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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
October 12, 2000 (August 2, 2000)
LENDINGTREE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 25-1795344
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(State or other jurisdiction 000-29215 (I.R.S. Employer
of incorporation) Commission File Number Identification Number)
11115 RUSHMORE DRIVE
CHARLOTTE NC 28277
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(Address of principal executive offices) (Zip code)
(704) 541-5351
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(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As previously disclosed in the Company's Quarterly Report on Form 10-Q filed on
August 14, 2000 with the Securities and Exchange Commission (the "Commission"),
on August 2, 2000, LendingTree, Inc. ("LendingTree" or the "Company"), through
its newly organized, wholly-owned subsidiary HomeSpace Acquisition Company,
acquired certain assets of HomeSpace, Inc., HomeSpace Delaware, Inc. and
HomeSpace Services, Inc. (collectively and individually "HomeSpace") and also
assumed certain liabilities of HomeSpace Services, Inc. LendingTree acquired
certain assets and assumed certain liabilities of HomeSpace necessary to provide
essentially the same types of services to the same customer base and generate
revenue from the same types of transactions as HomeSpace. Key assets acquired
include an established network of real estate agents and brokers, operational
software, key contracts, trademarks, tradenames, arrangements with certain
business partners and other intellectual property rights. The liabilities
assumed include a note payable with accrued interest to one of the business
partners and certain customer liabilities. Assets not acquired and liabilities
not assumed were those principally related to physical equipment and facilities
such as long term leases for equipment, furniture and real estate that were not
necessary to LendingTree's continued operation of HomeSpace's business after
moving its operations to LendingTree's Charlotte, NC headquarters and those
assets and liabilities specifically related to HomeSpace's mortgage loans held
for resale and warehouse line of credit.
The consideration paid by LendingTree (approximately $11.2 million) for the
acquired assets consisted of $6.2 million in cash, 639,077 shares of the
Company's restricted common stock, valued at $4.7 million (using the average
closing stock price 3 days before and after the closing date) and $.3 million of
assumed liabilities. At closing, 169,851 shares of the common stock were placed
in escrow in the event of any post-closing indemnification claims and $4.2
million in cash was placed in escrow to be paid to trade creditors of HomeSpace.
The Company agreed to file a registration statement relating to the shares of
restricted common stock issued in connection with the acquisition by March 31,
2001 and agreed to use its reasonable best efforts to cause such registration
statement to be declared effective by the Securities and Exchange Commission.
The cash portion of the purchase price was funded from the Company's short-term
investments, the source of which was its February 2000 initial public offering
of common stock.
Prior to the acquisition, there was no material relationship between HomeSpace,
its shareholders or affiliates, directors or officers and the Company, its
shareholders or any of its affiliates, directors or officers.
This Form 8-K is being filed to provide the financial statements and pro forma
financial statements included in Item 7 hereof that were not included in the
Company's Quarterly Report on Form 10-Q filed on August 14, 2000.
ITEM 5. OTHER EVENTS
On September 29, 2000, Capital Z Partners ("Capital Z"), the Company's largest
shareholder, purchased an Equity Rights Certificate for $10 million. This
Certificate is initially exercisable for 1,253,918 shares of the Company's
common stock (equivalent to $7.975 per share), and warrants to purchase 225,000
shares of the Company's common stock with an initial exercise price of $7.975.
Capital Z also received a commitment fee warrant to purchase 135,000 shares of
the Company's common stock with an initial exercise price of $7.975.
The Equity Rights Certificate may be exercised at the election of Capital Z
anytime up to and including the fifth business day following June 30, 2001. The
Equity Rights Certificate contains anti-dilution provisions, including
provisions that allow Capital Z to receive additional shares of the Company's
common stock if certain events occur prior to the expiration of the Certificate.
Such events include, among others, a subsequent financing in which the Company
receives consideration of at least $15 million, a Sale Transaction or a Going
Private Transaction (as those terms are defined in the Equity Rights
Certificate). If the Equity Rights Certificate has not been exercised by June
30, 2001 and the price of the Company's stock price is less than $7.975, Capital
Z will receive additional shares of the Company's common stock upon exercise of
the Certificate. Upon exercise of the Equity Rights Certificate, the warrants
issued therewith will have an exercise period that starts September 29, 2001 and
ends September 29, 2005. The anti-dilution provisions described above also apply
to the warrants and therefore the actual exercise price of the warrants will be
determined at the time of issuance.
The commitment fee warrant is exercisable at any time on or after September 29,
2001 and until September 29, 2005 at an exercise price of $7.975 per share. This
exercise price is subject to adjustment upon the occurrence of the events
described above.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Consolidated Financial Statements of HomeSpace, Inc. for the
years ended March 31, 2000 and 1999 with Report of Independent
Auditors.
(b) Pro Forma Financial Information.
Pro Forma condensed consolidated financial information
(unaudited) of LendingTree, Inc., as of and for the six months
ended June 30, 2000 and for the year ended December 31, 1999.
(c) Exhibits.
2.1 Asset Purchase Agreement, dated July 31, 2000, by and among
HomeSpace Services, Inc., LendingTree, Inc. and HomeSpace
Acquisition Company (Incorporated by reference to Exhibit 10.2
in the LendingTree, Inc. Form 10-Q filed with the Commission
on August 14, 2000). The Exhibits and Schedules referenced in
the table of contents and elsewhere in the Asset Purchase
Agreement have been omitted and will be furnished to the
Commission upon request.
10.1 LendingTree, Inc. Securities Purchase Agreement, dated
September 29, 2000 among LendingTree, Inc., Capital Z
Financial Services Fund II, L.P. and Capital Z Financial
Services Private Fund II, L.P
10.2 Equity Rights Certificate dated September 29, 2000
representing the right to receive securities of LendingTree,
Inc.
10.3 Form of Commitment Fee Warrant, dated September 29, 2000 among
LendingTree, Inc. and Capital Z Management LLC.
10.4 Form of Warrant of LendingTree, Inc.
10.5 Consolidated Financial Statements of HomeSpace, Inc. for the
years ended March 31, 2000 and 1999 with Report of Independent
Auditors.
23.1 Consent of Ernst & Young LLP
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PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
OF LENDINGTREE, INC.
(UNAUDITED)
The following information sets forth, for the periods and dates
indicated, unaudited pro forma condensed consolidated financial information for
LendingTree, Inc. ("LendingTree"). This pro forma information is derived from
the historical financial statements of LendingTree and HomeSpace, Inc.
("HomeSpace") and reflects the unaudited pro forma condensed consolidated
results of operations as if the transaction referred to in Item 2 and the
financing referred to in Item 5 had occurred as of January 1, 1999. Certain
amounts in the audited HomeSpace statement of operations for the year ended
March 31, 2000 have been reclassified to be consistent with the format of the
LendingTree statement of operations. The unaudited pro forma condensed
consolidated balance sheet reflects the transaction and financing as if they had
occurred on June 30, 2000.
The accompanying pro forma condensed consolidated balance sheet
reflects reserves for estimated expenses of the acquisition, which include
relocation costs of certain personnel and estimated direct expenses of the
transaction. These non-recurring expenses are not reflected in the pro forma
statement of operations for the periods presented.
The unaudited pro forma condensed consolidated financial information is
not necessarily indicative of the consolidated results of operations had the
transaction and the financing actually been consummated on the assumed dates and
should be read in conjunction with the historical financial statements of
LendingTree, Inc. included in its respective filings on Form 10-K and Form 10-Q
filed with the Commission.
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LENDINGTREE, INC.
PRO FORMA CONDENSED CONSOLIDATED ANNUAL STATEMENT OF OPERATIONS
(unaudited)
FOR THE YEAR ENDED PRO FORMA
DECEMBER 31, MARCH 31, CONSOLIDATED
1999 2000 PRO FORMA STATEMENT OF
NOTES LENDINGTREE, INC. HOMESPACE, INC. ADJUSTMENTS OPERATIONS
----- ----------------- --------------- ----------- ------------
Revenue 2 $ 6,964,000 $ 6,208,000 $ (1,703,000) $ 11,469,000
Cost of revenue 3 2,543,000 3,128,000 (429,000) 5,242,000
------------ ------------ ------------ ------------
Gross profit 4,421,000 3,080,000 (1,274,000) 6,227,000
------------ ------------ ------------ ------------
Operating expenses:
Marketing and advertising 18,611,000 5,169,000 23,780,000
Other operating expenditures 4 10,882,000 33,549,000 (4,705,000) 39,726,000
Write-off of capitalized software
expenditures 2,033,000 2,033,000
Amortization of intangible assets 5 4,981,000 4,981,000
------------ ------------ ------------ ------------
Total operating expenses 29,493,000 40,751,000 276,000 70,520,000
------------ ------------ ------------ ------------
Loss from operations (25,072,000) (37,671,000) (1,550,000) (64,293,000)
Other expense (82,000) (82,000)
Interest income (expense), net 6 505,000 (363,000) 201,000 343,000
------------ ------------ ------------ ------------
Net loss (24,567,000) (38,116,000) (1,349,000) (64,032,000)
------------ ------------ ------------ ------------
Accretion of mandatorily redeemable preferred stock (131,000) -- -- (131,000)
Accumulated, undeclared dividends on convertible
preferred stock (1,478,000) -- -- (1,478,000)
Dividends on conversion of preferred stock warrants
to common stock warrants (525,000) (525,000)
Dividends on convertible preferred stock (506,000) -- -- (506,000)
------------ ------------ ------------ ------------
Net loss attributable to common shareholders $(27,207,000) $(38,116,000) $ (1,349,000) $(66,672,000)
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Net loss per common share - basic and diluted $ (7.64) $ (12.23)
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Weighted average shares used in basic and diluted net
loss per common share calculation 3,560,197 5,453,193
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The accompanying notes are an integral part of these financial statements
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LENDINGTREE, INC.
PRO FORMA CONDENSED CONSOLIDATED INTERIM STATEMENT OF OPERATIONS
(unaudited)
PRO FORMA
FOR THE SIX MONTHS ENDED CONSOLIDATED
JUNE 30, 2000 PRO FORMA STATEMENT OF
NOTES LENDINGTREE, INC. HOMESPACE, INC. ADJUSTMENTS OPERATIONS
----- ----------------- --------------- ----------- ------------
Revenue 2 $ 12,182,000 $ 2,740,000 $ (842,000) $ 14,080,000
Cost of revenue 3 3,730,000 1,517,000 (217,000) 5,030,000
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Gross profit 8,452,000 1,223,000 (625,000) 9,050,000
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Operating expenses:
Marketing and advertising 33,620,000 1,905,000 35,525,000
Other operating expenses 4 12,263,000 18,309,000 (2,519,000) 28,053,000
Write-off capitalized software expenditures 2,033,000 2,033,000
Amortization of intangible assets 5 2,489,000 2,489,000
------------ ------------ ------------ ------------
Total operating expenses 45,883,000 22,247,000 (30,000) 68,100,000
------------ ------------ ------------ ------------
Loss from operations (37,431,000) (21,024,000) (595,000) (59,050,000)
Other expense -- (1,830,000) (1,830,000)
Interest income (expense), net 6 1,405,000 (205,000) (75,000) 1,125,000
------------ ------------ ------------ ------------
Net loss (36,026,000) (23,059,000) (670,000) (59,755,000)
Dividends on convertible preferred stock (2,461,000) -- -- (2,461,000)
------------ ------------ ------------ ------------
Net loss attributable to common shareholders $(38,487,000) $(23,059,000) $ (670,000) $(62,216,000)
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Net loss per common share - basic and diluted $ (2.79) $ (3.97)
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Weighted average shares used in basic and diluted
net loss per common share calculation 13,774,306 15,667,273
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The accompanying notes are an integral part of these financial statements
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LENDINGTREE, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
JUNE 30, 2000
PRO FORMA
ACQUISITION FINANCING CONSOLIDATED
PRO FORMA PRO FORMA BALANCE
NOTES LENDINGTREE, INC. HOMESPACE, INC. ADJUSTMENTS ADJUSTMENTS SHEET
----- ----------------- --------------- ------------ ----------- ------------
Assets
Current assets:
Cash and cash equivalents 7 $ 947,000 $ 2,621,000 $ (2,621,000) $ -- $ 947,000
Short-term investments 9 18,047,000 -- (6,200,000) 10,000,000 21,847,000
Restricted short-term investments 16,118,000 -- -- -- 16,118,000
Accounts receivable, net 7 6,069,000 141,000 -- 6,210,000
Prepaid expenses and other current assets 1,183,000 60,000 -- -- 1,243,000
Mortgage loans held for resale 7 4,900,000 (4,900,000) -- --
------------ ------------ ------------ ----------- ------------
Total current assets 42,364,000 7,722,000 (13,721,000) 10,000,000 46,365,000
Property, equipment and software, net 7 3,051,000 5,171,000 (5,171,000) -- 3,051,000
Other assets 7 521,000 1,113,000 (1,113,000) -- 521,000
Other intangible assets - HomeSpace --
Homespace software 1 -- -- 5,178,000 -- 5,178,000
Customer contracts 1 -- -- 555,000 -- 555,000
Real estate broker network 1 -- -- 6,595,000 -- 6,595,000
Investments in other businesses 2,500,000 -- -- -- 2,500,000
------------ ------------ ------------ ----------- ------------
Total assets $ 48,436,000 $ 14,006,000 $ (7,677,000) $10,000,000 $ 64,765,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 8 $ 6,217,000 $ 4,845,000 $ (4,845,000) $ -- $ 6,217,000
Accrued expenses 8,9 3,591,000 783,000 449,000 100,000 4,923,000
Notes payable 8 3,854,000 (3,622,000) -- 232,000
Payable to warehouse line in connection with
mortgage loan closings 8 4,827,000 (4,827,000) -- --
Current portion capital lease obligations 8 292,000 1,513,000 (1,513,000) -- 292,000
------------ ------------ ------------ ----------- ------------
Total current liabilities 10,100,000 15,822,000 (14,358,000) 100,000 11,664,000
Deposits 80,000 -- -- -- 80,000
Capital lease obligations 8 583,000 1,726,000 (1,726,000) -- 583,000
Shareholders' equity:
Convertible Preferred Stock 8 -- 33,000 (33,000) -- --
Common stock - LendingTree 8 190,000 -- 6,000 -- 196,000
Common stock - HomeSpace 8 6,000 (6,000) --
Deferred compensation (4,308,000) -- -- -- (4,308,000)
Treasury stock (5,978,000) -- -- -- (5,978,000)
Notes receivable from officers for
option exercises (1,603,000) -- -- -- (1,603,000)
Note receivable common stock 8 (1,837,000) 1,837,000 -- --
Unrealized gain on available-for-sale
securities 59,000 -- -- -- 59,000
Additional paid-in-capital 8,9 117,485,000 74,779,000 (69,920,000) 9,900,000 132,244,000
Accumulated deficit 8 (68,172,000) (76,523,000) 76,523,000 -- (68,172,000)
------------ ------------ ------------ ----------- ------------
Total shareholders' equity 37,673,000 (3,542,000) 8,407,000 9,900,000 52,438,000
------------ ------------ ------------ ----------- ------------
Total liabilities and shareholders' equity $ 48,436,000 $ 14,006,000 $ (7,677,000) $10,000,000 $ 64,765,000
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The accompanying notes are an integral part of these financial statements
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS OF
LENDINGTREE, INC.
NOTE 1: - Description of the Company and Presentation of Historical and Pro
Forma Financial Statements
LendingTree, Inc. - LendingTree offers an Internet-based loan marketplace for
consumers and lenders and also licenses its technology or hosts Internet-based
systems to enable other businesses to create their own on-line lending
exchanges.
HomeSpace - HomeSpace provides the consumer with a variety of services related
to buying, selling, financing and maintaining a home, including real estate
broker referral services, residential mortgage loans and an array of related
home services.
The fiscal year end for HomeSpace was March 31, 2000. The pro forma condensed,
consolidated annual statement of operations included herein reflects the
combination of the audited LendingTree statement of operations for the year
ended December 31, 1999 and the audited HomeSpace statement of operations for
the fiscal year ended March 31, 2000. Certain amounts in the audited HomeSpace
statement of operations for the year ended March 31, 2000 have been reclassified
to be consistent with the format of the LendingTree statement of operations The
interim pro forma condensed, consolidated statement of operations included
herein reflects the combination of the unaudited interim LendingTree and
HomeSpace statements of operations for the six months ended June 30, 2000.
During its fiscal year ended March 31, 2000 and six months ended June 30, 2000,
HomeSpace generated revenue from two primary sources: a real estate agent
referral network and mortgage services. In addition, HomeSpace earned a small
amount of revenue by referring customers to certain home services related
vendors.
During the annual and six month periods presented in the HomeSpace financial
statements, mortgage services revenue was generated by HomeSpace acting as a
mortgage banker, conducting the entire mortgage origination and closing process
and funding the transactions through its own mortgage line. In so doing,
HomeSpace bore the credit and interest rate risk on the mortgage to the degree
it held loans or made commitments to lend prior to selling them in the secondary
market. Mortgage services were principally marketed and provided to members of
an affinity partnership program that HomeSpace had with Costco Wholesale Club.
During these periods, HomeSpace's mortgage services revenue included gross loan
fees and gains on mortgage loans earned by HomeSpace as the broker, originator
and funding source of such loans. Mortgage services costs for HomeSpace included
all the costs of mortgage banking activities, chiefly employment, occupancy and
interest costs for the loan underwriting processing, closing and secondary
marketing functions.
Prior to the LendingTree acquisition, and after the periods represented by the
HomeSpace financial statements, HomeSpace took certain steps to conserve its
cash, including outsourcing its mortgage processing activities through an
arrangement with Prism Mortgage Company ("Prism"). Under this new arrangement,
HomeSpace continued to market mortgage products and obtain customer leads
(through both on-line and off-line marketing activities). HomeSpace remained
responsible for managing its customer response center, qualifying customer
mortgage leads, taking applications, locking rates and transferring completed
applications to Prism for processing. Prism would provide real-time mortgage
rate quotes; offer transaction processing services and accept customer
applications for purposes of pre-qualification, application and
online-underwriting. Prism processed all loans; sent out application kits to
customers; and obtained credit information, appraisals and title searches and
collected fees and funded loans. However, some mortgage loans continued to be
closed in HomeSpace's name. The outsourcing of the mortgage operation enabled
HomeSpace to reduce the manpower in its mortgage processing center and conserve
cash. Prism was responsible for post application customer assistance and
service.
In exchange for the processing services, HomeSpace paid Prism a processing fee
per closed loan. The fee was based on a sliding scale depending on volume. Prism
paid HomeSpace a fee on all mortgage volume originated and closed through Prism.
The other two sources of HomeSpace revenue (generated from the real estate
network and from home services) were not changed in any material way following
the periods presented in the historical financial statements.
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On August 2, 2000, LendingTree acquired certain assets and assumed certain
liabilities of HomeSpace necessary to provide essentially the same types of
services to the same customer base and generate revenue from the same types of
transactions as HomeSpace was subsequent to changing its business model as noted
above. Assets and liabilities not acquired were those principally related to
physical facilities such as leases for real estate, equipment and furniture that
were not necessary to LendingTree's continued operation of HomeSpace's business
after moving its operations to LendingTree's Charlotte, NC headquarters and
those assets and liabilities specifically related to HomeSpace's mortgage loans
held for resale and warehouse line of credit.
The total purchase price (including $1.2 million of estimated transaction
related costs) of $12.4 million resulted in an excess purchase price of $12.3
million. The excess purchase price was preliminarily allocated to certain
intangible assets listed below based on a third party valuation study and
includes key operational software, customer contracts and the network of real
estate brokers. This preliminary allocation of the excess purchase price is
estimated as follows and is subject to final adjustments and changes.
Purchase Price:
Cash $ 6,200,000
Stock 4,740,000
Assumed liabilities:
Note payable plus interest 232,000
Accrued other liabilities 41,000
-----------
Total consideration 11,213,000
Estimated transaction costs 1,191,000
-----------
Total purchase price 12,404,000
Less tangible assets:
Accounts receivable (16,000)
Prepaid customer rewards (60,000)
-----------
Excess purchase price $12,328,000
-----------
Preliminary Allocation of the Excess Purchase Price:
Intangible Asset Valuation Life
---------------- --------- ----
Real estate broker network $ 6,595,000 3 years
HomeSpace software and technology 5,178,000 2 years
Affinity program - Contracts 555,000 remaining life of contracts (2.75 to 3.75 years)
-----------
Total intangible assets $12,328,000
LendingTree intends to continue to generate revenue in substantially the same
manner as HomeSpace did at the date of acquisition. The mortgage services
revenue will continue to be generated through an arrangement with Prism pursuant
to which Prism will continue to perform many of the same processing services
previously provided for HomeSpace. However, LendingTree does not close loans in
its own name as a lender. In exchange for the compensable services performed by
LendingTree on a closed loan, Prism will pay LendingTree a fee.
The pro forma condensed consolidated financial statements included herein have
been adjusted to reflect the outsourcing of the mortgage services business (see
Note 2) as well as for the additional pro forma adjustments related to the
transaction discussed in the remaining notes to the pro forma condensed
consolidated financial statements.
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NOTE 2: - Revenue Pro Forma Adjustments:
For the year ended December 31, 1999 and the six month period ended June 30,
2000, pro forma entries were made to reflect a net adjustment to the HomeSpace
revenue related to mortgage services in those periods. These adjustments
eliminate the mortgage services revenue earned by HomeSpace under its contracts
and business arrangements and then adds back mortgage services revenue as if
such revenue had been earned from the beginning of each period presented under
the terms of the contract that LendingTree entered into with Prism as of the
acquisition date, which is based on a fee per closed loan.
Pro Forma Revenue Adjustments Annual Six Months
----------------------------- ----------- -----------
Eliminate mortgage services revenue earned by HomeSpace ($2,783,000) ($1,042,000)
Add mortgage services revenue earned under the new contract with Prism $ 1,080,000 $ 200,000
----------- -----------
Net Pro Forma Adjustment ($1,703,000) ($ 842,000)
NOTE 3 - Cost of Revenue Pro Forma Adjustments
For the year ended December 31, 1999 and the six-month period ended June 30,
2000, pro forma entries of $429,000 and $217,000, respectively, were made to
reflect the elimination of the HomeSpace mortgage origination costs. For the
periods presented, these adjustments eliminate the mortgage origination costs
incurred by HomeSpace either when it acted as a mortgage originator during the
periods or the costs charged by Prism to HomeSpace to provide such services.
Under the terms of the contract that LendingTree has entered into with Prism to
provide certain mortgage services, there are no gross origination costs charged
to LendingTree, only a net payment for compensable services to LendingTree by
Prism upon the closing of a mortgage loan.
NOTE 4 - Other Operating Expenses and Pro Forma Adjustments
Other operating expenses principally include selling, general and administrative
costs, product development and technical department costs. These costs are
principally related to compensation, benefits, occupancy, equipment and
consulting costs.
Compensation and Related Benefits
Prior to the acquisition, and during the periods presented, HomeSpace employed
up to approximately 150 people in various positions throughout its organization.
When HomeSpace entered into an agreement with Prism to outsource its mortgage
processing capabilities, and as a result of other cost saving measures, a number
of these positions were eliminated by HomeSpace. LendingTree does not anticipate
replacing these individuals. LendingTree believes that it can utilize its own
personnel and management to operate the HomeSpace business and has identified
where there were duplicated staff between the two companies. As a result,
LendingTree offered positions to and hired only 15 HomeSpace employees. However,
at this time, the Company cannot determine the level of additional people that
may be necessary to hire to run the HomeSpace business; as such, the pro forma
adjustments reflect only the elimination of the compensation and benefits costs
related to those HomeSpace employees that terminated employment prior to the
acquisition. Additional cost savings may be possible. For the year ended
December 31, 1999, the pro forma adjustment to reduce compensation expense was
approximately $2.7 million. For the six months ended June 30, 2000, the pro
forma adjustment to reduce compensation expense was approximately $1.4 million.
The pro forma adjustments made may not be indicative of the level of expense
that LendingTree will actually incur to operate the business.
Occupancy
The HomeSpace occupancy costs were principally for its California and Colorado
operating and corporate office facilities. Because LendingTree will utilize its
existing facilities in Charlotte, North Carolina to operate the HomeSpace
business and LendingTree has not assumed any of the HomeSpace leases, a pro
forma adjustment was made to the periods presented to eliminate these occupancy
related costs. For the year ended December 31, 1999, the pro forma adjustment to
reduce occupancy expense was approximately $2.0 million. For the six months
ended June 30, 2000, the pro forma adjustment to reduce occupancy expense was
approximately $1.2 million.
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Other Operating Costs
LendingTree did not assume any equipment or furniture leases, nor were any
consulting agreements assigned to or assumed by LendingTree. However, at this
time, the Company cannot determine the level of these types of other operating
costs that may be necessary to operate the business and as such these costs have
not been eliminated in the pro forma statements of operations. Cost savings may
be possible from the amounts presented.
NOTE 5 - Amortization of Intangibles Pro Forma Adjustment
The Company has allocated the excess purchase price paid on a preliminary basis
for the HomeSpace assets to certain intangible assets based on a third party
valuation study (see Note 1). The Company calculated the pro forma amortization
expense on such intangibles for the year ended December 31, 1999 and the six
months ended June 30, 2000 based on lives assigned to such assets. The
allocation of the excess purchase price is preliminary and is subject to final
adjustments and changes.
NOTE 6 - Interest income (expense) Pro Forma Adjustment:
Because LendingTree did not assume any HomeSpace debt instruments except for the
$200,000 note payable to a business partner, all HomeSpace interest expense
other than that related to the note payable was eliminated. LendingTree interest
income of $270,000 for the year ending December 31, 1999 and $144,000 for the
six months ending June 30, 2000 was eliminated with a pro forma entry to reflect
the use of cash for the acquisition at the beginning of each respective period.
The Company has not assumed additional interest income is made related to the
$10.0 million financing transaction described in Note 9.
NOTE 7 - Balance Sheet Pro Forma Adjustments to Assets
The pro forma adjustments to the June 30, 2000 assets reflect the elimination of
HomeSpace assets not specifically acquired. Assets not acquired were cash and
those assets principally related to physical equipment and facilities such as
leased equipment, furniture and real estate that was not necessary to
LendingTree's continued operation of HomeSpace's business after moving its
operations to its Charlotte, North Carolina headquarters and those assets and
liabilities specifically related to HomeSpace's mortgage loans held for resale
and warehouse line of credit.
NOTE 8 - Balance Sheet Pro Forma Adjustments to Liabilities and Equity
The pro forma adjustments to the June 30, 2000 liabilities reflect the
elimination of all of the HomeSpace liabilities and equity with the exception of
the $200,000 note payable and accrued interest of $32,000. In addition, the pro
forma adjustments reflect approximately $1.2 million of accruals booked to
reflect the estimated expenses of the acquisition, which include relocation
costs of certain personnel and estimated professional fees directly attributable
to the acquisition.
NOTE 9 Financing Transaction
On September 29, 2000, Capital Z Partners ("Capital Z"), the Company's largest
shareholder, purchased an Equity Rights Certificate for $10 million. This
Certificate is initially exercisable for 1,253,918 shares of the Company's
common stock (equivalent to $7.975 per share), and warrants to purchase 225,000
shares of the Company's common stock with an initial exercise price of $7.975.
Capital Z also received a commitment fee warrant to purchase 135,000 shares of
the Company's common stock with an initial exercise price of $7.975.
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The Equity Rights Certificate may be exercised at the election of Capital Z
anytime up to and including the fifth business day following June 30, 2001. The
Equity Rights Certificate contains anti-dilution provisions, including
provisions that allow Capital Z to receive additional shares of the Company's
common stock if certain events occur prior to the expiration of the Certificate.
Such events include, among others, a subsequent financing in which the Company
receives consideration of at least $15 million, a Sale Transaction or a Going
Private Transaction (as those terms are defined in the Equity Rights
Certificate). If the Equity Rights Certificate has not been exercised by June
30, 2001 and the price of the Company's stock price is less than $7.975, Capital
Z will receive additional shares of the Company's common stock upon exercise of
the Certificate. Upon exercise of the Equity Rights Certificate, the warrants
issued therewith will have an exercise period that starts September 29, 2001 and
ends September 29, 2005. The anti-dilution provisions described above also apply
to the warrants and therefore the actual exercise price of the warrants will be
determined at the time of issuance.
The commitment fee warrant is exercisable at any time on or after September 29,
2001 and until September 29, 2005 at an exercise price of $7.975 per share. This
exercise price is subject to adjustment upon the occurrence of the events
described above.
NOTE 10 - Net Loss per Common Share
The Company computes net loss per common shares in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128") and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS
128 and SAB 98, net loss per common share - basic is computed by dividing net
loss available to common shareholders by the weighted average number of common
shares outstanding. For purposes of computing pro forma Basic EPS, the 1,253,918
shares of common stock issuable under the Equity Rights Certificate and the
639,077 shares of common stock issued in connection with the acquisition of
certain assets from HomeSpace Services Inc. are considered outstanding common
shares as of the beginning of each of the periods presented. Net loss per common
share - diluted 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. The calculation of Diluted EPS for the year ended December
31, 1999 and the six months ended June 30, 2000 excludes 5,165,545 and 2,186,985
of weighted average potential common shares as their impact would be
anti-dilutive.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LendingTree, Inc.
October 11, 2000 /s/ Keith B. Hall
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Date Keith B. Hall
Senior Vice President and Chief Financial Officer
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