SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2012

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 10—SUBSEQUENT EVENT

On August 20, 2008, in connection with the spin-off of Tree.com, Inc. by IAC/InterActiveCorp, our Chairman and CEO received restricted shares of Series A Redeemable Preferred Stock of a wholly-owned subsidiary of Tree.com, Inc. The shares of preferred stock had an aggregate liquidation preference of $5,000,000 and vested in three equal annual installments on the first three anniversaries of the spin-off.

The preferred stock provides for cumulative dividends at a rate of 12% per annum, and unpaid dividends compound quarterly at a rate of 12% per annum. The wholly-owned subsidiary is required to redeem all outstanding preferred stock on the fifth anniversary of the grant date, which is August 20, 2013.  The redemption price is the liquidation preference of the outstanding shares plus compounded accrued and unpaid dividends.

On August 30, 2010, we entered into a share exchange agreement with our Chairman and CEO pursuant to which he exchanged 2,902.33 shares of preferred stock and most of the accrued and unpaid dividends in respect of such shares for a total of 534,900 newly-issued shares of Tree.com common stock. Immediately following such transaction, he held 2,097.67 shares of preferred stock.

On November 7, 2012, our audit committee, compensation committee and board of directors approved an early redemption of the remaining 2,097.67 outstanding shares of preferred stock owned by our Chairman and CEO, including all accrued dividends, for $3.3 million in cash. The redemption will close on November 30, 2012.  The redemption value of the preferred stock was determined in part based on a third-party valuation of the discounted remaining dividend stream through the mandatory redemption date of August 20, 2013.