As of September 30, 1999, we had approximately $37.5 million in cash and
cash equivalents. We believe that the net proceeds from this offering together
with our existing cash and cash equivalents will be sufficient to meet our
working capital and capital expenditure requirements for at least the next 12
months. Thereafter, we may be required to raise additional funds. Additional
financing may not be available when needed or, if available, such financing may
not be on terms favorable to us. If additional funds are raised through the
issuance of equity securities, our existing stockholders may experience
significant dilution.
MARKET-RELATED RISKS
We currently have no floating rate indebtedness, hold no derivative
instruments, and do not earn foreign-sourced income. Accordingly, changes in
interest rates or currency exchange rates do not have a direct effect on our
financial position. However, increases in interest rates generally reduce
consumer demand for real estate and other significant purchases and, therefore,
could affect the volume of business transacted in our marketplace.
26
<PAGE> 28
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supercedes several
existing standards. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. We do not
expect that the adoption of SFAS No. 133 will have a material impact on the
financial statements.
YEAR 2000 READINESS
Year 2000 computer problems may arise after January 1, 2000. Our business
could be harmed by any material year 2000-related failure of our internal
systems, the systems that carry Internet traffic to our online loan marketplace,
the systems of our lenders or online partners, or the systems used by consumers
to access our marketplace.
During 1998 and 1999 we conducted a review of the year 2000 readiness of
our information technology systems. These systems include software that we have
internally developed and software and hardware that we have obtained from
third-party vendors and licensors. Our review identified a limited number of
remediation steps that we completed prior to January 1, 2000. In 1999, we
performed full end-to-end testing of all key business functions in a simulated
operating environment to assure that our systems previously verified to be year
2000 compliant remained compliant as changes were made to them. We intend to
continue to monitor our own systems for on-going year 2000 compliance and to
confer with our lenders about their on-going year 2000 compliance.
Based on our efforts to date, we believe that we will not experience any
material year 2000 problems after January 1, 2000. There are, however, possible
scenarios under which year 2000 problems, if they occur, could materially affect
us. The most reasonably likely worst cases among these scenarios, include: the
inability of one or more of our key lenders to receive consumer Qualification
Forms from us or to reply to consumers with loan offers; the inability of our
online partners to direct consumer traffic to our marketplace; and a failure of,
or a degradation in, the Internet infrastructure that reduces traffic to, or the
performance of, our website. We do not intend to develop contingency plans to
address these or other potential worst-case scenarios.
27
<PAGE> 29
BUSINESS
OVERVIEW
LendingTree is a leading Internet-based loan marketplace for consumers and
lenders. Using a simple and powerful consumer proposition, "Lenders compete for
your business," we collect consumer credit requests and compare these requests
and related credit information to the underwriting criteria of more than 90
participating lenders in our lender network. Consumers can receive multiple
offers in response to a single loan request and then compare, review, and accept
the loan offer that best suits their needs. Lenders can generate new business
that meets their specific underwriting criteria at reduced acquisition costs.
Our marketplace encompasses most consumer credit categories, including
mortgages, home equity loans, automobile loans, credit cards, and personal
loans. Powering our website is our proprietary online loan marketplace
technology platform, [i]close. We leverage our [i]close technology by also
licensing it to other companies who create single and multi-lender online
marketplaces. Because we are not a lender but a marketplace which facilitates
the lending process, we have reduced exposure to the interest rate and market
risks generally associated with traditional lending activities.
We commenced nationwide operations on July 1, 1998. Since that time our
network has expanded to more than 90 regional and national lenders, processing
more than 70,000 loan requests per month. Growth of key measures on our website
has been significant. For the quarter ended September 30, 1999, we received
212,000 loan requests, representing $7.6 billion in loan demand, and our lenders
closed loans totaling $266 million. This compares with over 14,000 loan
requests, representing $773 million in loan demand, with our lenders closing
loans totaling $9.9 million for the quarter ended September 30, 1998. We earn
revenues primarily through transaction fees paid by lenders when Qualification
Forms are transmitted to lenders and when loans are closed. We also receive fees
from licensing our [i]close software.
Among the lenders currently participating in the LendingTree network are
national banking brands such as Bank of America Consumer Finance Group, Chase,
Citibank, PNC Bank FSB, Bank One, and First USA as well as leading online
lending companies including iOwn.com, mortgage.com, and Giggo.com. Our [i]close
technology powers the loan centers of several well-known consumer websites
including priceline.com, Autobytel.com, and Bloomberg.com; the loan content and
tools for an affiliate network of over 10,000 websites; and single-lender
websites including Fleet Bank and Wachovia Bank.
We believe our unique business model, growing consumer acceptance of our
website, our first mover advantage, the strength of the LendingTree brand, the
breadth of our lender network, our strategic relationships, and our [i]close
technology platform provide us with significant competitive advantages.
INDUSTRY BACKGROUND
GROWTH OF INTERNET USAGE AND ELECTRONIC COMMERCE
The Internet has emerged as a global medium for communication, information,
and commerce. International Data Corporation estimates that there were 63
million Internet users in the United States at the end of 1998 and anticipates
that this number will grow to approximately 177 million by the end of 2003,
representing a compound annual growth rate of 23%. As a result of the Internet's
increasing acceptance as a commercial medium, businesses have a growing
opportunity to conduct electronic commerce. International Data Corporation
estimates that in the United States, Internet commerce will increase from
approximately $37 billion in 1998 to approximately $708 billion by 2003,
representing a compound annual growth rate of 80%.
CONSUMER LENDING MARKETS
Consumer lending markets are both large and highly fragmented. The United
States Federal Reserve estimates that as of year-end 1998 there were
approximately $5.8 trillion in outstanding consumer loans and the American
Bankers Association estimates that there were over 26,000 consumer credit
providers in the United States. Forrester Research, a market research
organization, projects that over 46 million
28
<PAGE> 30
consumer loan transactions amounting to approximately $2 trillion in loan
origination will occur in the United States during 1999. Forrester also projects
that 1.3% of consumer loan origination will be conducted online in 1999, growing
to 9.5% by 2003, and that total online credit originations will grow from $25.7
billion in 1999 to $167.6 billion in 2003, representing a compound annual growth
rate of 60%.
The following table summarizes by consumer product category for the periods
presented, the dollar volume and number of online loan originations, as well as
the dollar volume of online originations as a percentage of total originations
in the United States, as projected by Forrester Research.
<TABLE>
<CAPTION>
PROJECTED
ONLINE
ORIGINATIONS
PROJECTED ONLINE PROJECTED ONLINE AS % OF
ORIGINATIONS ORIGINATIONS TOTAL $
(DOLLARS IN BILLIONS) (IN THOUSANDS) ORIGINATIONS
--------------------- ---------------- ------------
1999 2003 1999 2003 1999 2003
------- ---------- ------ ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Mortgage.................................... $18.7 $ 91.2 116 599 1.5% 9.6%
Credit Card................................. 5.2 21.5 990 3,674 4.3 16.3
Automobile.................................. 0.8 21.4 36 952 0.2 4.7
Home Equity................................. 1.0 20.2 25 422 0.6 11.4
Student..................................... -- 13.3 12 3,261 0.1 25.3
----- -------- ----- -----
Total....................................... $25.7 $ 167.6 1,179 8,908
===== ======== ===== =====
</TABLE>
LIMITATIONS OF TRADITIONAL LOAN PROCESS AND OTHER ONLINE LENDING MODELS
For lenders, the traditional lending process 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 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. Online lending sites of our competitors generally mirror the
traditional lending process. Consumers visit a 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 fall into two categories:
- Bank/Broker Model. The operators of these websites 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 bank/broker undertakes all of the underwriting, processing,
verification, and customer interaction. In addition, to the extent the
banks/brokers fund originated loans with their own capital, they are
directly exposed to interest rate fluctuations.
- Referral Agent Model. The operators of these websites 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.
We believe 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
our marketplace business model.
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THE LENDINGTREE MARKETPLACE SOLUTION
The LendingTree marketplace enables consumers to receive up to four loan
offers in response to a single loan request while providing lenders with the
opportunity to generate new business that meets their specific underwriting
criteria at reduced acquisition costs.
THE LENDINGTREE PROCESS
The LendingTree process consists of the following steps:
- Loan Request. Consumers access our website at www.lendingtree.com and
select a loan product from our current offering of five loan categories,
which include mortgage, home equity, automobile, credit card, and
personal loans. Consumers complete a single Qualification Form for the
selected loan product with information such as income, net worth, loan
term preferences, and other personal data. Consumers also consent to our
use of their credit history.
- Qualification Form Filtering and Transmission. Our proprietary filtering
process matches the consumers' loan requests, credit profile, and
geographic location to the preset underwriting criteria provided by the
lenders in our network. Lenders are able to modify their underwriting
criteria in real-time through our website. Once Qualification Forms pass
the filters, they are transmitted to up to four lenders.
- Lender Evaluation and Response. Lenders evaluate and respond to the
Qualification Forms that pass through their filters. Currently, lenders
respond to approximately 85% of the Qualification Forms they receive
within one business day. In most cases, lenders approve the Qualification
Form.
- Communication of Offer. Once a lender evaluates a Qualification Form and
renders a decision, the LendingTree system automatically notifies the
consumer via e-mail. The e-mail contains instructions to return to the
Check Status page in the LendingTree website where consumers can view and
compare the terms of each offer including: interest rate, closing costs,
monthly payment amount, and lenders' fees.
- Consumer Acceptance. The consumer has the ability to accept, reject, or
request more information about a loan offer. When the consumer selects
one of these options, the LendingTree system automatically notifies the
chosen lender and the remainder of the process is conducted offline.
- Ongoing Process Support. We operate an outbound call center that
provides active follow-up and support to both lenders and consumers. This
follow-up and support is designed to increase overall satisfaction of the
participants in our marketplace.
CONSUMER BENEFITS
Our marketplace provides important benefits to consumers, including:
- Price. Our growing network of more than 90 lenders fosters a competitive
bidding environment, encouraging lenders to price loan offers
aggressively as they compete for consumers' business.
- Consumer Service. The range of online information and tools presented on
our website, combined with our support and service, reduces the confusion
often experienced by consumers during the borrowing process and the time
that it takes to obtain loans.
- Choice. We provide qualified consumers with up to four loan offers from
a national base of lenders.
- Convenience. In contrast to the traditional process of separately
applying to multiple local lenders for credit, our marketplace saves
consumers valuable time by enabling them to go online, complete one
Qualification Form, and receive multiple loan offers. In addition,
consumers can save a partially or fully completed Qualification Form and
return at a later time to complete the process or apply for another loan.
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- Content. We provide consumers with educational materials about the
borrowing process, answers to frequently asked questions, informative
articles, and interactive loan calculators. Consumers can also purchase
related services, including credit reports and insurance.
- No Fees. Our service is free to consumers.
LENDER BENEFITS
Our marketplace provides important benefits to lenders, including:
- New Business. Leveraging the reach of the Internet, we provide lenders
with access to a significantly larger audience of qualified consumers.
- Lower Acquisition Costs. The fees we charge are designed to be less than
the cost of acquiring customers through traditional and other online
channels. Additionally, our filtering technology and integration with our
lenders' systems enables lenders to process loan requests more
efficiently and at significantly reduced costs.
- Market Information. Our involvement with lenders and consumers across
multiple credit categories provides us with valuable data about the
online lending marketplace. Within the guidelines of our privacy policy,
our account managers combine surveys, consumer feedback, and quarterly
reviews to provide valuable and timely information to lenders. This
enables our lenders to refine and improve their Internet lending
strategies and quickly respond to changing market conditions in order to
compete more effectively.
THE LENDINGTREE [i]CLOSE SOLUTION
We leverage our core technology platform, [i]close, by licensing it to
other companies to create private-label single and multi-lender loan
marketplaces. Current clients include Wachovia Bank, Fleet Bank, and
priceline.com. The benefits to our [i]close partners include:
- Minimal Upfront Cost. Our proprietary technology results in minimal
upfront cost to lenders compared with internally developing a web-based
distribution channel. We believe that as lenders seek to develop
proprietary Internet capabilities, [i]close can meet their needs in a
faster, more cost-effective, and scalable manner.
- Reduced Technology Obsolescence. We continually update [i]close as new
technologies develop. Lenders who use [i]close can take advantage of
these improvements and maintain the latest technology.
- Multi-lender Capability. We believe that over time, even single-lender
entities such as banks will consider offering other lenders' products on
their websites. Our [i]close solution is well-suited for this purpose.
For example, [i]close is utilized by PNC's Banking Center on the iVillage
community website where, in addition to access to PNC Bank, consumers
have access to our entire network of lenders. This multi-lender approach
not only increases consumer choice, but also provides additional
transaction revenue to the [i]close partner.
LENDINGTREE STRATEGY
Our mission is to be the predominant loan marketplace on the Internet. The
key elements of our strategy are:
- STRENGTHEN LENDINGTREE'S LEADING POSITION AS A MULTI-PRODUCT LOAN
MARKETPLACE. We believe that no other loan marketplace or multi-lender
website offers the breadth of loan categories available on our website.
This multi-category strategy enables us to become consumers' primary
resource for all of their lifetime borrowing needs. We will continually
evaluate adding new loan products to our marketplace such as student
loans and small business loans. By becoming a
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consumer's primary lending destination and fostering repeat usage we can
increase revenue per customer and decrease acquisition costs for each new
loan.
- ESTABLISH AND EXPAND COMPREHENSIVE LENDER COVERAGE. We seek to provide
consumers throughout the United States with a competitive marketplace for
consumer credit products across a wide range of credit risk profiles. The
availability of multiple lenders for each type of loan product generally
provides qualified consumers with a choice of competitive offers. We
intend to expand our lender coverage by actively marketing our
marketplace solution to new lenders. We are also seeking to expand the
product offerings of lenders who are already participants in our network.
- EXPAND TRANSACTION VOLUME THROUGH ONLINE STRATEGIC RELATIONSHIPS. We
intend to increase the number of transactions processed in our
marketplace by continuing to enter into agreements with online businesses
that have high affinity to consumer lending. Currently we have strategic
relationships with well-known consumer Internet brands including
priceline.com, Bloomberg.com, and Autobytel.com.
- INCREASE BRAND AWARENESS AND TRANSACTION VOLUME. We intend to
significantly expand our online and offline advertising to create
consumer awareness of LendingTree as the predominant online loan
marketplace and thereby build transaction volume. We are planning a major
advertising campaign in 2000 with the aim of making our marketplace "top
of mind" with consumers.
- ESTABLISH [I]CLOSE AS THE DOMINANT LOAN MARKETPLACE TECHNOLOGY. We
intend to build our business-to-business component by marketing [i]close
to individual lenders and other companies on a private-label basis. We
will do this through expansion of our sales force and industry-focused
marketing activities.
- INCREASE LOAN CLOSING RATES. We intend to increase loan closing rates
by:
- adding lenders to our network;
- increasing the level of automation of our lenders to shorten the loan
approval process; and
- continually improving our customer service and encouraging our
lenders to improve their customer service.
LENDER RELATIONS
OUR LENDERS
As of November 30, 1999, we had more than 90 lenders participating in the
LendingTree marketplace across five principal products: mortgages, home equity,
automobile, credit card and personal loans. Below are the top lenders by closed
loan amount in each category. Collectively, these lenders contributed 41.0% of
our revenue for the month of October 1999.
MORTGAGE
- CMP Mortgage
- iOwn.com
- Mid-America Bank
- mortgage.com
- MortgageSelect.com
HOME EQUITY
- Bank One
- Citibank
- PNC Bank, FSB
- Provident Bank
- Sovereign Bank
AUTOMOBILE
- Auto Refinance Source, Inc.
- Giggo.com
- SmartFinance.com
- Synergy Federal Savings Bank
CREDIT CARD
- Aspire Card Services
- First USA
- Merrick Bank
PERSONAL LOANS
- Chase
- Synergy Federal Savings Bank
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LENDER SALES AND MARKETING
Our 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 ensure an adequate array of credit products to meet consumer
demand.
Our lender marketing objective is to support our lender sales efforts by
increasing awareness of LendingTree within the lending community through trade
advertising, public relations, and attendance at trade shows and industry
conferences.
LENDER ACCOUNT MANAGEMENT
We provide a high level of support and service to lenders who are on the
LendingTree network and those that license our [i]close technology. We provide
each lender with comprehensive training on our marketplace technology as well as
a dedicated support team after the lender has joined our network. We regularly
review our lenders' online lending processes and make recommendations to improve
their performance.
We have developed a "best practices" program that helps lenders achieve
high levels of customer service and make competitive loan offers. We have found
that the most successful lenders in our network adhere to the following best
practices.
- use of dedicated in-house teams to monitor their online loan activities;
- rapid response to consumer loan requests;
- proactive solicitation of customer feedback; and
- personalized service through outbound call centers.
PRODUCT LINES
Our marketplace offers consumers the opportunity to obtain the following
loan products:
- Home Mortgage. As of November 1, 1999, we had 63 lenders providing home
mortgage loans.
- Home Equity. As of November 1, 1999, we had 37 lenders providing home
equity loans.
- Automobile Loans. As of November 1, 1999, we had 12 lenders providing
automobile loans. We believe that this will be the next loan product to
experience significant growth online and we are actively pursuing
additional automobile lenders in anticipation of increased demand.
- Credit Cards. As of November 1, 1999, we had three credit card issuers.
We are in the process of adding more credit card issuers that will
complement our strategy of target marketing specific demographic
segments, such as college students and other affinity groups.
- Personal Loans. As of November 1, 1999, we had five lenders providing
personal loans. While personal loans are not currently a significant
revenue source for us, we believe the market potential for unsecured
installment loans on the Internet is particularly strong, especially for
lenders who can offer loans to a broad cross-section of consumers.
CUSTOMER SERVICE
We employ a staff of customer relations managers whose responsibilities
include:
- responding to consumer questions about the status of their loan request,
how to use our website, and other frequently-asked questions; and
- acting as a liaison between consumers and lenders, to ensure consumers
receive prompt service from lenders.
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We actively evaluate the effectiveness of our customer service efforts. For
example, for incoming telephone calls, we monitor the average speed of answering
such calls, the average length of the call, and the average amount of time spent
performing work in response to the call. We also respond to e-mail from
consumers and respond generally within 36 hours. Many of the e-mails and
telephone calls from consumers provide feedback on the performance of our
lenders. As part of our best practices program, this information is shared
directly with our lenders to improve their services and performance on our
network.
STRATEGIC RELATIONSHIPS
We maintain strategic relationships with a number of high traffic consumer
websites that utilize our online loan marketplace technology. These
relationships include:
- priceline.com. We have formed a relationship with priceline.com to
provide a "name your price" service for mortgage and home equity loans.
Priceline.com has made an equity investment in LendingTree. See "Certain
Transactions."
- Autobytel.com. We provide the technology platform for the automobile
financing center on the Autobytel.com website.
- Bloomberg.com. Consumers can access our marketplace directly through
Bloomberg's website.
- PNC Banking Center on iVillage.com. We are the exclusive loan
marketplace provider on the PNC Banking Center on iVillage.com, a leading
women's online network.
CONSUMER MARKETING
Our principal marketing objectives are to build brand awareness, create
brand equity, and increase volume on our marketplace. These efforts include
offline advertising, online advertising, and direct marketing. We also use
comprehensive data mining techniques to enhance our consumer marketing programs,
subject to compliance with our privacy policy.
CONSUMER OFFLINE ADVERTISING
- Radio Advertising. Our radio advertising directly increases transaction
volume on our website as well as consumer awareness of the LendingTree
brand. Radio advertising also allows us to test new geographic markets
for their receptiveness to our consumer proposition. We select radio
markets based on a variety of factors including population density,
housing starts, Internet-enabled users, and mortgage activity. To date,
we have used radio advertising in over 30 U.S. markets.
- Print Advertising. We promote the LendingTree brand through strategic
placements in daily news publications, as well as weekly, bi-weekly, and
monthly periodicals. We have advertised in publications such as The Wall
Street Journal, USA Today, The New York Times, and The Washington Post.
- Outdoor Advertising. We also employ outdoor advertising as part of our
overall advertising strategy. Our strategy includes the use of several
media including billboards, bus and train advertising, and airport
terminals.
CONSUMER ONLINE ADVERTISING
- Online Advertising and Sponsorships. We purchase online advertising and
sponsorships on selected websites with high affinity to consumer credit
such as websites relating to real estate and personal finance. We also
sponsor certain keywords on the major search engines. For example, when a
search is made for the keywords "loan" or "mortgage," a LendingTree
banner advertisement may appear.
- The LendingTree Branch Affiliate Network. Our affiliate network of more
than 10,000 websites provides content about products and services that
consumers frequently purchase with credit such as
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real estate, automobiles, and travel. To facilitate integration of our
technology with that of our affiliates, we have developed proprietary
software that allows many of our affiliates to quickly and easily
integrate our loan center functionality into their own websites.
DIRECT MARKETING
We believe that direct marketing is especially effective to increase loan
closure rates and develop lifetime relationships with consumers. Our direct
marketing is conducted through a variety of channels, including:
- Direct E-mail. We use e-mail to prompt consumers to visit our website,
communicate with consumers throughout the lending process, and promote
loan closing.
- Cross Selling. Through our cross-sell efforts, consumers have the
opportunity to purchase related products and services at various points
in the loan process. Current cross-sell offerings include credit cards,
homeowners' insurance, and life insurance. We intend to increase the
breadth of our cross-sell efforts.
COMPETITION
The market for online loan shopping and related services is new and rapidly
developing. We believe that we have an important first mover advantage, but
current and potential new competitors could establish online loan marketplaces
that are competitive with ours. In addition, we expect competition from: online
lenders/brokers such as E-LOAN, mortgage.com, QuickenMortgage, iOwn.com, and
NextCard; traditional banks and brokers; and existing online referral agents
such as GetSmart, Microsoft's HomeAdvisor, Creditland, and MortgageAuction.com.
Some of these competitors are also participants in our marketplace.
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 strategic relationships;
- proprietary and scalable technology infrastructure;
- ease of use and convenience; and
- strength of relationships and depth of technology integration with
customers.
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 strategic relationships, and continually upgrade our technology. As
described elsewhere in this prospectus, we are planning to significantly
increase our advertising program during 2000. Many of our current competitors,
however, have longer operating histories, greater name recognition, 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 loan marketplace.
TECHNOLOGY
Our marketplace is supported by a proprietary technology platform that was
designed with an emphasis on scalability, performance, reliability, and
security. 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
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industry-standard protocol that provides data encryption, server authentication,
and message integrity. Our website servers and database servers are protected 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.
GOVERNMENT REGULATION
Many of the loan products available through our website are subject to
extensive regulation by various federal and state governmental authorities.
These rules impose restrictions on our marketing activities, as well as loan
services provided to our participating lenders, many of whose activities are
similarly highly regulated. Federal and state rules regarding lending may, for
example:
- regulate the content of advertisements;
- limit the amount of fees we may receive from lenders and other websites;
- require additional disclosure to consumers;
- mandate protection of consumer privacy;
- regulate sales practices generally, including prohibiting discrimination;
and
- impose various qualification and licensing obligations on us.
Failure to comply with these requirements may result in, among other
things, revocation of required licenses or registrations, loss of approved
status, loss of exempt status, indemnification liability to lenders,
administrative enforcement actions, class action lawsuits, cease and desist
orders, and civil and criminal liability. We believe we are in substantial
compliance with these rules and regulations, subject to the regulatory
uncertainties discussed in the paragraphs that follow.
As a computer loan origination system doing business through the Internet,
we face an additional level of regulatory risk given the fact that most statutes
and regulations governing solicitation of lending transactions have not been
substantially revised or updated to fully accommodate electronic commerce. Most
of the federal and state laws, rules, and regulations governing lending, for
example, contemplate or assume paper-based transactions and do not currently
address the delivery of required disclosures and other documents through
electronic means. In addition, many of the federal and state rules regarding
licensing requirements and fees paid in connection with lending did not
originally contemplate that loan products would be made available through
non-lender third parties over the Internet. Until these laws, rules, and
regulations are revised to clarify their applicability to transactions conducted
through e-commerce, any company providing loan-related services through the
Internet or other means of e-commerce will face compliance uncertainty. In
addition, there is no assurance that revisions to the laws, rules, and
regulations will be adopted and, if adopted, will be timely or adequate to
eliminate this uncertainty. Nonetheless, we believe that we have taken prudent
steps to mitigate these risks.
At the state level, we are subject to licensing and regulation in many of
the states where our loan-related services are available. We have obtained
mortgage brokerage licenses in 35 states and are subject to examination by
regulators in each of these states.
In addition, any person who acquires 10% or more of our common stock may be
required to comply with applicable regulations promulgated by certain states
that may include requiring the person to periodically file financial information
and other personal and business information. If any person holding 10% or more
of our common stock refuses or fails to comply with these licensing
requirements, we may be unable to obtain a license or existing licensing
arrangements in particular states could be jeopardized. The inability to obtain,
or loss of, required licenses could have a material adverse effect on our
operations and financial condition.
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In addition to licensing requirements, federal and state laws regulate
certain aspects of residential lending. At the federal level, our services are
regulated to varying degrees under a variety of laws, including, but not limited
to, 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, 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. We believe
we are operating substantially in compliance with these laws and have taken
reasonable steps to mitigate the risks of the regulatory uncertainties discussed
in the following paragraphs.
Under the Truth in Lending Act, creditors are required to provide consumers
with uniform, understandable information concerning certain 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 certain types of information from loan
applicants and require lenders to supply applicants with certain information,
called an "adverse action notice," when the lender denies its applicants credit.
Our lenders are generally obligated to provide the required disclosures.
The Real Estate Settlement Procedures Act prohibits the payment or receipt
of kickbacks or referral fees, fee shares or splits, or unearned fees in
connection with the provision of real estate settlement services. The
applicability of referral fee prohibitions to the compensation provisions on
arrangements used by online companies like us may have the effect of reducing
the types and amount of fees that we may charge in connection with real-estate
secured products.
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. In addition, recent consumer privacy
legislation enacted as part of the Gramm-Leach-Bliley Act will restrict the
dissemination of nonpublic consumer information to nonaffiliated third parties
absent consumer consent and will require regulated institutions to maintain
privacy policies when it becomes effective in the coming year.
The laws, rules and regulations applicable to us undergo periodic
modification and change. Periodically, various laws, rules, and regulations are
proposed, which, if adopted, could impact us. These proposed laws, rules, and
regulations, or other applicable laws, rules, or regulations, if adopted, could
make compliance more difficult or expensive, restrict our ability to provide
lending services, further limit or restrict the amount of fees charged by us, or
otherwise adversely affect our business or prospects.
INTELLECTUAL PROPERTY
We regard our intellectual property as critical to our success. To protect
our rights to our intellectual property, we rely on a combination of patent,
trademark and copyright law, and trade secret protection. We pursue the
protection of our intellectual property in part through trademark and copyright
registration. We cannot assure you that any of these registration 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. We have applied for a U.S.
patent and filed a Patent Cooperation Treaty international patent application on
our [i]close technology and our online loan market process. 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 LendingTree against
third-party claims of
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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 [i]close to well-known regional and
national lenders, other online companies that create single and multi-lender
online marketplaces, and consumer 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 addition, we seek to protect our proprietary rights through the use of
confidentiality agreements and other contractual arrangements with our
employees, affiliates, clients, strategic partners, 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 of our
affiliates, clients, strategic partners, 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. 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
As of November 1, 1999, we had approximately 100 full-time employees. Of
these, 27 were in lender and borrower relations, 22 were in sales, marketing,
and business development and 20 were in technology and project management. None
of our employees is 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
16,000 square feet of office space in Charlotte, North Carolina under a lease
that expires in 2002. We intend to enter into a lease for approximately 38,000
square feet of office space, also in Charlotte, in the spring of 2000 for a
10-year term. We intend to sublease our current office space.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
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MANAGEMENT
The following table sets forth, as of November 30, 1999, the name, age and
position within LendingTree of each of our directors, executive officers and key
employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Douglas Lebda................................... 29 Chief Executive Officer and Director
Keith Hall...................................... 46 Senior Vice President and Chief Financial
Officer
David Anderson.................................. 34 Senior Vice President of Operations
James Bennett, Jr. ............................. 31 Senior Vice President of Strategy and Corporate
Development
Richard Stiegler................................ 43 Chief Technology Officer
Steve Campbell.................................. 35 Chief Information Officer
Robert Flemma, Jr............................... 39 Vice President and General Counsel
James Carthaus.................................. 59 Director
Richard Field................................... 59 Director
Robert Kennedy.................................. 64 Director
Daniel Lieber................................... 37 Director
Adam Mizel...................................... 29 Director
W. James Tozer, Jr. ............................ 58 Director
Robert Wilson................................... 67 Chairman Emeritus
</TABLE>
DOUGLAS LEBDA founded LendingTree in June 1996. He has served as Chief
Executive Officer and Director since September 1998. Prior to that time, 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.
KEITH HALL is Senior Vice President and Chief Financial Officer. Between
1997 and 1999, Mr. Hall was the chief financial officer of Broadway & Seymour,
Inc. Beginning in 1995, Mr. Hall was the chief financial officer of Legent
Corporation. Between 1983 and 1995 Mr. Hall worked in various financial
positions at United Technologies Corporation, including chief financial officer
at Carrier North America. Mr. Hall has been with LendingTree since June 1999.
DAVID ANDERSON is Senior Vice President of Operations. From June 1988 until
March 1999, Mr. Anderson worked in various capacities at American Management
Systems Inc., most recently as a senior principal. Mr. Anderson has been with
LendingTree since March 1999.
JAMES BENNETT, JR. is Senior Vice President of Strategy and Corporate
Development. From November 1996 until May 1998, Mr. Bennett was the vice
president for electronic development in the entertainment, communications, and
media group of Cahners Publishing. In June 1994, Mr. Bennett founded BookWire, a
business-to-business news and information website for the book publishing trade
and acted as publisher until November 1996. Mr. Bennett was a co-founder of
LendingTree and joined LendingTree full-time in May 1998. Mr. Bennett served as
a Director of LendingTree from June 1996 until September 1999.
RICHARD STIEGLER is 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.
STEVE CAMPBELL is Chief Information Officer. From 1987 until 1999, Mr.
Campbell worked in various capacities with American Management Systems Inc.,
most recently as the director of Software Development for the Consumer Financial
Services Group. Mr. Campbell has been with LendingTree since November 1999.
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<PAGE> 41
ROBERT FLEMMA, JR. is Vice President and General Counsel. From 1998 to
1999, Mr. Flemma was a private investor. From 1986 to 1997, Mr. Flemma was an
attorney at Whyte, Hirschboeck, Dudek S.C., where he was a partner and the
administrative head of the firm's consumer finance law team. Mr. Flemma is a
member of the American Bar Association and has been a member of that
association's Consumer Financial Services Committee. Mr. Flemma joined
LendingTree in October 1999.
JAMES CARTHAUS has been a Director since December 1998. Since 1989, Mr.
Carthaus has been the chairman of a New York investment bank, Scott-Macon, Ltd.
RICHARD FIELD has been a Director since August 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.
ROBERT KENNEDY has been a Director since December 1998. Mr. Kennedy has
been the director of special projects at The Union Labor Life Insurance Company
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 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.
ADAM MIZEL has been a Director since September 1999. Mr. Mizel co-founded
Capital Z Partners in 1998 where he is currently a partner. From 1994 to 1998,
Mr. Mizel was a Managing Director of Zurich Centre Investments, Inc.
W. JAMES TOZER, JR. has been a Director since August 1997. Since 1990, Mr.
Tozer has been the managing director of Vectra Management Group. He is a former
senior vice president of Citibank, senior executive vice president of Shearson
Hayden Stone, senior executive vice president of Marine Midland Bank, and
president of Prudential-Bache Securities. He is chairman of the executive
committee of Draper Bank and Trust and was co-founder of Vectra Bank of
Colorado.
ROBERT WILSON is Chairman Emeritus. Mr. Wilson joined LendingTree shortly
after its founding. Between April 1997 and September 1999 he served in various
capacities, including chief executive officer, chairman of the board, and chief
financial officer. Following an active role in business development and capital
raising, Mr. Wilson retired from LendingTree in September 1999 and continues to
serve as a consultant. Mr. Wilson was a general partner at Goldman Sachs for 17
years, including three years as a president and managing director of Goldman,
Sachs International. He is currently a director of the Phoenix Home Life Mutual
Insurance Co., WorkPlus.com, inc. and co-founder and chairman of QuoteShip.com,
Inc. Mr. Wilson also serves on the International Advisory Board of BlueStone
Capital Partners, LP.
CLASSES OF DIRECTORS
We will adopt a provision in our certificate of incorporation which will
divide our board of directors 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 the stockholders of LendingTree commencing in
2001, the successors to the directors whose term expires at that meeting will be
elected to serve until the third annual meeting after their election or until
their successor has been elected and qualified. Messrs. and
will serve as Class I directors whose terms expire at the 2001
annual meeting of stockholders. Messrs. and will
serve as Class II directors whose terms expire at the 2002 annual meeting of
stockholders. Messrs. , and will
serve as Class III directors whose terms expire at the 2003 annual meeting of
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<PAGE> 42
stockholders. With respect to each class, a director's term will be subject to
the election and qualification of their successors, or their 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 and simultaneously gaining control of the
board of directors by filling the vacancies with its own nominees.
BOARD COMMITTEES
The board of directors has a compensation committee that reviews and
recommends to the board the compensation arrangements provided to the management
of LendingTree and administers the stock option plan. The members of the
compensation committee are James Carthaus and Adam Mizel.
The board of directors has an audit committee that reviews LendingTree's
annual audit and meets with LendingTree's independent auditors to review
LendingTree's internal controls and financial management practices. The board's
audit committee currently consists of Richard Field, Daniel Lieber, and Robert
Kennedy.
DIRECTOR COMPENSATION
We do not currently compensate our directors for attending board or
committee meetings, but we reimburse directors for their reasonable expenses
incurred in connection with attending these meetings.
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<PAGE> 43
EXECUTIVE COMPENSATION
The following summary compensation table sets forth information concerning
compensation earned in 1999 by our Chief Executive Officer and the remaining
four most highly compensated executive officers as of the end of 1999 whose
salary and bonus for that year exceeded $100,000. Also included is information
with respect to two additional individuals who would have been named in the
Summary Compensation Table for 1999 except for the fact that they are not
executive officers as of the end of 1999.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTION/ ALL OTHER
SALARY BONUS(2) COMPENSATION AWARD(S) SARS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) ($) (#) ($)
- --------------------------- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas Lebda................. $154,000 $ 50,000 $-- 150,000
Chief Executive Officer
Keith Hall(3)................. 79,000 50,000 -- 90,000
Senior Vice President and
Chief Financial Officer
David Anderson(4)............. 96,000 53,000 -- 90,000
Senior Vice President of
Operations
James Bennett, Jr............. 117,000 58,000 -- 90,000
Senior Vice President of
Strategy and Corporate
Development
Richard Stiegler.............. 120,000 120,000(7) -- --
Chief Technology Officer
Mitchell York(5).............. 101,000 25,000 -- -- 33,750(8)
Robert Wilson(6).............. 88,000 -- -- -- 43,500(9)
</TABLE>
- ---------------
(1) All information in this table is currently as estimated with respect to
fiscal year 1999.
(2) Bonus estimates are based upon the individual's target bonus with respect to
1999; however, it is not currently known whether bonuses will actually be
earned with respect to 1999 alone or for some period including all or a
portion of 2000.
(3) Mr. Hall joined LendingTree in June 1999.
(4) Mr. Anderson joined LendingTree in March 1999.
(5) Mr. York terminated his employment with LendingTree effective as of October
1, 1999.
(6) Mr. Wilson resigned his positions with LendingTree effective as of September
20, 1999. He is currently providing consulting services to LendingTree for
annual compensation of $100,000 and certain reimbursable expenses.
(7) At our election up to one-half of Mr. Stiegler's bonus may be paid in common
stock equal in value to that portion of the bonus.
(8) Amounts consist of payments expected to be paid in 1999 pursuant to his
agreement with us described under "Employment/Consulting
Arrangements -- Agreement with Mr. York."
(9) Amounts consist of consulting fees and reimbursable expenses expected to be
paid in 1999.
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<PAGE> 44
The following table sets forth information concerning individual grants of
stock options made during the last completed fiscal year to each of the officers
and former officers named in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF
--------------------------------------------------------- STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS/SARS EXERCISE OPTION TERM(2)
UNDERLYING GRANTED TO OR BASE ---------------------
OPTION/SARS EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE ($) ($)
- ---- -------------- ---------------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Douglas Lebda............. 150,000(3) 19.3% $7.70 09/02/09
Keith Hall................ 60,000(4) 11.6 6.00 06/14/09
30,000(5) 7.00 09/01/09
David Anderson............ 15,000(6) 11.6 6.00 03/15/09
75,000(7) 7.00 09/01/09
James Bennett, Jr......... 90,000(8) 11.6 7.00 09/01/09
Richard Stiegler.......... -- -- -- --
Mitchell York............. 80,000(9) 11.6 6.00 (9)
10,000(10) 6.00 10/01/03
Robert Wilson............. 60,000(11) 7.7 6.60 08/10/07
</TABLE>
- ---------------
(1) All options, other than the grant to Mr. York relating to 10,000 shares of
common stock, were granted under LendingTree's 1998 Stock Option Plan,
which is described below, under "Stock Plans -- 1998 Stock Option Plan."
All options granted to Messrs. Lebda, Hall, Anderson, and Bennett have a
term of ten years and become vested in equal installments on each of the
first four anniversaries of the date of grant, except for the grant to Mr.
Anderson relating to 15,000 shares, which will become vested on each of the
first three anniversaries of the date of grant.
(2) Based on the Black-Scholes valuation method using a discount rate of %,
an expected life of years, dividends and volatility.
(3) 25,974 of the shares covered by the option will be eligible for incentive
stock option treatment, and the remainder of the shares will be subject to
the rules for non-qualified stock options.
(4) All of the shares covered by the option will be eligible for incentive
stock option treatment.
(5) 5,712 of the shares covered by the option will be eligible for incentive
stock option treatment, and the remainder of the shares will be subject to
the rules for non-qualified stock options.
(6) All of the shares covered by the option will be eligible for incentive
stock option treatment.
(7) 44,285 of the shares covered by the option will be eligible for incentive
stock option treatment, and the remainder of the shares will be subject to
the rules for non-qualified stock options.
(8) 44,285 of the shares covered by the option will be eligible for incentive
stock option treatment, and the remainder of the shares will be subject to
the rules for non-qualified stock options.
(9) This grant was made in consideration for the cancellation of an incentive
stock option relating to 80,000 shares of common stock. The new option's
exercise price per share is the same as the exercise price of the cancelled
option. The vesting schedule and term of this option is the same as the
vesting schedule of the cancelled option, as follows:
- as to the 30,000 shares which vested on September 9, 1999, the
expiration date is September 9, 2001;
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<PAGE> 45
- as to the 30,000 shares which vest on September 9, 2000, the expiration
date is September 9, 2002; and
- as to the 20,000 shares which vest on September 9, 2001, the expiration
date is September 9, 2003.
Other terms of this option are described under "Employment/Consulting
Arrangements -- Agreement with Mr. York".
(10) This grant was made in consideration for the cancellation of a previously
granted non-qualified stock option relating to 10,000 shares of common
stock and was not granted under the terms of any of LendingTree's option
plans. The new option's exercise price per share is the same as the
exercise price of the cancelled option and the option is fully exercisable
as of the date of grant.
(11) This grant was made in consideration for the cancellation of a previously
granted non-qualified stock option relating to 60,000 shares of common
stock. The new option's exercise price per share is the same as the
exercise price of the cancelled option and the option is fully exercisable
as of the date of grant.
The following table sets forth information concerning the exercise by the
officers and former officers named in the Summary Compensation Table of stock
options during the last completed fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED VALUE FISCAL YEAR-END FISCAL YEAR-END
NAME ON EXERCISE (#) REALIZED ($) EXCERCISABLE/UNEXERCISABLE (#) EXCERCISABLE/UNEXERCISABLE ($)
- ---- --------------- ------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Douglas Lebda........ -- N/A 96,924/190,000
Keith Hall........... -- N/A 0/90,000
David Anderson....... -- N/A 0/90,000
James Bennett, Jr.... -- N/A 15,000/105,000
Richard Stiegler..... -- N/A 36,667/13,333
Michell York......... -- N/A 40,000/50,000
Robert Wilson........ -- N/A 63,664/0
</TABLE>
STOCK PLANS
1997 AMENDED AND RESTATED STOCK OPTION PLAN
On January 15, 1997, we adopted the 1997 Stock Option Plan of LendingTree,
Inc. The purpose of the plan is to promote our long-term growth and
profitability by providing key people with incentives to improve stockholder
value and to contribute to our growth and financial success and enabling us to
attract, retain, and reward the best available persons for positions of
substantial responsibility.
GENERAL. Taking into account the March 31, 1998 two-for-one stock split, a
maximum of 1,225,898 shares of common stock were reserved for issuance under the
plan, subject to equitable adjustment upon the occurrence of any stock dividend
or other distribution, stock split, merger, consolidation, combination, share
repurchase or exchange, or other similar corporate transaction or event. If an
option granted under the plan expires or is terminated for any reason without
being exercised, the shares of common stock underlying the grant will again be
available for purposes of the plan. It is currently anticipated that no further
grants will be made under this plan.
ADMINISTRATION. The plan is administered by the compensation committee of
the board of directors. The compensation committee has full authority to
determine the persons to whom options will be granted, the type of options to be
granted, the number of shares to be made subject to options, the exercise price
and other terms and conditions of the options, and to interpret the plan and
prescribe, amend and rescind rules and regulations relating to the plan. Members
of the compensation committee who are either eligible
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<PAGE> 46
for awards of stock options or have been given stock options may vote on any
matters affecting the administration of the plan or the grant of options
pursuant to the plan, except that no such member may act upon the granting of an
option to himself or herself.
GRANTS. Options granted under the plan may be either "incentive stock
options," as such term is defined in Section 422 of the Internal Revenue Code,
or non-qualified stock options.
ELIGIBILITY. Options may be granted under the plan to employees,
directors, including directors who are not employees, and consultants, as
selected by the committee.
TERMS AND CONDITIONS OF OPTIONS. The exercise price of a stock option
granted under the plan was determined by the committee at the time the option
was granted, and the exercise price of an incentive stock option was not to be
less than the fair market value per share of common stock on the date of grant.
Stock options are exercisable at the times and upon the conditions that the
committee has determined, as reflected in the applicable option agreement. The
exercise period may not exceed 10 years from the date of grant.
Unless earlier terminated pursuant to the provisions of the plan or the
grant agreement, options will terminate in their entirety, whether vested in
whole or in part, three years after the date the grantee is no longer employed
by or providing services to us for any reason other than death, disability or
retirement. If a grantee's employment or service terminates for cause, all
options held by the grantee will terminate upon termination. Generally, in the
event that the employment or service of a grantee terminates as a result of
death, disability or retirement, all options that are not exercisable at the
time of termination will terminate and all options that are exercisable at the
time of termination may be exercised for a period of three years immediately
following termination, but in no case after the options expire in accordance
with their terms.
In the event of a proposed sale of all or substantially all of our assets,
or a merger in which we are not the surviving entity, or a merger in which our
stockholders become entitled to receive consideration other than our voting
common stock, the committee may:
- accelerate or change the exercise dates of any option;
- make arrangements with grantees for the payment of appropriate
consideration to them for the cancellation and surrender of any option;
and
- in any case where equity securities other than our common stock are
proposed to be delivered in exchange for or with respect to our common
stock, make arrangements providing that any option may become one or more
options with respect to such other securities.
In the event a change in control occurs, the vesting of any option that is
time-based only will be accelerated so that the unvested time-based portion of
the option will become 50% vested and exercisable.
In the event we dissolve or liquidate, other than pursuant to a plan of
merger or reorganization, then notwithstanding any restrictions on exercise set
forth in the plan or any option agreement:
- grantees will have the right to exercise their options at any time up to
10 days prior to the effective date of the liquidation or dissolution,
after which time all options will expire; and
- the committee may make arrangements with the grantees for the payment to
them of appropriate consideration for the cancellation and surrender of
any option that is canceled or surrendered at any time up to 10 days
prior to the effective date of the liquidation or dissolution.
1998 STOCK OPTION PLAN
On February 3, 1998, we adopted the 1998 Stock Option Plan of LendingTree,
Inc., effective as of the same date. The purpose of the plan is to promote our
long-term growth and profitability by providing key people with incentives to
improve stockholder value and to contribute to our growth and financial success
and enabling us to attract, retain and reward the best available persons for
positions of substantial responsibility.
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<PAGE> 47
GENERAL. A maximum of 935,000 shares of common stock was reserved for
issuance under the plan, subject to equitable adjustment upon the occurrence of
any stock dividend or other distribution, stock split, merger, consolidation,
combination, share repurchase or exchange, or other similar corporate
transaction or event. If an option granted under the plan expires or is
terminated for any reason without being exercised, the shares of common stock
underlying such grant will again be available for purposes of the plan. It is
currently anticipated that no further grants will be made under this plan.
ADMINISTRATION. The plan is administered by the compensation committee of
the board of directors. The compensation committee has full authority, subject
to the provisions of the plan, among other things, to determine the persons to
whom options will be granted, the type of options to be granted, the number of
shares to be made subject to options, the exercise price and other terms and
conditions of the options, and to interpret the plan and prescribe, amend and
rescind rules and regulations relating to the plan. Members of the compensation
committee who are either eligible for awards of stock options or have been given
stock options may vote on any matters affecting the administration of the plan
or the grant of options pursuant to the plan, except that no such member may act
upon the granting of an option to himself or herself.
GRANTS. Options granted under the plan may be either "incentive stock
options," as such term is defined in Section 422 of the Internal Revenue Code,
or non-qualified stock options.
ELIGIBILITY. Options may be granted under the plan to employees,
directors, including directors who are not employees, and consultants, as
selected by the committee.
TERMS AND CONDITIONS OF OPTIONS. The exercise price of a stock option
granted under the plan was determined by the committee at the time the option
was granted, and the exercise price of an incentive stock option was not less
than the fair market value per share of common stock on the date of grant. Stock
options are exercisable at the times and upon the conditions that the committee
has determined, as reflected in the applicable option agreement. The exercise
period may not exceed 10 years from the date of grant.
Unless earlier terminated pursuant to the provisions of the plan or the
grant agreement, options will terminate in their entirety, whether vested in
whole or in part, three years after the date the grantee is no longer employed
by or providing services to us for any reason other than death, disability or
retirement. If a grantee's employment or service terminates for cause, all
options held by the grantee will terminate upon termination. Generally, in the
event that the employment or service of a grantee terminates as a result of
death, disability or retirement all options that are not exercisable at the time
of termination will terminate and all options that are exercisable at the time
of termination may be exercised for a period of three years immediately
following termination but in no case after the options expire in accordance with
their terms.
In the event of a proposed sale of all or substantially all of our assets,
or a merger in which we are not the surviving entity, or a merger in which our
stockholders do not retain more than 50% of the voting power of the surviving
entity, or a merger in which our stockholders become entitled to receive
consideration other than our voting common stock, the compensation committee
may:
- accelerate or change the exercise dates of any option;
- make arrangements with grantees for the payment of appropriate
consideration to them for the cancellation and surrender of any option;
and
- in any case where equity securities other than our common stock are
proposed to be delivered in exchange for or with respect to our common
stock, make arrangements providing that any option may become one or more
options with respect to such other securities.
In the event a change in control occurs, the vesting of any option that is
time-based only will be accelerated so that the unvested time-based portion of
the option will become 50% vested and exercisable.
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<PAGE> 48
In the event we dissolve or liquidate, other than pursuant to a plan of
merger or reorganization, then notwithstanding any restrictions on exercise set
forth in the plan or any option agreement:
- grantees will have the right to exercise their options at any time up to
10 days prior to the effective date of such liquidation and dissolution,
after which time all options will expire; and
- the compensation committee may make arrangements with the grantees for
the payment to them of appropriate consideration for the cancellation and
surrender of any option that is canceled or surrendered at any time up to
10 days prior to the effective date of such liquidation and dissolution.
1999 STOCK OPTION PLAN
On November 16, 1999, we adopted the 1999 Stock Option Plan of LendingTree,
Inc., effective as of the same date. The purpose of the plan is to promote our
long-term growth and profitability by providing key people with incentives to
improve stockholder value and to contribute to our growth and financial success
and enabling us to attract, retain and reward the best available persons for
positions of substantial responsibility.
GENERAL. A maximum of 1,800,000 shares of common stock has been reserved
for issuance under the plan, subject to equitable adjustment upon the occurrence
of any stock dividend or other distribution, stock split, merger, consolidation,
combination, share repurchase or exchange, or other similar corporate
transaction or event. If an option granted under the plan expires or is
terminated for any reason without being exercised, the shares of common stock
underlying such grant will again be available for purposes of the plan.
ADMINISTRATION. The plan is administered by the compensation committee of
the board of directors. The compensation committee has full authority to
determine the persons to whom options will be granted, to determine the type of
options to be granted, the number of shares to be made subject to options, the
exercise price and other terms and conditions of the options, and to interpret
the plan and prescribe, amend and rescind rules and regulations relating to the
plan. Members of the compensation committee who are either eligible for awards
of stock options or have been given stock options may vote on any matters
affecting the administration of the plan or the grant of options pursuant to the
plan, except that no such member may act upon the granting of an option to
himself or herself.
GRANTS. Options granted under the plan may be either "incentive stock
options," as such term is defined in Section 422 of the Internal Revenue Code,
or non-qualified stock options.
ELIGIBILITY. Options may be granted under the plan to employees,
directors, including directors who are not employees, and consultants, as
selected by the committee.
TERMS AND CONDITIONS OF OPTIONS. The exercise price of a stock option
granted under the plan will be determined by the compensation committee at the
time the option is granted, but the exercise price of an incentive stock option
may not be less than the fair market value per share of common stock on the date
of grant. Stock options will be exercisable at the times and upon the conditions
that the compensation committee may determine, as reflected in the applicable
option agreement. The exercise period shall be determined by the compensation
committee, but in the case of an incentive stock option, the exercise period may
not exceed 10 years from the date of grant.
Unless earlier terminated pursuant to the provisions of the plan or the
grant agreement, options will terminate in their entirety, whether vested in
whole or in part, three years after the date the grantee is no longer employed
by or providing services to us for any reason other than death, disability or
retirement. If a grantee's employment or service terminates for cause, all
options held by the grantee will terminate upon termination. Generally, in the
event that the employment or service of a grantee terminates as a result of
death, disability or retirement all options that are not exercisable at the time
of termination will terminate and all options that are exercisable at the time
of termination may be exercised for a period of three years immediately
following termination but in no case after the options expire in accordance with
their terms.
TERMINATION. The board of directors may modify or terminate the plan or
any portion of the plan at any time, except that an amendment that requires
stockholder approval in order for the plan to continue to comply with any law,
regulation or stock exchange requirement will not be effective unless approved
by the
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<PAGE> 49
requisite vote of stockholders. No options may be granted under the plan after
the day immediately preceding the tenth anniversary of its adoption date.
In the event of a proposed sale of all or substantially all of our assets,
or a merger in which we are not the surviving entity, or a merger in which our
stockholders do not retain more than 50% of the voting power of the surviving
entity, or a merger in which our stockholders become entitled to receive
consideration other than our voting common stock, the committee may:
- accelerate or change the exercise dates of any option;
- make arrangements with grantees for the payment of appropriate
consideration to them for the cancellation and surrender of any option;
and
- in any case where equity securities other than our common stock are
proposed to be delivered in exchange for or with respect to our common
stock, make arrangements providing that any option may become one or more
options with respect to such other securities.
In the event a change in control occurs, the vesting of any option that is
time-based only will be accelerated so that the unvested time-based portion of
the option will become 50% vested and exercisable.
In the event we dissolve or liquidate, other than pursuant to a plan of
merger or reorganization, then notwithstanding any restrictions on exercise set
forth in the plan or any option agreement:
- grantees will have the right to exercise their options at any time up to
10 days prior to the effective date of such liquidation and dissolution,
after which time all options will expire; and
- the committee may make arrangements with the grantees for the payment to
them of appropriate consideration for the cancellation and surrender of
any option that is canceled or surrendered at any time up to 10 days
prior to the effective date of such liquidation and dissolution.
EMPLOYMENT/CONSULTING ARRANGEMENTS
EMPLOYMENT AGREEMENT WITH MR. LEBDA. We have an employment agreement with
Douglas Lebda having a term commencing on September 2, 1999 and expiring on
September 2, 2003, unless earlier terminated as provided under the agreement. In
addition to providing for salary and benefits, Mr. Lebda's agreement provides
for his participation in our bonus programs, with a maximum bonus opportunity
equal to 50% of his salary, and for the grant of an option to purchase 150,000
shares of common stock; this grant will be referred to later as the "new
option." In the event we terminate Mr. Lebda's employment either without cause
or for bad performance, or if Mr. Lebda terminates his employment for good
reason, each term as defined in Mr. Lebda's agreement, Mr. Lebda is entitled to
receive continuation of his base salary until the first anniversary of the
effective date of termination, provided that the severance payments are to be
reduced to the extent he receives any earned compensation from any subsequent
employment during the one-year severance period. In the event Mr. Lebda's
employment is terminated as a result of any merger, acquisition, share exchange
or other business combination, Mr. Lebda is entitled to receive a lump sum
payment in an amount equal to 12 months of his then current base salary.
With respect to his stock options, if we terminate Mr. Lebda's employment
without cause, or Mr. Lebda terminates his employment for good reason or if his
employment is terminated as a result of a merger, acquisition, share exchange or
other business combination, Mr. Lebda's stock options will continue to vest in
accordance with their vesting schedules in effect prior to termination and he
will have a right to exercise the options for a period of 30 days following the
final vesting date. In the event we terminate Mr. Lebda's employment for bad
performance, his stock options, including those granted prior to the effective
date of Mr. Lebda's agreement, will vest in accordance with the schedule set
forth in the agreement evidencing the new option and he will have a right to
exercise the options for a period of 30 days following the final vesting date.
Mr. Lebda will be subject to a non-compete and non-solicitation covenant for one
year following termination of his employment and will be required to give us a
general release in order to receive his severance payments.
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<PAGE> 50
Agreement with Mr. York. Simultaneously with his resignation from all
positions, directorships and titles relating to LendingTree, we entered into an
agreement with Mitchell York with a one-year term effective October 1, 1999.
Under the terms of the agreement, LendingTree agrees to pay Mr. York $11,250 per
month for 12 months. Mr. York has given us a general release in order to receive
these monthly payments. However, these payments will be reduced on a
dollar-for-dollar basis to the extent that Mr. York receives compensation from
any subsequent employment before October 1, 2000. In addition, LendingTree
agrees to pay Mr. York prorated bonus amounts. Mr. York agrees to cooperate with
all of our financing efforts and with any existing or future litigation against
us. Further, Mr. York is subject to a non-compete and non-solicitation covenant
until October 1, 2000 and is obligated to refrain from making any disparaging
statements with respect to LendingTree or our officers, directors or employees.
In connection with entering into the agreement, we entered into two new stock
option agreements with Mr. York which cancel two previous stock option
agreements, one of which was a non-qualified stock option relating to 10,000
shares of common stock. The other agreement was an incentive stock option,
within the meaning of Section 422 of the Internal Revenue Code, relating to
80,000 shares of common stock. The new option agreements are substantially
similar to the old agreements, except that the incentive stock option was
replaced with a non-qualified stock option.
In the event that, within 3 years after the effective date of Mr. York's
agreement, a court finds that Mr. York has materially violated any of the
provisions of his non-compete, non-solicitation, and non-disparagement covenants
or that he has failed to cooperate with our financing efforts or failed to
assist us with any litigation matter, we will be relieved of all of our
obligations under the agreement and Mr. York will be required to repay all
payments and other benefits paid to him under his agreement. In the event that
the non-compete, non-solicitation and non-disparagement provisions of Mr. York's
agreement are found by a court to be unenforceable with respect to Mr. York, the
new option agreement relating to 80,000 shares of common stock will become null
and void, and any of Mr. York's vested and unvested options will be immediately
cancelled. Mr. York will also be required to return all shares of common stock
which he received pursuant to the new option agreement relating to 80,000
shares. We will then be required to return to Mr. York all sums paid to us in
connection with the exercise of the option.
Consulting Agreement with Mr. Wilson. In connection with his resignation
from all directorships and positions and in settlement of his then current
employment agreement, we entered into a consulting agreement with Robert Wilson
effective September 21, 1999. The agreement expires on October 12, 2002. Under
the terms of the agreement, LendingTree agrees to pay Mr. Wilson a quarterly fee
in the amount of $25,000, prorated for a shorter period, as consideration for
his services as a consultant, which will not exceed the equivalent of 10 days'
full time employment per year. Mr. Wilson also receives an annual allowance for
reimbursement of medical expenses and a reimbursement for any legal expenses
relating to LendingTree. Concurrently with entering into the agreement, we
purchased 425,000 shares of common stock from Mr. Wilson at $8.00 per share and
entered into a new option agreement with Mr. Wilson. The new option agreement
cancels Mr. Wilson's old option and grants Mr. Wilson a non-qualified stock
option to purchase 60,000 shares of common stock. The new stock option is
immediately exercisable in full at the same exercise price as that which was
provided for in the old stock option. Mr. Wilson agrees to cooperate with all of
our financing efforts and with any existing or future litigation against us.
Further, Mr. Wilson is subject to a non-compete and non-solicitation covenant
until September 21, 2000 and is obligated to refrain from filing or
participating or assisting in any lawsuit, arbitration or other legal action
asserting any claims on his behalf against us, our directors, officers or
employees other than a claim for breach of his consulting agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors consists of James
Carthaus and Adam Mizel. No interlocking relationship exists between any member
of our board of directors or our compensation committee and any members of the
board of directors or compensation committee of any other company, and no such
interlocking relationship has existed in the past, except that Mr. Mizel is a
partner at Capital Z Partners and participates in compensation decisions for
Capital Z Partners.
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CERTAIN TRANSACTIONS
INVESTOR, DIRECTOR AND STOCKHOLDER RELATIONSHIPS
From our inception in June 1996 until March 1998, we were financed through
equity contributions from our founders. In March 1998, we sold 444,444 shares of
our common stock to Phoenix Strategic Capital for $2.0 million. Phoenix also
provided us with a $1,000,000 line of credit. As part of the line of credit
transaction, Phoenix received a warrant to purchase 7,500 shares of our common
stock with an exercise price of $6.00 per share.
In December 1998, we sold 833,333 shares of Series A convertible preferred
stock and warrants to purchase 260,000 additional shares of Series A convertible
preferred stock to The Union Labor Life Insurance Company on behalf of its
account "P" (ULLICO) for $5.0 million. In March 1999, we sold an additional
500,000 shares of Series A convertible preferred stock and warrants to purchase
40,000 shares of Series B convertible preferred stock to ULLICO for $3.0
million. In September 1999, the warrants held by ULLICO were exchanged for
warrants to purchase 300,000 shares of our common stock. These warrants have an
exercise price of $6.00 per share and expire in September 2005. Robert Kennedy,
a member of our board of directors, is the director of special projects for The
Union Labor Life Insurance Company.
In July 1998, we sold 33,333 shares of our common stock 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 10,000 shares of our common stock 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 Series A convertible preferred stock
and warrants to purchase 26,000 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 $10.00 per share
and expire in May 2004.
In July 1999, we issued 8% convertible promissory notes in an aggregate
principal amount of $1,750,000 and warrants to purchase 42,000 shares of our
common stock to a small group of private investors. These warrants have an
exercise price of $10.00 per share and expire in July 2004. Garrity Investments
LLC, which received a promissory note with a principal balance of $500,000 and
12,000 warrants in this July 1999 transaction, is controlled by a family member
of Douglas Lebda, our Chief Executive Officer. 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.
In September 1999, we sold 6,024,096 shares of our Series D convertible
preferred stock to an affiliate of Capital Z, The Goldman Sachs Group, Inc.,
General Electric Capital Assurance Company, GE Capital Residential Connections
Corporation, priceline.com Incorporated and Marsh & McLennan Risk Capital Corp.
Daniel Lieber who serves as a member of our board of directors is a partner of
Equifin Capital Management, an entity associated with Capital Z. Adam Mizel who
serves as a member of our board of directors is a partner of Capital Z. In
addition, we have a commercial relationship with priceline.com which is
summarized below.
In September 1999, we redeemed a total of 747,222 shares of our common
stock for $5,977,776 paid to three investors as follows:
- $3,400,000 to Robert G. Wilson who served as our Chairman and Chief
Financial Officer until September 1999;
- $1,777,776 to Phoenix Strategic Capital; and
- $800,000 to Donald Colby who served as a member of our board of directors
until September 1999.
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PRICELINE.COM
In August 1998, we entered into an agreement with priceline.com in which
priceline.com initially granted to us the exclusive license to operate an area
of the priceline.com website through which we offered our business services and
the non-exclusive license to utilize priceline.com intellectual property. In
return, we granted priceline.com the non-exclusive license to utilize our
intellectual property. We also agreed to pay priceline.com a marketing fee equal
to 70%, subject to fair market value adjustments, of the monthly net revenue
received by us in operating the loan center on their website. To enhance the
variety of products available through the priceline.com home finance service, we
subsequently modified our service to allow for multiple providers. Priceline.com
will own approximately % of our common stock after this offering.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of September 30, 1999. The percentage of beneficial
ownership is provided for the following:
- each stockholder who is known by us to beneficially own 5% or more of any
class of our capital stock;
- each of our present executive officers who are also named in the Summary
Compensation Table and each of our directors; and
- all of our executive officers and our directors as a group.
Percentage ownership is based on shares outstanding as of
September 30, 1999, net of treasury stock, as adjusted to reflect the shares to
be issued in this offering and the conversion of all outstanding preferred stock
and accumulated dividends into common stock. Shares of common stock subject to
options or warrants currently exercisable or exercisable within 60 days of
September 30, 1999 are deemed outstanding for the purpose of computing the
percentage ownership of the person holding such options or warrants but are not
outstanding for computing the percentage ownership of another person. Unless
otherwise indicated below, the persons and entities named in the table have sole
voting and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OF COMMON
NUMBER OF SHARES OF STOCK BENEFICIALLY OWNED
COMMON STOCK -------------------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE THE OFFERING AFTER THE OFFERING(1)
- ------------------------ ------------------- ------------------- ---------------------
<S> <C> <C> <C>
Capital Z Partners(2)........................... 3,018,650
The Union Labor Life Insurance Company(3)....... 1,711,966
GE Capital(4)................................... 1,207,460
The Goldman Sachs Group, Inc.(5)................ 1,086,714
Douglas Lebda(6)................................ 769,140
Keith Hall...................................... 38,332
David Anderson.................................. 10,000
James Bennett, Jr.(7)........................... 112,000
Richard Stiegler(8)............................. 52,916
James Carthaus(9)............................... 17,500
Richard Field(10)............................... 658,323
Robert Kennedy(11).............................. 1,711,966
Daniel Lieber(12)............................... 3,018,650
Adam Mizel(13).................................. 3,018,650
W. James Tozer, Jr.(14)......................... 449,169
All executive officers and directors as a group
(11 persons).................................. 6,837,996
</TABLE>
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- ---------------
(1) Assumes the underwriters' over-allotment option is not exercised.
(2) Capital Z Partners is located at 54 Thompson Street, New York, New York.
These shares are held by Specialty Finance Partners, an affiliate of
Capital Z Partners.
(3) The Union Labor Life Insurance Company is located at 111 Massachusetts
Avenue, N.W., 8th Floor, Washington, D.C. Includes a warrant to purchase
300,000 shares of common stock with an exercise price of $6.00.
(4) GE Capital is located at 6601 Six Forks Road, Raleigh, North Carolina. Upon
the automatic conversion of the preferred stock at the closing of this
transaction, General Electric Capital Assurance Company will be the holder
of 241,492 shares of common stock and GE Capital Residential Connections
Corporation will be the holder of 965,968 shares of common stock.
(5) The Goldman Sachs Group, Inc. is located at 85 Broad Street, New York, New
York. Upon the automatic conversion of the preferred stock at the closing
of this transaction, The Goldman Sachs Group, Inc. will be the holder of
978,043 shares of common stock and Stone Street Fund 1999, L.P. will be the
holder of 108,671 shares of common stock.
(6) Includes an option to purchase 76,924 shares of common stock with an
exercise price of $1.82 per share and 519,000 shares and options to
purchase 17,000 shares of common stock with an exercise price of $6.60 per
share are held directly by or jointly with family members.
(7) Includes an option to purchase 10,000 shares of common stock with an
exercise price of $6.00.
(8) Includes an option to purchase 30,000 shares of common stock with an
exercise price of $1.82.
(9) Includes an option to purchase 7,500 shares of common stock with an exercise
price of $6.00.
(10) Includes a warrant to purchase 13,000 shares of common stock with an
exercise price of $10.00 and an option to purchase 309,064 shares of common
stock with an exercise price of $1.82.
(11) Includes 1,711,966 shares of common stock beneficially owned by Union Labor
Life Insurance Company as to which Robert Kennedy disclaims beneficial
ownership.
(12) Includes 3,018,650 shares of common stock beneficially owned by Capital Z
Partners. Daniel Lieber is a partner at Equifin Capital Management, an
entity affiliated with Capital Z Partners.
(13) Includes 3,018,650 shares of common stock beneficially owned by Capital Z
Partners of which Adam Mizel is a partner.
(14) Includes a warrant to purchase 13,000 shares of common stock with an
exercise price of $10.00 and an option to purchase 90,022 shares of common
stock with an exercise price of $1.82.
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DESCRIPTION OF CAPITAL STOCK
Our amended and restated certificate of incorporation which will become
effective upon the closing of this offering authorizes us to issue up to
shares of common stock, $0.01 par value per share, and shares of
preferred stock, par value $0.01 per share. All of the outstanding capital stock
is and, upon completion of this offering, will be, fully paid and
non-assessable.
Upon the closing of this offering, we will have shares of common
stock issued and outstanding. This includes shares of common stock to be
issued upon the automatic conversion of all outstanding shares of our
convertible preferred stock and accumulated dividends.
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 occasionally
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 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
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.
WARRANTS
As of September 30, 1999, we had the following outstanding warrants to
purchase shares of common stock:
(1) a warrant to purchase up to 300,000 shares at an exercise price of
$6.00 per share that is held by The Union Labor Life Insurance Company;
(2) a warrant to purchase up to a total of 26,000 shares at an
exercise price of $6.00 per share that is held by W. James Tozer Jr. and
Richard Field;
(3) a warrant to purchase up to 42,000 shares at an exercise price of
$10.00 per share that is held by a small group of private investors;
(4) a warrant to purchase up to 50,000 shares at an exercise price of
$6.00 per share that is held by Seacris Group, Ltd.;
(5) a warrant to purchase up to 100,000 shares at an exercise price of
$9.55 per share that is held by Prudential Securities; and
(6) a warrant to purchase up to 7,500 shares at an exercise price of
$6.00 per share that is held by Phoenix Strategic Capital.
All of the warrants contain standard anti-dilution provisions.
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OPTIONS
As of September 30, 1999:
- options to purchase a total of 1,873,840 shares of common stock were
outstanding of which 950,180 have vested with exercise prices ranging from
$1.82 to $6.60 per share; and
- up to 1,793,000 additional shares of common stock may be subject to
options granted in the future.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND LENDINGTREE'S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
Some provisions of our amended and restated certificate of incorporation
and amended and restated bylaws, each of which will become effective after this
offering, may be deemed to have an anti-takeover effect and may delay or prevent
a tender offer or takeover attempt that a stockholder might consider in 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 will be 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
will expressly deny stockholders the right to cumulate votes in the election of
directors.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Our amended and
restated certificate of incorporation will eliminate 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 DIRECTORS
NOMINATIONS. Our amended and restated bylaws will 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 nor more than 120 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 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 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 will 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.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock will
be available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate
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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 LendingTree by means of
a proxy contest, tender offer, merger or otherwise.
AMENDMENTS; SUPERMAJORITY 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 and restated certificate of incorporation will impose
supermajority vote requirements in connection with business combination
transactions and the amendment of provisions of our amended and restated
certificate of incorporation and amended and restated bylaws, including those
provisions relating to the classified board of directors, action by written
consent and the ability of stockholders to call special meetings.
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 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 after this offering will have one right to purchase one-hundredth of
a preferred share attached to it. The purchase price per one one-hundredth of a
preferred share 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 this 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.
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.
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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 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 provide that after
an acquiror obtains 15% or more, but less than 50% of our outstanding common
stock, 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 dividend or similar transaction.
Our board of directors may 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 . Its
address is .
LISTING
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol " ".
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since no shares will be available for sale shortly after this offering because
of contractual and legal restrictions on resale described below, sales of
substantial amounts of common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price of our
common stock and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding a total of
shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless such shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rule 144 promulgated under the Securities Act, which rules are summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted securities will be available for sale in
the public market subject to the volume limitations and other conditions of Rule
144. These shares could be available for resale immediately upon the expiration
of the 180-day lock-up period.
LOCK-UP AGREEMENTS
All of our officers and directors and substantially all of our stockholders
have signed lock-up agreements under which they agreed not to transfer or
dispose of, any shares of common stock or any securities convertible into or
exchangeable or exercisable for or repayable with shares of common stock, for a
period of 180 days after the date of this prospectus. Transfers or dispositions
can be made sooner with the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person who has beneficially owned shares of our common stock for
at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
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STOCK OPTIONS
Following the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering shares of
common stock reserved for issuance under the 1997, 1998 and 1999 Stock Option
Plans. The registration statement will become effective automatically upon
filing. As of September 30, 1999, options to purchase 1,873,840 shares of common
stock were issued and outstanding of which 950,180 shares have vested.
Accordingly, shares registered under the registration statement will, subject to
vesting provisions and Rule 144 volume limitations applicable to our affiliates,
be available for sale in the open market immediately after the 180-day lock-up
agreements expire.
REGISTRATION RIGHTS
On September 20, 1999, we entered into a registration rights agreement with
holders of our convertible preferred stock and common stock in which we granted
them registration rights in respect of shares of common stock. A copy of
the registration rights agreement has been filed as an exhibit to the
registration statement of which this prospectus forms a part. Pursuant to the
registration rights agreement, at any time after 180 days after the consummation
of this offering, previous holders of the preferred stock who hold at least a
total of approximately shares may request us to register their shares under
the Securities Act. All holders which are party to the registration rights
agreement may demand registration of their shares, subject to certain
conditions, such as minimum proceeds amount, 180 days after this offering
provided we are then qualified to use Form S-3. We are not obligated to effect a
registration statement on Form S-3 more than once in any 180-day period.
These registration rights are subject to our right to delay the filing of a
registration statement in certain circumstances for up to 90 days.
In addition, the registration rights agreement provides these holders of
restricted stock with certain "piggyback" registration rights. If we propose to
register any common stock under the Securities Act, other than pursuant to this
offering or in connection with the registration of securities issued (1) under
an employee benefits plan or (2) in consideration for an acquisition, each of
these holders may require us to include all or a portion of their restricted
stock in such registration. However, the managing underwriter, if any, of any
such offering has certain rights to limit the number of shares of restricted
stock proposed to be included in such registration.
We would bear all registration expenses incurred in connection with these
registrations. Each participating seller of restricted stock would bear their
proportionate share of all underwriting discounts and selling commissions.
59
<PAGE> 61
UNDERWRITING
GENERAL
We intend to offer our common stock in the United States and Canada through
a number of U.S. underwriters. Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Lehman Brothers Inc., Prudential Securities Incorporated and Wit
Capital Corporation are acting as U.S. representatives of each of the U.S.
underwriters named below. Subject to the terms and conditions described in a
U.S. purchase agreement among us and the U.S. underwriters, and concurrently
with the sale of shares of common stock to the international managers, we
have agreed to sell to the U.S. underwriters, and each of the U.S. underwriters
severally and not jointly has agreed to purchase from us, the number of shares
of common stock listed opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Lehman Brothers Inc.........................................
Prudential Securities Incorporated..........................
Wit Capital Corporation.....................................
--------
Total..........................................
========
</TABLE>
We have also entered into an international purchase agreement with
international managers outside the United States and Canada for whom Merrill
Lynch International, Lehman Brothers International (Europe) and Prudential-Bache
Securities (U.K.) Inc. are acting as lead managers. Subject to the terms and
conditions described in the international purchase agreement, and concurrently
with the sale of shares of common stock to the U.S. underwriters pursuant
to the U.S. purchase agreement, we have agreed to sell to the international
managers, and the international managers severally have agreed to purchase from
us, an aggregate of shares of common stock. The initial public offering
price per share and the total underwriting discount per share of common stock
are identical under the U.S. purchase agreement and the international purchase
agreement.
In the U.S. purchase agreement and the international purchase agreement,
the several U.S. underwriters and the several international managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such agreement if any of the shares of common stock being sold pursuant to
such agreement are purchased. If there is a default by a U.S. underwriter or an
international manager, the U.S. purchase agreement and the international
purchase agreement provide that, in specified circumstances, the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreements may be terminated. The closings with respect to the sale of shares of
common stock to be purchased by the U.S. underwriters and the international
managers are conditioned upon one another.
The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares of our common stock to the public at the initial
public offering price set forth on the cover of this prospectus, and to dealers
at such price less a concession not in excess of $ per share of common
stock. The U.S. underwriters may allow, and such dealers may reallow, a discount
not in excess of $ per share of common stock to other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed.
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<PAGE> 62
We have agreed to indemnify the U.S. underwriters and the international
managers against specified liabilities, including liabilities under the
Securities Act, or to contribute to payments the U.S. underwriters and the
international managers may be required to make because of those liabilities.
The shares of common stock will be ready for delivery in New York, New York
on or about , 2000.
OVER-ALLOTMENT OPTION
We have granted an option to the U.S. underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of an
additional shares of our common stock at the initial public offering price
set forth on the cover of this prospectus, less the underwriting discount. The
U.S. underwriters may exercise this option solely to cover over-allotments, if
any, made on the sale of our common stock offered by this prospectus. To the
extent that the U.S. underwriters exercise this option, each U.S. underwriter
will be obligated, subject to certain conditions, to purchase a number of
additional shares of our common stock proportionate to that U.S. underwriter's
initial amount reflected in the foregoing table. We have granted an option to
the international managers, exercisable for 30 days after the date of this
prospectus, to purchase up to an aggregate of additional shares of our
common stock to cover over-allotments, if any, on terms similar to those granted
to the U.S. underwriters.
COMMISSIONS AND DISCOUNTS
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the U.S. underwriters and the
international managers and proceeds before expenses to us. This information is
presented assuming either no exercise or full exercise by the U.S. underwriters
and the international managers of their over-allotment options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public offering price..............................
Underwriting discount..............................
Proceeds, before expenses, to LendingTree..........
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us, as set forth in the following table.
<TABLE>
<S> <C>
SEC registration fee........................................
NASD filing fee.............................................
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses (including legal fees)...........
Transfer agent and registrar fees and expenses..............
Premiums for director and officer insurance.................
Miscellaneous...............................................
Total.............................................
</TABLE>
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the underwriters and other
customary conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
61
<PAGE> 63
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, an aggregate of shares of our common stock to
be sold to some of our directors, officers, employees, and other persons with
whom we have relationships. The number of shares of common stock available for
sale to the general public in this offering will be reduced to the extent that
those persons purchase these reserved shares. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of the offering will
be offered by the underwriters to the general public on the same terms as the
other shares offered by this prospectus.
We have requested the underwriters reserve an aggregate of an additional
shares for sale through a directed share program to some of our
business associates. The number of shares of common stock available for sale to
the general public in this offering will be reduced to the extent that those
persons purchase these reserved shares. Any reserved shares not purchased by
those persons will be offered by the underwriters to the general public on the
same terms as the other shares offered by this prospectus. Wit Capital
Corporation, one of the U.S. underwriters, is administering this directed share
program with respect to our business associates. Purchases of the reserved
shares by those persons are to be made through an account at Wit Capital in
accordance with Wit Capital's procedures for opening an account and transacting
in securities.
NO SALES OF COMMON STOCK OR SIMILAR SECURITIES
We and our officers and directors and substantially all of our other
existing stockholders have agreed, with certain exceptions, not to directly or
indirectly
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file any registration statement
under the Securities Act relating to any shares of our common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of
our common stock, whether any such swap or transaction is to be settled
by delivery of our common stock or other securities, in cash or
otherwise,
without the prior written consent of Merrill Lynch on behalf of the underwriters
for a period of 180 days after the date of this prospectus.
NASDAQ NATIONAL MARKET LISTING
We intend to apply to have our common stock listed on the Nasdaq National
Market under the symbol " ."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the U.S. representatives and the lead managers. Among the factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, were the valuation multiples of publicly traded
companies that the U.S. representatives and the lead managers believed to be
comparable to us, some of our financial information, the history of, and the
prospects for, our company and the industry in which we compete, and an
assessment of our management, our past and present operations, the prospects
for, and time of, future revenue of our company, the present state of our
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to ours.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market subsequent
to the offering at or above the initial offering price.
62
<PAGE> 64
The underwriters will not confirm sales of our common stock to any accounts
over which they exercise discretionary authority without the prior written
approval of the customer.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Pursuant to the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell shares of our common stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater that the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell
shares of our common stock will not offer to sell or sell shares of our common
stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the international managers and any dealer to whom they sell shares of our
common stock will not offer to sell or sell shares of our common stock to U.S.
persons or to Canadian persons or to persons they believe intend to resell to
U.S. or Canadian persons, except in the case of transactions pursuant to the
intersyndicate agreement.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Commission may limit the ability of the underwriters and selling group members
to bid for and purchase our common stock. As an exception to these rules, the
U.S. representatives are permitted to engage in transactions that stabilize the
price of our common stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the U.S.
representatives and lead managers, respectively, may reduce that short position
by purchasing our common stock in the open market. The U.S. representatives and
the lead managers, respectively, may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Depository Trust Company Tracking System tracks shares sold from
accounts established on each underwriter's and selling group member's behalf for
this offering. When the U.S. representatives or lead managers, respectively,
repurchase shares of common stock in the open market to reduce the underwriters'
short position or to stabilize the price of the common stock, Merrill Lynch may,
in its sole discretion, impose a penalty bid on the underwriters and selling
group members who initially sold these "flipped" shares. This means that Merrill
Lynch may reclaim part or all of the amount of the selling concession from the
underwriters and selling group members who sold these flipped shares. Should
Merrill Lynch decide to assess a penalty bid on any of the underwriters or
selling group members for flipping shares, the reclaimed selling concessions are
to be used only to reduce any loss incurred in making open market repurchases of
the common stock. Merrill Lynch would not reclaim selling concessions if no
shares were repurchased in the open market, and selling concessions may be
reclaimed only to the extent that losses are incurred in making open market
purchases.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or lead managers will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice. These
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
63
<PAGE> 65
ELECTRONIC PROSPECTUS
A prospectus in electronic format is being made available on an Internet
website maintained by Wit Capital. In addition, all dealers purchasing shares
from Wit Capital in the offering have agreed to make a prospectus in electronic
format available on websites maintained by each of these dealers. Purchases of
shares from Wit Capital are to be made through an account at Wit Capital in
accordance with Wit Capital's procedures for opening an account and transacting
in securities.
Wit Capital Corporation, a member of the National Association of Securities
Dealers, Inc., will participate in the offering as one of the underwriters. The
National Association of Securities Dealers, Inc. approved the membership of Wit
Capital on September 4, 1997. Since that time, Wit Capital has acted as a
co-manager, underwriter, or selected dealer in over 155 public offerings.
OTHER RELATIONSHIPS
An affiliate of Capital Z Partners, which is a stockholder of Wit Capital,
a U.S. underwriter, purchased 3,012,048 shares of our Series D convertible
preferred stock for a total purchase price of $25 million pursuant to a purchase
agreement with us. These shares of Series D convertible preferred stock and
accumulated dividends are convertible into shares of common stock upon
the completion of this offering on the same terms as the other investors in the
private placement of our Series D convertible preferred stock. Prudential
Securities, a U.S. underwriter, has acted as placement agent in connection with
a private placement of our Series D convertible preferred stock. Prudential
Securities holds a warrant representing the right to purchase 100,000 shares of
common stock at an exercise price of $9.55 per share, that was issued pursuant
to a placement agency agreement with us. This warrant is exercisable for a five
year period ending on September 21, 2004. Except for the shares to be purchased
by Wit Capital and Prudential Securities as underwriters, Capital Z and
Prudential Securities have agreed that they will not transfer or dispose of,
directly or indirectly, shares of common stock or any securities convertible
into or exercisable or exchangeable for or repayable with shares of common stock
for 180 days after the date of this prospectus without the prior written consent
of Merrill Lynch.
64
<PAGE> 66
IMPORTANT UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF OUR COMMON STOCK
The following is a general summary of the material United States federal
tax consequences of the purchase, ownership, and sale or other taxable
disposition of the common stock by any person or entity other than:
- a citizen or resident of the United States;
- a partnership, corporation or other entity created or organized in or
under the laws of the United States or of any political subdivision
thereof;
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust or the trust has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a U.S. person; or
- an estate, the income of which is includible in gross income for United
States income tax purposes regardless of its source.
This summary does not address all tax considerations that may be relevant
to non-U.S. holders in light of their particular circumstances or to certain
non-U.S. holders that may be subject to special treatment under United States
federal income or estate tax laws. This summary is based upon the Internal
Revenue Code of 1986, existing, temporary and proposed regulations promulgated
thereunder and administrative and judicial decisions, all of which are subject
to change, possibly with retroactive effect. In addition, this summary does not
address the effect of any state, local or foreign tax laws. Each prospective
purchaser of common stock should consult its tax advisor with respect to the tax
consequences of purchasing, owning and disposing of the common stock.
DIVIDENDS
Dividends paid to a non-U.S. holder of common stock generally will be
subject to a withholding of United States federal income tax at a 30 percent
rate or such lower rate as may be specified by an applicable income tax treaty,
unless:
- the dividend is effectively connected with the conduct of a trade or
business of the non-U.S. holder within the United States; or
- if a tax treaty applies, it is attributable to a United States permanent
establishment of the non-U.S. holder.
In these cases, the dividend will be taxed at ordinary federal income tax
rates. If the non-U.S. holder is a corporation, such effectively connected
income may also be subject to an additional branch profits tax. A non-U.S.
holder may be required to satisfy certain certification requirements in order to
claim treaty benefits or otherwise claim a reduction of, or exemption from, the
withholding described above.
SALE OR OTHER DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of common stock, unless:
- the gain is effectively connected with the conduct of a trade or business
of the non-U.S. holder within the United States or, if a tax treaty
applies, is attributable to a United States permanent establishment of
the non-U.S. holder;
- in the case of a non-U.S. holder who is an individual and holds the
common stock as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the disposition and
certain other tests are met;
65
<PAGE> 67
- the non-U.S. holder is subject to tax under the provisions of United
States federal income tax law applicable to certain United States
expatriates; or
- we are or have been during certain periods preceding the disposition a
"United States real property holding corporation" for United States
federal income tax purposes and certain other requirements are met. We
currently believe that we are not a United States real property holding
corporation and we do not anticipate that we will become one.
ESTATE TAX
Common stock owned or treated as owned by an individual non-U.S. holder at
the time of death will be includible in the individual's gross estate for United
States federal estate tax purposes, unless an applicable treaty provides
otherwise, and may be subject to United States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
DIVIDENDS. United States backup withholding tax generally will not apply
to dividends paid on the common stock that are subject to the 30 percent or
reduced treaty rate of United States withholding tax previously discussed. We
must report annually to the Internal Revenue Service and to each non-U.S. holder
the amount of dividends paid to, and the tax withheld with respect to, such
holder, regardless of whether any tax was withheld. This information may also be
made available to the tax authorities in the non-U.S. holder's country of
residence.
SALE OR OTHER DISPOSITION OF COMMON STOCK. Upon the sale or other taxable
disposition of common stock by a non-U.S. holder to or through a United States
office of a broker, the broker must backup withhold at a rate of 31 percent and
report the sale to the Internal Revenue Service, unless the holder certifies its
non-U.S. holder status under penalties of perjury or otherwise establishes an
exemption. Upon the sale or other taxable disposition of common stock by a
non-U.S. holder to or through the foreign office of a United States broker, or a
foreign broker with a certain relationship to the United States, the broker must
report the sale to the Internal Revenue Service, but not backup withhold, unless
the broker has documentary evidence in its files that the seller is a non-U.S.
holder and certain other conditions are met or the holder otherwise establishes
an exemption.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules generally are allowable as a refund or credit against a
non-U.S. holder's United States federal income tax liability, if any, provided
that the required information is furnished to the Internal Revenue Service on a
timely basis.
The U.S. Treasury Department has issued regulations generally effective for
payments made after December 31, 2000 that will affect the procedures to be
followed by a non-U.S. holder in establishing such holder's status as a non-U.S.
holder for purposes of the withholding, backup withholding and information
reporting rules described herein. In general, such regulations do not
significantly alter the substantive withholding and information reporting
requirements, but unify current certification procedures and forms and clarify
reliance standards. Prospective investors should consult their tax advisors
concerning the effect of such regulations on an investment in the common stock.
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. Certain legal matters in connection with this offering will be passed upon
for the underwriters by Brown & Wood LLP, New York, New York.
EXPERTS
Our financial statements as of December 31, 1997 and 1998 and as of
September 30, 1999 and for the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1999 included in this
66
<PAGE> 68
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock we propose to sell in this offering. This prospectus, which
constitutes part of the registration statement, does not contain all of the
information set forth in the registration statement. For further information
with respect to us and the common stock we propose to sell in this offering, we
refer you to the registration statement and the exhibits and schedule filed as a
part of the registration statement. Statements contained in this prospectus
regarding the contents of any contract or any other document filed as an exhibit
to the registration statement are not necessarily complete, and, in each
instance, we refer you to the copy of that contract or other document filed as
an exhibit to the registration statement. A copy of the registration statement
and the exhibits and schedule filed as a part of the registration statement may
be inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the Citicorp Center, 5000 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part of the
registration statement may be obtained from those offices upon the payment of
the fees prescribed by the Commission. You can obtain information on the
operation of the public reference facilities maintained by the Commission by
calling 1-800-SEC-0330. The Commission also maintains a World Wide website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is http://www.sec.gov.
67
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1997 and 1998 and
September 30, 1999........................................ F-3
Statements of Operations for the years ended December 31,
1997 and 1998 and the nine months ended September 30, 1998
and 1999.................................................. F-4
Statements of Changes in Shareholders' Equity (Deficit) for
the years ended December 31, 1997 and 1998 and the nine
months ended September 30, 1999........................... F-5
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and the nine months ended September 30, 1998
and 1999.................................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
LendingTree, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in shareholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of LendingTree,
Inc. at December 31, 1997 and 1998 and September 30, 1999, and the results of
its operations and its cash flows for the years ended December 31, 1997 and 1998
and the nine months ended September 30, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
November 24, 1999
F-2
<PAGE> 71
LENDINGTREE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1997 1998 1999
---------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 402,000 $ 3,085,000 $ 37,492,000
Accounts receivable, net of allowance for doubtful
accounts of $0, $8,000, and $95,000 respectively........ 2,000 245,000 1,825,000
Prepaid expenses and other current assets................. -- 87,000 276,000
---------- ----------- ------------
Total current assets............................... 404,000 3,417,000 39,593,000
Property and equipment, net (Note 3)........................ 18,000 210,000 619,000
Other assets................................................ 2,000 60,000 75,000
---------- ----------- ------------
Total assets....................................... $ 424,000 $ 3,687,000 $ 40,287,000
========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 71,000 $ 736,000 $ 2,540,000
Accrued expenses (Note 4)................................. -- 15,000 1,646,000
---------- ----------- ------------
Total current liabilities.......................... 71,000 751,000 4,186,000
---------- ----------- ------------
Commitments and contingencies (Note 7)...................... -- -- --
Mandatorily redeemable securities (Note 5):
Series A Convertible Preferred stock, $.01 par value, 8%
cumulative, 3,049,031 shares authorized, 833,334 shares
issued and outstanding at December 31, 1998............. -- 4,379,000 --
Series A Convertible Preferred stock warrants............. -- 252,000 --
Shareholders' equity (deficit) (Note 5):
Series A Convertible Preferred stock, $.01 par value, 8%
cumulative, 3,049,031 shares authorized, 1,666,667
shares issued and outstanding at September 30, 1999..... -- -- 9,885,000
Series B Convertible Preferred stock, $.01 par value,
911,450 shares authorized, none issued.................. -- -- --
Series C Convertible Preferred stock, $.01 par value,
268,074 shares authorized, none issued.................. -- -- --
Series D Convertible Preferred stock, $.01 par value, 8%
cumulative, 6,238,639 shares authorized, 6,238,172
shares issued and outstanding at September 30, 1999..... -- -- 49,432,000
Common stock, $.01 par value, 30,000,000 shares
authorized, 2,090,058, 2,952,892, and 3,098,218 shares
issued at December 31, 1997 and 1998 and September 30,
1999, respectively...................................... 21,000 30,000 31,000
Deferred compensation..................................... -- -- (262,000)
Treasury stock............................................ -- -- (5,978,000)
Additional paid-in-capital................................ 1,299,000 5,676,000 6,375,000
Accumulated deficit....................................... (967,000) (7,401,000) (23,382,000)
---------- ----------- ------------
Total shareholders' equity (deficit)............... 353,000 (1,695,000) 36,101,000
---------- ----------- ------------
Total liabilities and shareholders' equity
(deficit)........................................ $ 424,000 $ 3,687,000 $ 40,287,000
========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 72
LENDINGTREE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- --------------------------
1997 1998 1998 1999
--------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
LendingTree network......................... $ 2,000 $ 273,000 $ 157,000 $ 3,398,000
[i]close and other technology............... -- 136,000 125,000 630,000
--------- ----------- ----------- ------------
Total revenue....................... 2,000 409,000 282,000 4,028,000
--------- ----------- ----------- ------------
Cost of revenue:
LendingTree network......................... -- 235,000 146,000 1,330,000
[i]close and other technology............... -- 149,000 133,000 246,000
--------- ----------- ----------- ------------
Total cost of revenue............... -- 384,000 279,000 1,576,000
--------- ----------- ----------- ------------
Gross profit.................................. 2,000 25,000 3,000 2,452,000
--------- ----------- ----------- ------------
Operating expenses:
Product development......................... 293,000 1,051,000 712,000 808,000
Marketing and advertising................... 54,000 2,494,000 1,028,000 12,069,000
Sales, general and administrative........... 621,000 2,955,000 1,770,000 5,636,000
--------- ----------- ----------- ------------
Total operating expenses............ 968,000 6,500,000 3,510,000 18,513,000
--------- ----------- ----------- ------------
Loss from operations.......................... (966,000) (6,475,000) (3,507,000) (16,061,000)
Interest income, net.......................... 3,000 41,000 41,000 80,000
--------- ----------- ----------- ------------
Net loss...................................... (963,000) (6,434,000) (3,466,000) (15,981,000)
--------- ----------- ----------- ------------
Accretion of mandatorily redeemable preferred
stock....................................... -- -- -- (131,000)
Dividends issued to preferred shareholders on
conversion of preferred stock warrants to
common stock warrants....................... -- -- -- (525,000)
Dividends on mandatorily redeemable preferred
stock....................................... -- (24,000) -- (616,000)
--------- ----------- ----------- ------------
Net loss attributable to common
shareholders................................ $(963,000) $(6,458,000) $(3,466,000) $(17,253,000)
========= =========== =========== ============
Net loss per common share -- basic and
diluted..................................... $ (1.52) $ (2.39) $ (1.31) $ (5.85)
========= =========== =========== ============
Weighted average shares used in basic and
diluted net loss per common share
calculation................................. 632,575 2,704,517 2,638,398 2,951,093
========= =========== =========== ============
Pro forma per common share data (unaudited):
Pro forma net loss per common share -- basic
and diluted.............................. $ (2.34) $ (3.69)
=========== ============
Pro forma weighted average basic and diluted
shares outstanding....................... 2,757,028 4,669,575
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 73
LENDINGTREE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK
----------------------- ------------------- ADDITIONAL
NUMBER OF NUMBER OF TREASURY PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL DEFICIT
--------- ----------- --------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................... -- $ -- 204,000 $2,000 $ -- $ 1,000 $ (4,000)
Sale of common stock,
including exercise of
common stock options...... 886,558 9,000 1,014,000
Issuance of common stock
in lieu of compensation/
services rendered....... 999,500 10,000 33,000
Issuance of stock
options................. 251,000
Net loss.................. (963,000)
--------- ----------- --------- ------- ----------- ------------ ------------
Balance at December 31,
1997.................... -- -- 2,090,058 21,000 -- 1,299,000 (967,000)
Sale of common stock...... 820,001 8,000 3,920,000
Issuance of warrants in
conjunction with sale of
Series A Convertible
Preferred stock and line
of credit............... 56,000
Issuance of common stock
in lieu of compensation/
services rendered....... 42,833 1,000 210,000
Issuance of stock
options................. 215,000
Dividends on mandatorily
redeemable preferred
stock................... (24,000)
Net loss.................. (6,434,000)
--------- ----------- --------- ------- ----------- ------------ ------------
Balance at December 31,
1998.................... -- -- 2,952,892 30,000 -- 5,676,000 (7,401,000)
Exercise of common stock
options................. 113,056 1,000 307,000
Issuance of common stock
in lieu of
compensation............ 32,270 193,000
Sale of Series D
Convertible Preferred
stock, net.............. 6,024,096 47,542,000
Issuance of warrants in
conjunction with sale of
Series A Convertible
Preferred stock......... 25,000
Conversion of preferred
stock from mandatorily
redeemable.............. 1,666,667 9,382,000
Conversion of preferred
stock warrants to common
stock warrants.......... 303,000
Conversion of convertible
notes into Series D
Convertible Preferred
stock................... 214,076 1,777,000
Repurchase of common
stock................... (5,978,000)
Issuance of stock options
in conjunction with
consulting and severance
agreements.............. 618,000
Amortization of deferred
compensation............
Accretion of mandatorily
redeemable preferred
stock................... (131,000)
Dividends on convertible
preferred stock......... 616,000 (616,000)
Net loss.................. (15,981,000)
--------- ----------- --------- ------- ----------- ------------ ------------
Balance at September 30,
1999.................... 7,904,839 $59,317,000 3,098,218 $31,000 $(5,978,000) $ 6,375,000 $(23,382,000)
========= =========== ========= ======= =========== ============ ============
<CAPTION>
TOTAL
SHAREHOLDERS'
DEFERRED EQUITY
COMPENSATION (DEFICIT)
------------ -------------
<S> <C> <C>
Balance at December 31,
1996.................... $ -- $ (1,000)
Sale of common stock,
including exercise of
common stock options...... 1,023,000
Issuance of common stock
in lieu of compensation/
services rendered....... 43,000
Issuance of stock
options................. 251,000
Net loss.................. (963,000)
----------- ------------
Balance at December 31,
1997.................... -- 353,000
Sale of common stock...... 3,928,000
Issuance of warrants in
conjunction with sale of
Series A Convertible
Preferred stock and line
of credit............... 56,000
Issuance of common stock
in lieu of compensation/
services rendered....... 211,000
Issuance of stock
options................. 215,000
Dividends on mandatorily
redeemable preferred
stock................... (24,000)
Net loss.................. (6,434,000)
----------- ------------
Balance at December 31,
1998.................... -- (1,695,000)
Exercise of common stock
options................. 308,000
Issuance of common stock
in lieu of
compensation............ 193,000
Sale of Series D
Convertible Preferred
stock, net.............. 47,542,000
Issuance of warrants in
conjunction with sale of
Series A Convertible
Preferred stock......... 25,000
Conversion of preferred
stock from mandatorily
redeemable.............. 9,382,000
Conversion of preferred
stock warrants to common
stock warrants.......... 303,000
Conversion of convertible
notes into Series D
Convertible Preferred
stock................... 1,777,000
Repurchase of common
stock................... (5,978,000)
Issuance of stock options
in conjunction with
consulting and severance
agreements.............. (269,000) 349,000
Amortization of deferred
compensation............ 7,000 7,000
Accretion of mandatorily
redeemable preferred
stock................... (131,000)
Dividends on convertible
preferred stock......... --
Net loss.................. (15,981,000)
----------- ------------
Balance at September 30,
1999.................... $ (262,000) $ 36,101,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 74
LENDINGTREE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------------------
1997 1998 1998 1999
---------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (963,000) $(6,434,000) $(3,466,000) $(15,981,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... -- 46,000 21,000 126,000
Provision for doubtful accounts............. -- 8,000 -- 87,000
Common stock issued in lieu of compensation/
services rendered......................... 43,000 210,000 210,000 193,000
Common stock options issued in lieu of
compensation/services rendered............ -- -- 161,000 356,000
Issuance of stock options and warrants...... 251,000 223,000 -- --
Issuance of Series D Convertible Preferred
stock in lieu of interest................. -- -- -- 40,000
Changes in assets and liabilities:
Accounts receivable....................... (2,000) (251,000) (220,000) (1,667,000)
Prepaid expenses and other current
assets................................. -- (87,000) (16,000) (189,000)
Other assets.............................. (2,000) (58,000) (1,000) (15,000)
Accounts payable.......................... 70,000 665,000 425,000 1,804,000
Accrued expenses.......................... -- 15,000 -- 1,631,000
---------- ----------- ----------- ------------
Net cash used in operating
activities........................... (603,000) (5,663,000) (2,886,000) (13,615,000)
---------- ----------- ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment............ (18,000) (231,000) (160,000) (535,000)
---------- ----------- ----------- ------------
Net cash used in investing
activities........................... (18,000) (231,000) (160,000) (535,000)
---------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from sales of common stock and
warrants and exercise of stock options...... 1,023,000 3,921,000 3,198,000 308,000
Repurchase of common stock.................... -- -- -- (5,978,000)
Proceeds from issuance of convertible notes... -- -- -- 1,750,000
Proceeds from sale of mandatorily redeemable
Series A Convertible Preferred stock and
warrants, net of offering costs............. -- 4,656,000 -- 4,935,000
Proceeds from sale of Series D Convertible
Preferred stock, net of offering costs...... -- -- -- 47,542,000
---------- ----------- ----------- ------------
Net cash provided by financing
activities........................... 1,023,000 8,577,000 3,198,000 48,557,000
---------- ----------- ----------- ------------
Net increase in cash and cash equivalents....... 402,000 2,683,000 152,000 34,407,000
Cash and cash equivalents, beginning of
period........................................ -- 402,000 402,000 3,085,000
---------- ----------- ----------- ------------
Cash and cash equivalents, end of period........ $ 402,000 $ 3,085,000 $ 554,000 $ 37,492,000
========== =========== =========== ============
Supplemental disclosure of cash flow
information:
Interest paid................................. $ -- $ -- $ -- $ --
Income taxes paid............................. -- -- -- --
Supplemental schedule of non-cash financing
activities (Note 2)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 75
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
LendingTree, Inc. (the "Company") was incorporated in the State of Delaware
on June 7, 1996.
The Company is an Internet-based loan marketplace for consumers and
lenders. Loan types include mortgage, home equity, automobile, credit cards and
personal loans.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include percentage complete under
long-term contracts and the valuation of the Company's common stock, options and
warrants. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. As of September 30, 1999, cash
equivalents included amounts in a repurchase agreement of $37,433,000.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts payable and
accounts receivable at December 31, 1997 and 1998 and September 30, 1999
approximated their fair value due to the short-term nature of these items. The
carrying value of the Company's short-term investments at December 31, 1997 and
1998 and September 30, 1999 approximated their fair values.
Property and Equipment
Property and equipment is primarily comprised of furniture and computer
equipment which are stated at cost less accumulated depreciation and are being
depreciated using the straight-line method over their estimated useful lives,
which range from one to five years. Leasehold improvements are depreciated over
the shorter of the lease period or the estimated useful life of the improvement.
Ordinary maintenance and repair costs are expensed as incurred.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its property and equipment and
intangible assets in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," ("SFAS No. 121"). SFAS No. 121 requires recognition
of impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such assets or
the business to which such assets relate. No impairments were required to be
recognized during the years ended December 31, 1997 and 1998 or the nine month
period ended September 30, 1999.
Income Taxes
The Company accounts for income taxes using the liability method whereby
deferred tax assets or liabilities are recognized for the temporary differences
between financial reporting and tax bases of the
F-7
<PAGE> 76
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's assets and liabilities and for tax carryforwards. In estimating future
tax consequences, the Company generally considers all expected future events
other than enactment of changes in tax law or rates. If it is "more likely than
not" that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recorded.
Revenue Recognition
LendingTree network revenue is generated principally from the transmission
of qualification forms ("Transmission Revenue") and the closing of loans
("Closed Loan Revenue"). LendingTree network revenue also includes lender set-up
fees and monthly maintenance fees. Transmission Revenue is recognized at the
time qualification forms are transmitted, while Closed Loan Revenue is
recognized at the time the lender reports the activity to the Company, which may
be up to four months after the qualification form is transmitted. Revenue from
lender set-up fees is recognized upon completion of the lender's integration
with the LendingTree network. Monthly maintenance fees are recognized as the
service is provided.
[i]close and other technology revenue is related primarily to modifying the
Company's proprietary software for use by certain lenders and other third
parties. Revenue under such contracts is recognized as work is performed under
the percentage of completion method with progress generally measured using costs
incurred to date compared to total estimated costs to be incurred. Losses, if
any, are recognized when the liability is identified. Included in accounts
receivable, net, as of December 31, 1997 and 1998 and September 30, 1999 is $0,
$105,000, and $5,000, respectively, of unbilled revenue related to percentage of
completion contracts.
Cost of Revenue
LendingTree network cost of revenue includes salary and benefit costs of
the borrower relations and implementation groups, credit agency scoring
expenses, revenue sharing costs, closed loan rebate costs, and the costs of
website hardware.
[i]close cost of revenue includes direct costs of modifying the Company's
proprietary software for licensing to lenders, as well as the cost of servers
related to these licenses.
Marketing and Advertising Expenses
Marketing and advertising expenses consist primarily of costs, including
salaries, of all personnel involved in marketing and advertising. Marketing and
advertising expenses also include costs of advertising, trade shows, affiliate
bounty fees, and certain indirect costs. All costs of advertising the services
and products offered by the Company are expensed as incurred. Advertising
expense totaled approximately $50,000 and $1,812,000 in the years ended December
31, 1997 and 1998, respectively, and was approximately $691,000 and $11,157,000
for the nine months ended September 30, 1998 and 1999, respectively.
Product Development Costs
Product development costs primarily include expenses incurred by the
Company to develop our proprietary software and to enhance, manage, monitor, and
operate the Company's website. Prior to January 1, 1999, the software
development costs component of product development costs were accounted for in
accordance with Statement of Financial Accounting Standards No. 86 "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
which requires software development costs to be capitalized beginning when a
product's technological feasibility is established and ending when a product is
available for general release. Through December 31, 1998, completion of a
working model of
F-8
<PAGE> 77
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company's product and general release have substantially coincided. Costs
incurred by the Company between the completion of the working model and the
point at which the product is ready for general release have been insignificant.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), which provides guidance regarding when software
developed or obtained for internal use should be capitalized. SOP 98-1 is
effective for financial statements for fiscal years beginning after December 15,
1998. The Company adopted SOP 98-1 effective January 1, 1999. With the adoption
of this standard, the Company began accounting for the software development
component of product development costs in accordance with SOP 98-1, which
requires that certain costs incurred during the application development stage be
capitalized, while costs incurred during the preliminary project stage and
post-implementation/operation stage should be expensed as incurred. Capitalized
product development costs are amortized over the estimated life of the related
application. The adoption of SOP 98-1 did not have a material impact on the
Company's financial statements.
Stock-Based Compensation
The Company accounts for the effect of its stock-based compensation plans
for employees under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") using the optional
intrinsic value method. The intrinsic value method results in compensation cost
equal to the excess of the fair value of the stock over the exercise or purchase
price at the date of award. The Company also discloses the pro forma income
statement effect of its stock-based compensation plans as if the Company had
adopted the fair value approach. The fair value approach results in compensation
cost using an option-pricing model that takes into account the fair value price
at the grant date, the exercise price, the expected life of the award, the
expected dividends, and the risk-free interest rate expected over the life of
the award.
The Company accounts for the effect of its stock-based compensation for
non-employees under SFAS No. 123, using the fair value approach.
Risks and Uncertainties, Significant Customers and Concentrations
Since inception, the Company has incurred significant losses and had an
accumulated deficit of $23,382,000 as of September 30, 1999. The losses and
accumulated deficit have resulted from the significant costs incurred for
advertising and employment expenses related to the development of [i]close and
establishing relationships with lenders. Because the Company plans to continue
to invest in advertising, product development, and marketing, the Company will
continue to incur substantial losses in the foreseeable future. Although the
Company has experienced significant revenue growth, the operating results for
future periods are subject to numerous uncertainties, and there can be no
assurance that revenue growth will continue or that the Company will be able to
achieve or sustain profitability. The Company plans to raise additional equity
capital through its IPO in order to continue to fund its operating needs.
However, if it is unable to successfully raise sufficient funds, management
believes it could reduce discretionary operating expenditures, including
advertising and marketing and certain overhead costs, to permit the Company to
continue as a going concern.
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash equivalents are invested in repurchase agreements on an
overnight basis with high credit quality financial institutions.
F-9
<PAGE> 78
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the year ended December 31, 1997, two lenders comprised all of the
Company's revenue. For the year ended December 31, 1998, four lenders comprised
27%, 13%, 12%, and 11% of the Company's revenue. For the nine months ended
September 30, 1998, three lenders comprised 37%, 15% and 11% of the Company's
revenue. For the nine months ended September 30, 1999, one lender comprised 10%
of the Company's revenue. All of the Company's revenues are from transactions
originating in the United States.
As of December 31, 1997, two lenders comprised all of the Company's
accounts receivable balance. As of December 31, 1998, two lenders comprised 41%
and 13% of the Company's accounts receivable balance. As of September 30, 1999,
one lender comprised 11% of the Company's accounts receivable balance.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of lenders comprising the Company's customer base.
NET LOSS PER COMMON SHARE
Historical
The Company computes net loss per common share in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS No.
128") and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under the
provisions of SFAS No. 128 and SAB No. 98, basic net loss per common share
("Basic EPS") is computed by dividing net loss available to common shareholders
by the weighted average number of common shares outstanding. Diluted net loss
available to common shareholders ("Diluted EPS") is computed by dividing net
loss by the weighted average number of common shares and dilutive potential
common shares then outstanding. Potential common shares consist of shares
issuable upon the exercise of stock options and warrants and shares issuable
upon conversion of convertible preferred stock.
Pro Forma (Unaudited)
Pro forma net loss per common share is calculated assuming the conversion
of all outstanding shares of preferred stock into common stock which converts
automatically upon completion of the Company's IPO.
The calculation of pro forma net loss per common share for the year ended
December 31, 1998 and for the nine months ended September 30, 1999 does not
include 568,944 and 637,837, respectively, of potential common shares, as their
impact would be anti-dilutive.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting comprehensive
income and its components in financial statements. Comprehensive income, as
defined, includes all changes in equity during a period from non-owner sources.
The Company had no items of other comprehensive income for the years ended
December 31, 1997 or 1998 or the nine months ended September 30, 1998 and 1999.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS No. 131"). This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The disclosures prescribed by SFAS No. 131 are
F-10
<PAGE> 79
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
effective for the year ended December 31, 1998. Management has determined that
the Company does not have any separately reportable operating segments as of
December 31, 1998 or September 30, 1999.
Start-Up Costs
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities," ("SOP No. 98-5") which is effective for fiscal years beginning
after December 15, 1998. SOP No. 98-5 requires companies to expense as incurred
all pre-operating, startup and organizational costs that are not capitalizable
as long-lived assets. The Company adopted SOP No. 98-5 effective January 1,
1999. The adoption of SOP No. 98-5 had no impact on the Company's financial
condition or results of operations.
Cash Flow Information
A supplemental schedule of non-cash financing activities follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------ -------------------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Accretion of mandatorily
redeemable preferred stock... $ -- $ -- $ -- $ 131,000
Dividends issued to preferred
shareholders on conversion of
preferred stock warrants to
common stock warrants.......... $ -- $ -- $ -- $ 525,000
Dividends on convertible
preferred stock.............. $ -- $24,000 $ -- $ 616,000
Conversion of convertible notes
and accrued interest into
Series D Convertible
Preferred stock.............. $ -- $ -- $ -- $1,777,000
Issuance of warrants in
conjunction with Series A
financing and convertible
promissory notes............. $ -- $56,000 $ -- $ 63,000
Issuance of stock options in
conjunction with consulting
and severance agreements..... $ -- $ -- $ -- $ 356,000
</TABLE>
Reclassifications
Certain reclassifications were made to the December 31, 1997 and 1998
financial statements to conform them to the September 30, 1999 presentation.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133"). SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supercedes several
existing standards. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS No. 133 will have a material impact on
the Company's financial statements.
F-11
<PAGE> 80
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
EXPECTED DECEMBER 31,
LIFE -------------------- SEPTEMBER 30,
(YEARS) 1997 1998 1999
-------- ---- ---- -------------
<S> <C> <C> <C> <C>
Computer hardware............... 3 $18,000 $174,000 $ 368,000
Office furniture and
equipment....................... 5 -- 70,000 388,000
Computer systems software....... 1 -- 5,000 21,000
Leasehold improvements.......... 5 -- -- 7,000
-- ------- -------- -------------
18,000 249,000 784,000
Accumulated depreciation........ -- (39,000) (165,000)
------- -------- -------------
Net............................. $18,000 $210,000 $ 619,000
======= ======== =============
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1999 was $0, $39,000 and $126,000, respectively.
4. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1997 1998 1999
---- ------- -------------
<S> <C> <C> <C>
Advertising................................... $-- $ -- $ 491,000
Incentive and other compensation.............. -- 15,000 357,000
Deferred revenues............................. -- -- 340,000
Professional services......................... -- -- 285,000
Other......................................... -- -- 173,000
-- ------- ----------
Total Accrued Expenses.............. $-- $15,000 $1,646,000
== ======= ==========
</TABLE>
5. SHAREHOLDERS' EQUITY
Common Stock
On March 24, 1998, the Company effected a 2-for-1 stock split in the form
of a stock dividend. All share and per share amounts have been restated to
reflect the stock split. The holder of each share of common stock is entitled to
one vote per share.
Preferred Stock
On September 20, 1999, the shareholders approved an amendment of the
Company's certificate of incorporation, under which the Company authorized
10,467,194 shares of preferred stock, $.01 par value per share, consisting of
four series of convertible preferred stock (the "Series A Preferred," "Series B
Preferred," "Series C Preferred" and "Series D Preferred" stock). Preferred
shareholders are entitled to cumulative dividends which accrue on a daily basis
at a rate of 8% per annum. Dividends are paid quarterly in additional shares of
preferred stock or in cash at the option of the Company and subject to certain
conditions. As of September 30, 1999, there were $640,000 of accrued dividends,
of which $527,000 was satisfied with the issuance of 87,817 shares of Series A
Preferred stock on October 15, 1999.
F-12
<PAGE> 81
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The liquidation value of convertible preferred stock is $6.00, $9.00,
$12.00, and $8.30 per share for Series A Convertible Preferred, Series B
Convertible Preferred, Series C Convertible Preferred, and Series D Convertible
Preferred, respectively. If liquidation proceeds are insufficient to pay such
amounts, holders would share ratably in any proceeds on liquidation based on the
number of shares into which the preferred stock is convertible. If such proceeds
are in excess of $50 million, in addition to the liquidation preference, the
holders of preferred stock are entitled to participate ratably with common
shareholders on an as-if-converted basis.
Each holder of outstanding shares of preferred stock is entitled to the
number of votes equal to the number of whole shares of common stock into which
the shares are convertible. The holders of shares of preferred stock vote
together with holders of shares of common stock as a single class. The holders
in interest of a majority of the outstanding shares of preferred stock, voting
together as a single class, are entitled to elect one director to the Company's
Board of Directors.
Each share of preferred stock is convertible, at the option of the holder,
into an equal number of shares of common stock, subject to certain anti-dilution
provisions. Effective upon the closing of the sale of shares of common stock by
the Company pursuant to a qualified public offering, as defined in the
instrument governing the preferred stock, all outstanding shares of preferred
stock automatically convert to shares of common stock, including the payment of
accrued and unpaid dividends on the preferred stock.
Prior to September 20, 1999, the Company was required to redeem, in three
installments, commencing on the fourth anniversary of the date of issuance of
the first share of Series A Convertible Preferred, and continuing on the
immediately succeeding two anniversaries, the number of shares of preferred
stock held by all holders. The redemption price of a share of a series of
convertible preferred stock shall mean the original issue price of a share plus
all accrued and unpaid dividends thereon. In connection with the Series D
Convertible Preferred stock financing, the Series A Convertible Preferred
shareholders relinquished their rights to mandatory redemption. Accretion
related to the mandatory redemption feature ceased on September 20, 1999.
Convertible Promissory Notes
During June and July 1999, the Company entered into Convertible Promissory
Note Agreements (the "Notes") with certain individuals from which LendingTree
received a total of $1.75 million. The Company also issued 42,000 warrants to
purchase common stock at $10.00 per share to the purchasers of these Notes.
These Notes were to be due on July 13, 2000 (the "maturity date") and bore
interest at 8% per annum, compounded quarterly. They could be prepaid at any
time without penalty.
Under the terms of the Notes, if the Company engaged in a subsequent
financing at any time before December 31, 1999, and provided that the financing
was for a minimum of $10,000,000, the principal outstanding under the Notes and
all accrued interest thereon would be immediately converted into shares of the
offered securities at a conversion price equal to the per share purchase price
of the offered securities. $500,000 of the amount received related to the Notes
was from a party related to an Executive Officer of the Company. This individual
invested under the same terms as other investors in the Notes. These Notes and
related accrued interest converted to Series D Convertible Preferred stock in
connection with the Series D Convertible Preferred stock sale described below.
Series D Sale
On September 20, 1999, the Company entered into a Series D Convertible
Preferred Stock Purchase Agreement (the "Series D Agreement") under which it
sold 6,024,096 shares of Series D Convertible Preferred stock at $8.30 per share
for total gross proceeds of approximately $50,000,000. The Company
F-13
<PAGE> 82
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
utilized approximately $5,978,000 of these proceeds to repurchase 747,222 shares
of common stock from existing shareholders, which has been reflected as treasury
stock in the accompanying financial statements. The Company also incurred
approximately $2,458,000 in offering costs, which have been netted against the
proceeds. The Company granted a warrant to purchase 100,000 shares of common
stock at $9.55 per share to a broker in connection with the Series D Agreement.
In connection with the Series D Agreement, the following additional
transactions occurred:
- Series A Convertible Preferred shareholders gave up their mandatory
redemption rights.
- $1,750,000 of Convertible Notes and accrued interest that were
outstanding at the closing converted into shares of Series D Convertible
Preferred stock at $8.30 per share. The Company issued a total of 214,076
shares to settle this obligation.
- A consulting agreement was entered into with a former member of the Board
of Directors and a severance agreement was entered into with a former
executive. Both individuals had their existing incentive stock options
cancelled, and new non-qualified stock options were issued at the current
fair value. The Company recorded expense of $7,000 and $349,000,
respectively, as determined using an option valuation model, related to
these two individuals during the nine months ended September 30, 1999.
Additional expense of $262,000 related to the consulting agreement will
be incurred ratably during the remaining three years of the consulting
agreement, and has been recorded as deferred compensation as of September
30, 1999. A portion of the common shares repurchased from former
shareholders were repurchased from the former member of the Board of
Directors. These shares were repurchased at the same price and under the
same terms as those purchased from other shareholders.
- All preemptive rights were terminated. All Board representation
agreements were terminated.
Series A Sale
Effective December 9, 1998, the Company entered into a Convertible
Preferred Stock and Warrant Purchase Agreement (the "Preferred Stock Agreement")
under which it sold, in the Initial Closing, 833,334 shares of Series A
Convertible Preferred stock and a warrant to purchase 260,000 shares of Series A
Convertible Preferred stock with an exercise price of $6.00 per share (the
"Series A Warrant"). The Series A Warrant was recorded by allocating the fair
value of this warrant from the proceeds received in the Initial Closing .
Proceeds from the Initial Closing totaled $4,656,000, net of expenses of
approximately $344,000. In addition, the Company issued a warrant to purchase
50,000 shares of common stock at $6.00 per share (the "Common Warrant") to a
broker in connection with the Agreement.
During March 1999 (the "Second Closing") the Company sold 500,000 shares of
Series A Convertible Preferred stock at a price of $6.00 per share and a warrant
to purchase 40,000 shares of Series B Convertible Preferred stock at $9.00 per
share (the "Series B Warrant"), for gross proceeds of $3,000,000. During May
1999 (the "Third Closing") the Company sold 333,334 shares of Series A
Convertible Preferred stock at $6.00 per share for gross proceeds of $2,000,000.
The Company also granted a warrant to the investors in the Third Closing to
purchase 26,000 shares of common stock at $10.00 per share.
Series A and B Warrants
In conjunction with the sale of Series D Convertible Preferred stock, the
Series A Convertible Preferred shareholders exchanged their Series A and Series
B Warrants for warrants to purchase 300,000 shares of common stock at $6.00 per
share. The exchange has been reflected in the financial statements as a
distribution to the preferred shareholders equivalent to the excess of the
current fair value of the new
F-14
<PAGE> 83
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
warrant over the carrying value of the existing warrants, and has been included
in the calculation of net loss attributable to common shareholders.
Common Warrants
In addition to common warrants issued as described above, the Company also
issued a warrant to purchase 7,500 shares of common stock at $6.00 per share in
connection with a line of credit provided by a shareholder. The fair value of
this warrant (approximately $7,000) was recognized in expense during the year
ended December 31, 1998. The line of credit is no longer available and no
amounts were outstanding at December 31, 1998 or September 30, 1999.
At September 30, 1999, the Company had outstanding warrants to purchase
525,500 shares of common stock, with exercise prices ranging from
$6.00 - $10.00. Expiration dates range from November 2003 through September
2005.
Stock Option Plans
During January 1997, the Board of Directors approved the 1997 Stock Option
Plan (the "1997 Plan") which provides for the granting of both incentive stock
options and non-qualified stock options to employees, officers, directors and
consultants of the Company. The 1997 Plan allows for a maximum of 1,225,898
shares for option grants to be issued prior to January 15, 2007. During February
1998, the Company established the 1998 Stock Option Plan (the "1998 Plan"). The
1998 Plan, as amended, authorized 935,000 shares for option grants to be issued
prior to February 2008. During September 1999, the Company established the 1999
Stock Option Plan (the "1999 Plan"). The 1999 Plan, as amended, authorized
1,800,000 shares for option grants prior to September 2009. The 1999 Plan
permits the granting of any combination of incentive stock options and
nonqualified stock options.
Under all of the Company's stock option plans, the exercise price of any
incentive stock option shall not be less than the fair value of the stock on the
date of grant or less than 110% of the fair value in the case of optionees
holding more than 10% of the total combined voting power of all classes of stock
of the Company. Options under the Company's stock option plans are exercisable
for ten years from the date of grant, except for incentive stock options granted
to optionees holding more than 10% of the total combined voting power of all
classes of stock, which must be exercised within five years.
The Company's stock option plans generally provide for a four-year vesting
requirement with one-third of such shares vesting at the end of one full year
and on an annual basis thereafter. Upon a change of control, as defined, 50% of
all unvested stock options shall vest.
F-15
<PAGE> 84
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of incentive stock options awarded to employees during the years
ended December 31, 1997 and 1998 and the nine months ended September 30, 1999
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
NUMBER OF EXERCISE PRICE
OPTIONS PRICE RANGE
--------- -------- ----------
<S> <C> <C> <C>
OUTSTANDING AS OF DECEMBER 31, 1996............ -- $ -- $ --
Granted at fair value.......................... 377,609 0.44 0.02-1.82
Exercised...................................... (289,000) 0.02 0.02
-------- ----- ----------
OUTSTANDING AS OF DECEMBER 31, 1997............ 88,609 1.82 1.82
Granted at fair value.......................... 450,154 5.79 1.82-6.60
Forfeited...................................... (51,250) 3.92 1.82-6.00
-------- ----- ----------
OUTSTANDING AS OF DECEMBER 31, 1998............ 487,513 5.27 1.82-6.60
Granted at fair value.......................... 418,589 6.47 6.00-7.70
Forfeited...................................... (161,951) 6.17 6.00-6.60
-------- ----- ----------
OUTSTANDING AS OF SEPTEMBER 30, 1999........... 744,151 $5.75 $1.82-7.70
======== ===== ==========
Exercisable as of September 30, 1999........... 127,282 $3.16 $1.82-6.00
======== ===== ==========
</TABLE>
A summary of non-qualified stock options awarded during the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1999 follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
NUMBER OF EXERCISE PRICE
OPTIONS PRICE RANGE
--------- -------- ----------
<S> <C> <C> <C>
OUTSTANDING AS OF DECEMBER 31, 1996............. -- $ -- $ --
Granted at fair value........................... 738,789 1.82 1.82-2.00
--------- ----- ----------
OUTSTANDING AS OF DECEMBER 31, 1997............. 738,789 1.82 1.82-2.00
Granted at fair value........................... 216,094 6.04 4.50-6.60
--------- ----- ----------
OUTSTANDING AS OF DECEMBER 31, 1998............. 954,883 2.78 1.82-6.60
Granted at fair value........................... 375,744 6.93 6.00-7.70
Exercised....................................... (113,056) 2.72 1.82-6.00
Forfeited....................................... (87,882) 6.10 6.00-6.60
--------- ----- ----------
OUTSTANDING AS OF SEPTEMBER 30, 1999............ 1,129,689 $3.90 $1.82-7.70
========= ===== ==========
Exercisable as of September 30, 1999............ 822,898 $2.73 $1.82-6.60
========= ===== ==========
</TABLE>
Compensation costs recognized during the years ended December 31, 1997 and
1998 and the nine months ended September 30, 1998 and 1999 for stock-based
compensation awards totaled $251,000, $215,000, $158,000 and $77,000,
respectively. The weighted average fair value at date of grant for options
granted at fair value during the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1999 was $0.47, $1.01 and $1.49, respectively.
The weighted average fair value at date of grant for options granted in excess
of fair value for the years ended December 31, 1997 and 1998 and the nine months
ended September 30, 1999 was $0.004, $0.62 and $1.09, respectively. The fair
value of each option grant was estimated on the date of grant using the minimum
value method based upon the following assumptions: dividend yield -- 0%; risk
free interest rate -- 6% (1997); 5.1% (1998); 4.75 -- 5.75% (1999) and weighted
average expected option term -- 5 years (1997); 4 years (1998); 5 years (1999).
F-16
<PAGE> 85
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation expense for the Company's employee options been recorded
based on the fair value of the options at the grant date, as prescribed by SFAS
No 123, the Company's net loss and net loss per common share -- basic and
diluted would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ---------------------------
1997 1998 1998 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net loss............. $ (963,000) $(6,458,000) $(3,466,000) $(17,253,000)
Pro forma adjustment
for stock
compensation
expense.............. (150,000) (392,000) (381,000) (990,000)
----------- ----------- ----------- ------------
Pro forma net loss... $(1,113,000) $(6,850,000) $(3,847,000) $(18,243,000)
=========== =========== =========== ============
Net loss per common
share -- basic and
diluted............ $ (1.52) $ (2.39) $ (1.31) $ (5.85)
Pro forma adjustment
for stock
compensation
expense............ (.24) (.14) (.15) (.33)
----------- ----------- ----------- ------------
Pro forma net loss
per common share --
basic and
diluted............ $ (1.76) $ (2.53) $ (1.46) $ (6.18)
=========== =========== =========== ============
</TABLE>
Because options vest over several years and additional options are expected
to be granted in subsequent years, the pro forma impact on periods presented may
not be representative of the pro forma effects on reported net income or loss in
future years.
F-17
<PAGE> 86
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
There is no current income tax provision or benefit for the years ended
December 31, 1997 or 1998 or for the nine months ended September 30, 1999 as the
Company has generated net operating losses for income tax purposes for which
there is no carryback potential. There is no deferred provision or benefit for
income taxes recorded as the Company is in a net deferred tax asset position for
which a full valuation allowance has been recorded due to uncertainty of
realization.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1997 and 1998 and September 30, 1999 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
--------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Domestic net operating loss carryforwards............ $ 277,000 $ 2,683,000 $ 8,695,000
Stock compensation................................. 98,000 182,000 317,000
Other.............................................. 2,000 65,000 125,000
--------- ----------- -----------
Gross deferred tax assets....................... 377,000 2,930,000 9,137,000
Less: Valuation allowance....................... (376,000) (2,926,000) (9,137,000)
--------- ----------- -----------
Net deferred tax assets......................... 1,000 4,000 --
Deferred tax liabilities:
Fixed assets....................................... 1,000 4,000 --
--------- ----------- -----------
Total deferred tax liabilities............. 1,000 4,000 --
--------- ----------- -----------
Net deferred tax asset (liability).............. $ -- $ -- $ --
========= =========== ===========
</TABLE>
The Company has net operating loss carryforwards for income tax purposes of
approximately $6,800,000 available at December 31, 1998 and approximately
$22,450,000 available at September 30, 1999 to offset future federal and state
taxable income. These net operating loss carryforwards begin to expire in 2011.
Should the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change may be subject to annual limitation
which could reduce or defer the utilization of these losses.
Taxes computed at the statutory Federal income tax rate of 34% are
reconciled to the provision for income taxes as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- SEPTEMBER 30,
1997 1998 1999
----------------------- ------------------------- -------------------------
% OF % OF % OF
AMOUNT PRETAX LOSS AMOUNT PRETAX LOSS AMOUNT PRETAX LOSS
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Federal tax benefit at
statutory rate............... $(327,000) (34.0%) $(2,188,000) (34.0%) $(5,434,000) (34.0%)
State taxes (net of federal
benefit)....................... (50,000) (5.2) (317,000) (4.9) (789,000) (5.0)
Change in valuation
allowance.................... 376,000 39.0 2,550,000 39.6 6,211,000 38.9
Other nondeductible expenses... 1,000 0.2 (45,000) (0.7) 12,000 0.1
--------- ----- ----------- ----- ----------- -----
Provision for income taxes..... $ -- 0 % $ -- 0 % $ -- 0 %
========= ===== =========== ===== =========== =====
</TABLE>
F-18
<PAGE> 87
LENDINGTREE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain office facilities and equipment under operating
leases. These leases are generally renewable. The following is a schedule of
future minimum rental payments required under the leases as of September 30,
1999:
<TABLE>
<S> <C>
1999..................................................... $ 190,000
2000..................................................... 542,000
2001..................................................... 497,000
2002..................................................... 390,000
2003..................................................... 328,000
2004..................................................... 27,000
----------
$1,974,000
==========
</TABLE>
Rent expense totaled $7,000 and $109,000 for the years ended December 31,
1997 and 1998, and $57,000 and $403,000 for the nine months ended September 30,
1998 and 1999.
The Company is subject to various legal matters in the ordinary course of
business. In the opinion of management, the ultimate outcome of any such matters
will not have a material adverse effect on the financial condition, results of
operations or cash flows of the Company.
F-19
<PAGE> 88
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO A DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING
AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES OF COMMON STOCK
LENDINGTREE, INC.
----------------------
PROSPECTUS
----------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
PRUDENTIAL SECURITIES
WIT CAPITAL CORPORATION
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 89
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 1, 1999
PROSPECTUS
SHARES
LENDINGTREE, INC.
COMMON STOCK
----------------------
This is LendingTree, Inc.'s initial public offering of common stock. The
international managers are offering shares outside the United States
and Canada, and the U.S. underwriters are offering shares in the
United States and Canada. We anticipate that the initial public offering price
will be between $ and $ per share.
Currently, no public market exists for the shares. We intend to apply to
have our common stock approved for quotation on the Nasdaq National Market under
the symbol " ."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to LendingTree, Inc. ............ $ $
</TABLE>
----------------------
The international managers may also purchase up to an additional
shares of common stock at the initial public offering price, less
the underwriting discount, within 30 days from the date of this prospectus to
cover over-allotments. The U.S. underwriters may similarly purchase up to an
aggregate of an additional shares of common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of 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 will be ready for delivery in New York, New York
on or about , 2000.
----------------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
PRUDENTIAL-BACHE SECURITIES
----------------------
The date of this prospectus is , 2000.
ALT-1
<PAGE> 90
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
GENERAL
We intend to offer our common stock outside the United States and Canada
through a number of international managers. Merrill Lynch International, Lehman
Brothers International (Europe) and Prudential-Bache Securities (U.K.) Inc. are
acting as lead managers of each of the international managers named below.
Subject to the terms and conditions described in an international purchase
agreement among us and the international managers, and concurrently with the
sale of shares of common stock to the U.S. underwriters, we have agreed
to sell to the international managers, and each of the international managers
severally and not jointly has agreed to purchase from us, the number of shares
of common stock listed opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGER SHARES
- ------------------------------------------------------------ ---------
<S> <C>
Merrill Lynch International.................................
Lehman Brothers International (Europe)......................
Prudential-Bache Securities (U.K.) Inc. ....................
-----
Total..........................................
=====
</TABLE>
We have also entered into a U.S. purchase agreement with U.S. underwriters
in the United States and Canada for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Lehman Brothers Inc., Prudential Securities Incorporated and Wit
Capital Corporation are acting as U.S. representatives. Subject to the terms and
conditions described in the U.S. purchase agreement, and concurrently with the
sale of shares of common stock to the international managers pursuant
to the international purchase agreement, we have agreed to sell to the U.S.
underwriters, and the U.S. underwriters severally have agreed to purchase from
us, an aggregate of shares of common stock. The initial public offering
price per share and the total underwriting discount per share of common stock
are identical under the international purchase agreement and the U.S. purchase
agreement.
In the international purchase agreement and the U.S. purchase agreement,
the several international managers and the several U.S. underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such agreement if any of the shares of common stock being sold pursuant to
such agreement are purchased. If there is a default by an international manager
or a U.S. underwriter, the international purchase agreement and the U.S.
purchase agreement provide that, in specified circumstances, the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreements may be terminated. The closings with respect to the sale of shares of
common stock to be purchased by the international managers and the U.S.
underwriters are conditioned upon one another.
The lead managers have advised us that the international managers propose
initially to offer the shares of our common stock to the public at the initial
public offering price set forth on the cover of this prospectus, and to dealers
at such price less a concession not in excess of $ per share of common
stock. The international managers may allow, and such dealers may reallow, a
discount not in excess of $ per share of common stock to other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
ALT-2
<PAGE> 91
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
We have agreed to indemnify the international managers and the U.S.
underwriters against specified liabilities, including liabilities under the
Securities Act, or to contribute to payments the international managers and the
U.S. underwriters may be required to make because of those liabilities.
The shares of common stock will be ready for delivery in New York, New York
on or about , 2000.
OVER-ALLOTMENT OPTION
We have granted an option to the international managers, exercisable for 30
days after the date of this prospectus, to purchase up to an aggregate of an
additional shares of our common stock at the initial public offering
price set forth on the cover of this prospectus, less the underwriting discount.
The international managers may exercise this option solely to cover
over-allotments, if any, made on the sale of our common stock offered by this
prospectus. To the extent that the international managers exercise this option,
each international manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of our common stock proportionate to that
international manager's initial amount reflected in the foregoing table. We have
granted an option to the U.S. underwriters, exercisable for 30 days after the
date of this prospectus, to purchase up to an aggregate of additional
shares of our common stock to cover over-allotments, if any, on terms similar to
those granted to the international managers.
COMMISSIONS AND DISCOUNTS
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the international managers and the
U.S. underwriters and proceeds before expenses to us. This information is
presented assuming either no exercise or full exercise by the international
managers and the U.S. underwriters of their over-allotment options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------- ------
<S> <C> <C> <C>
Public offering price...................................
Underwriting discount...................................
Proceeds, before expenses, to LendingTree...............
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us, as set forth in the following
table.
<TABLE>
<S> <C> <C> <C>
SEC registration fee....................................
NASD filing fee.........................................
Nasdaq National Market listing fee......................
Printing and engraving expenses.........................
Legal fees and expenses.................................
Accounting fees and expenses............................
Blue sky fees and expenses (including legal fees).......
Transfer agent and registrar fees and expenses..........
Premiums for director and officer insurance.............
Miscellaneous...........................................
-----
Total.........................................
=====
</TABLE>
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the
ALT-3
<PAGE> 92
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
underwriters and other customary conditions. The underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, an aggregate of shares of our common stock to be
sold to some of our directors, officers, employees, and other persons with whom
we have relationships. The number of shares of common stock available for sale
to the general public in this offering will be reduced to the extent that those
persons purchase these reserved shares. Any reserved shares that are not orally
confirmed for purchase within one day of the pricing of the offering will be
offered by the underwriters to the general public on the same terms as the other
shares offered by this prospectus.
We have requested the underwriters reserve an aggregate of an additional
shares for sale through a directed share program to some of our business
associates. The number of shares of common stock available for sale to the
general public in this offering will be reduced to the extent that those persons
purchase these reserved shares. Any reserved shares not purchased by those
persons will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus. Wit Capital Corporation,
one of the U.S. underwriters, is administering this directed share program with
respect to our business associates. Purchases of the reserved shares by those
persons are to be made through an account at Wit Capital in accordance with Wit
Capital's procedures for opening an account and transacting in securities.
NO SALES OF COMMON STOCK OR SIMILAR SECURITIES
We and our officers and directors and substantially all of our other
existing stockholders have agreed, with certain exceptions, not to directly or
indirectly
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file any registration statement
under the Securities Act relating to any shares of our common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of
our common stock, whether any such swap or transaction is to be settled
by delivery of our common stock or other securities, in cash or
otherwise,
without the prior written consent of Merrill Lynch on behalf of the underwriters
for a period of 180 days after the date of this prospectus.
NASDAQ NATIONAL MARKET LISTING
We intend to apply to have our common stock listed on the Nasdaq National
Market under the symbol " ."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the lead managers and the U.S. representatives. Among the factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, were the valuation multiples of publicly traded
companies that the lead managers and the U.S. representatives believed to be
comparable to us, some of our financial information, the history of, and the
prospects for, our company and the industry in which we compete, and an
assessment of our management, our past and present operations, the prospects
for, and time of, future
ALT-4
<PAGE> 93
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
revenue of our company, the present state of our development, and the above
factors in relation to market values and various valuation measures of other
companies engaged in activities similar to ours. There can be no assurance that
an active trading market will develop for our common stock or that our common
stock will trade in the public market subsequent to the offering at or above the
initial offering price.
The underwriters will not confirm sales of our common stock to any accounts
over which they exercise discretionary authority without the prior written
approval of the customer.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Pursuant to the intersyndicate agreement, the international managers and the
U.S. underwriters are permitted to sell shares of our common stock to each other
for purposes of resale at the initial public offering price, less an amount not
greater that the selling concession. Under the terms of the intersyndicate
agreement, the U.S. underwriters and any dealer to whom they sell shares of our
common stock will not offer to sell or sell shares of our common stock to
persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to persons who are non-U.S. or non-Canadian persons, and the
international managers and any dealer to whom they sell shares of our common
stock will not offer to sell or sell shares of our common stock to U.S. persons
or to Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions pursuant to the
intersyndicate agreement.
SALES IN CERTAIN JURISDICTIONS
Each international manager has agreed that:
- it has not offered or sold and, prior to the expiration of the period of
six months from the completion of this offering, will not offer or sell
any shares of common stock to persons in the United Kingdom, except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments, as principal or agent, for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom for the purposes
of the Public Offers of Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Public Offers of Securities Regulations 1995 and of the Financial
Services Act of 1986 with respect to anything done by it in relation to
the shares of common stock in, from or otherwise involving the United
Kingdom; and
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue
or sale of shares of common stock to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to
whom such document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction, except in the
United States, that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to us or shares of our common stock in any jurisdiction
where action for that purpose is required. Accordingly, the shares of common
stock may not be offered or sold, directly or indirectly, and neither this
prospectus nor any other offering material or advertisements in connection with
the shares of common stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
Purchasers of the shares of common stock offered by this prospectus may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the offering price set forth
on the cover of this prospectus.
ALT-5
<PAGE> 94
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Commission may limit the ability of the underwriters and selling group members
to bid for and purchase our common stock. As an exception to these rules, the
U.S. representatives are permitted to engage in transactions that stabilize the
price of our common stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the lead managers and
the U.S. representatives, respectively, may reduce that short position by
purchasing our common stock in the open market. The lead managers and the U.S.
representatives, respectively, may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Depository Trust Company Tracking System tracks shares sold from
accounts established on each underwriter's and selling group member's behalf for
this offering. When the lead managers or U.S. representatives, respectively,
repurchase shares of common stock in the open market to reduce the underwriters'
short position or to stabilize the price of the common stock, Merrill Lynch may,
in its sole discretion, impose a penalty bid on the underwriters and selling
group members who initially sold these "flipped" shares. This means that Merrill
Lynch may reclaim part or all of the amount of the selling concession from the
underwriters and selling group members who sold these flipped shares. Should
Merrill Lynch decide to assess a penalty bid on any of the underwriters or
selling group members for flipping shares, the reclaimed selling concessions are
to be used only to reduce any loss incurred in making open market repurchases of
the common stock. Merrill Lynch would not reclaim selling concessions if no
shares were repurchased in the open market, and selling concessions may be
reclaimed only to the extent that losses are incurred in making open market
purchases.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the lead managers
or U.S. representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice. These
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
OTHER RELATIONSHIPS
An affiliate of Capital Z Partners, which is a stockholder of Wit Capital
Corporation, a U.S. underwriter, purchased 3,012,048 shares of our Series D
convertible preferred stock for a total purchase price of $25 million pursuant
to a purchase agreement with us. These shares of Series D convertible preferred
stock and accumulated dividends are convertible into shares of
common stock upon the completion of this offering on the same terms as the other
investors in the private placement of our Series D convertible preferred stock.
Prudential Securities, a U.S. underwriter, has acted as placement agent in
connection with a private placement of our Series D convertible preferred stock.
Prudential Securities holds a warrant, representing the right to purchase
100,000 shares of common stock at an exercise price of $9.55 per share, that was
issued pursuant to a placement agency agreement with us. These warrants are
exercisable for a five year period ending on September 21, 2004. Except for the
shares to be purchased by Wit Capital and Prudential Securities as underwriters,
Capital Z and Prudential Securities have agreed that they will not transfer or
dispose of, directly or indirectly, shares of common stock or any securities
convertible into or exercisable or exchangeable for or repayable with shares of
common stock for 180 days after the date of this prospectus without the prior
written consent of Merrill Lynch.
ALT-6
<PAGE> 95
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO A DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING
AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES OF COMMON STOCK
LENDINGTREE, INC.
----------------------
PROSPECTUS
----------------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
PRUDENTIAL-BACHE SECURITIES
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the costs and expenses, other
than the underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 8,340
NASD filing fee............................................. *
Nasdaq National Market listing fee.......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing and engraving...................................... *
Blue sky fees and expenses (including legal fees)........... *
Transfer agent fees......................................... *
Premiums for director and officer insurance................. *
Miscellaneous............................................... *
-------
Total............................................. $
</TABLE>
- ---------------
* To Be Filed by Amendment
ITEM 14. 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 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
II-1
<PAGE> 97
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 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 as directors or officers or arising out of such status.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From our inception in June of 1996, until October 1997, we were financed
through contributions from our founders and through issuances of common stock.
In return for their contributions, our founders received certain amounts of our
common stock.
In October 1997, we sold 54,946 shares of our common stock to Donald Colby,
a former director, in exchange for $100,000.
In March 1998, we sold 444,444 shares of our common stock and a warrant to
purchase 7,500 shares of our common stock to Phoenix Strategic Capital in
exchange for an aggregate price of $2,000,000.
In March 1998, Phoenix Strategic Capital provided us with a $1.0 million
line of credit. In connection with this transaction Phoenix Strategic Capital
received a warrant to purchase 7,500 shares of our common stock at an exercise
price of $6.00 per share.
In July 1998, we sold 33,333 shares of our common stock to H. Eugene
Lockhart, a former director, in exchange for $200,000.
In November 1998, we sold 10,000 shares of our common stock to James
Carthaus, currently a director, in exchange for $60,000.
In December 1998, we sold 833,334 shares of our Series A mandatorily
redeemable convertible preferred stock and a warrant to purchase 260,000 shares
of our Series A convertible preferred stock to The Union Labor Life Insurance
Company in exchange for an aggregate price of $5,000,000. We granted a warrant
to purchase 50,000 shares of our common stock to Seacris Group, Ltd. in exchange
for services
II-2
<PAGE> 98
rendered in connection with the December 1998 private placement. In March 1999,
we sold an additional 500,000 shares of our Series A convertible preferred stock
and a warrant to purchase 40,000 shares of our Series B convertible preferred
stock to The Union Labor Life Insurance Company in exchange for a total price of
$3,000,000.
In May 1999, we sold 333,334 shares of our Series A mandatorily redeemable
convertible preferred stock and a warrant to purchase 26,000 shares of our
common stock to W. James Tozer, Jr. and Richard Field, both of whom are
currently directors, in exchange for an aggregate price of $2,000,000.
In July 1999, we issued 8% convertible promissory notes in an aggregate
principal amount of $1,750,000 and warrants to purchase 42,000 shares of our
common stock to certain investors in exchange for an aggregate price of
$1,750,000.
In September 1999, we sold 6,024,096 shares of our Series D convertible
preferred stock for a total price of $50,000,000 to Capital Z, The Goldman Sachs
Group, Inc., General Electric, priceline.com Incorporated and Marsh & McLennan
Risk Capital.
In connection with the September 1999 transaction, the warrants to purchase
series A and series B convertible preferred stock held by Phoenix Strategic
Capital were exchanged for a warrant to purchase 300,000 shares of our common
stock, and the convertible promissory notes with a face amount of $1,750,000
held by investors were exchanged for 214,076 shares of Series D convertible
preferred stock. We redeemed 222,222, 100,000 and 425,000 shares of common stock
from Phoenix Strategy Capital Corp., Donald Colby and Robert Wilson respectively
for a total price of $5,977,776. In addition, we granted a warrant to purchase
100,000 shares of common stock valued at $450,000 to Prudential Securities Inc.
in exchange for services rendered in connection with the September 1999 private
placement.
From time to time, we have granted stock options to employees. The
following table sets forth information regarding the grants during the past
three fiscal years:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES GRANTED EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
January 1, 1997 through December 31, 1997...... $
January 1, 1998 through December 31, 1998...... $
January 1, 1999 through December 31, 1999...... $
</TABLE>
No underwriters were involved in connection with these sales and issuances.
The sales and issuances of these securities were exempt from registration under
the Securities Act pursuant to (1) Section 4(2) thereof, on the basis that the
transactions did not involve a public offering, or (2) Rule 701 promulgated
thereunder on the basis that these options were offered and sold either pursuant
to a written compensatory benefit plan or pursuant to written contracts relating
to consideration, as provided by Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1* Form of U.S. Purchase Agreement.
1.2* Form of International Purchase Agreement
3.1* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering.
3.2* Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering.
4.1* Specimen Common Stock certificate.
4.2* Form of LendingTree's Rights Plan
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
</TABLE>
II-3
<PAGE> 99
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.1* Employment Agreement between LendingTree, Inc. and Douglas
R. Lebda, dated September 2, 1999.
10.2* 1999 Stock Option Plan of LendingTree, Inc., dated November
20, 1999.
10.3* 1998 Stock Option Plan of LendingTree, Inc., dated February
3, 1998.
10.4* 1997 Stock Option Plan of CreditSource USA, Inc. (formerly
known as Lewisburg Ventures, Inc. and a predecessor to
LendingTree, Inc.), dated January 15, 1997.
10.5* Internet, Marketing and Licensing Agreement between
LendingTree, Inc. and priceline.com Incorporated, dated as
of August 1, 1998.
10.6* Registration Rights Agreement, dated September 20, 1999.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per
Share.
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.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
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 Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424 (b)(1) or (4), or 497(h)
under the Securities Act of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant 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 this 30th day of November, 1999.
LENDINGTREE, INC.
By: /s/ DOUGLAS R. LEBDA
------------------------------------
Name: Douglas R. Lebda
Title: Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated and on the date below:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ DOUGLAS R. LEBDA Chief Executive Officer November 30, 1999
--------------------------------------------------- and Director
Douglas R. Lebda (principal executive
officer)
* Senior Vice President November 30, 1999
--------------------------------------------------- and Chief Financial
Keith B. Hall Officer
* Vice President and November 30, 1999
--------------------------------------------------- Controller
Brian Regan
</TABLE>
II-5
<PAGE> 101
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
* Director November 30, 1999
- ---------------------------------------------------
James A. Carthaus
* Director November 30, 1999
- ---------------------------------------------------
Richard Field
* Director November 30, 1999
- ---------------------------------------------------
Robert Kennedy
* Director November 30, 1999
- ---------------------------------------------------
Daniel Charles Lieber
* Director November 30, 1999
- ---------------------------------------------------
Adam Mizel
* Director November 30, 1999
- ---------------------------------------------------
W. James Tozer, Jr.
*By: /s/ DOUGLAS R. LEBDA
---------------------------------------------
Douglas R. Lebda
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 102
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1* Form of U.S. Purchase Agreement.
1.2* Form of International Purchase Agreement.
3.1* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering.
3.2* Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering.
4.1* Specimen Common Stock certificate.
4.2* Form of LendingTree's Rights Plan.
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
10.1* Employment Agreement between LendingTree, Inc. and Douglas
R. Lebda, dated September 2, 1999.
10.2* 1999 Stock Option Plan of LendingTree, Inc., dated November
20, 1999.
10.3* 1998 Stock Option Plan of LendingTree, Inc., dated February
3, 1998.
10.4* 1997 Stock Option Plan of CreditSource USA, Inc. (formerly
known as Lewisburg Ventures, Inc. and a predecessor to
LendingTree, Inc.), dated January 15, 1997.
10.5* Internet, Marketing and Licensing Agreement between
LendingTree, Inc. and priceline.com Incorporated, dated as
of August 1, 1998.
10.6* Registration Rights Agreement, dated September 20, 1999.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per
Share.
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.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated November 24, 1999 relating to the financial statements of
LendingTree, Inc., which appear in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Financial and
Other Data" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
November 30, 1999
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
We, the undersigned directors and/or officers of LendingTree, Inc. (the
"Company"), hereby severally constitute and appoint Douglas R. Lebda, Chief
Executive Officer, Keith B. Hall, Senior Vice President and Chief Financial
Officer, and Robert J. Flemma, Jr., Vice President and General Counsel, and each
of them individually, with full powers of substitution and resubstitution, our
true and lawful attorneys, with full powers to them and each of them to sign for
us, in our names and in the capacities indicated below, the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission, and any
and all amendments to said Registration Statement (including post-effective
amendments), and any registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, in connection with the registration
under the Securities Act of 1933, as amended, of equity securities of the
Company, and to file or cause to be filed the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as each
of them might or could do in person, and hereby ratifying and confirming all
that said attorneys, and each of them, or their substitute or substitutes, shall
do or cause to be done by virtue of this Power of Attorney.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ DOUGLAS R. LEBDA Chief Executive Officer and November 30, 1999
- --------------------------------------------------- Director (principal
Douglas R. Lebda executive officer)
/s/ KEITH B. HALL Senior Vice President and November 30, 1999
- --------------------------------------------------- Chief Financial Officer
Keith B. Hall
/s/ BRIAN REGAN Vice President and November 30, 1999
- --------------------------------------------------- Controller
Brian Regan
/s/ JAMES A. CARTHAUS Director November 22, 1999
- ---------------------------------------------------
James A. Carthaus
/s/ RICHARD FIELD Director November 22, 1999
- ---------------------------------------------------
Richard Field
/s/ ROBERT KENNEDY Director November 29, 1999
- ---------------------------------------------------
Robert Kennedy
/s/ DANIEL CHARLES LIEBER Director November 30, 1999
- ---------------------------------------------------
Daniel Charles Lieber
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ ADAM MIZEL Director November 30, 1999
- ---------------------------------------------------
Adam Mizel
/s/ W. JAMES TOZER, JR. Director November 30, 1999
- ---------------------------------------------------
W. James Tozer, Jr.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001096479
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0
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