Spree

F .3 Executive Summary L Introduction E-commerce is growing at a tremendous rate, yet retailers and other businesses are having trouble realizing economic value in the online channel. Companies have encountered significant difficulties in acquiring and retaining customers and converting those customers into active users - both online and offiine. Spree.com's mission is to leverage its success in e-commerce and direct marketing for business partners who want to acquire, retain and activate customers. Spree will accomplish its mission by offering a marketing solutions platform to a broad range of clients in a variety of different industries. This platform is broken into two essential components -- a loyalty marketplace and a suite of e-marketing services that can be deployed separately or in conjunction with the loyalty marketplace. Spree designs, operates and maintains for its clients a turnkey, customizable loyalty marketplace "powered by Spree," which is either private-labeled or co-branded. The marketplace gives customers 2% to 22% cashback, with an average of approximately 6% cashback, on purchases they make from over 260 name-brand merchants in 26 different categories. For clients, the marketplace creates stickiness for their websites, value for their customers and incremental revenue for their owners. Additionally, the loyalty marketplace is a turnkey solution for its clients with several of its key components including back-end management of the loyalty process, merchant account and promotion management, a fullcomplement of customer service functionality, and electronic registration services. Finally, the marketplace includes a multi-level referral marketing program, which harnesses the networking power of the Internet, to accelerate low-cost, new customer acquisition, activation and retention for clients. The Company's cashback marketplace and referral engines are complemented by a suite of emarketing services comprised of: e-mail hosting, newsletter design and hosting, campaign management and reporting, list management and creative services. This turnkey combination of a fully managed loyalty marketplace, multi-level referral program, and the e-marketing services that Spree can provide, results in a unique suite of online services and an extraordinary proposition to clients looking for quick, low cost marketing solutions to enhance their online presence. The Company's revenue model is predicated on a fee-for-services-based model, in which the Company is paid fees for the setup and maintenance of loyalty marketplaces and for the provision of e-marketing services. The fees earned by the Company enable the Company to avoid the stress on the model that would otherwise require it to accomplish enormous membership and conversion rates for itself. Instead the Company is leveraging the brand name and marketing efforts of its clients in order to drive traffic and activation. Spree's expertise in campaign management will augment, and in some cases replace, our clients' marketing efforts while driving fees for services for the Company. i CONFIDENTIAL - Spree.com 2000 Page I II. Market By all accounts, the growth in e-commerce revenues is expected to explode over the next three years. According to International Data Corporationl by the end of 2002 there will be approximately 320 million Internet users worldwide and over $426 billion of transactions conducted online. Companies who have demonstrated the capability to attract and retain a loyal customer base will benefit from this growth. Spree is uniquely positioned to capitalize on this growth by providing the marketing infrastructure and expertise to enable e-commerce and to build repeat traffic for its partners. In addition to transaction revenue, Forrester Research estimates that Internet direct marketing is projected to account for $8.6 billion in advertising expenditures. By offering a suite of turnkey marketing and e-communications services, Spree has positioned itself squarely to benefit from a revenue stream with extraordinary size and growth prospects. III. Business Model The Spree Marketplace Foundation of the Business- Spree is a web-based, direct marketing company that delivers a unique loyalty marketplace and proprietary multi-level referral engine. The foundation for Spree's considerable success began in November 1999 with the completion of its first institutiorial funding round. Upon completion of the round, Spree initiated a re-launch of its business and website creating a first-mover advantage in internet-based loyalty programs featuring loyalty incentives for both purchasers and the sites or individuals that "refer" the purchaser. In the short time since receiving funding from Patricof & Co. Ventures, Technology Crossover Ventures, and Odeon Capital Partners, Spree has grown its cashback marketplace membership base to over three million permissioned names. These members arrive at Spree's marketplace through links on websites hosted by Spree and others. Once at the marketplace, members receive discounts and cashback incentives on goods and services purchased or obtained from any one of the merchants on the marketplace. Customer satisfaction and loyalty is assured through the Company's Certified Merchant Program and its customer service operations. Scaling the B2B Solution - e-ValuePlus Spree used its cashback marketplace as a testbed for its full service, direct marketing, B2B offering that launched in May 2000. Spree is now leveraging the success and experience it has gained in operating its cashback marketplace to optimize its direct marketing B2B offering. CONFIDENTIAL - Spree.corn 2000 Page 2 The loyalty marketplaces Spree offers and the suite of e-marketing services it provides have been branded under the e-ValuePlus Marketing Solutions Provider (MSP) platform, e-ValuePlus features: PRODUCT Loyalty Marketplace • BENEFIT CAPABILITIES Low-cost member acquisition achieved through a multi-level referral engine Customer retention from solid discount values on top brands Customer service and satisfaction; Certified Merchant Program Additional revenue streams based on client being "parent" of its customers Client account management Merchant account and promotion management Turnkey operation; entire responsibility of services outsourced to Spree Complete and integrated emarketing approach - planning, implementation, measurement and reporting of marketing campaigns e-mail hosting, design and newsletter capabilities Creative services - webpage development and other creative components Analytics - list profiling and segmentation e-registration - advertising and promotional opt-in Brokerage service - list management on behalf of clients Targeted value-priced advertising • • • • • e-Marketing Services • • • • • • • • CONFIDENTIAL - Spree.com 2000 Page 3 The Company sells the e-ValuePlus package to a wide range of clients for whom customer acquisition, activation and retention are critical goals. Spree delivers a turnkey marketing solution to its clients by providing a loyalty marketplace and by handling all of the e-marketing services desired by the client, including e-mail hosting, list management, creative services, segmentation, profiling, database management and the other key elements of a successful direct marketing campaign, e-ValuePlus is horizontally scalable - yet customizable - enabling its solutions to be sold individually or en suite to a wide range of clients, according to the specific needs of that client. The Company is continuously seeking to fortify its business model with additional services, which will benefit the client, merchant and customer. In an effort to further its competitive advantage, Spree is dedicated to building strategic alliances in any number of areas, which will complement its existing products and services. IV. Value Proposition Spree has assembled a fee-based program that generates revenues for the Company and for clients, delivers customers to merchants and provides customers with the opportunity to purchase name-brand goods at discounted prices. This unique program enables the Company to generate multiple streams of revenue while, simultaneously providing value to all members of the value chain. Value for the Client The client benefits from the loyalty marketplace and e-marketing services in several ways: • • • • • • • • Loyalty marketplace attracts customers to the client's site, and its stickiness keeps them there Referral engine enables clients to continuously acquire new members with little or no cost or effort on the part of the client Client receives a percentage of the cashback or other incentives earned by customers from purchases made on the loyalty marketplace Client determines how it wants to use the cashback dollars or other incentives Spree manages merchant promotional programs and merchant accounts Spree manages all back-end customer service involved with the fulfillment of any transaction, including client/customer and merchant/customer service e-marketing services provide the client with the full range of direct marketing services in a turnkey, hassle-free deliverable Client has the ability to choose those components of the e-marketing services which are necessary for its business model CONFIDENTIAL - Spree.com 2000 Page 4 Spree's clients may include, without limitation: • • • • • • financial services (e.g., banks, credit card issuers, credit unions); high transaction value companies (e.g., automobile manufacturers pharmaceutical companies, real estate brokers, insurance companies); traffic aggregators (e.g., portals, community sites, content sites); merchants and retailers (both online and offline); not-for-profit organizations; and private education institutions. and dealers, As described above, clients can determine how they want to use the cashback or other incentives they earn on purchases made by their customers and by those whom their customers refer; for example, a company that utilizes e-ValuePlus on its employee intranet would be able to pass the incentives back to the employees, or to fund employee activities. A non-profit organization could utilize the e-ValuePlus marketplace as a means to benefit its membership and to acquire new donations from its members with no out-of-pocket payment (other than the standard sales and maintenance fees paid for e-ValuePlus). Value for the Merchant For merchants, e-ValuePlus provides the following benefits: • Acquire new customers and significantly expand their reach through participation in multiple marketplaces; low-cost method of capturing and retaining customers and their data Pay-for-performance method of generating sales and enhancing retention; low-cost, lowrisk advertising expense Superior customer service provided by Spree Access to promotional programs, targeted e-mails and newsletters Word of mouth endorsement of merchant offer and products • • • • Value for the Customer Purchasers of goods will benefit from e-ValuePlus as a result of the following benefits: • • • Low prices and cashback incentives on purchases made from over 260 name-brand merchants in 26 different categories Cashback on purchases made by referrals Safe and secure shopping - consumer advocacy through the Spree Certified Merchant Program and an endorsed sale mechanism enhancing the online purchasing process; 100% satisfaction guaranteed on all purchases CONFIDENTIAL - Spree.com 2000 Page 5 V. Revenue Model Loyalty Marketplace Spree's primary revenue stream from the loyalty marketplaces derives from an initial setup fee and monthly maintenance fees. In addition, the Company earns a commission from the merchants on the marketplace for each customer purchase. e-Marketing Services Spree generates revenues from fees it charges for the e-mail hosting, campaign management and newsletter program components of its e-marketing services. Spree also makes money through advertising generated through banners placed on member websites and through advertisements inserted into promotional e-mails and newsletters. Finally, Spree charges fees for its list management and creative services. VI. Management Team Peg McGregor, CEO and President Peg McGregor, the Company's CEO and President, is the vision behind the re-launch of Spree.com. Under her leadership, Ms. McGregor and her team secured $13.75 million in Spree's first institutional round of funding from Patricof & Co. Ventures, Inc., Technology Crossover Ventures and Odeon Capital Partners. She has successfully grown the member base ten-fold and added over 200 merchants while redefining the organizational structure and staffing plan to drive both the new business model and the strategic plan. Further, Ms. McGregor has developed, priced and formulated an execution plan for the B2B model, which the Company has already begun to implement. To support this plan, she has redesigned and executed a strong infrastructure underlying efficient operations, distribution, merchandising and database marketing capabilities. Additionally, Ms. McGregor has assembled the nucleus of a strong management team to build and manage the currentorganization of over 50 people. Prior to her tenure at Spree.corn, Ms. McGregor launched and ran her own catalogue company, which focused on performance outerwear for adults and children. Ms. McGregor's entrepreneurial leadership led to the development and implementation of the business concept, plan and forecasts, resulting in venture capital funding of $1.5 million and sales increases of over 300% over two years. Ms. McGregor also brings 15 years of successful trade negotiations and alliance building experience to Spree from the US General Accounting Office, as a Congressional Representative on numerous trade disputes and discussions. Ms. McGregor's strategic planning and marketing skills, as well as her leadership of multidisciplinary teams were critical to the historic opening of relations between the Japanese government and the GAO. CONFIDENTIAL - Spree.com 2000 Page 6 Ms. McGregor graduated summa cum laude from the University of Delaware with a Bachelor of Arts degree in Political Science and has taken extensive graduate level coursework in applied economics. Larry Davis, Executive Vice President of Marketing and Promotions Larry Davis joined Spree in February 2000 as Executive Vice President of Marketing and Promotions. In this role, Mr. Davis has led the development of systems and capabilities to prepare the organization for a successful launch of the B2B services. Mr. Davis has developed the testing groundwork needed to realize and deploy the capabilities of the Spree marketplace, referral engine, and market services. Mr. Davis is a direct-marketing expert with 16 years of experience in creative, financial, and strategic disciplines and marketing management. Prior to joining Spree, Mr. Davis was Senior Vice President of Sales, Marketing and Advertising Operations at the Franklin Mint, the world's largest direct marketing collectibles company. During his tenure with the Franklin Mint, he managed over $1 billion in ad placements, managed over 35,000 campaigns annually and promoted over 8,000 products to a list of five million customers in 14 countries. Prior to the Franklin Mint, Mr. Davis was General Manager for a start-up retail video business. Mark Trozzi, Executive Vice President and CFO Mark Trozzi joined Spree in April 1998 as Executive Vice President and Chief Financial Officer. In this role, Mr. Trozzi designed and implemented improved accounting and financial reporting systems, staffed the operating departments of the organization, managed the financial and legal aspects of shareholder/investor relations, negotiations and funding and participated in the presentations for and supervised the closing of the most recent funding round. He designed the Company's first strategic financial planning model and has supervised its development through the transition to Spree's new business-to-business initiatives. Mr. Trozzi joined Spree aider a successful tenure as the Group Vice President and Chief Financial Officer of the Planned Parenthood Federation of America (PPFA) in New York City. He joined PPFA to assist its management team in developing for-profit ventures to supplement its traditional not-for-profit revenue streams. Prior to PPFA, Mr. Trozzi served as the Chief Financial Officer or Controller for a number of retail organizations that varied in size from $50 million to over $500 million in sales, where he specialized in profit maximization and increasing shareholder value. Robert W. Wilson, Executive Vice President of Business Development and Strategic Sales Bob Wilson joined Spree in August 2000 as Executive Vice President of Business Development and Strategic Sales. CONFIDENTIAL - Spree.corn 2000 Page 7 Prior to joining Spree, Mr. Wilson spent 15 years leading a significant number of successful marketing, sales and business development initiatives in the consumer packaged goods and consumer healthcare industries. Most recently, Mr. Wilson was Vice President of Health and Functional Nutrition for Novartis, where he was responsible for building a start-up business unit in the U.S. During his tenure with Novartis, Mr. Wilson negotiated the licensing-in of novel ingredients, the licensing-out of branded ingredients to Fortune 500 companies, strategic alliances for supply chain capabilities, acquisitions and joint ventures. Prior to Novartis, Mr. Wilson held various positions at Johnson & Johnson, Quaker Oats, H.J. Heinz and SmithKline Beecham. David Doligalski, Director of Technology David Doligalski joined Spree in June 1999 and is responsible for building out the technology side of the business. Since joining the Company, Mr. Doligalski has added structure to the technology development process and has successfully led the effort to re-architect and implement the underlying business systems. Prior to joining the Company, Mr. Doligalski spent 20 years in various capacities within the information systems area in the insurance, publishing, and logistics industries. He has worked for Eagle WMS, Malvem Systems, Cigna, Chase Economentrics, AM Best, and the National Association of Insurance Commissioners. He was instrumental in the development of the first networked connectivity between state insurance departments, has developed a vertical market sottware program analyzing the financial standing of international insurance companies (ultimately a product of Standard and Poors), served as publisher of an extensive set of insurance statistical and reference publications, participated in the definition of bar-coding standards in the logistics industry, and has actively participated in numerous marketing functions. The above members of senior management have been aggressively building out their teams. Additionally, in order to continue to build Spree's business and execute its business plan, the Company has commenced national searches and has begun interviewing qualified candidates for the Chief Technology Officer and General Counsel positions. VII. Board of Directors Thomas P. HirschfeM Thomas P. Hirschfeld is the managing director of the New York office of Patricof & Co. Ventures, Inc. Mr. Hirschfeld joined Patricof& Co. in 1995 and specializes in technology, telecommunications, and media investments. Previously, he was vice president at Salomon Brothers, where he provided merger and financing advice to companies in the same industries. CONFIDENTIAL - Spree.com 2000 Page 8 Mr. Hirschfeld serves on the Board of Directors of Atcom, Inc., Audible, Inc., IntraLinks, Inc., PNV.net, Inc., planet U, Inc., and Talk City, Inc. Marc Tesler Marc Tesler is a venture partner with Technology Crossover Ventures. He joined TCV as a General Partner in July 1995. He has been a technology investor for over 30 years, originally as an analyst and portfolio manager. Mr. Tesler's Intemet sector focus includes eBusiness Applications and Internet Services. Prior to joining TCV, Mr. Tesler was Department Head and Senior Portfolio Manager of the Alternative Asset Group at Chancellor Capital Management, with responsibility for over $1.5 billion in assets. Mr. Tesler serves on the Board of Directors of MemberWorks and several private companies. Matthew A. Smith Matthew Smith is a founding partner, and managing partner, of Odeon Capital Partners. Previously, he was a general partner of Wheatley Partners L.P., where he was responsible for identifying, negotiating and managing investment positions in information technology companies. From 1994 to 1996, Mr. Smith served as an investment analyst with Applewood Associates and 21st Century Communications Partners, L.P. where he specialized in information technology companies for these affiliated partnerships. Mr. Smith serves on the Board of Directors of Avicon Corporation, FreeRide Media and Dealtime.com. Michael P. Dever Michael P. Dever is the founder, Chairman and CEO of Mind Drivers LLC, a venture development company that specializes in the conception and early stage development of businesses focused on the Interact and telecommunications industries. In a related venture, Mr. Dever is the cofounder, Chairman and CEO of Freewire.com, an Intemet Application Service Provider. Mr. Dever founded, and is the Chairman and CEO of, Brandywine Asset Management, a hedge fund managing more than $100 million in assets in the international equity, currency and futures markets. In addition, in 1996 Mr. Dever founded the Company. Mr. Dever also serves on the Board of Directors of Netgov.com Corp. CONFIDENTIAL - Spree.com 2000 Page 9 Tucker Twitmyer Tucker Twitmyer is the Managing Director of Katalyst LLC, responsible for the Philadelphia region. Prior to joining Katalyst, Mr. Twitmyer was a Senior Manager for Andersen Consulting's strategy and general management consulting division, where, he specialized in telecommunications strategy for senior executives and boards of the world's largest telecommunications players. Mr. Twitmyer also spent four years in Europe as an International Project Manager with MultiServ, the world's largest provider of steel mill transportation and recycling services. Peg McGregor Please see Ms. McGregor's biography under "Management Team" above. VIII. Competition There are a number of competitors offering combinations of point-rewards or multi-level referral; for example: Spree's competitors include Dash, eBates, and Shop4Cash (eMarketplaces), Yesmail and Netcreations (e-mail hosting), DoubleClick, 24/7 and L90 (advertising) and LinkShare, BeFree and Commission Junction (affiliate programs); myPoints, Netcentives, and Batnetl (loyalty programs); however, Spree continues to be the industry leader in this space. No other competitor offers what Spree does: a fully functional, turnkey, loyalty marketplace combined with a complete package of e-marketing services. Spree has the complete solution and, therefore, has a valuable head start against B2B competition. IX. Source and Use of Funds Spree received $13.75 million in a Series A Preferred Stock funding round in November 1999. The proceeds were used to further develop the Company's cashback marketplace, for working capital and for general corporate purposes, including the development of the Company's infrastructure. Spree currently seeks $20 million in funding to attain positive operating cashflow, which is forecast by the first quarter of 2002. The Company intends to use the proceeds from this funding to continue to build the Company's strategic platform, expand sales and marketing efforts, build out the Company's management team, for working capital and for general corporate purposes. CONFIDENTIAL - Spree.corn 2000 Page 10 Revenue $1,277,220 $18,738,507 $47,938,196 $83,952,449 Gross Margin 646,761 13,743,070 32,477,388 54,932,844 EBITDA (13,187,023) (7,447,517) 10,280,245 31,660,096 Employees 71 87 93 93 The Company is projecting $1.3 million in revenues this year arising from the strong emergence of the B2B rollout to be accompanied by EBITDA of ($13.2) million. The Company is currently projecting that it will generate a positive operating cash flow in the first quarter of 2002. In 2003, the Company is projecting revenues of $84.0 million with EBITDA of $31.7 million. The sources and uses of the financing are detailed below: Sources!._ndUses ;_ "':..... . " ":_' .... _..... : .... ':_ Preferred Stock Financing $20,000,000 USes: ;_] Marketing / Business Development IT Capex Systems, Operations and Contracted Services Payroll and Other Operating Expenses Total Uses 6,000,000 2,200,000 4,800,000 7,000,000 $20,000,000 CONFIDENTIAL - Spree.com 2000 Page 11 X. Contact Information The primary contact for inquiries is: Peg McGregor, CEO and President Spree.com 1155 Phoenixville Pike - Suite 103 West Chester, PA 19380-4285 (610) 516-1652 (work) (302) 530-1780 (mobile) pegjncgregor@spree.com CONFIDENTIAL - Spree.com 2000 Page 12