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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
LendingTree, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
N/A
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
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PRELIMINARY COPIES
LENDINGTREE, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 2001
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TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
LendingTree, Inc., a Delaware corporation ("LendingTree"), will be held on
Thursday, May 24, 2001 at 9:00 a.m., local time, at the Ballantyne Conference
Center, 10000 Ballantyne Commons Parkway, Charlotte, North Carolina 28277 for
the following purposes:
1. To elect two members to our board of directors.
2. To consider and vote upon a proposal to approve our 2001 Stock
Incentive Plan.
3. To consider and vote upon a proposal to approve the conversion
terms and general voting rights of our 8% convertible
preferred stock and the issuance of shares of our common stock
upon the conversion of the 8% convertible preferred stock.
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
We describe the above items in more detail in the attached proxy
statement accompanying this notice. Only stockholders who owned our common stock
at the close of business on April 2, 2001 may attend and vote at the meeting.
You may view a list of the stockholders entitled to vote at the meeting during
the ten days before the meeting at our principal executive offices located at
11115 Rushmore Drive, Charlotte, North Carolina 28277. The board of directors
recommends a vote FOR each of the proposals.
IT IS VERY IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING.
EVEN IF YOU PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL PROMPTLY MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY USING THE ENCLOSED ENVELOPE. THIS WILL
NOT LIMIT YOUR RIGHT TO ATTEND OR VOTE AT THE MEETING.
By order of the board of directors.
Douglas R. Lebda
Chief Executive Officer
Charlotte, North Carolina
April __, 2001
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PRELIMINARY COPIES
LENDINGTREE, INC.
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PROXY STATEMENT FOR 2001
ANNUAL MEETING OF STOCKHOLDERS
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GENERAL INFORMATION
INTRODUCTION
Our board of directors is soliciting proxies for use at the 2001 Annual
Meeting of Stockholders to be held Thursday, May 24, 2001 at 9:00 a.m., local
time, at the Ballantyne Conference Center, 10000 Ballantyne Commons Parkway,
Charlotte, North Carolina 28277, and at any adjournment thereof.
This proxy statement, the proxy card and our 2000 annual report to
stockholders were first mailed on or about April __, 2001 to all of our
stockholders entitled to vote at the meeting. Our principal executive offices
are located at 11115 Rushmore Drive, Charlotte, North Carolina 28277.
RECORD DATE
Stockholders of record at the close of business on April 2, 2001 (the
"record date") are entitled to notice of and to vote at the meeting. LendingTree
has one series of common shares outstanding, designated common stock, $.01 par
value. On the record date, 18,737,441 shares of our common stock were issued and
outstanding and held of record by approximately 150 stockholders, excluding
stockholders holding shares in nominee and "street" name. In addition, on the
record date, 6,757,144 shares of our 8% convertible preferred stock were issued
and outstanding and held of record by 17 stockholders.
REVOCABILITY OF PROXIES
You may revoke your proxy and change your vote at any time before the
final vote at the annual meeting. You may do this by signing a new proxy card
with a later date or by attending the meeting and voting in person. Attending
the meeting will not revoke your proxy unless you specifically request it.
VOTING
Each share of common stock outstanding on the record date is entitled
to one vote. Holders of our 8% convertible preferred stock will not have voting
rights at the meeting.
SOLICITATION OF PROXIES
LendingTree will pay the cost of this solicitation. We may reimburse
brokerage firms and other persons representing beneficial owners of our common
stock for their expenses in forwarding solicitation material to such beneficial
owners. Proxies may also be solicited by certain of our directors, officers and
regular employees, without additional compensation, personally or by telephone,
facsimile or e-mail.
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QUORUM; ABSTENTIONS; BROKER NON-VOTES
A majority of the LendingTree common stock that is outstanding on the
record date, other than treasury shares, must be present in person or by proxy
in order for there to be a quorum. Without a quorum, we cannot hold the meeting
or transact business. Shares voted FOR or AGAINST a proposal count toward
establishing a quorum and also count toward the results of the voting. An
abstaining vote counts toward establishing a quorum, but its effect on the
actual vote counts differs depending on the subject of the vote. In the election
of directors, an abstaining vote is not counted and therefore has no effect on
the election; however, in a vote on the other proposals to be considered at the
meeting, an abstaining vote has the effect of a vote against the proposal. A
broker non-vote counts toward establishing a quorum, but is not included in the
tabulation of any voting results and therefore does not affect the outcome of
any vote. A broker non-vote occurs when a broker holding shares for a beneficial
owner does not vote on a proposal because the broker does not have discretionary
voting power for that proposal and has not received instructions from the
beneficial owner on how to vote.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
If you want to submit a proposal to our stockholders at next year's
annual meeting and you want the board of directors to consider including your
proposal in our proxy statement for that meeting, we must receive your proposal
at our principal executive offices no later than December __, 2001. If you
simply wish to have a proposal considered for submission at next year's annual
meeting, in accordance with the advance notice requirement of our bylaws, we
must receive your proposal at our executive offices no later than February 23,
2002. However, if next year's annual meeting is called for a date that is not
within 30 days before or after May 24, 2002, we must receive notice of your
request no later than the close of business on the 10th day following the date
on which notice of the date of the annual meeting is mailed to stockholders or
is publicly announced, whichever is earlier.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information about the beneficial ownership
of our common stock and our 8% convertible preferred stock as of March 31, 2001.
We have listed each person that beneficially owns more than 5% of our
outstanding common stock or preferred stock, each of our directors, each of our
executive officers identified in the summary compensation table on page 33 and
all directors and executive officers as a group. Unless otherwise indicated,
each of the stockholders has sole voting and investment power with respect to
the shares beneficially owned.
Common stock percentage ownership is based on 18,737,441 shares of
common stock outstanding as of March 31, 2001. Preferred stock percentage
ownership is based on 6,885,715 shares of preferred stock that will be
outstanding following the closing of the purchase and sale of an additional
128,571 shares of our preferred stock to be completed on or before April 30,
2001. A total of 6,757,144 shares of our preferred stock were actually
outstanding as of March 31, 2001. Shares of common stock issuable upon the
exercise or conversion of options, warrants or shares of preferred stock that
are currently exercisable or convertible or exercisable or convertible within 60
days of March 31, 2001 are deemed outstanding for the purpose of computing the
common stock percentage ownership of the person holding such options, warrants
or shares of preferred stock, but are not deemed outstanding for purposes of
computing the common stock percentage ownership of any other person. Even though
our 8% convertible preferred stock will not become convertible into shares of
our common stock until the conversion terms are approved by our stockholders
(which we expect to occur at the annual meeting), we have included shares of
common stock issuable upon conversion of the preferred stock in calculating
common stock ownership amounts.
In connection with the sale of 6,757,144 shares of our 8% convertible
preferred stock in March 2001, stockholders holding approximately 59% of our
outstanding common stock entered into a voting agreement and executed
irrevocable proxies pursuant to which these stockholders have agreed to vote
their shares of common stock in favor of proposal three, which seeks approval of
the conversion terms and general voting rights of our 8% convertible preferred
stock and the issuance of our common stock upon conversion of the 8% convertible
preferred stock. Under the voting agreement, these stockholders have also agreed
to vote their shares of common stock in favor of proposal two, which seeks
approval of our 2001 Stock Incentive Plan. By virtue of the voting agreement,
and only for such time as the voting agreement is in effect, the parties to the
voting agreement may be deemed to constitute a "group" within the meaning of
Rule 13d-5(b) under the Exchange Act and thereby may be deemed to be beneficial
owners of all shares of 8% convertible preferred stock and common stock held by
each member of the deemed group. The voting agreement will terminate immediately
following the annual meeting if proposal three is approved by our stockholders.
Each of the stockholders listed below that is a party to the voting agreement
has disclaimed its membership in such group and, for purposes of Section 13(d)
of the Exchange Act, has disclaimed beneficial ownership of any shares of 8%
convertible preferred stock or common stock held by any party to the voting
agreement other than itself.
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COMMON PREFERRED
STOCK STOCK
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
NAME AND ADDRESS(1) OWNED OF CLASS OWNED OF CLASS
--------------- - ------------ ---------- ------------ ----------
Specialty Finance Partners (2) 7,956,420 35.0% 4,000,000 58.1%
ULLICO(3) 2,271,604 11.9% -- --
GE Capital Residential Connections
Corporation (4) 1,266,053 6.8% -- --
General Electric Capital Assurance
Company (5) 316,514 1.7% -- --
The Goldman Sachs Group, Inc. (6) 1,424,310 7.6% -- --
Zions Bancorporation (7) 1,428,571 7.1% 1,428,571 20.7%
Capital Group International, Inc. (8) 1,337,400 7.2% -- --
Douglas Lebda (9) 1,420,748 7.4% 200,000 2.9%
Keith Hall (10) 131,600 * 28,571 *
Stephen Campbell (11) 28,187 * -- --
Thomas Reddin (12) 73,536 * -- --
Richard Stiegler (13) 98,740 * -- --
Richard Field (14) 1,070,682 5.5% 200,000 2.9%
W. James Tozer, Jr. (15) 901,443 4.7% 300,000 4.4%
James Carthaus (16) 50,025 * -- --
Robert Kennedy (17) 2,271,604 11.9% -- --
Daniel Lieber (18) -- -- -- --
Dale Gibbons (19) 1,436,771 7.1% 1,428,571 20.7%
Robert Spass (20) -- -- -- --
Theodore W. Kheel(21) 213,413 1.1% 142,857 2.1%
All executive officers and directors
as a group (18 persons) 15,526,003 59.2% 6,157,142 89.4%
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* Less than one percent.
(1) Addresses are provided only for the beneficial owners of 5% or more of
our common stock or preferred stock.
(2) Specialty Finance Partners, an affiliate of Capital Z Partners, is
located at 54 Thompson Street, New York, New York. Specialty Finance
Partners beneficially owns 7,956,420 shares of common stock, which
includes 4,000,000 shares of common stock that will be issuable upon
conversion of our 8% convertible preferred stock. Specialty Finance
Partners has sole voting and dispositive power with respect to such
shares. In addition, Specialty Finance Partners may be deemed to have
the shared power to vote or direct the vote of 15,576,032 shares or
66.7% of the outstanding shares of common stock by virtue of its being
party to the voting agreement. Capital Z Fund II, Capital Z L.P. and
Capital Z Ltd. may be deemed to beneficially own 7,956,420 shares of
our common stock by virtue of Specialty Finance Partners's beneficial
ownership of shares of common stock and 8% convertible preferred stock
discussed above. Each of Capital Z Fund II, Capital Z L.P. and Capital
Z Ltd. has shared voting and dispositive power with respect to such
shares. In addition, each of Capital Z Fund II, Capital Z L.P., and
Capital Z Ltd. may be deemed to have shared voting and dispositive
power with respect to 15,576,032 shares of common stock described above
by virtue of Specialty Finance Partners being party to the voting
agreement.
(3) The Union Labor Life Insurance Company, on behalf of its separate
account P (ULLICO), is located at 111 Massachusetts Avenue, N.W., 8th
Floor, Washington, D.C. ULLICO beneficially owns 2,271,604 shares of
common stock, which includes 421,000 shares that are issuable upon
exercise of currently exercisable
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warrants. ULLICO has sole voting and dispositive power with respect to
all of such shares. In addition, as a result of the voting agreement,
ULLICO may be deemed to have shared voting and dispositive power with
respect to 15,997,032 shares or 67.3% of the outstanding shares of
common stock.
(4) GE Capital Residential Connections Corporation (GECRCC) is located at
6601 Six Forks Road, Raleigh, North Carolina. GECRCC beneficially owns
1,266,053 shares of common stock. GECRCC has sole voting and
dispositive power with respect to all of such shares. In addition, as a
result of the voting agreement, GECRCC may be deemed to have shared
voting and dispositive power with respect to 15,576,032 shares of
common stock or 66.7% of the outstanding shares of common stock.
(5) General Electric Capital Assurance Company (GECAC) is located at 6604
West Broad Street, Richmond, Virginia. GECAC beneficially owns 316,514
shares of common stock. GECAC has sole voting and dispositive power
with respect to all of such shares. In addition, as a result of the
voting agreement, GECAC may be deemed to have shared voting and
dispositive power with respect to 15,576,032 shares of common stock or
66.7% of the outstanding shares of common stock
(6) The Goldman Sachs Group, Inc. ("Goldman Sachs") is located at 85 Broad
Street, New York, New York. Goldman Sachs beneficially owns 1,424,310
shares of common stock. Goldman Sachs has sole voting and dispositive
power with respect to all of such shares. In addition, as a result of
the voting agreement, Goldman Sachs may be deemed to have shared voting
and dispositive power with respect to 15,576,032 shares of common stock
or 66.7% of the outstanding shares of common stock. The shares
beneficially owned by Goldman Sachs may also be deemed to be
beneficially owned by Stone Street Fund 1999, L.P. and by Goldman,
Sachs & Co. Goldman Sachs & Co. is the manager of the general partner
of Stone Street Fund 1999, L.P., and Goldman Sachs & Co. is a
wholly-owned subsidiary of Goldman Sachs.
(7) Zions Bancorporation is located at One South Main, Suite 1660, Salt
Lake City, Utah. Zions Bancorporation beneficially owns 1,428,571
shares of common stock, all of which consists of shares of common stock
that will be issuable upon conversion of our 8% convertible preferred
stock.
(8) The information concerning beneficial ownership set forth above and in
this note is derived from a Schedule 13G dated February 12, 2001.
Capital Group International, Inc. is located at 11100 Santa Monica
Blvd., Los Angeles, California. Capital Group International, Inc.
beneficially owns 1,337,400 shares of common stock as a parent holding
company of a group of investment management companies that hold
investment power and, in some cases, voting power over such shares.
Capital Group International, Inc. does not have voting or investment
power over any of the shares. Capital Guardian Trust Company, a bank
and a wholly-owned subsidiary of Capital Group International, Inc.,
beneficially owns the same 1,337,400 shares as a result of its serving
as the investment manager of various institutional accounts.
(9) Mr. Lebda's business address is 11115 Rushmore Drive, Charlotte, North
Carolina. Mr. Lebda beneficially owns 1,420,748 shares of common stock,
which includes (a) 200,000 shares that will be issuable upon conversion
of our 8% convertible preferred stock, (b) 173,648 shares that are
issuable upon the exercise of stock options that are currently
exercisable or exercisable within the next 60 days, (c) 589,820 shares
held jointly with his spouse, (d) 88,900 shares held by a family trust
and (e) 23,812 shares that are issuable upon the exercise of currently
exercisable stock options held by his spouse. In addition, as a result
of the voting agreement, Mr. Lebda may be deemed to have shared voting
and dispositive power with respect to 15,749,860 shares of common stock
or 67.3% of the outstanding shares of common stock. Dispositive power
over all of Mr. Lebda's shares of common stock and preferred stock is
subject to a pledge arrangement with LendingTree. See "Certain
Relationships and Related Party Transactions - Officer Loans."
(10) Mr. Hall beneficially owns 131,600 shares of common stock, which
includes (a) 28,571 shares that will be issuable upon conversion of
shares of preferred stock to be purchased by Mr. Hall's IRA account on
or before April 30, 2001, (b) 30,388 shares that are issuable upon the
exercise of stock options that are currently exercisable or exercisable
within the next 60 days and (c) an aggregate of 11,525 shares held by
his spouse's IRA account and by trusts established for the benefit of
members of Mr. Hall's family. Mr. Hall has sole voting and dispositive
power with respect to all of such shares. In addition, as a result of
the
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voting agreement, Mr. Hall may be deemed to have shared voting and
dispositive power with respect to 15,617,945 shares of common stock or
approximately 66.8% of the outstanding shares of common stock.
(11) Mr. Campbell beneficially owns 28,187 shares of common stock, which
includes 26,787 shares that are issuable upon the exercise of stock
options that are currently exercisable or exercisable within the next
60 days.
(12) Mr. Reddin beneficially owns 73,536 shares of common stock, which
includes 71,436 shares that are issuable upon the exercise of stock
options that are currently exercisable or exercisable within the next
60 days.
(13) Mr. Stiegler beneficially owns 98,740 shares of common stock, which
includes 64,557 shares of common stock that are issuable upon the
exercise of stock options that are currently exercisable or exercisable
within the next 60 days.
(14) Mr. Field's address is 49 Locust Avenue, Suite 104, New Canaan,
Connecticut. Mr. Field beneficially owns 1,070,682 shares of common
stock, which includes (a) 85,714 shares that will be issuable upon the
conversion of shares of preferred stock held by Mr. Field, (b) 114,286
shares that will be issuable upon the conversion of shares of preferred
stock held in Mr. Field's IRA account, (c) 16,510 shares that are
issuable upon the exercise of warrants that are currently exercisable
or exercisable within the next 60 days and (d) 329,511 shares that are
issuable upon the exercise of currently exercisable stock options. Mr.
Field has sole voting and dispositive power with respect to all of such
shares. In addition, as a result of the voting agreement, Mr. Field may
be deemed to have shared voting and dispositive power with respect to
16,099,339 shares of common stock or approximately 67.4% of the
outstanding shares of common stock.
(15) Mr. Tozer beneficially owns 901,443 shares of common stock, which
includes (a) 200,000 shares that will be issuable upon conversion of
shares of preferred stock held by Mr. Tozer, (b) 100,000 shares that
will be issuable upon the conversion of shares of preferred stock to be
purchased by Mr. Tozer's IRA account on or before April 30, 2001 and
(c) 2,540 shares that are issuable upon the exercise of warrants held
by Mr. Tozer's wife that are currently exercisable or exercisable
within the next 60 days. Mr. Tozer has sole voting and dispositive
power with respect to all of such shares. In addition, as a result of
the voting agreement, Mr. Tozer may be deemed to have shared voting and
dispositive power with respect to 15,582,570 shares of common stock or
approximately 66.7% of the outstanding shares of common stock.
(16) Mr. Carthaus beneficially owns 50,025 shares of common stock, which
includes 32,325 shares that are issuable upon the exercise of stock
options that are currently exercisable or exercisable within the next
60 days.
(17) Amounts shown reflect shares owned by ULLICO. Mr. Kennedy disclaims
beneficial ownership of all such shares.
(18) Excludes shares owned by Specialty Finance Partners and its affiliates.
(19) Amounts shown include 1,428,571 shares of common stock and preferred
stock beneficially owned by Zions Bancorporation. Mr. Gibbons is the
Chief Financial Officer of Zions Bancorporation. Mr. Gibbons disclaims
beneficial ownership of all such shares.
(20) Excludes shares owned by Specialty Finance Partners and its affiliates.
(21) Amounts shown include 142,857 shares of preferred stock beneficially
owned by the TASK Foundation, a family-owned, not-for-profit foundation
of which Mr. Kheel is the President. Mr. Kheel disclaims beneficial
ownership of all such shares. In addition, as a result of the voting
agreement, Mr. Kheel may be deemed to have shared voting and
dispositive power with respect to 15,718,889 shares of common stock or
approximately 66.9% of the outstanding shares of common stock.
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PROPOSAL ONE
ELECTION OF DIRECTORS
DIRECTORS
Our board of directors currently has eight members who are divided into
three classes serving staggered terms of three years. In March 2001, the board
was expanded from seven to eight members and Dale Gibbons was appointed as a
Class III Director by the board of directors to fill the resulting vacancy. In
April 2001, Adam Mizel resigned as a director of LendingTree, and Robert Spass
was appointed by the board of directors to fill the vacancy created by Mr.
Mizel's resignation. Currently, there are two Class I directors, three Class II
directors and three Class III directors. The Class I directors are to be elected
at the 2001 annual meeting. The Class II and III directors will be elected at
our 2002 and 2003 annual meetings of stockholders, respectively. James Carthaus,
an incumbent Class II director, has notified us that he intends to retire
following the annual meeting of stockholders. Upon Mr. Carthaus's resignation,
our board of directors intends to leave his seat open until it identifies an
appropriate individual who is willing to serve as a director.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the two nominees for election as Class I directors named
below, both of whom are currently directors. In the event that any nominee is
unable or declines to serve as a director at the time of the meeting, the
proxies will be voted for any nominee who shall be designated by the board of
directors to fill the vacancy. At this time we believe that the nominees will be
able to serve as directors and will not decline to do so.
NOMINEES FOR CLASS I DIRECTORS
Two Class I directors are to be elected at the meeting for a three-year
term. The board of directors has nominated Richard Field and W. James Tozer, Jr.
for re-election as Class I directors. Unless otherwise instructed, the persons
named in the enclosed proxy intend to vote proxies received by them for the
re-election of Messrs. Field and Tozer. Each elected director's term of office
will continue until our 2004 annual meeting or until the director's successor
has been elected and qualified.
INFORMATION CONCERNING THE NOMINEES AND INCUMBENT DIRECTORS
The following sets forth certain information regarding the two nominees
for election:
NOMINEES FOR CLASS I DIRECTORS FOR A TERM EXPIRING IN 2004
RICHARD FIELD (60) has been a director since August 1997. Mr. Field has
been a private investor since May 1997. From 1978 until 1997, Mr. Field worked
at The Bank of New York in various capacities, most recently as Senior Executive
Vice President of Retail Banking and a member of its Policy Committee. Prior to
1978, Mr. Field served in various marketing capacities at Chase Manhattan
Corporation and Citicorp. Mr. Field is also a former member of the Executive
Committee of MasterCard International's board of directors and the former
Chairman of MasterCard's U.S. board of directors.
W. JAMES TOZER, JR. (60) has been a director since August 1997. Since
1990, Mr. Tozer has been the Managing Director of Vectra Management Group, a
real estate firm. He is a former Senior Vice President of Citibank and a member
of its Policy Committee, Senior Executive Vice President of Shearson Hayden
Stone, Senior Executive Vice President of Marine Midland Bank and President of
Prudential-Bache Securities. Until its sale in January 2001, he was Chairman of
the Executive Committee of Draper Bank and Trust and was a co-founder of Vectra
Bank of Colorado.
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The following sets forth certain information regarding the incumbent
members of our board of directors:
INCUMBENT CLASS II DIRECTORS
JAMES CARTHAUS (60) has been a director since December 1998. Since
1989, Mr. Carthaus has been the Chairman of a New York investment bank,
Scott-Macon, Ltd. He is a former officer of Citibank, Vice President and senior
lending officer of a predecessor of FleetBoston Financial and Executive Vice
President and director of Shearson Lehman Brothers, where he headed the
financial services division. Mr. Carthaus is currently a director and Chairman
of the Investment Committee of The Franciscan Sisters of the Poor Foundation,
Inc.
ROBERT KENNEDY (65) has been a director since December 1998. Mr.
Kennedy has been the Director of Special Projects of ULLICO, Inc. since 1994.
Mr. Kennedy is currently a director of SuperShuttle International, Inc. and
Perini Corporation and a member of the Advisory Board of Euclid Funds.
DANIEL LIEBER (38) has been a director since September 1999. Mr. Lieber
is a partner at Equifin Capital Management, an investment firm affiliated with
Capital Z Partners, 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.
INCUMBENT CLASS III DIRECTORS
DOUGLAS LEBDA (31) founded LendingTree in June 1996 and has served as
a director since that time. He has served as Chief Executive Officer since
September 1998. Prior to that time, Mr. Lebda served as Chairman of the Board
and President. Before founding LendingTree, Mr. Lebda was with Price Waterhouse
in various capacities beginning in 1992.
ROBERT A. SPASS (45) has been a director since April 2001. He has been
Deputy Chairman of the Board and Director of Capital Z Management, L.L.C. and
affiliated companies from 1998 to the present. Mr. Spass has also been a Partner
of Capital Z Partners since 1998 and Managing Partner of Insurance Partners
Advisors I, L.P., since 1994. Prior to joining Insurance Partners Advisors I,
L.P., Mr. Spass was President and Chief Executive Officer of International
Insurance Advisors, Inc. from 1990 to 1994. Mr. Spass is a director of Superior
National Insurance Group, Inc. and certain subsidiaries, Ceres Group, Inc.,
Universal American Financial Corporation, USI Insurance Services Corp.,
Highlands Insurance Group, Inc., and Aames Financial, Corp.
DALE GIBBONS (40) has been a director since March 2001, when he was
elected in connection with the closing of the issuance and sale of our 8%
convertible preferred stock. Mr. Gibbons has been the Chief Financial Officer of
Zions Bancorporation since August 1996. Prior to joining Zions Bancorporation,
Mr. Gibbons was a Senior Vice President of First Interstate Bancorp.
REQUIRED VOTE
The two nominees receiving the most affirmative votes of the shares
present or represented and entitled to vote will be elected as directors. Votes
withheld from any director are counted in order to determine whether there is a
quorum, but do not count for or against the election of any director.
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THE BOARD UNANIMOUSLY RECOMMENDS VOTING "FOR" EACH OF THE NOMINEES
LISTED ABOVE.
BOARD MEETINGS AND COMMITTEES
The board of directors held a total of 18 meetings during 2000, and no
current director who served as a director during 2000 attended fewer than 75% of
the aggregate number of the meetings of the board of directors and of all
committees on which he served. The board of directors has an audit committee and
a compensation committee. The board of directors does not have a nominating
committee or any other committee performing such function.
The audit committee, which currently consists of Messrs. Kennedy, Field
and Lieber, provides assistance to our board of directors in fulfilling its
legal and fiduciary obligations with respect to matters involving our
accounting, auditing, financial reporting and internal controls and legal
compliance functions. The audit committee met four times during 2000.
The compensation committee, which consisted of Messrs. Carthaus and
Mizel during 2000 and currently consists of Messrs. Carthaus and Spass, is
responsible for determining salaries, incentives and other forms of compensation
for our directors, officers and other employees and administering various
incentive compensation and benefit plans. The compensation committee met eight
times during 2000.
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PROPOSAL TWO
APPROVAL OF 2001 STOCK INCENTIVE PLAN
We currently maintain our 1997, 1998 and 1999 Stock Incentive Plans in
order to provide our key service providers with long-term, stock-based
compensation. However, we anticipate that there shortly will be no further
shares available for grant under the 1997, 1998 and 1999 plans because options
to purchase most of the shares in those plans have previously been awarded.
Therefore, in order for us to continue to have a program for providing
long-term, stock-based compensation to our employees, officers, directors and
consultants, our board of directors adopted on October 25, 2000, subject to
stockholder approval, the 2001 Stock Incentive Plan of LendingTree, Inc. (the
2001 Stock Incentive Plan or the Plan). Stockholder approval of the Plan is
necessary to satisfy (i) the requirements of Section 422 of the Internal Revenue
Code (the Code) (related to "incentive stock options" or "ISOs" within the
meaning of Code Section 422) and Section 162(m) of the Code (related to
"performance-based compensation" that is exempt from the $1.0 million deduction
limit described in more detail below) and (ii) the rules of the Nasdaq National
Market.
DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN
The following is a summary of the material terms of the 2001 Stock
Incentive Plan. A copy of the 2001 Stock Incentive Plan is attached as Appendix
A and the summary is qualified in its entirety by reference to the 2001 Stock
Incentive Plan.
General. The purpose of the 2001 Stock Incentive 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 enable us to attract, retain and reward the best available persons for
positions of substantial responsibility. A maximum of 4,000,000 shares of common
stock has been reserved for issuance under the 2001 Stock Incentive Plan
(including for issuance in connection with ISOs awarded under the 2001 Stock
Incentive 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. No participant may receive awards under the 2001 Stock Incentive Plan
in any 12-month period relating to an aggregate of more than 4,000,000 shares.
If an award granted under the 2001 Stock Incentive Plan expires or is
terminated, surrendered or cancelled for any reason, the shares of common stock
underlying the award will again be available for grant under the 2001 Stock
Incentive Plan.
Types of Awards. The following awards may be granted under the 2001
Stock Incentive Plan:
- stock options, including incentive stock options and
non-qualified stock options;
- restricted stock;
- phantom stock;
- stock bonuses; and
- other stock-based awards.
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Administration. The 2001 Stock Incentive Plan will generally be
administered by the compensation committee of the board of directors. Our
compensation committee has full authority, subject to the provisions of the 2001
Stock Incentive Plan, among other things, to determine the persons to whom
awards will be granted, the type of award to be granted, the number of shares to
be made subject to awards, the exercise price and other terms and conditions of
the awards and to interpret the 2001 Stock Incentive Plan and prescribe, amend
and rescind the rules and regulations relating to the 2001 Stock Incentive Plan.
It is intended that the members of the compensation committee will be
"non-employee directors" within the meaning of Section 16 under the Securities
Exchange Act of 1934 and "outside directors" within the meaning of Code Section
162(m). The board of directors or the compensation committee may delegate to any
of our senior management the authority to make grants of awards to our employees
who are not executive officers or directors of LendingTree.
Eligibility. Awards may be granted under the 2001 Stock Incentive Plan
to employees, directors, including directors who are not employees, and
consultants of LendingTree or any of our affiliates, as selected by the
compensation committee. As of March 31, 2001, approximately 230 employees and
directors were eligible to receive awards under the 2001 Stock Incentive Plan.
We have not allocated any specific number of shares to be granted or covered by
options under the Plan to any individual or any group of eligible persons. We
have, however, issued options to purchase a total of 1,059,300 shares of common
stock, subject to stockholder approval. See "Grants" below.
Terms and Conditions of Options. Stock options granted under the 2001
Stock Incentive Plan may be either incentive stock options or non-qualified
stock options. The exercise price of a stock option granted under the 2001 Stock
Incentive Plan is determined by the compensation committee at the time the
option is granted, but the exercise price per share 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 are exercisable at the times and upon the conditions
that the compensation committee may determine, as reflected in the applicable
option agreement. The exercise period will be determined by the compensation
committee, but in the case of an incentive stock option, generally, the exercise
period of an option may not exceed 10 years from the date of grant.
The option exercise price must be paid in full at the time of exercise
and may be payable by one or more of the following methods:
- in cash or cash equivalents;
- the surrender of previously acquired shares of common stock
that have been held by the participant for at least six months
prior to the date of surrender;
- if so determined by the compensation committee as of the grant
date, authorization for LendingTree to withhold a number of
shares otherwise payable pursuant to the exercise of an
option; or
- through a broker cashless exercise procedure approved by
LendingTree.
Our compensation committee may, in its sole discretion, authorize
LendingTree to make or guarantee loans to a participant to assist the
participant in exercising options.
The compensation committee may provide at the time of grant of an
option that the participant may elect to exercise all or any part of the option
before it becomes vested and exercisable. If the participant elects to exercise
all or part of a non-vested option, the participant will be issued shares of
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restricted stock which will become vested in accordance with the vesting
schedule set forth in the original option agreement.
Outside Director Options. Non-employee directors who beneficially own
less than five percent of LendingTree's common stock (referred to as "outside
directors") will be eligible for automatic grants of non-qualified options under
the 2001 Stock Incentive Plan. Each outside director will be granted upon his or
her first election or appointment to the board an option to purchase 15,000
shares of common stock. In addition, immediately following each annual
stockholders meeting, each outside director then serving will be granted an
option to purchase 5,000 shares of common stock. Each option granted under this
program to an outside director will have an exercise price per share equal to
the fair market value per share of our common stock on the date of grant and
will become exercisable in full on the second anniversary of the date of grant,
provided that the director is still serving as a director as of the vesting
date. Each option granted to an outside director will expire on the tenth
anniversary of the date of grant. The other terms of the options granted to
outside directors will be consistent with the terms of options granted to other
2001 Stock Incentive Plan participants.
Restricted Stock. The 2001 Stock Incentive Plan provides for awards of
common stock that are subject to restrictions on transferability and other
restrictions imposed by the compensation committee. Except to the extent
restricted under the award agreement relating to the restricted stock, a
participant granted restricted stock will have all of the rights of a
stockholder (including voting rights).
Phantom Stock. The 2001 Stock Incentive Plan provides for awards of
phantom stock, which, upon vesting, entitle the participant to receive cash
and/or shares of common stock (as determined by the compensation committee)
equal in value to the fair market value of the number of shares subject to such
award. Awards of phantom stock under the 2001 Stock Incentive Plan also accrue
dividend equivalents during the period prior to payment that are also payable in
cash or shares at the applicable payment date. Vesting of all or a portion of a
phantom stock award may be subject to various conditions established by the
compensation committee. Unless and until a participant receives actual shares in
payment of the award, the participant does not have any voting rights.
Stock Bonuses; Other Awards. The 2001 Stock Incentive Plan provides
that awards of unrestricted shares of common stock may be granted to Plan
participants at the discretion of the compensation committee. In addition, other
awards valued in whole or in part by reference to, or otherwise based on, common
stock may be granted either alone or in addition to other awards under the 2001
Stock Incentive Plan, in the compensation committee's discretion.
Change in Control. In the event of a change in control, the time-vested
portion of an outstanding award that is not vested or exercisable at the time of
the change in control will become 50% vested and (in the case of options)
exercisable. In addition to the automatic acceleration, the compensation
committee will have the discretion to accelerate the vesting or exercisability
of the remainder of any award granted under the 2001 Stock Incentive Plan.
Termination of Employment. Unless otherwise determined by our
compensation committee, the unvested portion of awards granted under the 2001
Stock Incentive Plan will immediately be cancelled upon termination of a
participant's employment or service with LendingTree and, in the case of
restricted stock purchased upon exercise of a non-vested option, the purchase
price of such stock will be refunded. Unless otherwise determined by our
compensation committee, the post-termination exercise period for stock options
awarded under the 2001 Stock Incentive Plan will vary depending on the reason of
termination as follows: (i) if a participant's employment or service terminates
other than because of death, disability or retirement, all options that are
exercisable at the time of termination may be exercised by the participant for
no longer than 90 days after the date of termination; (ii) if a participant's
employment or
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service terminates for cause, all options held by the participant will
immediately terminate; (iii) if a participant's employment or service terminates
as a result of death, all options that are exercisable at the time of death may
be exercised by the participant's heirs or distributees for one year, provided
that options granted to non-employee directors may provide for a post-death
exercise period of up to three years; and (iv) if a participant's employment or
service terminates because of disability or retirement, all options that are
exercisable at the time of termination may be exercised for a period of one year
immediately following termination. In no case may an option be exercised after
it expires in accordance with its terms.
Amendment, Termination of Plan. Our board of directors may modify or
terminate all or any portion of the 2001 Stock Incentive Plan at any time,
except that an amendment that requires stockholder approval in order for the
2001 Stock Incentive Plan to continue to comply with any law, regulation or
stock exchange requirement will not be effective unless approved by our
stockholders. No awards may be granted under the 2001 Stock Incentive Plan after
the day immediately preceding the tenth anniversary of its adoption date.
Code Section 162(m). Code Section 162(m) precludes a publicly held
corporation from claiming a compensation deduction for compensation in excess of
$1.0 million paid to the chief executive officer or any of the four most highly
compensated officers other than the chief executive officer. This limitation
does not apply, however, to qualified "performance-based compensation."
Stock options granted under the 2001 Stock Incentive Plan that have an
exercise price equal at least to fair market value at the date of grant should
qualify as "performance-based compensation" under Section 162(m).
In addition, the 2001 Stock Incentive Plan authorizes our compensation
committee to make, or provide for the vesting of, awards of restricted stock and
phantom stock that are conditioned on the satisfaction of certain performance
criteria. For such awards intended to qualify as "performance-based
compensation" under Section 162(m), our compensation committee will establish
prior to or within 90 days after the start of the applicable performance period
the applicable performance conditions. Our compensation committee may select
from the following performance measures (the Performance Goals) for such
purpose: (i) pre-tax income or after-tax income; (ii) operating profit; (iii)
return on equity, assets, capital or investment; (iv) earnings or book value per
share; (v) sales or revenues; (vi) operating expenses; (vii) common stock price
appreciation; (viii) implementation or completion of critical projects or
processes; (ix) increase in the volume of qualification forms completed or
submitted, which goals may be expressed in terms of absolute numbers and/or as a
percentage increase; (x) comparison of actual performance during a performance
period against budget for such period; (xi) increase in the number of loans
closed, which increase may be measured by type(s) of loan or in the aggregate;
(xii) growth of revenue, which growth may be expressed in terms of absolute
numbers and/or as a percentage increase; or (xiii) reductions in expenses, which
reductions may be expressed in terms of absolute numbers and/or as a percentage
decrease; provided that with respect to clauses (xi) through (xiii), such
achievement may be measured against budget for the same period.
Where applicable, the Performance Goals may be expressed in terms of
attaining a specified level of the particular criteria or the attainment of a
percentage increase or decrease in the particular criteria, and may be applied
to one or more of LendingTree, a subsidiary or affiliate, or a division or
strategic business unit of LendingTree, or may be applied to the performance of
LendingTree relative to a market index, a group of other companies or a
combination thereof, all as determined by the compensation committee. The
Performance Goals may include a threshold level of performance below which no
vesting will occur, levels of performance at which specified vesting will occur,
and a maximum level of performance at which full vesting will occur. Each of the
foregoing Performance Goals will be
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determined in accordance with generally accepted accounting principles, provided
that the compensation committee will have the authority to make equitable
adjustments to the Performance Goals in recognition of unusual or non-recurring
events affecting LendingTree or any subsidiary or affiliate or the financial
statements of LendingTree or any subsidiary or affiliate in response to changes
in applicable laws or regulations, or to account for items of gain, loss or
expense determined to be extraordinary or unusual in nature or infrequent in
occurrence or related to the disposal of a segment of a business or related to a
change in accounting principles.
The Performance Goals and the related compensation formula for
determining the awards or vesting of awards will be stated in the form of an
objective, nondiscretionary formula, and the compensation committee will certify
in writing the attainment of such performance conditions prior to any payout
with respect to such awards.
Grants. Options to purchase a total of 1,059,300 shares of common stock
have been issued to date under the 2001 Stock Incentive Plan, subject to
stockholder approval. Each such option was granted with an exercise price equal
to the fair market value of the common stock on the grant date. As of March 30,
2001, the fair market value of the common stock was $3.25 per share (based on
the average of the highest and lowest price reported for such date).
Stock options covering the following number of shares have been granted
under the 2001 Stock Incentive Plan, subject to stockholder approval of the
Plan, to (i) each of our named executive officers listed on page 33, (ii) all
current executive officers as a group, (iii) all current directors who are not
executive officers as a group and (iv) all employees, including all current
officers who are not executive officers, as a group:
NAME AND POSITION NUMBER OF OPTIONS
----------------- -----------------
Douglas Lebda 160,000
Keith Hall 35,000
Stephen Campbell 35,000
Thomas Reddin 65,000
Richard Steigler 50,000
Executive Group 467,200
Non-Executive Director Group 0
Non-Executive Officer Employee Group 592,100
Messrs. Carthaus, Field and Tozer are the directors currently eligible
to be granted options under the 2001 Stock Incentive Plan's outside director
program for automatic grants of options. It is anticipated that Messrs.
Carthaus, Field and Tozer will each be granted options to purchase 5,000 shares
of common stock under this program during our current year. Our board of
directors from time to time reviews industry information relating to director
compensation and may adjust the number of options to be granted under this
program in appropriate circumstances.
Because the amount of benefits to be received by any 2001 Stock
Incentive Plan participant (other than an outside director in connection with
the outside director award formula described above) is determined by our
compensation committee in its discretion, the amount of future benefits to be
allocated to any person or group of persons under the 2001 Stock Incentive Plan
in any particular year is not determinable.
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FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. Incentive stock options granted under the 2001
Stock Incentive Plan will be subject to the applicable provisions of the
Internal Revenue Code, including Code Section 422. If shares of common stock are
issued to an optionee upon the exercise of an ISO, and if no "disqualifying
disposition" of such shares is made by such optionee within one year after the
exercise of the ISO or within two years after the date the ISO was granted, then
(i) no income will be recognized by the optionee at the time of the grant of the
ISO, (ii) no income, for regular income tax purposes, will be realized by the
optionee at the date of exercise, (iii) upon sale of the shares of the common
stock acquired by exercise of the ISO, any amount realized in excess of the
option price will be taxed to the optionee, for regular income tax purposes, as
a capital gain (at varying rates depending upon the optionee's holding period in
the shares and income level) and any loss sustained will be a capital loss, and
(iv) no deduction will be allowed to LendingTree for federal income tax
purposes. If a "disqualifying disposition" of such shares is made, the optionee
will realize taxable ordinary income in an amount equal to the excess of the
fair market value of the shares purchased at the time of exercise over the
exercise price (the "bargain purchase element") and LendingTree will generally
be entitled to a federal income tax deduction equal to such amount. The amount
of any gain in excess of the bargain purchase element realized upon a
"disqualifying disposition" will be taxable as capital gain to the holder (at
varying rates depending upon such holder's holding period in the shares and
income level), for which LendingTree will not be entitled to a federal tax
deduction. Upon exercise of an ISO, the optionee may be subject to alternative
minimum tax.
Non-qualified Stock Options. With respect to non-qualified stock
options (NQSOs) granted to optionees under the 2001 Stock Incentive Plan, (i) no
income is realized by the optionee at the time the NQSO is granted, (ii) at
exercise, ordinary income is realized by the optionee in an amount equal to the
difference between the exercise price and the fair market value of the shares on
the date of exercise, and LendingTree generally receives a tax deduction for the
same amount, and (iii) on disposition, appreciation or depreciation after the
date of exercise is treated as capital gain or loss and taxed at varying rates
depending upon the holder's holding period in the shares and income level.
Restricted Stock. Upon becoming entitled to receive shares at the end
of the applicable restricted period without a forfeiture, the recipient has
ordinary income in an amount equal to the fair market value of the shares at
that time. However, a recipient who elects under Code Section 83(b) within 30
days of the date of the grant will have ordinary income on the date of the grant
equal to the fair market value of the shares of restricted stock as if the
shares were unrestricted and could be sold immediately. If the shares subject to
such election are forfeited, the recipient will not be entitled to any
deduction, refund or loss for tax purposes. Upon the sale of the shares after
the forfeiture period has expired, the holding period to determine whether the
recipient has long-term or short-term capital gain or loss begins when the
restriction period expires, and the tax basis will be equal to the fair market
value of the shares when the restricted period expires. However, if the
recipient timely elects to be taxed as of the date of grant, the holding period
commences on the date of the grant and the tax basis will be equal to the fair
market value of the shares on date of the grant as if the shares were then
unrestricted and could be sold immediately. LendingTree generally will be
entitled to a deduction equal to the amount that is taxable as ordinary
compensation income to the recipient.
Phantom Stock. A participant who is awarded phantom stock will not
recognize income and LendingTree will not be allowed a deduction at the time the
award is made. When a participant receives payment for phantom stock in cash or
shares of common stock, the amount of the cash and the fair market value of the
shares of common stock received will be ordinary income to the participant and
will be allowed as a deduction for federal income tax purposes to LendingTree.
However, if there is a substantial risk that any shares of common stock used to
pay out earned phantom stock will be forfeited (for example, because the
compensation committee conditions such shares on the performance of future
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services), the taxable event is deferred until the risk of forfeiture lapses. In
this case, the participant can elect to make a Code Section 83(b) election as
previously described. LendingTree can take the deduction at the time the income
is recognized by the participant.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION WITH RESPECT TO AWARDS UNDER THE 2001 STOCK INCENTIVE PLAN. IT DOES NOT
PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A
PARTICIPANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY
MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH A PARTICIPANT MAY RESIDE.
REQUIRED VOTE
The affirmative vote of the holders of a majority of our common stock
present at our 2001 annual meeting in person or by proxy and entitled to vote is
required to approve our 2001 Stock Incentive Plan. The holders of approximately
59% of our outstanding common stock have entered into a voting agreement and
have executed irrevocable proxies pursuant to which they have agreed to vote
their shares of common stock in favor of this proposal.
THE BOARD UNANIMOUSLY RECOMMENDS VOTING "FOR" APPROVAL OF THE 2001
STOCK INCENTIVE PLAN.
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BACKGROUND TO PROPOSAL THREE
We have historically financed our operations through the sale of equity
securities. On February 22, 2000, we completed the sale of 4,197,500 shares of
our common stock in our initial public offering at $12.00 per share, raising
approximately $44.9 million, net of offering expenses, underwriting discounts
and commissions. Prior to our initial public offering, we raised capital to fund
our operations through private placements of our equity securities.
In September 2000, Capital Z Partners, our largest stockholder,
purchased an equity rights certificate from us for $10 million. This equity
rights certificate was initially exercisable for 1,253,918 shares of our common
stock and warrants to purchase 225,000 shares of our common stock. According to
its terms, the equity rights certificate was also exercisable instead for other
of our securities or for different amounts of our securities based on the
occurrence of certain events, including the 8% convertible preferred stock
financing. See "Certain Relationships and Related Party Transactions" below.
We have not yet achieved profitability and we have incurred significant
losses since our inception. Our uses of cash and losses have resulted in part
from the significant costs we have incurred for our advertising and marketing
efforts to build and maintain brand awareness. We have also incurred significant
costs for employment expenses related to the establishment of relationships with
lenders, real estate brokers and other business partners and the development of
our Lend-X technology, as well as for other general corporate purposes. Because
we plan to continue to invest in these items, we anticipate that we will
continue to incur losses and experience negative cash flow from operations
throughout 2001. As of December 31, 2000, we had approximately $12.7 million in
cash, cash equivalents and short-term investments. Of this amount, $5.1 million
was restricted under an escrow account with our advertising agency.
In light of our cash needs, we began exploring financing alternatives
beginning in the late summer of 2000. As part of this process, we engaged
Merrill Lynch Pierce Fenner & Smith, Incorporated as our financial advisor.
Merrill Lynch contacted a number of potential investors, including certain of
our significant stockholders, during late 2000 and early 2001 with respect to
their interest in private financing transactions involving LendingTree.
During January and February 2001, we negotiated term sheets and letters
of intent relating to our 8% convertible preferred stock financing, a $24.0
million equity line with Paul Revere Capital Partners, Ltd. (Paul Revere), a
$5.0 million revolving line of credit with the Union Labor Life Insurance
Company, on behalf of its separate account P (ULLICO), and a $2.5 million
revolving line of credit with the Federal Home Loan Mortgage Corporation
(Freddie Mac). During February and the first week of March 2001, we negotiated
the definitive documents related to these transactions. Our board of directors
met five times during January and February 2001 and received reports from
management on the status of Merrill Lynch's efforts and on the negotiations
regarding the various financing transactions.
On February 22, 2001, as negotiations with respect to the 8%
convertible preferred stock financing, the ULLICO revolving line of credit and
the other transactions were progressing, our board of directors created a
special committee of disinterested directors to evaluate, negotiate and approve
any proposed financing transactions due to the fact that a number of board
members had a direct or indirect economic interest in one or more of the
transactions that were being negotiated.
On March 5, 2001, after consultation with its financial and legal
advisors and with LendingTree's management, the special committee approved and
recommended that our board of directors approve each of the 8% convertible
preferred stock financing, the $24.0 million equity line with Paul Revere, the
$5.0 million revolving line of credit with ULLICO and the $2.5 million revolving
line of credit with Freddie
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Mac. On March 5, 2001, following the special committee's recommendation, our
board of directors approved each of these financing transactions. In approving
the transactions, the special committee placed particular emphasis on
LendingTree's immediate cash needs, Merrill Lynch's efforts at contacting
potential investors and the current status of the capital markets, especially
with respect to technology-oriented companies such as ours.
On March 7, 2001, we entered into the definitive agreements with
respect to each of these financing transactions. On March 20, 2001, the four
financing transactions closed and we received cash proceeds of $13.0 million in
connection with the sale of shares of our 8% convertible preferred stock. We
have not yet borrowed under either revolving line of credit or sold any shares
under the Paul Revere equity line. To the extent that we need additional amounts
of cash, we presently intend to draw on the revolving lines of credit before
selling any shares under the Paul Revere equity line. We will not be able to
draw upon the equity line unless and until we file and have declared effective a
registration statement with respect to the shares to be sold to Paul Revere
pursuant to our common stock purchase agreement with Paul Revere. All proceeds
we receive from these financing transactions are presently intended be used
either for the continued development and implementation of our Lend-X
technology, our advertising and marketing efforts or for general corporate
purposes.
Each of the four financing transactions is briefly summarized below:
8% Convertible Preferred Stock. On March 7, 2001, we entered into a
preferred stock purchase agreement pursuant to which we issued and sold on March
20, 2001 (i) 3,700,001 shares of our 8% convertible preferred stock for $13.0
million in cash and (ii) 200,000 shares of our 8% convertible preferred stock to
our Chief Executive Officer with funds that he obtained from a $700,000 loan
from us. In connection with this transaction, we received commitments from two
other investors, including our Chief Financial Officer, to purchase an
additional 128,571 shares on or before April 30, 2001 for a total consideration
of $450,000 plus accumulated but unpaid dividends to the date of such closing.
In conjunction with the closing of the 8% convertible preferred stock
transaction, Capital Z Partners' equity rights certificate was converted into
2,857,143 shares of 8% convertible preferred stock at an effective conversion
rate equal to $3.50 per share. No additional purchase price was required to be
paid for the shares of 8% convertible preferred stock issued upon conversion of
the equity rights certificate. The terms, conditions, restrictions and limits of
this financing are more particularly described below in "Proposal Three -
Approval of the Conversion Terms and General Voting Rights of Our 8% Convertible
Preferred Stock and the Issuance of Shares of our Common Stock Upon Conversion
Thereof."
Equity Line. On March 7, 2001, we entered into a common stock purchase
agreement with Paul Revere for the future issuance and sale of up to $24.0
million of our common stock. Under this arrangement, we, at our sole discretion,
may exercise up to 24 drawdowns pursuant to which Paul Revere is obligated to
purchase up to $24.0 million of our common stock at prices that will vary based
on the market price of our common stock. In general, if we elect to sell shares
under the facility, the minimum amount we may draw down at any one time is
$100,000, and the maximum amount will be the greater of $1,000,000 or 20% of the
weighted average price of our common stock for the 22 days prior to the date we
request a drawdown multiplied by the total trading volume of our common stock
for such 22 day period. We can make a drawdown request every 22 days if we
choose to do so. The purchase price for the shares that are issued under the
agreement will be equal to 95% of the volume-weighted average price of our
common stock over the 22 day period following our drawdown request. The proceeds
we receive from each drawdown will be reduced by a 4% fee payable to our
placement agent and a $1,000 escrow fee. In light of the Nasdaq National
Market's requirements, the agreement further provides that we may not issue more
than 19.9% of our shares of common stock outstanding on March 20, 2001 without
first obtaining stockholder approval for such excess issuance. As of March 20,
2001, we had a total of
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18,737,441 shares of our common stock issued and outstanding, 19.9% of which
would be 3,728,750 shares.
ULLICO Revolving Line of Credit. On March 7, 2001, we entered into a
two-year $5.0 million revolving credit agreement with ULLICO. Borrowings under
the revolving credit agreement are secured by substantially all of our assets.
Interest on borrowings accrues at 6% per annum in cash with additional interest
payable in the form of 5-year warrants to purchase our common stock with an
exercise price of $.01 per share. The number of warrants ULLICO will be entitled
to receive is based on the average amount outstanding multiplied by 14% per
annum and divided by $3.99. In addition, as a commitment fee, we issued ULLICO
warrants to purchase 40,000 shares of our common stock with an exercise price of
$.01 per share.
Freddie Mac Revolving Loan. On March 7, 2001, we entered into a
two-year $2.5 million revolving loan agreement with Freddie Mac and amended the
terms of our existing software licensing arrangement with Freddie Mac. Interest
on borrowings accrues at 10% per annum in cash with additional interest payable
in the form of 5-year warrants to purchase our common stock with an exercise
price of $.01 per share. The number of warrants Freddie Mac will be entitled to
receive is based on the average amount outstanding multiplied by 10% per annum
divided by $3.99. In addition, as a commitment fee, we issued Freddie Mac
warrants to purchase 12,500 shares of our common stock with an exercise price of
$.01 per share.
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PROPOSAL THREE
APPROVAL OF THE CONVERSION TERMS AND GENERAL VOTING RIGHTS
OF OUR 8% CONVERTIBLE PREFERRED STOCK AND THE ISSUANCE
OF SHARES OF OUR COMMON STOCK UPON CONVERSION THEREOF
This proposal is to approve the conversion terms and general voting
rights of our 8% convertible preferred stock and the issuance of shares of our
common stock upon conversion thereof. As described more fully below, we issued
6,757,144 shares of our 8% convertible preferred stock in March 2001. We are
submitting this proposal to our stockholders so that they can approve the
conversion terms and general voting rights of the 8% convertible preferred stock
and the issuance of shares of our common stock upon conversion thereof. Because
our common stock is listed on the Nasdaq National Market, we are required to
comply with Nasdaq's requirements. These requirements prevent us from issuing
securities convertible into 20% or more of our outstanding common stock or with
20% or more of our voting power in certain circumstances prior to obtaining
stockholder approval. Because the preferred shares will be convertible into 20%
or more of our common stock and will have more than 20% of our voting power, the
conversion terms and general voting rights of our 8% convertible preferred stock
will not be effective until we obtain the prior approval of our stockholders. If
our stockholders approve this proposal, the 8% convertible preferred stock will
become convertible into shares of our common stock and will be entitled to
general voting rights, in each case as described below. If our stockholders do
not approve the conversion terms by June 23, 2001, the dividend rate on the 8%
convertible preferred stock will increase to 12% until such time as the
conversion terms are approved by the stockholders. The holders of approximately
59% of our outstanding shares of common stock have entered into a voting
agreement and have executed irrevocable proxies pursuant to which they have
agreed to vote their shares of common stock in favor of this proposal.
INTRODUCTION
On March 7, 2001, we entered into a preferred stock purchase agreement
pursuant to which:
- we issued and sold 3,700,001 shares of our 8% convertible
preferred stock on March 20, 2001 to 17 investors for $13.0
million, or $3.50 per share, in cash;
- we issued and sold 200,000 shares of our 8% convertible
preferred stock to our Chief Executive Officer on March 20,
2001 with funds that he obtained from a $700,000 loan from us;
and
- we received commitments from two investors, including our
Chief Financial Officer, to purchase an additional 128,571
shares of our 8% convertible preferred stock on or before
April 30, 2001 for total consideration of $450,000, or $3.50
per share, plus accrued but unpaid dividends through that
date.
In addition, in connection with the closing on March 20, 2001, Capital
Z Partners, our largest stockholder, converted its $10.0 million equity rights
certificate into 2,857,143 shares of our 8% convertible preferred stock.
Following these transactions, a total of 6,885,715 shares of our 8% convertible
preferred stock will be outstanding. Assuming the conversion terms of the 8%
convertible preferred stock are approved by our stockholders, these shares would
initially be convertible, at the option of the holders, into an equal number of
shares of our common stock. The shares of common stock initially issuable upon
conversion of the 8% convertible preferred stock would represent approximately
36.7% of our common stock outstanding on April 2, 2001.
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Because our common stock is listed on the Nasdaq National Market, we
are required to comply with Nasdaq's requirements. These requirements prevent us
from issuing securities convertible into 20% or more of our outstanding common
stock or with 20% or more of our voting power in certain circumstances prior to
obtaining stockholder approval. Accordingly, the conversion terms and the
general voting rights of the 8% convertible preferred stock are subject to the
prior approval of our stockholders. The certificate of designations, preferences
and rights pursuant to which the 8% convertible preferred stock was issued
provides that:
- each share of our 8% convertible preferred stock becomes
convertible into shares of our common stock only after our
stockholders approve these conversion terms; and
- each share of our 8% convertible preferred stock has general
voting rights with our common stock on an "as-converted" basis
only after our stockholders approve these voting rights.
In the preferred stock purchase agreement, we agreed to take all
necessary actions to seek and obtain stockholder approval of the conversion
terms and general voting rights of the 8% convertible preferred stock at our
2001 annual meeting of stockholders. The holders of approximately 59% of our
outstanding shares of common stock have entered into a voting agreement and
executed irrevocable proxies pursuant to which they have agreed to vote their
shares of common stock in favor of this proposal. If for some reason the
conversion terms of the 8% convertible preferred stock and the issuance of
shares of our common stock upon conversion thereof are not approved by our
stockholders by June 23, 2001, the dividend rate on the 8% convertible preferred
stock will increase to 12% until such time as the conversion terms are approved.
MATERIAL TERMS OF OUR 8% CONVERTIBLE PREFERRED STOCK
Title, Authorized Shares; Priority. There are 6,885,715 authorized
shares of our series A 8% convertible preferred stock, of which 6,757,144 shares
are currently issued and outstanding. The remaining 128,571 shares will be
issued and outstanding following the second closing to be held on or before
April 30, 2001. Our 8% convertible preferred stock ranks senior to our common
stock and to any other classes or series of preferred stock the terms of which
specifically provide that they are junior to our 8% convertible preferred stock
("junior securities") with respect dividend rights and with respect to rights
upon liquidation, winding up or dissolution.
Dividends. The holders of our 8% convertible preferred stock are
entitled to receive dividends on the preferred stock equal to 8% of the stated
value per share payable at our option:
- in cash on a quarterly dividend payment date; or
- by an upward adjustment to the stated par value per share on a
quarterly dividend payment date.
The stated value per share is equal to the original purchase price for the 8%
convertible preferred stock of $3.50 per share, subject to adjustment for
dividends that are not paid in cash. Dividends on the 8% convertible preferred
stock are cumulative and accrue daily from the date of original issuance.
Dividends are payable on the last day of March, June, September and December of
each year, commencing June 30, 2001.
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The holders of common stock and other junior securities may not receive
dividends or have their shares repurchased or redeemed unless the holders of the
8% convertible preferred stock approve the dividend, repurchase or redemption
and all accumulated but unpaid dividends on the 8% convertible preferred stock
have been paid.
Redemption. The shares of 8% convertible preferred stock will be
redeemable at our option for cash commencing on and after March 31, 2004 at a
price per share equal to the product of the applicable percentage described
below, multiplied by the then current stated value per share. The applicable
percentage is initially 120% and declines to 105% ratably on a quarterly basis
as follows:
Period Applicable Percentage
------ ---------------------
March 20, 2004 through June 30, 2004 118.333%
July 1, 2004 through September 30, 2004 116.666%
October 1, 2004 through December 31, 2004 115.000%
January 1, 2005 through March 31, 2005 113.333%
April 1, 2005 through June 30, 2005 111.666%
July 1, 2005 through September 30, 2005 110.000%
October 1, 2005 through December 31, 2005 108.333%
January 1, 2006 through March 21, 2006 106.666%
On and after March 21, 2006 105.000%
We are required to redeem all shares of 8% convertible preferred stock
that remain outstanding on March 20, 2006 at a price of 105% of the then current
stated value per share. If we do not redeem the 8% convertible preferred stock
on that date, the dividend rate will increase to 15% of the stated value per
share for so long as such shares remain outstanding.
Conversion. The shares of 8% convertible preferred stock are not
convertible into shares of our common stock unless and until we receive the
approval of our stockholders. If our stockholders approve this proposal, each
share will be convertible following our annual meeting into the number of shares
of common stock determined by dividing the then current stated value per share
plus accrued but unpaid dividends by the conversion price. The conversion price
is the initial purchase price of $3.50 per share, subject to adjustment from
time to time as described in the section "Dilution and Price Protection" below.
If our stockholders do not approve the conversion terms of the 8% convertible
preferred stock at our annual meeting and we have not obtained such stockholder
approval by June 23, 2001, the dividend rate on the 8% convertible preferred
stock will increase to 12% until such time as our stockholders approve the
conversion terms.
Dilution and Price Protection. The shares of 8% convertible preferred
stock are subject to protection from certain dilutive events. If any of these
dilutive events occurs, the conversion price of the 8% convertible preferred
stock will be adjusted in the manner described below. Dilutive events that would
trigger an adjustment in the conversion price include the following:
- the issuance of shares of common stock or common stock
equivalents in financing transactions involving greater than
$5.0 million in net proceeds to us before we have reported
positive cash flow (as defined below) for any two consecutive
fiscal quarters, in which case the conversion price would be
adjusted as follows:
- if the net proceeds of such financing transactions
are between $5.0 million and $10.0 million, the
conversion price may be decreased to the net
volume-weighted
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average purchase price per share of the common stock
or common stock equivalents sold in such financings;
- if the net proceeds are greater than $10.0 million,
the conversion price will be adjusted to the net
volume-weighted average purchase price per share of
the common stock or common stock equivalents issued
in any dilutive transaction or series of dilutive
transactions with proceeds equal to any $10.0 million
that would yield the lowest net volume-weighted
average purchase price per share; and
- in no such event, however, will the conversion price
be reduced below $2.00 per share or increased above
$3.50 per share.
- stock dividends, subdivisions, splits or combinations, in
which case the conversion price would be proportionately
increased or decreased; and
- mergers, consolidations, reorganizations or other similar
business combinations or any other change of control event
described in "Liquidation Preference" below that results in
our common stock being changed into securities of another
company or a sale of substantially all of our assets, in which
case the conversion terms would be adjusted to provide the
holders of our 8% convertible preferred stock with the right
to convert their shares of preferred stock into the cash,
securities or property that they would have been entitled to
receive had they converted their preferred stock into common
stock immediately prior to such transaction.
Cash flow is generally defined to mean our consolidated net income
determined in accordance with generally accepted accounting principles (but
excluding extraordinary and non-recurring gains and extraordinary and
non-recurring non-cash losses) plus the following items to the extent they were
deducted:
- certain non-cash interest expenses;
- depreciation and certain amortization expenses;
- all non-cash charges for compensation attributable to options,
warrants and other equity instruments; and
- certain paid-in-kind dividends and other non-cash dividends or
equity-related charges.
The dilution and price protection provisions described above do not
extend to the following transactions:
- any issuance of securities to our employees, officers,
consultants or directors pursuant to employee benefit plans in
the ordinary course of business;
- any issuance of securities pursuant to the conversion or
exercise of securities outstanding on or as of March 20, 2001;
- any issuance of securities pursuant to the provisions
described above providing dilution protection to the holders
of our 8% convertible preferred stock;
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- any issuance of securities pursuant to the terms of our
revolving credit facilities with ULLICO and Freddie Mac; and
- any issuance of securities to business partners in
transactions approved by the board of directors that do not
have capital raising as their principal objective.
General Voting Rights. The shares of 8% convertible preferred stock do
not and will not have general voting rights unless and until we receive the
approval of our stockholders, and will not vote on any of the matters to be
voted on at the annual meeting. If our stockholders approve this proposal, each
share of our 8% convertible preferred stock will vote together with our common
stock on an "as-converted" basis on all matters that are presented to our
common stockholders after the date of the annual meeting.
Protective Provisions. So long as more than 1,377,143 shares of our 8%
convertible preferred stock are outstanding, we cannot do any of the following
without the prior approval of 68.5% of the shares of 8% convertible preferred
stock then outstanding, voting separately as a class:
- amend our certificate of incorporation or bylaws in a manner
adverse to the holders of our 8% convertible preferred stock;
- increase or decrease the authorized number of shares of our
common or preferred stock;
- authorize, create or issue any class or series of capital
stock ranking senior to or on parity with our 8% convertible
preferred stock in any respect;
- repurchase, redeem or pay any dividends on any equity
securities (other than on our 8% convertible preferred stock
and repurchases pursuant to employee benefit plans);
- subject our assets to any lien other than (i) liens in
connection with revolving credit facilities or sales of
accounts receivable in transactions approved by our board of
directors or (ii) liens arising in the ordinary course of
business that do not materially impair the value of the assets
they encumber;
- incur any indebtedness for borrowed money in excess of $10.0
million (other than in connection with revolving credit
facilities approved by our board of directors);
- issue any debt security or class or series of capital stock
that is not common stock or convertible into or exercisable
for common stock (a "non-equity security") or issue or become
subject to any debt-type obligation, in either case, that
bears an annual interest rate, dividend rate or yield greater
than the six-month LIBOR rate plus 15%;
- issue any non-equity security or issue or become subject to
any debt-type obligation that provides for both:
- an annual interest rate, dividend rate or yield
greater than the six-month LIBOR rate plus 10%; and
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- the issuance of or the right to receive 1,000,000 or
more shares of our common stock or any other class or
series of our common or preferred stock that is not a
non-equity security; and
- increase the size of our board of directors to more than 10
directors.
Preemptive Rights. Holders of our 8% convertible preferred stock have a
preemptive right to acquire up to 50% of any equity securities that we propose
to issue in the future on terms and conditions no less favorable than those that
we offer to a third party. Each holder of preferred stock has the preemptive
right to acquire his or her proportional share of such 50% amount (subject to
increase for over-allotment if some holders do not fully exercise their rights).
The following issuances of equity securities are not subject to the
preemptive rights:
- the issuance of securities to our employees, officers,
consultants and directors pursuant to employee benefit plans
in the ordinary course of business;
- any issuance of securities upon the conversion of securities
outstanding on or as of March 20, 2001;
- underwritten public offerings of securities;
- issuances of common stock under the Paul Revere equity line;
- any issuance of securities as part of revolving credit
facilities;
- any issuance of securities in connection with acquisitions;
and
- any issuance of securities to business partners in
transactions approved by our board of directors that do not
have capital raising as their principal objective.
Liquidation Preference. In the event LendingTree is liquidated or
dissolves, the holders of our 8% convertible preferred stock will be entitled to
receive a liquidation preference before any distributions may be made to holders
of our common stock or any other junior securities. This liquidation preference
will be equal to 105% of the then current stated value per share.
In connection with certain change in control events, holders of our 8%
convertible preferred stock may have the right at their option to:
- treat the change in control event as a liquidation and receive
the greater of (i) the liquidation preference described above
or (ii) the consideration that they would have received if
they had converted their shares of 8% convertible preferred
stock into common stock immediately prior to the consummation
of the change in control event;
- require as a condition to any change of control transaction in
which the consideration is other than cash that the
counterparty to such transaction redeem the convertible
preferred stock for a cash amount equal to the then current
liquidation preference; or
- continue to hold the convertible preferred stock in which
case, the change of control event may result in or trigger an
adjustment to the conversion price.
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These change in control events generally include:
- the sale of all or substantially all of our assets;
- the consummation of a transaction in which any person or
group, other than Capital Z Partners and its affiliates,
becomes the owner of 50% or more of our voting stock;
- during any period of two consecutive years, directors in
office at the beginning of a period together with other
directors approved by our board of directors cease to
constitute a majority of our board; and
- mergers or business combinations (other than certain mergers
or business combinations in which holders of our voting
securities hold the same voting power after the merger or
business combination as they held before the transaction and
mergers effected to change our jurisdiction of organization).
BOARD APPOINTMENT
In the preferred stock purchase agreement, we agreed to increase the
size of our board of directors from seven to eight members and to cause a
representative of Zions Bancorporation to be nominated to fill the vacancy
created by such increase. Zions Bancorporation purchased 1,428,571 shares of our
8% convertible preferred stock for a total purchase price of $5.0 million at the
closing held on March 20, 2001. Effective March 20, 2001, our board of directors
voted to increase its size from seven to eight members and Dale Gibbons was
elected as Zions Bancorporation's nominee to fill the resulting vacancy.
VOTING AGREEMENT AND IRREVOCABLE PROXIES
We have entered into a voting agreement with the holders of
approximately 59% of our outstanding shares of common stock pursuant to which
such persons have agreed to vote all of their voting securities in LendingTree
in favor of:
- the conversion terms and general voting rights of our 8%
convertible preferred stock and any subsequent issuances of
common stock upon conversion thereof; and
- the 2001 Stock Incentive Plan.
In addition, all of the stockholders that executed the voting agreement
also executed irrevocable proxies coupled with an interest, pursuant to which
each of such stockholders irrevocably appointed and directed Keith Hall or
Douglas Lebda or any other designee of LendingTree to vote all of the shares of
common stock held by each of such stockholders in favor of the conversion terms
and general voting rights of the 8% convertible preferred stock.
Stockholders party to the voting agreement and irrevocable proxies
include Specialty Finance Partners, Douglas Lebda, W. James Tozer, Jr., Richard
Field, Keith Hall, Theodore Kheel, General Electric Capital Assurance Company,
GE Capital Residential Connections Corporation, Stone Street Fund 1999, L.P.,
The Goldman Sachs Group, Inc. and the Union Labor Life Insurance Company, on
behalf of its separate account P.
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REGISTRATION RIGHTS AGREEMENT
We have agreed to file a registration statement with the Securities and
Exchange Commission by May 4, 2001 covering the resale of shares of our common
stock issuable upon conversion of our 8% convertible preferred stock. We have
agreed to thereafter use our best efforts to have the registration statement
declared effective as soon as practicable after such filing and to keep it
effective at all time until the earlier of (i) the sale of all of the shares of
common stock covered by such registration statement and (ii) five years from the
later of the date our stockholders approve the conversion terms of the 8%
convertible preferred stock or the date the registration statement is declared
effective.
The registration rights agreement contains customary agreements
regarding registration procedures, delay periods, registration expenses,
indemnification and contribution and other matters.
CAPITAL Z EQUITY RIGHTS CERTIFICATE
In connection with the first closing of the sale of our 8% convertible
preferred stock on March 20, 2001, Capital Z Partners and certain of its
affiliates converted their $10.0 million equity rights certificate into
2,857,143 shares of our 8% convertible preferred stock and had the exercise
price of their commitment fee warrant to purchase 135,000 shares of our common
stock adjusted from $7.975 per share to $3.762 per share. Specialty Finance
Partners, an affiliate of Capital Z Partners, also purchased 1,142,857 shares of
8% convertible preferred stock for a total cash purchase price of $4.0 million
at such closing. See "Certain Relationships and Related Party Transactions."
LOAN TO CHIEF EXECUTIVE OFFICER
In connection with Douglas Lebda's purchase of 200,000 shares of our 8%
convertible preferred stock, we entered into a promissory note and an amended
and restated pledge agreement with him to provide him with a $700,000 loan and
amend the terms of certain outstanding loans to Mr. Lebda. See "Certain
Relationships and Related Party Transactions."
INTERESTS OF OUR DIRECTORS AND OFFICERS IN THE PREFERRED STOCK FINANCING
The following table lists those investors in the financing transaction
who are also directors and officers of LendingTree or who are affiliates of any
such directors or officers and the number of shares of our 8% convertible
preferred stock they purchased and the amount of their investment:
Shares of Amount of
Investor Preferred Stock Investment
-------- --------------- ----------
Zions Bancorporation(1) 1,428,571 $5,000,000
Specialty Finance Partners(2) 1,142,857 4,000,000
Douglas Lebda 200,000 700,000(3)
Richard Field 200,000 700,000
W. James Tozer, Jr.(4) 300,000 1,050,000
Keith Hall(5) 28,571 100,000
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(1) Dale Gibbons, a member of our board of directors, is the Chief
Financial Officer of Zions Bancorporation.
(2) Specialty Finance Partners also acquired an additional 2,857,143 shares
of preferred stock upon conversion of its $10.0 million equity rights
certificate. Robert Spass and Adam Mizel are partners of Capital Z
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Partners and Daniel Lieber is a partner of Equifin Capital Management,
an affiliate of Capital Z Partners. Messrs. Spass and Lieber are both
members of our board of directors and Mr. Mizel was a member of our
board of directors until his resignation in April 2001.
(3) Paid with funds obtained from a loan from LendingTree.
(4) Mr. Tozer purchased 200,000 shares on March 20, 2001 through his IRA
account and agreed to purchase an additional 100,000 shares at the
closing to be held on or before April 30, 2001.
(5) Mr. Hall agreed to purchase such shares through his IRA account at the
closing to be held on or before April 30, 2001.
STOCKHOLDER CONSIDERATIONS
Because our common stock is listed on the Nasdaq National Market, we
are required to comply with Nasdaq's requirements. These requirements prevent us
from issuing securities convertible into 20% or more of our outstanding common
stock or with 20% or more of our voting power in certain circumstances prior to
obtaining stockholder approval. Accordingly, the conversion terms and the
general voting rights of the 8% convertible preferred stock and the issuance of
our common stock upon conversion thereof are subject to the prior approval of
our stockholders.
There are several factors that you should consider in evaluating
whether to vote for or against this proposal. If our stockholders do not approve
the conversion terms of the 8% convertible preferred stock at our annual meeting
and such approval has not been obtained by June 23, 2001, the dividend rate on
the 8% convertible preferred stock will increase to 12% and remain at 12% until
such time as our stockholders approve the conversion terms. In addition,
stockholders representing approximately 59% of our outstanding shares of common
stock have executed a voting agreement and irrevocable proxies coupled with an
interest, pursuant to which each such stockholder irrevocably appointed and
directed Keith Hall or Douglas Lebda or any other designee of LendingTree to
vote all of the shares of common stock held by each such stockholder in favor of
the conversion terms and general voting rights of the 8% convertible preferred
stock.
Approval of the conversion terms and general voting rights provisions
of the 8% convertible preferred stock and the issuance of our common stock upon
conversion thereof will substantially dilute the voting interest of existing
stockholders and could have an adverse effect on the market price of our common
stock. The perceived risk of voting power dilution may cause our stockholders to
sell their shares or engage in short selling, either of which would contribute
to a downward movement in the price of our common stock.
OTHER
Copies of the certificate of designations, preferences and rights of
our 8% convertible preferred stock, the preferred stock purchase agreement and
the registration rights agreement are attached as exhibits to our Annual Report
on Form 10-K for the year ended December 31, 2000 filed with the Securities and
Exchange Commission. Copies of these documents are available to stockholders
without charge upon request to: Chief Financial Officer, LendingTree, Inc.,
11115 Rushmore Drive, Charlotte, North Carolina 28277 (telephone no.: (704)
541-5351).
REQUIRED VOTE
The affirmative vote of the holders of a majority of our common stock
present at our 2001 annual meeting in person or by proxy and entitled to vote is
required to approve the conversion terms and general
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voting rights of our 8% convertible preferred stock and the issuance of shares
our common stock upon conversion thereof.
THE BOARD UNANIMOUSLY RECOMMENDS VOTING "FOR" THE APPROVAL OF THE
CONVERSION TERMS AND GENERAL VOTING RIGHTS OF OUR 8% CONVERTIBLE PREFERRED STOCK
AND THE ISSUANCE OF SHARES OF OUR COMMON STOCK UPON CONVERSION THEREOF.
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EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The table below sets forth certain compensation information for fiscal
years 1999 and 2000 concerning our Chief Executive Officer and our four next
most highly compensated executive officers (collectively, the Named Executive
Officers).
SUMMARY COMPENSATION TABLE
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND SALARY BONUS COMPENSATION OPTIONS
PRINCIPAL POSITION YEAR ($) ($) ($) (#)
------------------ ---- -------- ------- ------------ -----------
Douglas Lebda 2000 258,000 135,000 228,383(1) 418,749
Chief Executive Officer 1999 154,000 100,000 (2) 190,500
Thomas Reddin 2000 218,000 141,000 (2) 65,000
Senior Vice President and Chief 1999 11,000 65,000 (2) 28,749
Operating Officer(3)
Keith Hall 2000 179,000 161,000 32,693(4) 73,100
Senior Vice President, Chief Financial 1999 79,000 62,500 (2) 114,300
Officer and Treasurer(5)
Richard Stiegler 2000 191,000 100,000 (2) 88,099
Senior Vice President and Chief 1999 120,000 122,000 (2) --
Technology Officer
Stephen Campbell 2000 186,000 117,000 (2) 113,574
Senior Vice President and Chief 1999 17,000 25,000 (2) 28,575
Information Officer(6)
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(1) Consists of an income tax gross-up paid to Mr. Lebda in connection with
his exercise of non-qualified stock options to purchase 168,134 shares
of our common stock. Excludes the amount realized by Mr. Lebda upon the
exercise of such stock options. See "Aggregated Option Exercises in
Last Fiscal Year and Fiscal Year-End Option Values" and "Certain
Relationships and Related Party Transactions - Officer Loans."
(2) Such Named Executive Officer did not receive perquisites during the
listed year in excess of 10% of his annual salary and bonus for such
year.
(3) Mr. Reddin joined LendingTree in December 1999.
(4) Consists of an income tax gross-up paid to Mr. Hall in connection with
his exercise of a non-qualified stock option to purchase 12,260 shares
of our common stock. Excludes the amount realized by Mr. Hall upon the
exercise of such stock option. See "Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values" and "Certain
Relationships and Related Party Transactions - Officer Loans."
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(5) Mr. Hall joined LendingTree in June 1999.
(6) Mr. Campbell joined LendingTree in March 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The table below summarizes the stock options granted during fiscal 2000
to each Named Executive Officer and the potential realizable value of each grant
of options assuming annualized appreciation in our common stock at the rate of
5% and 10% over the term of the option.
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Securities Total Options Stock Price Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price Expiration -----------------------------
Name Granted (#)(1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- -------------- ------------ -------- ---------- --------- -----------
Douglas Lebda 158,749(2) 5.3 9.25 1/7/10 923,487 2,340,296
100,000(3) 3.4 12.00 2/15/10 754,675 1,912,491
160,000(4) 5.4 2.80 12/6/10 281,242 712,722
Thomas Reddin 65,000(5) 2.2 2.80 12/6/10 114,254 289,543
Keith Hall 38,100(6) 1.3 9.25 1/7/10 221,638 561,675
35,000(7) 1.2 2.80 12/6/10 61,522 155,908
Richard Steigler 38,099(8) 1.3 9.25 1/7/10 221,632 561,660
50,000(9) 1.7 2.80 12/6/10 87,888 222,726
Stephen Campbell 28,574(10) 1.0 9.25 1/7/10 166,223 421,241
50,000(11) 1.7 5.97 4/17/10 187,678 475,613
35,000(12) 1.2 2.80 12/6/10 61,522 155,908
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(1) Each option vests in four equal annual installments beginning on the
first anniversary of the date of grant.
(2) 13,752 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.
(3) All of the shares covered by the option will be subject to the rules
for non-qualified stock options.
(4) 77 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.
(5) 16,289 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) 9,525 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.
(7) 4,350 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) 35,059 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.
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(9) 12,786 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.
(10) 26,799 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.
(11) 5,699 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.
(12) All of the shares covered by the option will be subject to the rules
for non-qualified stock options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table below sets forth information related to the exercises of
stock options during 2000 by each Named Executive Officer and the fiscal
year-end number and value of unexercised stock options:
Number of Shares Underlying Value of Unexercised In-the-
Unexercised Options Money Options
Shares At Fiscal Year-End (#) At Fiscal Year-End (#)
Acquired On Value ----------------------------- -----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Douglas Lebda 168,134 481,617 134,141 480,865 44,101 0
Thomas Reddin -- -- 71,436 279,313 0 0
Keith Hall 12,260 67,307 20,863 154,276 0 0
Richard Steigler -- -- 55,033 96,566 24,079 0
Stephen Campbell -- -- 7,143 135,006 0 0
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
Douglas Lebda. We have an employment agreement with Douglas Lebda with
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 initial option to purchase 190,500 shares of our common
stock. This grant will be referred to later as the "initial option." In the
event Mr. Lebda's employment is terminated by us either without cause or for bad
performance, or if Mr. Lebda terminates his employment for good reason, Mr.
Lebda is entitled to receive as severance pay a continuation of his then current
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 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, in the event that Mr. Lebda's
employment is terminated:
- by us without cause,
- by Mr. Lebda for good reason, or
- as a result of a merger, acquisition, share exchange or other
business combination,
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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 Mr. Lebda's employment is terminated for bad performance, the stock
options granted to Mr. Lebda prior to the effective date of his employment
agreement will vest in accordance with the schedule set forth in the agreement
evidencing the initial 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 a general release to
us in order to receive severance payments.
Thomas Reddin. We have an employment agreement with Thomas Reddin with
a term commencing on December 10, 1999. In addition to providing for salary,
benefits and a fixed bonus for his first year of employment, Mr. Reddin's
agreement provides for the payment of an annual discretionary bonus of up to 50%
of his salary following the first anniversary of his employment with us. In the
event Mr. Reddin's employment is terminated by us other than for cause, he is
entitled to receive his then-current salary for one year, provided, that if he
becomes employed elsewhere during that period, our obligation to continue salary
payments will be reduced on a dollar-for-dollar basis by salary and bonus
received from the subsequent employer. In addition, Mr. Reddin would be entitled
to additional vesting of a pro-rata portion of the option tranche that would
have vested on the next following anniversary of his employment, had he remained
employed on that date. Any exercisable options held by Mr. Reddin at the time of
such termination without cause will remain exercisable for 90 days thereafter.
Mr. Reddin is subject to non-competition and non-solicitation covenants during
his employment with LendingTree and he will be subject to such covenants during
the one-year period following termination of his employment.
Change of Control Arrangements. We have entered into employment
continuity agreements with each of our named executive officers that provide for
their continued employment with LendingTree for one year following certain
change of control events. If any such executive's employment is terminated
within one year of such change of control for reason other than death,
disability or cause, or if any such executive resigns because of a constructive
termination, he will be entitled to a lump sum payment equal to the sum of (1)
his unpaid annual base salary and any accrued time off through the termination
date, (2) his target annual bonus for the performance period in which the
termination occurs, prorated for the number of days he actually worked during
the performance period, (3) any amounts previously deferred by such executive
under any non-qualified deferred compensation plan (together with earnings
accrued thereon) and (4) an amount equal to two times the sum of the executive's
then current base salary and bonus for the 12-month period before the
termination date, reduced, in the case of Messrs. Lebda and Reddin, by the
amount of any severance benefit payable to such executive under the terms of his
employment agreement with us. In addition, each such executive's stock options
under our 1999 Stock Incentive Plan or any similar plan or other arrangement
would become immediately vested, any restricted stock, phantom stock unit, stock
bonus or other stock award will become immediately vested and he and his family
would continue to receive family welfare benefits for the remainder of the year.
DIRECTOR COMPENSATION
Members of our board of directors are not paid director fees for their
attendance at meetings of the board or any of its committees. All of our
non-employee directors are reimbursed for out-of-pocket expenses incurred in
connection with their attendance at board of directors or committee meetings.
Under our 2001 Stock Incentive Plan, each non-employee director that
beneficially owns less than 5% of our voting power will automatically be granted
a non-qualified stock option for 15,000 shares upon his or her initial election
to the board, and a non-qualified stock option for 5,000 shares immediately
following each annual stockholders meeting. The terms of such options are set
forth in more detail under "Proposal Two - Approval of 2001 Stock Incentive
Plan."
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Our directors are eligible to participate in a deferred compensation
program whereby a director may defer the income from any director's fees paid
and from the exercise of stock options. Under that program, in the event of a
change in control, we will be required to fund a so-called "rabbi trust"
sufficient to pay the deferred compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists
of James Carthaus and Robert Spass. Adam Mizel served as a member of the
compensation committee until his resignation from the board of directors in
April 2001. Messrs. Spass and Mizel are both affiliated with Capital Z Partners.
See "Certain Relationships and Related Party Transactions." None of Messrs.
Carthaus, Spass or Mizel has ever been an officer or employee of LendingTree. 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 Messrs. Spass and Mizel
participate in compensation decisions for Capital Z Partners.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Certain information regarding our executive officers is set forth
below:
DOUGLAS LEBDA (31) has served as Chief Executive Officer and a director
since September 1998. Additional information about Mr. Lebda can be found above
under "Proposal One - Election of Directors."
THOMAS REDDIN (40) is Senior Vice President and Chief Operating
Officer. From 1995 to 1999, he was Vice President, Consumer Marketing for
Coca-Cola USA. Mr. Reddin was responsible for leading the strategy and all
marketing activities for Coca-Cola. Prior to joining The Coca-Cola Company, Mr.
Reddin spent 13 years with Kraft General Foods in various brand management
capacities. Mr. Reddin joined LendingTree in December 1999.
KEITH HALL (47) is Senior Vice President, Chief Financial Officer and
Treasurer. From 1997 until 1999, Mr. Hall was the Chief Financial Officer of
Broadway & Seymour, Inc., a software product and services firm. Beginning in
1995, Mr. Hall was the Chief Financial Officer of Legent Corporation, a software
and services company. Between 1983 and 1995 Mr. Hall worked in various financial
positions at United Technologies Corporation, including Chief Financial Officer
at Carrier North America. Mr. Hall has been with LendingTree since June 1999.
DAVID ANDERSON (35) is Senior Vice President of New Business
Initiatives. From June 1998 until March 1999, Mr. Anderson worked in various
capacities at American Management Systems, Inc., an international business and
information technology consulting company, most recently as a senior principal.
Mr. Anderson has been with LendingTree since March 1999.
RICHARD STIEGLER (44) is Senior Vice President and Chief Technology
Officer. From 1993 until 1997, Mr. Stiegler served as vice president of Advanced
Technology at Greenwich Capital Markets. From 1987 until 1993, Mr. Stiegler was
a Vice President at Morgan Stanley. Mr. Stiegler has been with LendingTree since
November 1997.
STEPHEN CAMPBELL (36) is Senior Vice President and Chief Information
Officer. From 1987 until November 1999, Mr. Campbell worked in various
capacities with American Management Systems Inc.,
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an international business and information technology consulting company, most
recently as the director of Software Development for the Consumer Financial
Services Group. Mr. Campbell has been with LendingTree since November 1999.
ROBERT J. FLEMMA, JR. (40) is 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 joined LendingTree in
October 1999.
LORI COLLINS (40) is Senior Vice-President. Prior to joining
LendingTree in February 2000, Ms. Collins was a Senior Vice President at Bank of
America from 1996 to 2000, a Vice President at Fidelity Investments from 1991 to
1996 and a Director of Marketing for American Express Company from to 1986 to
1991.
ERIC CUNLIFFE (55) is Senior Vice President of Realty Services,
overseeing our real-estate operations and network. From 1996 to 2000, Mr.
Cunliffe was Executive Vice President and, subsequently, President and Chief
Operating Officer of HomeSpace, Inc. Mr. Cunliffe was Vice President of Norwest
Mortgage, Inc. from 1994 to 1996 where he developed mortgage origination
relationships with affinity groups and alternate, non-traditional mortgage loan
sources. Prior to 1994, Mr. Cunliffe spent 18 years in various roles at US
Mortgage (PHH/Cendant), including Executive Vice President.
KIMBERLY GORSUCH-BRADBURY (40) is Vice President of Strategy and
Corporate Development. Prior to joining LendingTree, Ms. Gorsuch-Bradbury worked
at IBM Corporation from 1981 to 1999. In her most recent role, she led IBM's
e-finance strategy consulting team as the Executive Consultant. In this role,
she worked with IBM's customers to build and execute Internet-based business
strategies. Ms. Gorsuch-Bradbury joined LendingTree in November 1999.
ROBERT HARRIS (40) is Senior Vice President of Marketing. Prior to
joining LendingTree in June 2000, Mr. Harris was a managing director of consumer
marketing at The Coca-Cola Company from March 1997 to June 2000, where he was
responsible for leading consumer strategy development and strategic alliance
initiatives for retail operations with the United States. Prior to joining The
Coca-Cola Company, Mr. Harris was employed by McCormick & Company from August
1986 to March 1997, where he was responsible for leading marketing and sales
initiatives within the U.S. Consumer Products Group.
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SHAREHOLDER RETURN PERFORMANCE GRAPH
Presented below is a line graph comparing the percentage change in the
cumulative total shareholder return on LendingTree's common stock against the
cumulative total return of the Nasdaq Stock Market Index and the Chase H&Q
Internet Index for the period commencing February 16, 2000 (the date trading
began in our common stock) and ending March 31, 2001.
This graph assumes that $100 was invested in our common stock, in the
Nasdaq Stock Market Index and the Chase H&Q Internet Index and that all
dividends were reinvested.
[Graphical material omitted]
2/16/2000 12/31/2000 3/31/2001
--------- ---------- ---------
LendingTree $100 $16.67 $22.40
NASDAQ $100 $57.77 $41.12
Chase H&Q Internet Index $100 $36.93 $20.86
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
FINANCING TRANSACTIONS
Capital Z Partners Equity Rights Transaction. In September 2000,
Capital Z Partners purchased an equity rights certificate from us for
approximately $10.0 million. This certificate was initially exercisable for
1,253,918 shares of our common stock (equivalent to $7.975 per share) and
warrants to purchase 225,000 shares of our common stock with an initial exercise
price of $7.975. The equity rights certificate contained anti-dilution and price
protection provisions, including, among others, a provision that in the event we
successfully consummated a series of subsequent financing transactions with
aggregate proceeds of at least $15.0 million prior to June 30, 2001, the
certificate could, at the election of Capital Z Partners, be exercised for $10.0
million of the type of securities issued to investors in the subsequent
financing transaction, on the same terms and conditions as afforded investors in
the subsequent financing. Capital Z Partners also received a commitment fee
warrant to purchase 135,000 shares of our common stock, which expires on
September 29, 2005 and had an initial exercise price of $7.975 per share,
subject to adjustment in the event of a subsequent financing. In March 2001,
upon the closing of our 8% convertible preferred stock financing, Capital Z
Partners exercised its equity rights certificate for 2,857,143 shares of our 8%
convertible preferred stock and the exercise price of the commitment fee warrant
was reduced to $3.762 per share.
8% Convertible Preferred Stock Transaction. In March 2001, we sold a
total of 3,900,001 shares of our 8% convertible preferred stock for $13.7
million or $3.50 per share to Zions Bancorporation (1,428,571 shares), Specialty
Finance Partners (1,142,857 shares), Douglas Lebda (200,000 shares), Richard
Field (200,000 shares), W. James Tozer, Jr. (200,000 shares), and a group of
eleven accredited investors (728,573 shares). We also received commitments from
Keith Hall and W. James Tozer, Jr. to purchase an additional 28,571 and 100,000
shares, respectively, on or before April 30, 2001 for total consideration of
$450,000 or $3.50 per share, plus accrued but unpaid dividends to the closing
date. For more information on this transaction, see "Proposal Three - Approval
of Conversion Terms and General Voting Rights of our 8% Convertible Preferred
Stock and the Issuance of our Common Stock Upon the Conversion Thereof."
ULLICO Revolving Line of Credit. On March 7, 2001, we entered into a
two-year $5.0 million revolving credit agreement with ULLICO. Borrowings under
the revolving credit agreement are secured by substantially all of our assets.
Interest on borrowings accrues at 6% per annum in cash with additional interest
payable in the form of 5-year warrants to purchase our common stock with an
exercise price of $.01 per share. The number of warrants ULLICO will be entitled
to receive is based on the average amount outstanding multiplied by 14% per
annum divided by $3.99. In addition, as a commitment fee, we issued ULLICO
warrants to purchase 40,000 shares of our common stock with an exercise price of
$.01 per share. No amounts have been borrowed under this line of credit as of
March 31, 2001.
OFFICER LOANS
In February 2000, we granted Mr. Lebda an option to purchase 100,000
shares of our common stock at an exercise price equal to our initial public
offering price of $12.00. This option was exercised in full prior to the
commencement of trading of our common stock on the Nasdaq National Market. In
connection with the exercise of this option, Mr. Lebda issued a full recourse
promissory note to us for the full exercise price of this option of $1.2
million. The note was initially secured by all of the shares purchased pursuant
to the option. The note bears interest at the "applicable federal rate" as
defined in Section 1274(d) of the Internal Revenue Code, compounded annually.
Interest on the unpaid principal balance, along with two equal principal
installments, is due on January 31, 2004 and 2005, respectively.
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On February 9, 2000, Mr. Lebda and Keith Hall, our Chief Financial
Officer and Senior Vice President, exercised options to purchase 68,134 and
12,260 shares of our common stock, respectively, at weighted average exercise
prices of $3.93 and $5.51 per share, respectively. In connection with these
option exercises and the payment of related income taxes, we loaned Messrs.
Lebda and Hall $500,000 and $100,000, respectively, as permitted under our
benefit plans. Each of these loans was originally evidenced by a full recourse
promissory note bearing interest at the applicable federal rate, compounded
annually, and secured by all of the shares purchased under the respective
options. Interest on the unpaid principal balance of each note, along with three
equal installments of principal, is due and payable on February 9, 2002, 2003
and 2004, respectively.
In March 2001, in connection with the sale of the 8% convertible
preferred stock, we entered into a promissory note and an amended and restated
pledge agreement with Mr. Lebda to provide him with a $700,000 loan to acquire
200,000 shares of our 8% convertible preferred stock. This loan is to be repaid
in two installments of $35,000 due on January 31, 2002 and 2003, respectively,
and three installments of $210,000, plus interest on the outstanding balance,
due on January 31, 2004, 2005 and 2006, respectively. Interest on the
outstanding balance accrues at the applicable federal rate. To collateralize the
loan, we have entered into an amended and restated pledge agreement with Mr.
Lebda. This amended and restated pledge agreement amends and restates the
existing pledge agreement discussed above and covers all three loans totaling
$2.4 million. Under the amended and restated pledge agreement, we have a
security interest in all of the shares of our common and preferred stock that he
beneficially owns (other than 88,900 shares held through a family trust). Mr.
Lebda is precluded from selling or transferring any of our securities or options
or warrants to purchase any of our securities without our prior consent. The
shares described above are the sole collateral securing the three loans for as
long as Mr. Lebda remains our employee. If Mr. Lebda voluntarily terminates his
employment other than for "good reason" or if we terminate his employment for
"cause" (as those terms are defined in our employment agreement with Mr. Lebda),
the loans will become full recourse.
RELATIONSHIPS AMONG THE COMPANY, DIRECTORS AND STOCKHOLDERS
Robert Kennedy, a member of our board of directors, is the director of
special projects of ULLICO, Inc.
Daniel Lieber, a member of our board of directors, is a partner of
Equifin Capital Management, an entity affiliated with Capital Z Partners.
Adam Mizel, who served as a member of our board of directors until he
resigned in April 2001, is a partner of Capital Z Partners.
Robert Spass, a member of our board of directors, is a partner of
Capital Z Partners.
Dale Gibbons, who was elected to our board of directors in March 2001
to fill a vacancy created by expanding the board from seven to eight members, is
the Chief Financial Officer of Zions Bancorporation.
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REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The following is the report of the compensation committee of our board
of directors with respect to the compensation paid to our executive officers
during 2000.
Compensation Philosophy. Our philosophy in setting our compensation
policies for executive officers is to maximize stockholder value over time. The
primary goal of the executive compensation program is therefore to closely align
the interests of the executive officers with those of our stockholders. To
achieve this goal, we attempt to (i) offer compensation opportunities that
attract and retain executives whose abilities are critical to our long-term
success, motivate individuals to perform at their highest level and reward
outstanding achievement, (ii) maintain a significant portion of the executive's
total compensation at risk, tied to achievement of financial, organizational and
management performance goals, and (iii) encourage executives to manage from the
perspective of owners with an equity stake in LendingTree.
Executive Compensation. The compensation program for our executive
officers consists of three basic components: (i) base salary, (ii) annual cash
incentive awards and (iii) long-term stock incentive awards.
Base Salary. Except to the extent otherwise provided for under
an employment agreement, the compensation committee annually reviews and
establishes the level of base salaries for our executive officers based upon
competitive compensation data for similarly situated companies in the internet
industry, as well as the executive's job responsibilities, level of experience,
individual performance and contribution to our business. Executive officer
salaries have been targeted at or above the average rates paid by competitors to
enable us to attract, motivate, reward and retain highly skilled executives. In
order to evaluate LendingTree's competitive position in the internet industry,
the compensation committee reviewed and analyzed the compensation packages,
including base salary levels, offered by other companies in both the internet
industry and other industries (such companies include some, but not all, of the
companies included in the peer group index in the performance graph on page 39
above). The competitive information was obtained from surveys prepared by a
national consulting company. In making base salary decisions, the compensation
committee exercised its discretion and judgment based upon these factors. No
specific formula was applied to determine the weight of each factor.
Annual Cash Incentive Awards. The compensation committee
awards annual cash incentive compensation pursuant to the LendingTree, Inc.
Management Incentive Plan (the MIP). Under the MIP, the compensation committee
establishes an award formula for a year for each executive officer based on the
achievement of various financial performance factors or other specific goals.
The actual award formula for a year may vary among the executive officers. The
target award is established as either a dollar amount or a percentage of base
salary, although no award may exceed 150% of an executive officer's base salary.
Actual performance at 100% of the target performance goal will generally result
in an annual incentive award equal to the target amount, with actual performance
between 80% and 100% of the target performance goal producing a lower award and
actual performance between 100% and 150% of the target performance goal
producing a larger award. Generally, no amount will be payable under the MIP if
actual performance is less than 80% of the target performance goal.
Long-Term Stock Option Incentives. LendingTree provides its
executive officers with long-term incentive compensation through grants of
stock-based awards, especially stock options, under the 1997, 1998 and 1999
Stock Incentive Plans and (if approved by our stockholders) under the 2001 Stock
Incentive Plan. The compensation committee believes that stock options provide
executive officers
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with the opportunity to purchase and maintain an equity interest in LendingTree
and to share in the appreciation of the value of our common stock, thereby
motivating our executive officers to maximize long-term stockholder value. The
options also utilize vesting periods that encourage our executive officers to
continue in the employ of LendingTree. All options granted to executive officers
in 2000 were granted at an exercise price that was equal to the fair market
value of our common stock on the date of grant. The compensation committee
considers the grant of each option subjectively, considering factors such as the
individual performance of the executive officer and the anticipated contribution
of the executive officer to the attainment of long-term strategic performance
goals, as well as the nature and amount of any long-term incentives that have
previously been granted to an executive officer. The compensation committee also
considers data gathered on competitive practices at other companies as described
in the "Base Salary" section above.
Compensation for the Chief Executive Officer. Effective September 2,
1999, LendingTree entered an employment agreement with Douglas Lebda, our Chief
Executive Officer. All aspects of Mr. Lebda's 2000 compensation as Chief
Executive Officer are governed by this employment agreement. See "Executive
Compensation and Other Matters -- Employment Agreements and Change of Control
Arrangements." The compensation committee and the board of directors approved
Mr. Lebda's employment agreement after a detailed review of competitive
compensation data for chief executive officers in similarly situated companies
in the internet-based, services-provider industry (including some, but not all,
of the companies included in the peer group index in the performance graph on
page 39 above) and after extensive discussion of Mr. Lebda's qualifications. In
settling on the final compensation amounts, the compensation committee and the
Board focused on the importance of appointing a chief executive officer who
could provide the leadership necessary to improve our competitiveness and
profitability. In particular, in February 2000 in connection with our initial
public offering, the compensation committee determined to increase Mr. Lebda's
annual rate of base salary to $260,000 based on the committee's analysis of a
national consulting company compensation study in order to provide Mr. Lebda
with a market base salary level as compared with competitor businesses. Based on
the analysis of that study, the compensation committee also determined to award
Mr. Lebda stock options as described in the Option Grants in Last Fiscal Year
table on page 34 above. Pursuant to the employment agreement and MIP, the
compensation committee awarded Mr. Lebda an annual cash incentive for 2000 based
on the attainment of the financial performance goals approved for purposes of
that award. In particular, the compensation committee noted that actual revenue
for the year exceeded budget by over 20%. In addition, LendingTree loaned Mr.
Lebda a total of $1.7 million during 2000 in connection with the exercise of
stock options and the payment of related income taxes, as discussed under the
caption "Certain Relationships and Related Party Transactions - Officer Loans."
Section 162(m). The compensation committee has considered the potential
future effects of Section 162(m) of the Internal Revenue Code on the
compensation paid to LendingTree's executive officers. Section 162(m) generally
disallows a tax deduction for any publicly-held corporation for individual
compensation exceeding $1.0 million in any taxable year for any of the named
executive officers, unless compensation is performance-based. LendingTree has
adopted a policy that, where reasonably practicable, we will seek to qualify the
variable compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m).
James Carthaus, Chairman
Robert Spass
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AUDIT COMMITTEE REPORT
The audit committee's purpose is to provide assistance to the board of
directors in fulfilling its legal and fiduciary obligations with respect to
matters involving our accounting, auditing, financial reporting, internal
control and legal compliance functions. A full description of the audit
committee's roles and responsibilities is contained in the Audit Committee
Charter, which is attached to this proxy statement as Appendix B.
During 2000, the audit committee was composed of Messrs. Kennedy, Field
and Lieber, each of whom is "independent" under Rule 4200(a)(14) of Nasdaq's
listing standards. The audit committee met four times during 2000.
During the past year, among the other duties and activities that it
performed, the audit committee of the board of directors has:
- Reviewed and discussed our 2000 financial statements with
management and representatives of PricewaterhouseCoopers LLP,
our independent public accountants;
- Discussed with PricewaterhouseCoopers LLP the matters required
to be discussed by Statement on Auditing Standards Nos. 61 and
90; and
- Received the written disclosures and the letter from
PricewaterhouseCoopers LLP required by Independent Standards
Board Standard No. 1, and discussed with
PricewaterhouseCoopers LLP its independence.
In reliance on the review, discussions and disclosures referred to
above, the audit committee recommended to the board of directors that our
audited financial statements for 2000 be included in our Annual Report on Form
10-K for the year ended December 31, 2000.
Robert Kennedy, Chairman
Richard Field
Daniel Lieber
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers,
directors and certain persons who own more than ten percent of our common stock
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Such executive officers, directors and greater than ten
percent stockholders are required to furnish us with copies of all Section 16(a)
forms they file. Based solely on our review of the copies of such forms received
by us and written representations from the reporting persons, we believe that
during 2000 all such forms were filed on a timely basis, except as described
below. On an amended Form 5 for the fiscal year ended December 31, 2000, Eric
Cunliffe reported two transactions that had not previously been reported on a
timely basis, and on an amended Form 4 for June 2000, W. James Tozer, Jr.
reported one transaction by his spouse that had not previously been reported on
a timely basis.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, audited our
financial statements for 2000 and for each fiscal year since 1997.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the
annual meeting of stockholders with an opportunity to make a statement if they
desire to do so, and they are expected to be available to respond to appropriate
questions. The board of directors will defer the selection of independent
accountants for 2001 until after the annual meeting of stockholders. The audit
committee of the board of directors will then consider the engagement of
independent public accountants to audit our financial statements for 2001 and
will make its recommendation to the board of directors for final approval. The
audit committee has considered whether the provision of services by
PricewaterhouseCoopers LLP other than the audit of our financial statements for
2000 and the review of our quarterly financial statements for 2000 is compatible
with maintaining PricewaterhouseCoopers LLP's independence.
Audit Fees. PricewaterhouseCoopers LLP billed us $190,522 for
professional services rendered for the audit of our annual financial statements
for 2000 and reviews of the financial statements included in our quarterly
reports on Form 10-Q filed during 2000.
Financial Information Systems Design and Implementation Fees.
PricewaterhouseCoopers LLP rendered no professional services to us for the
design and implementation of financial information systems during 2000.
All Other Fees. PricewaterhouseCoopers LLP billed us $328,971 for all
professional services rendered during 2000 other than audits, reviews and
financial information systems design and implementation, generally including
services related to our initial public offering, due diligence and tax services.
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OTHER MATTERS
We know of no other matters to be submitted or considered at the
meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as our board of directors may recommend.
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APPENDIX A
2001 STOCK INCENTIVE PLAN
OF LENDINGTREE, INC.
1. PURPOSE AND TYPES OF AWARDS
The purpose of the 2001 Stock Incentive Plan of LendingTree, Inc. (the
"Plan") is to promote the long-term growth and profitability of LendingTree,
Inc. (the "Company") by (i) providing key people with incentives to improve
stockholder value and to contribute to the growth and financial success of the
Company, and (ii) enabling the Company to attract, retain and reward the best
available persons for positions of substantial responsibility.
The Plan permits the granting of Options (including Incentive Stock
Options), Restricted Stock, Phantom Stock Units, Stock Bonuses and Other
Stock-Based Awards.
2. DEFINITIONS
Under the Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter
existing, that controls, is controlled by, or is under common
control with, the Company (including, but not limited to,
joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean
ownership of 50% or more of the voting power of the entity.
(b) "Award" shall mean any Option, Restricted Stock, Phantom Stock
Unit, Stock Bonus or Other Award granted under the Plan.
(c) "Award Agreement" shall mean a written agreement between the
Company and a Grantee memorializing the terms and conditions
of an Award granted pursuant to the Plan.
(d) "Board" shall mean the board of directors of the Company.
(e) "Cause" shall mean, unless the Grantee is a party to a written
employment agreement with the Company or an affiliate which
contains a definition of "cause," "termination for cause" or
any other similar term or phrase, in which case "Cause" shall
have the meaning set forth in such agreement: (i) any
substantiated act by the Grantee involving dishonesty or bad
faith against the Company or an affiliate, or any act or
omission that demonstrates a lack of integrity of Grantee with
respect to the Company or an affiliate; (ii) the Grantee
engaging in acts or omissions that demonstrably and materially
injure the business and affairs of the Company or an
affiliate, monetarily or otherwise; (iii) a breach or
threatened breach by the Grantee of any non-competition or
confidentiality agreement entered into between Grantee and the
Company or its affiliate; (iv) the chronic use of alcohol,
drugs or other similar substances affecting the Grantee's work
performance; or (v) the Grantee being convicted of, or
pleading guilty or no lo contendere to, or being indicted for
a felony or other crime involving theft, fraud or moral
turpitude. The good faith determination by the Committee of
whether a Grantee's employment or service relationship was
terminated by the Company for `Cause' shall be final and
binding for all purposes hereunder.
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(f) "Change in Control" shall mean (i) the acquisition by any
Person of shares of the Company's stock representing more than
50.0% of the total voting power of the Company; (ii) the
following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for
election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on
the date hereof or whose appointment, election or nomination
for election was previously so approved or recommended; (iii)
any merger, share exchange, consolidation or other
reorganization or business combination in which the Company is
not the surviving or continuing corporation or in which the
Company's stockholders do not control greater than 50.0% of
the voting power of the surviving or continuing corporation,
or in which the Company's stockholders become entitled to
receive cash, securities of the Company other than voting
common stock, or securities of another issuer; or (iv) the
stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at
least 50.0% of the combined voting power of the voting
securities of which are owned by stockholders of the Company
in substantially the same proportions as their ownership of
the Company immediately prior to such sale.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder.
(h) "Committee" shall mean the Board or committee of Board members
appointed pursuant to Section 3 to administer the Plan.
(i) "Common Stock" shall mean shares of the Company's common
stock, par value one cent ($0.01) per share.
(j) "Disability" shall mean the inability to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than
twelve months. The Committee may require such proof of
Disability as the Committee in its sole discretion deems
appropriate and the Committee's determination as to whether
Grantee is Disabled shall be final and binding on all parties
concerned.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" of a share of the Common Stock for any
purpose on a particular date shall be determined in a manner
such as the Committee shall in good faith determine to be
appropriate; provided, however, that in the case of Incentive
Stock Options, the determination of Fair Market Value shall be
made by the Committee in good faith in conformance with the
Treasury Regulations under Section 422 of the Code.
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(m) "Grant Date" shall mean the date on which the Committee
formally acts to grant an Award to a Grantee or such other
date as the Committee shall so designate at the time of taking
such formal action.
(n) "Grantee" shall mean a person granted an Award pursuant to the
Plan.
(o) "Incentive Stock Option" shall mean an Option that is an
`Incentive Stock Option' within the meaning of Section 422 of
the Code, or any successor provision, and that is designated
by the Committee as an Incentive Stock Option.
(p) "Issue Date" shall mean the date established by the Committee
on which certificates representing Restricted Stock shall be
issued by the Company pursuant to the terms of Section 7(a).
(q) "Non-Qualified Option" shall mean an Option other than an
Incentive Stock Option.
(r) "Option" shall mean an option to purchase Common Stock granted
pursuant to Section 6.
(s) "Other Stock-Based Award" shall mean an award granted pursuant
to Section 10.
(t) "Outside Director" shall mean each Director who is not an
employee or executive officer of the Company and who is the
beneficial owner (as such term is defined in Rule 13d-3
promulgated under the Exchange Act) of less than five percent
of the combined voting power of the Company.
(u) "Parent" shall mean a corporation, whether now or hereafter
existing, within the meaning of the definition of `parent
corporation' provided in Section 424(e) of the Code, or any
successor thereto of similar import.
(v) "Performance Goals" shall mean performance goals determined by
the Committee in its sole discretion. Such goals may be based
on one or more or none of the following criteria: (i) pre-tax
income or after-tax income, (ii) operating profit, (iii)
return on equity, assets, capital or investment, (iv) earnings
or book value per share, (v) sales or revenues, (vi) operating
expenses, (vii) Common Stock price appreciation; (viii)
implementation or completion of critical projects or
processes; (ix) increase in the volume of qualification forms
completed or submitted, which goals may be expressed in terms
of absolute numbers and/or as a percentage increase; (x)
comparison of actual performance during a performance period
against budget for such period; (xi) increase in the number of
loans closed, which increase may be measured by type(s) of
loan or in the aggregate; (xii) growth of revenue, which
growth may be expressed in terms of absolute numbers and/or as
a percentage increase; or (xiii) reductions in expenses, which
reductions may be expressed in terms of absolute numbers
and/or as a percentage decrease; provided that with respect to
clauses (xi) through (xiii), such achievement may be measured
against budget for the same period. Where applicable, the
Performance Goals may be expressed in terms of attaining a
specified level of the particular criteria or the attainment
of a percentage increase or decrease in the particular
criteria, and may be applied to one or more of the Company, a
Subsidiary or Affiliate, or a division or strategic business
unit of the Company, or may be applied to the performance of
the Company relative to a market index, a group of other
companies or a combination thereof, all as determined by the
Committee. The Performance Goals may include a threshold level
of performance below which no vesting will occur, levels of
performance at which specified vesting will occur,
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and a maximum level of performance at which full vesting will
occur. Each of the foregoing Performance Goals shall be
determined in accordance with generally accepted accounting
principles and shall be subject to certification by the
Committee; provided that the Committee shall have the
authority to make equitable adjustments to the Performance
Goals in recognition of unusual or non-recurring events
affecting the Company or any Subsidiary or Affiliate or the
financial statements of the Company or any Subsidiary or
Affiliate in response to changes in applicable laws or
regulations, or to account for items of gain, loss or expense
determined to be extraordinary or unusual in nature or
infrequent in occurrence or related to the disposal of a
segment of a business or related to a change in accounting
principles.
(w) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof, except that such term shall not include: (i)
the Company or any of its subsidiaries; (ii) a trustee or
other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates; (iii) an
underwriter temporarily holding securities pursuant to an
offering of such securities; or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock
of the Company.
(x) "Phantom Stock" shall mean the right, granted pursuant to
Section 8, to receive in cash or shares the Fair Market Value
of a share of Common Stock.
(y) "Restricted Stock" shall mean a share of Common Stock which is
granted pursuant to the terms of Section 7 and which is
subject to the restrictions set forth in Section 7(c).
(z) "Retirement" shall mean termination of a Grantee's employment
or service, other than for Cause, on or after attainment of
age 65.
(aa) "Rule 16b-3" shall mean Rule 16b-3 as in effect under the
Exchange Act on the effective date of the Plan, or any
successor provision prescribing conditions necessary to exempt
the issuance of securities under the Plan (and further
transactions in such securities) from Section 16(b) of the
Exchange Act.
(bb) "Stock Bonus" shall mean a bonus payable in shares of Company
Stock granted pursuant to Section 9.
(cc) "Subsidiary" and "Subsidiaries" shall mean only a corporation
or corporations, whether now or hereafter existing, within the
meaning of the definition of `subsidiary corporation' provided
in Section 424(f) of the Code, or any successor thereto of
similar import.
(dd) "Ten Percent Stockholder" shall mean a Grantee who owns
(within the meaning of Section 422(b)(6) of the Code, after
the application of the attribution rules in Section 424(d) of
the Code) more than 10% of the total combined voting power of
all classes of shares of the Company, or its Parent or
Subsidiary corporations.
(ee) "Vesting Date" shall mean the date established by the
Committee on which Restricted Stock or Phantom Stock may vest.
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3. ADMINISTRATION
(a) Procedure. The Plan shall be administered by the Board. In the
alternative, the Board may appoint a Committee consisting of not less than two
members of the Board to administer the Plan on behalf of the Board, subject to
such terms and conditions as the Board may prescribe. The members of the
Committee shall be both "non-employee directors" within the meaning of Rule
16b-3 and, to the extent that the Board has resolved to take actions necessary
to enable compensation arising with respect to Awards under the Plan to
constitute performance-based compensation for purposes of Section 162(m) of the
Code, "outside directors" within the meaning of Section 162(m) of the Code. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. The Board or the Committee may delegate to senior management of the
Company authority to make grants of Awards to employees of the Company who are
not executive officers or directors of the Company. From time to time, the Board
may increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and, thereafter, directly administer the Plan. In the event that the
Board is the administrator of the Plan in lieu of a Committee, the term
"Committee" as used herein shall be deemed to mean the Board.
The Committee shall meet at such times and places and upon such notice
as it may determine. A majority of the Committee shall constitute a quorum. Any
acts by the Committee may be taken at any meeting at which a quorum is present
and shall be by majority vote of those members entitled to vote. Additionally,
any acts reduced to writing or approved in writing by all of the members of the
Committee shall be valid acts of the Committee.
Members of the Board or the Committee who are either eligible for
Awards or have been granted Awards may vote on any matters affecting the
administration of the Plan or the grant of Awards pursuant to the Plan, except
that no such member shall act upon the granting of an Award to himself or
herself, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board or the Committee during which action is taken
with respect to the granting of an Award to him or her.
(b) Powers of the Committee. The Committee shall have all the powers
vested in it by the terms of the Plan, such powers to include authority, in its
sole and absolute discretion, to grant Awards under the Plan, prescribe Award
Agreements evidencing such Awards and establish programs for granting Awards.
The Committee shall have full power and authority to take all other actions
necessary to carry out the purpose and intent of the Plan, including, but not
limited to, the authority to:
(i) determine the eligible persons to whom, and the time
or times at which, Awards shall be granted;
(ii) determine the types of Awards to be granted;
(iii) determine the number of shares to be covered by each
Award;
(iv) impose such terms, limitations, restrictions and
conditions upon any such Award as the Committee shall
deem appropriate;
(v) modify, extend or renew outstanding Awards, accept
the surrender of outstanding Awards and substitute
new Awards;
(vi) accelerate or otherwise change the time in which an
Award may be exercised or become payable and to waive
or accelerate the lapse, in whole or in part, of any
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restriction or condition with respect to such Award,
including, but not limited to, any restriction or
condition with respect to the vesting or
exercisability of an Award following termination of
any Grantee's employment or service; and
(vii) to establish objectives and conditions, if any, for
earning the grant of an Award.
The Committee shall have full power and authority to administer and interpret
the Plan and to adopt such rules, regulations, agreements, guidelines and
instruments for the administration of the Plan and for the conduct of its
business as the Committee deems necessary or advisable and to interpret same,
all within the Committee's sole and absolute discretion.
(c) Limited Liability. To the maximum extent permitted by law, no
member of the Board or Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any Award thereunder.
(d) Indemnification. To the maximum extent permitted by law and the
Company's charter or by-laws, the members of the Board and Committee shall be
indemnified by the Company in respect of all their activities under the Plan.
(e) Effect of Committee's Decision. All actions taken and decisions and
determinations made by the Committee on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Committee's sole
and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Company, its stockholders, any participants in the Plan
and any other employee of the Company, and their respective successors in
interest.
4. SHARES AVAILABLE FOR THE PLAN
Subject to adjustments as provided in Section 13, the shares of stock
that may be delivered or purchased with respect to Awards granted under the
Plan, including with respect to Incentive Stock Options intended to qualify
under Section 422 of the Code, shall not exceed an aggregate of 4,000,000 shares
of Common Stock of the Company. The Company shall reserve such number of shares
for Awards under the Plan, subject to adjustments as provided below. No
executive officer of the company shall receive Awards within any 12-month period
covering more than 4,000,000 shares of Common Stock. If any Award, or portion of
an Award, under the Plan expires or terminates unexercised, becomes
unexercisable or is forfeited or otherwise terminated, surrendered or canceled
as to any shares without the delivery of shares of Common Stock or other
consideration, the shares subject to such Award shall thereafter be shares with
respect to which further Awards may be granted under the Plan.
In the event that the Committee shall determine that any
reclassification, recapitalization, stock split, dividend or other distribution
(whether in the form of cash, stock or other property), combination, merger,
consolidation, spin-off, share exchange, repurchase or other similar corporate
transaction or event affects the Common Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
Grantees under the Plan, the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan shall be
adjusted to reflect such event, and the Committee shall make such adjustments as
it deems appropriate and equitable in the number, kind and price of shares
covered by outstanding Awards previously granted under the Plan, and in any
other matters which relate to Awards and which are affected by the changes in
the Common Stock referred to above; provided, however, that with respect to
Incentive Stock Options, such adjustment shall be made in accordance with
Section 424(h) of the Code.
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The Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in the
preceding paragraph of this Section 4) affecting the Company, or the financial
statements of the Company or any Subsidiary, or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan.
5. PARTICIPATION
Participation in the Plan shall be open to all employees, directors,
officers and consultants of the Company, or of any Affiliate of the Company, as
may be selected by the Committee from time to time. Notwithstanding the
foregoing, participation in the Plan with respect to grants of Incentive Stock
Options shall be limited to employees of the Company or of any Parent or
Subsidiary of the Company.
Awards may be granted to such eligible persons and for such number of
shares of Common Stock as the Committee shall determine, subject to the
limitations in Section 4. A grant of any type of Award made in any one year to
an eligible person shall neither guarantee nor preclude a further grant of that
or any other type of Award to such person in that year or subsequent years.
6. STOCK OPTIONS
Subject to the other applicable provisions of the Plan, the Committee
may from time to time grant to eligible participants Awards of Incentive Stock
Options or Non-Qualified Stock Options. In addition to such terms and conditions
as may not inconsistent with the terms of the Plan and shall be set forth in the
applicable Award Agreement, Options shall be subject to the following terms and
conditions.
(a) Grant of Option. The grant of an Option shall be evidenced by a
Award Agreement, executed by the Company and the Grantee, stating the number of
shares of Common Stock subject to the Option evidenced thereby and the terms and
conditions of such Option, in such form as the Committee may from time to time
determine.
(b) Price. The price per share payable upon the exercise of each Option
("exercise price") shall be determined by the Committee in its discretion;
provided, however, that in the case of Incentive Stock Options, the exercise
price shall not be less than 100% of the Fair Market Value of a share of Common
Stock on the Grant Date.
(c) Term and Exercisability. Unless otherwise determined by the
Committee at the time of grant, the term of each Option shall be no longer than
10 years from the Grant Date; provided, however, that in the case of Incentive
Stock Options, the term of such option shall not exceed 10 years from the Grant
Date. Unless earlier terminated pursuant to the provisions of the Plan or the
Award Agreement, each Option shall become vested in accordance with the vesting
schedule specified in the Award Agreement, which vesting schedule shall be
determined by the Committee in its discretion.
(d) Payment. Options may be exercised in whole or in part by payment of
the exercise price of the shares to be acquired in accordance with the
provisions of the Award Agreement, or such rules and regulations as the
Committee may have prescribed, or such determinations, orders, or decisions as
the Committee may have made. Payment may be made by one or a combination of the
following methods: (i) in cash (or cash equivalents acceptable to the
Committee); (ii) the surrender of previously acquired shares of Common Stock
having a Fair Market Value less than or equal to the aggregate exercise price,
which shares shall have been held by the Grantee for at least six months prior
to the date of such surrender; (iii) if so determined by the Committee as of the
Grant Date and set forth in the applicable
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Award Agreement, authorization for the Company to withhold a number of shares
otherwise payable pursuant to the exercise of an Option having a Fair Market
Value less than or equal to the aggregate exercise price; or (iv) by delivery of
a properly executed exercise notice, together with irrevocable instructions: (1)
to a brokerage firm designated by the Grantee and approved by the Company to
deliver promptly to the Company the aggregate amount of sale or loan proceeds to
pay the exercise price and any withholding tax obligations that may arise in
connection with the exercise, and (2) to the Company to deliver the certificates
for such purchased shares directly to such brokerage firm. The Committee may, in
its sole discretion, authorize the Company to make or guarantee loans to
Grantees to assist Grantees in exercising Options.
(e) Exercise of Options Following Termination of Employment or Service
Relationship. Subject to Section 6(f) (with respect to Incentive Stock Options)
and unless otherwise determined by the Committee in its discretion, Options
shall be subject to the following conditions with respect to their
post-termination exercisability.
(i) Following Termination of Employment or Service Relationship
for Reasons Other Than Death, Disability or Retirement.
Unless otherwise determined by the Committee in its sole
discretion, the vested portion of any then outstanding
Option held by such Grantee shall remain exercisable for 90
days after the date the Grantee is no longer employed by,
nor in a service relationship with, the Company and its
affiliates for any reason other than the Grantee's death,
Disability, or Retirement, following which period the
Option shall terminate. Notwithstanding the foregoing, a
Grantee's Options shall terminate in their entirety,
whether or not vested, upon termination of the employment
or service relationship of the Grantee by the Company or an
affiliate for Cause.
(ii) Following Grantee's Death. Unless otherwise determined by
the Committee in its sole discretion, following a Grantee's
death such Grantee's executor, personal representative, or
the person to whom an Option shall have been transferred by
will or the laws of descent and distribution, as the case
may be, may exercise the vested portion of any then
outstanding Option transferred to such individual for one
year; provided, that the Committee may, in its sole
discretion, provide that an Option granted to a
non-employee director may remain exercisable following such
director's death for up to three years if so determined by
the Committee as of the Grant Date and set forth in the
applicable Award Agreement.
(iii) Following Termination of Employment or Service Relationship
by Reason of Disability or Retirement. Unless otherwise
determined by the Committee in its sole discretion, in the
event that a Grantee ceases, by reason of Disability or
Retirement, to be an employee of or in a service
relationship with the Company or an Affiliate, the vested
portion of an outstanding Option then held by such Grantee
may be exercised in whole or in part at any time within one
year after the date of Disability or Retirement, as the
case may be, following which period the Option shall
terminate.
(iv) Notwithstanding anything to the contrary in the Plan, no
Option shall remain exercisable beyond the original term of
such Option, as stated in the Award Agreement evidencing
such Option.
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(f) Restrictions on Incentive Stock Options. Incentive Stock Options
granted under the Plan shall comply in all respects with Section 422 of the Code
and, as such, shall meet the following additional requirements:
(i) Designation. No Option shall be an Incentive Stock Option
unless so designated by the Committee at the time of grant
in the Award Agreement.
(ii) Exercise Price and Term. The exercise price per share of an
Incentive Stock Option shall be not less than 100% of the
Fair Market Value of a share of Common Stock on the Grant
Date, and the term of such Option shall not exceed ten
years; provided, however, that the exercise price of any
Incentive Stock Option granted to a Ten Percent Stockholder
shall be not less than 110% of the Fair Market Value of the
Common Stock on the Grant Date, and the term of such Option
shall not exceed five years.
(iii) Limitation on Shares. The aggregate Fair Market Value
(determined as of the Grant Date) of shares of Common Stock
with respect to which any Incentive Stock Options first
become exercisable by a Grantee in any calendar year under
this or any other plan of the Company and its Parent and
Subsidiary corporations may not exceed $100,000 or such
other amount as may be permitted from time to time under
Section 422 of the Code. To the extent that such aggregate
Fair Market Value shall exceed $100,000, or other
applicable amount, such Options shall be treated as
Non-Qualified Stock Options. In such case, the Company may
designate the shares of Common Stock that are to be treated
as stock acquired pursuant to the exercise of an Incentive
Stock Option by issuing a separate certificate for such
shares and identifying the certificate as Incentive Stock
Option shares in the stock transfer records of the Company.
(iv) Grantee. Incentive Stock Options shall only be issued to
employees of the Company, or of a Parent or Subsidiary of
the Company.
(v) Tandem Awards Prohibited. An Incentive Stock Option may not
be granted in tandem with any other Award in such a manner
that the exercise of one affects a Grantee's right under
the other.
(vi) Post-Termination Exercisability.
(1) In the event that the employment of a Grantee with
the Company and its Affiliates is terminated for
Cause, all outstanding Incentive Stock Options held
by such Grantee, whether or not vested, shall be
immediately forfeited and cancelled as of the
effective date of such termination.
(2) In the event that the employment of a Grantee with
the Company and its Affiliates is terminated due to
such Grantee's Disability, all outstanding
Incentive Stock Options held by such Grantee (or
such Grantee's beneficiary, if applicable) may be
exercised, to the extent exercisable at the
effective date of such termination, for a period
not to exceed one year following the effective date
of such termination.
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(3) In the event that the employment of a
Grantee is terminated for any other reason,
all outstanding Incentive Stock Options held
by such Grantee may be exercised, to the
extent exercisable at the effective date of
such termination, for a period not to exceed
three months following the effective date of
such termination.
(g) Outside Director Program. Outside Directors shall be entitled to
grants of Options under the terms and conditions set forth in this Section 6(g)
and otherwise in accordance with the terms and conditions of the Plan.
(i) Identification of Options. Each Option granted under this
Section 6(g) shall be designated a Non-Qualified Stock
Option in the Award Agreement evidencing such Option.
(ii) Grant Upon Election or Appointment. At the time of the
initial election or appointment of an Outside Director to
the Board, such Outside Director shall be granted, without
further action on the part of the Board or the Committee,
an Option to purchase 15,000 shares of Common Stock.
(iii) Annual Grants. Immediately following each annual meeting of
the Company's stockholders, each Outside Director then
serving shall be granted, without further action on the
part of the Board or the Committee, an Option to purchase
5,000 shares of Common Stock.
(iv) Exercise Price. Each Agreement with respect to an Option
granted under this Section 6(g) shall set forth the
exercise price per share of Common Stock payable by the
Grantee to the Company upon exercise of the Option. The
exercise price per share of Common Stock shall be the Fair
Market Value of a share of Common Stock on the date the
Option is granted.
(v) Term and Exercise of Options.
(1) Each Option granted under this Section 6(g) shall
have a term of ten years.
(2) Each Option granted under this Section 6(g) shall
become exercisable in full on the second
anniversary of the date such Option was granted,
provided that the Grantee is serving as an Outside
Director as of such vesting date.
(3) Each Option granted under this Section 6(g) may be
exercised, in whole or in part, with respect to
whole shares of Common Stock, to the extent then
exercisable.
(4) Each Option granted under this Section 6(g) shall
be exercised by delivering notice to the Company's
principal office, to the attention of its
Secretary. Such notice shall be accompanied by the
applicable Award Agreement, shall specify the
number of whole shares of Common Stock with respect
to which the Option is being exercised and the
effective date of the proposed exercise and shall
be signed by the Grantee or other person then
having the right to exercise the Option. The
methods of
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payment with respect to the exercise price of
Options granted under this Section 6(g) shall be
consistent with Section 6(d).
(h) Exercise Prior to Vesting. The Committee may in its sole discretion
provide at the time of grant of any Option that the Grantee may elect at any
time during both (1) the term of such Option and (2) the period during which
such Grantee is employed by or providing services to the Company or any of its
Affiliates, that the Grantee may exercise all or any portion of such Option,
including the unvested portion of such Option; provided, however, that
(i) a partial exercise of such Option shall be deemed to cover
first vested shares and then the earliest vesting
installment of unvested shares;
(ii) any shares so purchased from installments which have not
vested as of the date of exercise shall be subject to a
repurchase option in favor of the Company, the terms of
which shall be set forth in the Award Agreement evidencing
such Option;
(iii) the Grantee shall enter into a form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result
in the same vesting as if no early exercise had occurred;
and
(iv) if such Option is an Incentive Stock Option, then, the
maximum vesting provisions of Section 6(f)(iii) shall
continue to apply with respect to such shares.
(i) Restrictions on Transfer. The Committee may in its sole discretion
provide at the time of grant of any Option that, upon its exercise, the shares
of Common Stock to be issued to the Grantee shall be subject to such
restrictions on transfer as the Committee may determine are advisable.
7. RESTRICTED STOCK
(a) Issue Date and Vesting Date. At the time of the grant of an Award
of Restricted Stock, the Committee shall establish an Issue Date or Issue Dates
and a Vesting Date or Vesting Dates with respect to such shares. The Committee
may divide such shares into classes and assign a different Issue Date and/or
Vesting Date for each class. If the Grantee is employed by or providing services
to the Company on an Issue Date (which may be the Grant Date), the specified
number of shares of Restricted Stock shall be issued in accordance with the
provisions of Section 7(e). Provided that all conditions to the vesting of a
share of Restricted Stock imposed pursuant to Section 7(b) are satisfied, and
except as provided in Section 7(g), upon the occurrence of the Vesting Date with
respect to a share of Restricted Stock, such share shall vest and the
restrictions of Section 7(c) shall lapse.
(b) Conditions to Vesting. At the time of the grant of shares of
Restricted Stock, the Committee may impose such restrictions or conditions to
the vesting of such shares as it, in its absolute discretion, deems appropriate.
(c) Restrictions on Transfer Prior to Vesting. Prior to the vesting of
a share of Restricted Stock, no transfer of a Grantee's rights with respect to
such share, whether voluntary or involuntary, by operation of law or otherwise,
shall be permitted. Immediately upon any attempt to transfer such rights, such
share, and all of the rights related thereto, shall be forfeited by the Grantee.
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(d) Dividends on Restricted Stock. The Committee in its discretion may
require that any dividends paid on shares of Restricted Stock be held in escrow
until all restrictions on such shares have lapsed.
(e) Issuance of Certificates.
(i) Reasonably promptly after the Issue Date with respect to
shares of Restricted Stock, the Company shall cause to be
issued a stock certificate, registered in the name of the
Grantee to whom such shares were granted, evidencing such
shares; provided, that the Company shall not cause such a
stock certificate to be issued unless it has received a
stock power duly endorsed in blank with respect to such
shares. Each such stock certificate shall bear the
following legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF
STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS,
TERMS AND CONDITIONS (INCLUDING FORFEITURE PROVISIONS AND
RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE 2001 STOCK
INCENTIVE PLAN OF LENDINGTREE, INC. AND AN AGREEMENT
ENTERED INTO BETWEEN THE REGISTERED OWNER OF SUCH SHARES
AND THE COMPANY. A COPY OF THE PLAN AND AGREEMENT IS ON
FILE IN THE OFFICE OF THE SECRETARY OF THE COMPANY, 11115
RUSHMORE DRIVE, CHARLOTTE, NC 28277.
Such legend shall not be removed until such shares vest
pursuant to the terms hereof.
(ii) Each certificate issued pursuant to this Section 7(e),
together with the stock powers relating to the shares of
Restricted Stock evidenced by such certificate, shall be
held by the Company unless the Committee determines
otherwise.
(f) Consequences of Vesting. Upon the vesting of a share of Restricted
Stock pursuant to the terms hereof, the restrictions of Section 7(c) shall lapse
with respect to such share. Reasonably promptly after a share of Restricted
Stock vests, the Company shall cause to be delivered to the Grantee to whom such
shares were granted, a certificate evidencing such share, free of the legend set
forth in Section 7(e).
(g) Effect of Termination of Employment. Subject to such other
provision as the Committee may set forth in the applicable Agreement, and to the
Committee's amendment authority pursuant to Section 14, upon the termination of
a Grantee's employment for any reason, any and all shares to which restrictions
on transferability apply shall be immediately forfeited by the Grantee and
transferred to, and reacquired by, the Company. In the event of a forfeiture of
shares pursuant to this Section 7(g), the Company shall repay to the Grantee (or
the Grantee's estate) any amount paid by the Grantee for such shares. In the
event that the Company requires a return of shares, it shall also have the right
to require the return of all dividends paid on such shares, whether by
termination of any escrow arrangement under which such dividends are held or
otherwise.
(h) Special Provisions Regarding Restricted Stock. Notwithstanding
anything to the contrary contained herein, Restricted Stock granted pursuant to
this Section 7 may be based on the attainment of Performance Goals. Such shares
of Restricted Stock shall be released from restrictions only after the
attainment of such Performance Goals has been certified by the Committee.
8. PHANTOM STOCK
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(a) Vesting Date. At the time of the grant of shares of Phantom Stock,
the Committee shall establish a Vesting Date or Vesting Dates with respect to
such shares. The Committee may divide such shares into classes and assign a
different Vesting Date for each class. Provided that all conditions to the
vesting of a share of Phantom Stock imposed pursuant to Section 8(c) are
satisfied, and except as provided in Section 8(d), upon the occurrence of the
Vesting Date with respect to a share of Phantom Stock, such share shall vest.
(b) Benefit Upon Vesting. Upon the vesting of a share of Phantom Stock,
the Grantee shall be entitled to receive, within 30 days of the date on which
such share vests, an amount, in cash and/or shares of Common Stock, as
determined by the Committee, equal to the sum of (i) the Fair Market Value of a
share of Common Stock on the date on which such share of Phantom Stock vests and
(ii) the aggregate amount of cash dividends paid with respect to a share of
Common Stock during the period commencing on the date on which the share of
Phantom Stock was granted and terminating on the date on which such share vests.
(c) Conditions to Vesting. At the time of the grant of shares of
Phantom Stock, the Committee may impose such restrictions or conditions to the
vesting of such shares as it, in its absolute discretion, deems appropriate.
(d) Effect of Termination of Employment. Subject to such other
provision as the Committee may set forth in the applicable Agreement, and to the
Committee's amendment authority pursuant to Section 14, shares of Phantom Stock
that have not vested, together with any dividends credited on such shares, shall
be forfeited upon the Grantee's termination of employment for any reason.
(e) Special Provisions Regarding Awards. Notwithstanding anything to
the contrary contained herein, the vesting of Phantom Stock granted pursuant to
this Section 8 may be based on the attainment by the Company of one or more
Performance Goals. No payment in respect of any such Phantom Stock award will be
paid until the attainment of the respective Performance Goals have been
certified by the Committee.
9. STOCK BONUSES
In the event that the Committee grants a Stock Bonus, a certificate for
the shares of Common Stock comprising such Stock Bonus shall be issued in the
name of the Grantee to whom such Award was granted and delivered to such Grantee
as soon as practicable after the date on which such Stock Bonus is payable.
10. OTHER STOCK-BASED AWARDS
Other forms of Awards ("Other Stock-Based Awards") valued in whole or
in part by reference to, or otherwise based on, Common Stock may be granted
either alone or in addition to other Awards under the Plan. Subject to the
provisions of the Plan, the Committee shall have sole and complete authority to
determine the persons to whom and the time or times at which such Other
Stock-Based Awards shall be granted, the number of shares of Common Stock to be
granted pursuant to such Other Stock-Based Awards and all other conditions of
such Other Stock-Based Awards.
11. WITHHOLDING OF TAXES
The Company may require, as a condition to the exercise of any Option
under the Plan or the delivery of certificates for shares issued or payments of
cash to a Grantee pursuant to the Plan or an Award Agreement (hereinafter
collectively referred to as a "taxable event"), that the Grantee pay to the
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Company in cash any federal, state or local taxes of any kind required by law to
be withheld with respect to any taxable event under the Plan. The Company, to
the extent permitted or required by law, shall have the right to deduct from any
payment of any kind (including salary or bonus) otherwise due to a Grantee any
federal, state or local taxes of any kind required by law to be withheld with
respect to any taxable event under the Plan, or to retain or sell without notice
a sufficient number of the shares to be issued to such Grantee to cover any such
taxes. If shares of Common Stock are to be withheld by the Company from shares
of Common Stock otherwise to be issued upon the exercise of an Option or in
satisfaction or settlement of any Award, for purposes of satisfying withholding
tax obligations, the number of shares to be so withheld shall be calculated
using the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes, that are applicable to the taxable event then
applicable to such Award. The Committee may, in its sole discretion, authorize
the Company to make or guarantee loans to Grantees to assist Grantees in
satisfying such withholding obligation.
12. TRANSFERABILITY
Except as otherwise determined by the Committee, and in any event in
the case of an Incentive Stock Option, no Award granted under the Plan shall be
transferable by a Grantee otherwise than by will or the laws of descent and
distribution. Unless otherwise determined by the Committee in accord with the
provisions of the immediately preceding sentence, an Option may be exercised
during the lifetime of the Grantee, only by the Grantee or, during the period
the Grantee is under a legal disability, by the Grantee's guardian or legal
representative.
13. CHANGE IN CONTROL
In the event of a Change in Control, 50% of the time-vesting portion of
any outstanding Award (i.e., that portion of an Award that vests or becomes
exercisable only through the passage of time and is not subject to any
Performance Goal) that is not then vested and/or exercisable shall become
immediately vested and/or exercisable. In addition to the acceleration provided
for in the immediately preceding sentence, the Committee may, in its sole
discretion, provide that all or any part of the remaining portion of an
outstanding Award that is not then vested and/or exercisable shall become
immediately vested and/or exercisable.
14. TERMINATION AND MODIFICATION OF THE PLAN
The Board, without further approval of the stockholders, may modify or
terminate the Plan or any portion thereof at any time, except that no
modification shall become effective without prior approval of the stockholders
of the Company if stockholder approval is necessary to comply with any tax or
regulatory requirement or rule of any exchange or listing or quotation system
established by the National Association of Securities Dealers, Inc. ("NASDAQ
System") upon which the Common Stock is listed or quoted; including for this
purpose stockholder approval that is required to enable the Committee to grant
Incentive Stock Options pursuant to the Plan or to qualify compensation paid
under the plan as "performance based compensation" within the meaning of Section
162(m) of the Code.
The Committee shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan that may be
dictated by requirements of federal or state laws applicable to the Company or
that may be authorized or made desirable by such laws. The Committee may amend
or modify any outstanding Award in any manner to the extent that the Committee
would have had the authority to make such Award as so modified or amended.
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15. NON-GUARANTEE OF EMPLOYMENT OR SERVICE
Nothing in the Plan or in any Award Agreement thereunder shall confer
any right on an employee, director, or consultant to continue in the employ or
service of the Company or shall interfere in any way with the right of the
Company to terminate an employee or sever any service relationship of an
individual at any time.
16. TERMINATION OF EMPLOYMENT
For purposes of maintaining a Grantee's continuous status as an
employee and accrual of rights under any Award granted pursuant to the Plan,
transfer of an employee among the Company and the Company's affiliates shall not
be considered a termination of employment with the employer.
17. WRITTEN AGREEMENT
Each Award Agreement entered into between the Company and a Grantee
with respect to an Award granted under the Plan shall incorporate the terms of
this Plan and shall contain such provisions, consistent with the provisions of
the Plan, as may be established by the Committee.
18. NON-UNIFORM DETERMINATIONS
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive Awards, the form, amount and
timing of such Awards, the terms and provisions of such Awards and the
agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, Awards under
the Plan, whether or not such persons are similarly situated.
19. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock
pursuant to Awards granted under the Plan will be used for general corporate
purposes.
20. LISTING AND REGISTRATION
If the Company determines that the listing, registration or
qualification upon any securities exchange or upon any NASDAQ System or under
any law, of shares subject to any Award is necessary or desirable as a condition
of, or in connection with, the granting of same or the issue or purchase of
shares thereunder, no such Award may be exercised in whole or in part, unless
such listing, registration or qualification is effected free of any conditions
not acceptable to the Company.
21. COMPLIANCE WITH SECURITIES LAW
Common Stock shall not be issued with respect to an Award granted under
the Plan unless the issuance and delivery of share certificates for such Common
Stock pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any
national securities exchange or NASDAQ System upon which the Common Stock may
then be listed or quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance to the extent such
approval is sought by the Committee. All certificates for Common Stock delivered
under the Plan pursuant to any Award or the exercise thereof shall be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations, and other
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requirements of the Securities and Exchange Commission, any stock exchange or
NASDAQ System upon which such securities are then listed or quoted, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
22. NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS
Nothing contained in the Plan shall prevent the Company or its Parent
or any of its Subsidiaries from adopting or continuing in effect other
compensation arrangements (whether such arrangements be generally applicable or
applicable only in specific cases) as the Committee in its discretion determines
desirable, including without limitation the granting of stock-based incentive
awards otherwise than under the Plan.
23. NO TRUST OR FUND CREATED
Neither the Plan nor any Award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship between the
Company and a Grantee or any other person. To the extent that any Grantee or
other person acquires a right to receive payments from the Company pursuant to
an Award, such right shall be no greater than the right of any unsecured general
creditor of the Company.
24. GOVERNING LAW
The validity, construction and effect of the Plan, of Award Agreements
entered into pursuant to the Plan, and of any rules, regulations, determinations
or decisions made by the Board or Committee relating to the Plan or such Award
Agreements, and the rights of any and all persons having or claiming to have any
interest therein or thereunder, shall be determined exclusively in accordance
with applicable federal laws and the laws of the State of North Carolina,
without regard to its conflict of laws rules and principles.
25. PLAN SUBJECT TO CHARTER AND BY-LAWS
This Plan is subject to the Charter and By-Laws of the Company, as they
may be amended from time to time.
26. EFFECTIVE DATE; TERMINATION DATE
The Plan, as amended and restated, is effective as of the date on which
the Plan is approved by the Board, or such other date as the Board may specify
as the effective date, subject to approval of the stockholders within twelve
months before or after such date. No Award shall be granted under the Plan after
the close of business on the day immediately preceding the tenth anniversary of
the effective date of the Plan. Subject to other applicable provisions of the
Plan, all Awards made under the Plan prior to such termination of the Plan shall
remain in effect until such Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.
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APPENDIX B
CHARTER OF THE AUDIT COMMITTEE OF THE
BOARD OF DIRECTORS OF LENDINGTREE, INC.
----------------------------------------------------
I. AUTHORITY
The Audit Committee (the "Committee") of the board of directors (the
"Board") of LendingTree, Inc. (the "Corporation") is established pursuant to
Article III, Section 11 of the Corporation's Amended and Restated Bylaws and
Section 141(c) of the Delaware General Corporation Law. The Committee shall be
comprised of three or more directors as determined from time to time by
resolution of the Board. Consistent with the appointment of other Board
committees, the members of the Committee shall be elected by the Board at the
annual organizational meeting of the Board or at such other time as may be
determined by the Board. The Chairman of the Committee shall be designated by
the Board, provided that if the Board does not so designate a Chairman, the
members of the Committee, by majority vote, may designate a Chairman. The
presence in person or by telephone of a majority of the Committee's members
shall constitute a quorum for any meeting of the Committee. All actions of the
Committee will require the vote of a majority of its members present at a
meeting of the Committee at which a quorum is present.
II. PURPOSE OF THE COMMITTEE
The Committee's purpose is to provide assistance to the Board in
fulfilling its legal and fiduciary obligations with respect to matters involving
the accounting, auditing, financial reporting, internal control and legal
compliance functions of the Corporation and its subsidiaries.
The Committee shall oversee the audit efforts of the Corporation's
independent accountants and internal auditors and, in that regard, shall take
such actions as it may deem necessary to satisfy itself that the Corporation's
auditors are independent of management. It is the objective of the Committee to
maintain free and open means of communications among the Board, the independent
accountants, the internal auditors and the financial and senior management of
the Corporation.
III. COMPOSITION OF THE COMMITTEE
A. Each member of the Committee shall be an "independent" director
within the meaning of the NASDAQ rules and, as such, shall be free from any
relationship that may interfere with the exercise of his or her independent
judgment as a member of the Committee. Notwithstanding the foregoing, as
permitted by the rules of the NASDAQ, under exceptional and limited
circumstances, one director who does not meet certain of the criteria for
"independence" may be appointed to the Committee if the Board determines in its
business judgment that membership on the Committee by such person is required by
the best interests of the Corporation and its stockholders and the Corporation
discloses in the annual proxy statement the nature of such person's relationship
and the reasons for the Board's determination. All members of the Committee
shall be financially literate at the time of their election to the Committee or
shall become financially literate within a reasonable period of time after their
appointment to the Committee. "Financial literacy" shall be determined by the
Board in the exercise of its business judgment, and shall include a working
familiarity with basic finance and accounting practices and an ability to read
and understand fundamental financial statements. At least one member of the
Committee shall have accounting or related financial management expertise, as
such qualification may be determined in the business judgment of the Board.
Committee members, if they or the Board deem it appropriate, may enhance their
understanding of finance and accounting by participating in educational programs
conducted by the Corporation or an outside consultant or firm.
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B. Upon any changes in the composition of the Committee and otherwise
approximately once each year, the Committee shall ensure that the Corporation
provides the NASDAQ with written confirmation regarding:
(1) Any determination that the Board has made regarding the
independence of the Committee members;
(2) The financial literacy of the Committee members;
(3) The determination that at least one of the Committee
members has accounting or related financial management
expertise; and
(4) The annual review and reassessment of the adequacy of the
Committee's charter.
IV. MEETINGS OF THE COMMITTEE
The Committee shall meet with such frequency and at such intervals as
it shall determine is necessary to carry out its duties and responsibilities. As
part of its purpose to foster open communications, the Committee shall meet at
least annually with management and the Corporation's independent accountants in
separate executive sessions to discuss any matters that the Committee or each of
these groups or persons believe should be discussed privately. In addition, the
Committee (or the Chairman) should meet or confer with the independent
accountants and management quarterly to review the Corporation's periodic
financial statements prior to their filing with the Securities and Exchange
Commission ("SEC"). The Chairman should work with the Chief Financial Officer
and management to establish the agendas for Committee meetings. The Committee,
in its discretion, may ask members of management or others to attend its
meetings (or portions thereof) and to provide pertinent information as
necessary. The Committee shall maintain minutes of its meetings and records
relating to those meetings and the Committee's activities and provide copies of
such minutes to the Board.
V. DUTIES AND RESPONSIBILITIES OF THE COMMITTEE
In carrying out its duties and responsibilities, the Committee's
policies and procedures should remain flexible, so that it may be in a position
to best react or respond to changing circumstances or conditions. The Committee
should review and reassess annually the adequacy of the Committee's charter. The
charter must specify: (1) the scope of the Committee's responsibilities and how
it carries out those responsibilities, (2) the ultimate accountability of the
Corporation's independent auditors to the Board and the Committee, (3) the
responsibility of the Committee and the Board for the selection, evaluation and
replacement of the Corporation's independent auditors, and (4) that the
Committee is responsible for ensuring that the Corporation's independent
auditors submit on a periodic basis to the Committee a formal written statement
delineating all relationships between the independent auditors and the
Corporation and that the Committee is responsible for actively engaging in a
dialogue with the independent auditors with respect to any disclosed
relationships or services that may impact the objectivity and independence of
the independent auditors and for recommending that the Board take appropriate
action to ensure the independence of the independent auditors.
While there is no "blueprint" to be followed by the Committee in
carrying out its duties and responsibilities, the following should be considered
within the authority of the Committee:
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SELECTION AND EVALUATION OF AUDITORS
A. Make recommendations to the Board as to the selection of the
firm of independent public accountants to audit the books and
accounts of the Corporation and its subsidiaries for each
fiscal year;
B. Review and approve the Corporation's independent auditors'
annual engagement letter, including the proposed fees
contained therein;
C. Review the performance of the Corporation's independent
auditors and make recommendations to the Board regarding the
replacement or termination of the independent auditors when
circumstances warrant;
D. Oversee the independence of the Corporation's independent
auditors by, among other things:
(1) requiring the independent auditors to deliver to the
Committee on a periodic basis a formal written
statement delineating all relationships between the
independent auditors and the Corporation; and
(2) actively engaging in a dialogue with the independent
auditors with respect to any disclosed relationships
or services that may impact the objectivity and
independence of the independent auditors and
recommending that the Board take appropriate action
to satisfy itself of the auditors' independence; and
E. Instruct the Corporation's independent auditors that they are
ultimately accountable to the Committee and the Board, and
that the Committee and the Board are responsible for the
selection (subject to shareholder approval if determined by
the Board), evaluation and termination of the Corporation's
independent auditors;
OVERSIGHT OF ANNUAL AUDIT AND QUARTERLY REVIEWS
A. Review and accept, if appropriate, the annual audit plan of
the Corporation's independent auditors, including the scope of
audit activities, and monitor such plan's progress and results
during the year;
B. Confirm through private discussions with the Corporation's
independent auditors and the Corporation's management that no
management restrictions are being placed on the scope of the
independent auditors' work;
C. Review the results of the year-end audit of the Corporation,
including (as applicable):
(1) the audit report, the published financial statements,
the management representation letter, the "Memorandum
Regarding Accounting Procedures and Internal Control"
or similar memorandum prepared by the Corporation's
independent auditors, any other pertinent reports and
management's responses concerning such memorandum;
(2) the qualitative judgments of the independent auditors
about the appropriateness, not just the
acceptability, of accounting principle and financial
disclosure practices used or proposed to be adopted
by the Corporation and, particularly,
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about the degree of aggressiveness or conservatism of
its accounting principles and underlying estimates;
(3) the methods used to account for significant unusual
transactions;
(4) the effect of significant accounting policies in
controversial or emerging areas for which there is a
lack of authoritative guidance or consensus;
(5) management's process for formulating sensitive
accounting estimates and the reasonableness of these
estimates;
(6) significant recorded and unrecorded audit
adjustments; any material accounting issues among
management, the Corporation's internal auditing
department and the independent auditors; and
(7) other matters required to be communicated to the
Committee under generally accepted auditing
standards, as amended, by the independent auditors;
D. Review with management and the Corporation's independent
auditors such accounting policies (and changes therein) of the
Corporation, including any financial reporting issues which
could have a material impact on the Corporation's financial
statements, as are deemed appropriate for review by the
Committee prior to any interim or year-end filings with the
SEC or other regulatory body; and
E. Confirm that the Corporation's interim financial statements
included in Quarterly Reports on Form 10-Q have been reviewed
by the Corporation's independent auditors.
OVERSIGHT OF FINANCIAL REPORTING PROCESS AND INTERNAL CONTROLS
A. Review the adequacy and effectiveness of the Corporation's
accounting and internal control policies and procedures
through inquiry and discussions with the Corporation's
independent auditors and management of the Corporation;
B. Review with management the Corporation's administrative,
operational and accounting internal controls, including
controls and security of the computerized information systems,
and evaluate whether the Corporation is operating in
accordance with its prescribed policies, procedures and codes
of conduct;
C. Review with management and the independent auditors any
reportable conditions and material weaknesses, as defined by
the American Institute of Certified Public Accountants,
affecting internal control;
D. Receive periodic reports from the Corporation's independent
auditors and management of the Corporation to assess the
impact on the Corporation of significant accounting or
financial reporting developments proposed by the Financial
Accounting Standards Board or the SEC or other regulatory
body, or any other significant accounting or financial
reporting related matters that may have a bearing on the
Corporation;
E. Review with management the financial results, variances and
other deviations from plan and/or changes in financial ratios
on a quarterly basis; and
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F. Establish and maintain free and open means of communication
between and among the Board, the Committee, the Corporation's
independent auditors and management.
OTHER MATTERS
A. Meet annually with the general counsel, and outside counsel
when appropriate, to review legal and regulatory matters,
including any matters that may have a material impact on the
financial statements of the Corporation;
B. Prepare a report to be included in each annual proxy statement
(or, if not previously provided during the fiscal year, any
other proxy statement or consent statement relating to the
election of directors) of the Corporation commencing after
December 15, 2000 which states, among other things, whether:
(1) the Committee has reviewed and discussed with
management the audited financial statements to be
included in the Corporation's Annual Report on Form
10-K;
(2) the Committee has discussed with the Corporation's
independent auditors the matters that the auditors
are required to discuss with the Committee by
Statements on Auditing Standard No. 61, (as it may be
modified or supplemented);
(3) the Committee has received the written disclosures
and the letter from the Corporation's independent
auditors required by Independence Standards Board
Standard No. 1, as may be modified or supplemented,
and has discussed with the independent auditors their
independence; and
(4) based on the review and discussions described in
subsections (i), (ii) and (iii) above, the Committee
has recommended to the Board that the audited
financial statements be included in the Corporation's
Annual Report on Form 10-K for the last fiscal year
for filing with the SEC;
C. Review the Corporation's policies relating to the avoidance of
conflicts of interest and review past or proposed transactions
between the Corporation and members of management as well as
policies and procedures with respect to officers' expense
accounts and perquisites, including the use of corporate
assets. The Committee shall consider the results of any review
of these policies and procedures by the Corporation's
independent auditors;
D. Meet with management of the human resources and legal
departments of the Corporation to review the Corporation's
program to monitor compliance with the Corporation's Code of
Conduct, and meet periodically with the Corporation's
Compliance Officer to discuss compliance with the Code of
Conduct;
E. Obtain from the independent auditors any information pursuant
to Section 10A of the Securities Exchange Act of 1934;
F. Engage internal or external auditors to assess and test the
effectiveness of the Company's internal controls, compliance
with policies and other matters, as considered necessary;
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G. Oversee and promote the effective operation of audit and
compliance functions that may be considered necessary;
H. Conduct or authorize investigations into any matters within
the Committee's scope of responsibilities, including retaining
outside counsel or other consultants or experts for this
purpose; and
I. Perform such additional activities, and consider such other
matters, within the scope of its responsibilities, as the
Committee or the Board deems necessary or appropriate.
WITH RESPECT TO THE DUTIES AND RESPONSIBILITIES LISTED ABOVE, THE COMMITTEE
SHOULD:
A. Report regularly to the Board on its activities, as
appropriate;
B. Exercise reasonable diligence in gathering and considering all
material information;
C. Understand and weigh alternative courses of conduct that may
be available;
D. Focus on weighing the benefit versus harm to the Corporation
and its shareholders when considering alternative
recommendations or courses of action;
E. If the Committee deems it appropriate, secure independent
expert advice and understand the expert's findings and the
basis for such findings, including retaining independent
counsel, accountants or others to assist the Committee in
fulfilling its duties and responsibilities; and
F. Provide management, the Corporation's independent auditors and
internal auditors with appropriate opportunities to meet
privately with the Committee.
* * *
While the Committee has the duties and responsibilities set forth in
this charter, the Committee is not responsible for planning or conducting the
audit or for determining whether the Corporation's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles. Similarly, it is not the responsibility of the Committee to resolve
disagreements, if any, between management and the independent auditors or to
ensure that the Corporation complies with all laws and regulations and its Code
of Conduct.
B-6
68
LENDINGTREE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE TO:
LENDINGTREE, INC.
C/O FIRST UNION NATIONAL BANK
PROXY TABULATION
P.O. BOX 217950
CHARLOTTE, NC 28254-3555
FOLD AND DETACH HERE
LENDINGTREE, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 2001
The undersigned hereby appoints DOUGLAS R. LEBDA and KEITH B. HALL, and
each or either of them proxies, with full power of substitution, with the powers
the undersigned would possess if personally present, to vote, as designated
below, all shares of the common stock of the undersigned in LendingTree, Inc. at
the Annual Meeting of Stockholders to be held May 24, 2001, and at any
adjournment thereof.
This proxy will be voted FOR the election of all nominees as directors,
FOR Item 2 and FOR Item 3 unless otherwise specified. The Board of Directors
recommends voting FOR each item.
1. ELECTION OF DIRECTORS: Nominees are Richard D. Field and
W. James Tozer, Jr.
[ ] FOR all listed nominees (except do [ ] WITHHOLD
not vote for the nominee(s) whose AUTHORITY
names I have written below) to vote for the listed
nominees
2. APPROVAL OF THE 2001 STOCK INCENTIVE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF THE CONVERSION TERMS AND GENERAL VOTING RIGHTS OF OUR 8%
CONVERTIBLE PREFERRED STOCK AND THE ISSUANCE OF SHARES OF OUR COMMON
STOCK UPON CONVERSION THEREOF.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on the reverse)
69
LENDINGTREE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BAORD OF DIRECTORS
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE TO:
LENDINGTREE, INC.
C/O FIRST UNION NATIONAL BANK
PROXY TABULATION
P.O. BOX 217950
CHARLOTTE, NC 28254-3555
FOLD AND DETACH HERE
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Receipt of the notice of annual meeting and accompanying proxy statement
is hereby acknowledged. This proxy will be voted as specified herein, and,
unless otherwise directed, will be voted FOR the election of all nominees, FOR
Item 2 and FOR Item 3.
Please date, sign exactly as printed below and return promptly in the
enclosed postage-paid envelope.
Dated: , 2001.
------------------
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(When signing as attorney,
executor, administrator,
trustee, guardian, etc., give
title as such. If a joint
account, each joint owner should
sign personally.)