SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
FREESHOP.COM, INC.
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(Name of Registrant as Specified in Its Charter)
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(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:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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<PAGE>
(5) Total fee paid:
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|_| 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[FREESHOP LOGO]
FREESHOP.COM, INC.
95 South Jackson Street, Suite 300
Seattle, Washington 98104
Telephone: (206) 441-9100 Facsimile: (206) 441-9661
July 27, 2000
Dear Shareholder:
On behalf of FreeShop.com, Inc. (the "Company"), I cordially invite you to
attend the 2000 Annual Meeting of Shareholders (the "Annual Meeting") to be held
at 2:00 p.m. on Wednesday, August 23, 2000 at the Washington Athletic Club, 1325
Sixth Avenue, Seattle, Washington 98101.
At the Annual Meeting, the shareholders will be asked to:
1. elect four directors to the Company's Board of Directors (the
"Board"); and
2. vote on a proposal to approve the Company's 2000 Employee Stock
Purchase Plan.
The Board unanimously recommends that shareholders vote "FOR" these two
proposals.
Whether or not you plan to attend the Annual Meeting, we hope that you will
have your shares represented by marking, signing, dating and returning your
proxy card in the enclosed envelope as soon as possible. Your shares will be
voted in accordance with the instructions you have given in your proxy card. You
may, of course, attend the Annual Meeting and vote in person even if you have
previously returned your proxy card.
On behalf of the Board, I would like to express our appreciation for your
support of the Company. We look forward to seeing you at the meeting.
Sincerely,
/s/ Timothy C. Choate
Timothy C. Choate
Chairman, President and Chief Executive Officer
<PAGE>
FREESHOP.COM, INC.
95 South Jackson Street, Suite 300
Seattle, Washington 98104
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, AUGUST 23, 2000
To The Shareholders of FreeShop.com, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
FreeShop.com, Inc., a Washington corporation (the "Company"), will be held on
Wednesday, August 23, 2000 at [2:00 p.m.] local time, at the Washington Athletic
Club, 1325 Sixth Avenue, Seattle, Washington 98101, for the following purposes,
which are more fully described in the accompanying Proxy Statement:
1. To elect four directors to the Company's Board of Directors to serve
until the 2001 Annual Meeting of Shareholders or until their earlier
retirement, resignation or removal, or the election of their successors;
2. To approve the Company's 2000 Employee Stock Purchase Plan; and
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only holders of record of the Company's Common Stock at the close of
business on July 14, 2000 are entitled to notice of, and to vote at, the meeting
or any adjournment or postponement thereof. A list of shareholders as of that
date will be available at the meeting and for ten (10) days prior to the meeting
at the Company's principal executive offices located at 95 South Jackson Street,
Suite 300, Seattle, Washington 98104.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Timothy C. Choate
Timothy C. Choate
Chairman, President and Chief Executive Officer
Seattle, Washington
July 27, 2000
Your vote is important!
All shareholders are cordially invited to attend the meeting in person. Whether
or not you expect to attend the meeting in person, we urge you to complete,
sign, date and return the enclosed proxy as promptly as possible to ensure your
representation at the meeting. A postage-prepaid envelope is also enclosed for
that purpose. Sending in your proxy will not prevent you from voting your shares
at the meeting if you desire to do so, as your proxy is revocable at your
option.
<PAGE>
FREESHOP.COM, INC.
95 South Jackson Street, Suite 300
Seattle, Washington 98104
---------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, AUGUST 23, 2000
ANNUAL MEETING AND PROXY SOLICITATION INFORMATION
General
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of FreeShop.com, Inc., a
Washington corporation (the "Company"), for use at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at 2:00 p.m. local time on
Wednesday, August 23, 2000, at the Washington Athletic Club, 1325 Sixth Avenue,
Seattle, Washington 98101, and at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting
of Shareholders. This Proxy Statement, a proxy card and the Annual Report of the
Company, which includes financial statements for its fiscal year ended December
31, 1999, are being sent to all shareholders of record as of the close of
business on July 14, 2000, on or about August 1, 2000. Although the Annual
Report and this Proxy Statement are being mailed together, the Annual Report is
not part of this Proxy Statement.
Quorum and Voting Rights
At the close of business on July 14, 2000, there were 15,661,425 shares of
common stock, no par value (the "Common Stock"), of the Company outstanding.
Only holders of record of the shares of Common Stock outstanding at such time
will be entitled to notice of and to vote at the meeting. The presence at the
meeting of at least a majority of such shares, either in person or by proxy,
shall constitute a quorum for the transaction of business. Broker non-votes and
shares held by persons abstaining will be counted in determining whether a
quorum is present. Proxies are solicited to give all shareholders who are
entitled to vote on the matters that come before the meeting the opportunity to
do so, whether or not they choose to attend the meeting in person.
If you are a shareholder of record, you may vote by using the proxy card
enclosed with this Proxy Statement. When your proxy card is returned properly
signed, the shares represented will be voted according to your directions. You
can specify how you want your shares voted on each proposal by marking the
appropriate boxes on the proxy card. The proposals are identified by number and
a general description on the proxy card. Please review the voting instructions
on the proxy card and read the text of the proposals and the position of the
Board in the Proxy Statement prior to marking your vote. If your proxy card is
signed and returned without specifying a vote or an abstention on any proposal,
it will be voted according to the recommendations of the Board on that proposal.
The recommendation of the Board for each proposal is shown on the proxy card.
For the reasons stated in more detail later in the Proxy Statement, the Board
recommends a vote (i) "FOR" the individuals nominated to serve as directors and
(ii) "FOR" the Company's 2000 Employee Stock Purchase Plan.
It is not expected that any matters other than those referred to in this
Proxy Statement will be brought before the Annual Meeting. If any other matters
are properly presented for action, however, the proxies named on the proxy card
will be authorized by your proxy to vote on those other matters in their
discretion.
<PAGE>
On each matter properly brought before the meeting, shareholders will be
entitled to one vote for each share of Common Stock held. Shareholders do not
have the right to cumulate their votes in the election of directors. Under
Washington law and the Company's Second Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws, if a quorum exists at the
meeting: (i) the nominees for directors who receive the greatest number of votes
cast in the election of directors will be elected and (ii) the proposals to
approve the Company's 2000 Employee Stock Purchase Plan will be approved if the
number of votes cast in favor of the proposal exceeds the number of votes cast
against it.
Shareholders may abstain from voting for the nominees for director and may
abstain from voting on the proposal to approve the Company's 2000 Employee Stock
Purchase Plan. In an uncontested election of directors, any action other than a
vote for a nominee will have no effect, assuming the presence of a quorum.
Abstention from voting on the proposal to approve the 2000 Employee Stock
Purchase Plan will have no effect, as approval of this proposal is based solely
on the number of votes actually cast.
Brokerage firms and other intermediaries holding shares of Common Stock in
street name for customers are generally required to vote such shares in the
manner directed by their customers. In the absence of timely directions,
brokerage firms and other intermediaries will generally have discretion to vote
their customers' shares in the election of directors. The failure of a brokerage
firm or other intermediary to vote its customers' shares on the proposal for the
election of directors will have no effect on any proposal as approval of each
proposal is based solely on the number of votes actually cast. Brokerage firms
and other intermediaries do not have discretion to vote their customers' shares
on the proposal to approve the Company's 2000 Employee Stock Purchase Plan. Such
"broker non-votes" will not be counted as votes cast against the proposal to
approve the Company's 2000 Employee Stock Purchase Plan, however, and will have
no effect on the proposal as approval is based solely on the number of votes
actually cast.
Revocability of Proxies
If you execute a proxy, you may revoke it by taking one of the following
three actions: (i) by giving written notice of the revocation to the Secretary
of the Company at its principal executive offices prior to the commencement of
shareholder voting at the Annual Meeting on Wednesday, August 23, 2000; (ii) by
executing a proxy with a later date and delivering it to the Secretary of the
Company at its principal executive offices prior to the commencement of
shareholder voting at the Annual Meeting on Wednesday, August 23, 2000; or (iii)
by personally attending and voting at the meeting.
Solicitation Of Proxies
The Company will bear the expense of preparing, printing and distributing
proxy materials to its shareholders. The Company has incurred minimal costs
related to this proxy solicitation to date, but anticipates it will incur
approximately $20,000 in the future related to the proxy preparation,
distribution and collection process. In addition to solicitations by mail, a
number of regular employees of the Company may solicit proxies on behalf of the
Board in person or by telephone. The Company will reimburse brokerage firms and
other intermediaries for their expenses in forwarding proxy materials to
beneficial owners of the Common Stock.
Shareholder Proposals for 2001 Annual Meeting
An eligible shareholder who desires to have a qualified proposal considered
for inclusion in the proxy statement and form of proxy prepared in connection
with the Company's 2001 Annual Meeting of
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<PAGE>
Shareholders must deliver a copy of the proposal to the Secretary of the
Company, at the Company's principal executive offices, no later than April 3,
2001, and satisfy certain other requirements set forth in Rule 14a-8 under the
Securities Exchange Act of 1934, as amended. A shareholder must have been a
record or beneficial owner of at least one percent of the Company's outstanding
Common Stock, or shares of Common Stock having a market value of at least
$2,000, for a period of at least one year prior to submitting the proposal, and
the shareholder must continue to hold the shares through the date on which the
meeting is held.
A shareholder of record who intends to nominate a director for election or
submit a proposal at the 2001 Annual Meeting that is not eligible for inclusion
in the Company's Proxy Statement must provide written notice to the Company,
addressed to the Secretary of the Company at its principal executive offices,
not later than May 25, 2001.
PROPOSAL 1 - ELECTION OF DIRECTORS
The directors to be elected at the Annual Meeting will serve on the Board
until the 2001 Annual Meeting of Shareholders or until their earlier retirement,
resignation or removal. Timothy C. Choate, John P. Ballantine, John B. Balousek
and Kirk M. Loevner, who constitute the current directors of the Company, have
all been nominated by the Board for election at the Annual Meeting. The
accompanying proxy will be voted for these nominees, except where you indicate
otherwise or authority to so vote is withheld. Should any of these individuals
be unable to serve, the proxy will be voted for such person(s) as is designated
by the Board.
Nominees for Director
Timothy C. Choate Age 35
Mr. Choate has served as Chairman, President and Chief Executive Officer
since March 1998 and as a director since July 1997. From July 1997 to March
1998, Mr. Choate served as a Vice President of Micro Warehouse, Inc. In
1994, Mr. Choate co-founded Online Interactive, Inc., the former parent of
FreeShop, and served as its Chairman, President and Chief Executive Officer
until March 1997. Before 1994, Mr. Choate served as President of Softdisk
Publishing LLC, a software publishing company. Mr. Choate's prior
experience includes serving as a Senior Marketing Manager at Prodigy
Communications Corporation, an Internet access and content provider, and
developing and launching the New Products Division for Business Week, a
division of the McGraw-Hill Companies Inc. Mr. Choate serves on the boards
of directors of Digital River, Inc., a provider of electronic commerce
outsourcing solutions, and LapLink.com, Inc., an Internet file transfer
company. Mr. Choate holds a B.S.E. degree in Marketing and Entrepreneurial
Management from the Wharton School of Business at the University of
Pennsylvania.
John P. Ballantine Age 37
Mr. Ballantine has served as a Director since July 1997. Since March 1999,
Mr. Ballantine has served as Chairman and Chief Executive Officer of iStart
Ventures LLC, a developer of early-stage e-commerce concepts. From July
1997 to March 1998, Mr. Ballantine served as a Vice President of Micro
Warehouse, Inc. In 1994, Mr. Ballantine co-founded Online Interactive and
served as its Executive Vice President and later as President and Chief
Executive Officer. From February 1993 to June 1994, Mr. Ballantine served
as Vice President of Softdisk Publishing, where he managed online shopping
applications with America Online, CompuServe, Prodigy and GEnie. From March
1989 to February 1993, Mr. Ballantine served as Vice President of Sales for
DataEnvelope, a full-service software marketing and distribution company.
Mr. Ballantine holds
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<PAGE>
a B.S.E. degree in Finance and International Business from the San Diego
State University School of Business.
John P. Balousek Age 55
Mr. Balousek has served as a Director since February 1999. In 1998 Mr.
Balousek co-founded PhotoAlley.com, an online retailer of photographic
equipment, supplies and services. From 1979 to 1997, Mr. Balousek served in
various positions, including President/Chief Operating Officer and Director
of Foote, Cone & Belding Communications, Inc., a global advertising and
communications company. In 1996, Mr. Balousek served as Chairman/Chief
Executive Officer of True North Technologies, a digital and interactive
service of True North Communications, Foote, Cone & Belding's parent
company. Mr. Balousek currently serves as a director for Geoworks
Corporation, a provider of end-to-end solutions for the wireless
communications market; Transilluminant Corporation, a privately held
company focusing on electronic data marketing; and EDB Holdings, Inc., a
superoptical retailing company. Mr. Balousek holds an undergraduate degree
from Creighton University and a from Northwestern University.
Kirk M. Loevner Age 43
Mr. Loevner has served as a Director since November 1998. In February 1999,
Mr. Loevner founded PublishOne, Inc., an online publishing service for
businesses, of which he is currently President and Chief Executive Officer.
From August 1996 to August 1998, Mr. Loevner served as President and Chief
Executive Officer of the Internet Shopping Network, Inc., an online
retailer and auction house. From November 1993 to July 1996, Mr. Loevner
served as a Vice President and General Manager of Silicon Graphics Inc., a
leading supplier of visual computing and high-performance computer systems.
Before November 1993, Mr. Loevner served as a Vice President and General
Manager of Apple Computer Inc., a computer manufacturing company. Mr.
Loevner currently serves on the board of directors of the Software Industry
and Information Association, a software industry association. Mr. Loevner
holds a B.S.E. degree in Computer Science from Tufts University and an
M.B.A. degree in General Management from Harvard University.
The Board unanimously recommends a vote "FOR" all the nominees named in
Proposal 1.
BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board.
The Company has determined that the Board shall be composed of six directors.
Four directors currently serve on the Board, with two vacancies existing. The
Company intends to appoint individuals to fill the vacancies after it identifies
suitable candidates. Each director is elected for a period of one year at the
annual meeting of shareholders and serves until the next annual meeting or until
his or her successor is duly elected and qualified. Proxies may not be voted for
a greater number of persons than the number of nominees named. The Board has
responsibility for establishing broad corporate policies and for the overall
performance of the Company. It is not, however, involved in operating details on
a day-to-day basis.
In order for a shareholder to nominate one or more candidates for election
as directors at an annual meeting of shareholders, the shareholder must give
timely notice of the proposal to nominate such candidate(s) in writing to the
Secretary of the Company not less than 90 days prior to the first anniversary of
the date that the Company's annual meeting was held.
Meetings of the Board
The Board meets on a regularly scheduled basis during the year to review
significant developments affecting the Company and to act on matters requiring
Board approval. It also holds special
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<PAGE>
meetings when an important matter requires Board action between regularly
scheduled meetings. The Board met eight times during the Company's fiscal year
ended December 31, 1999, including action taken by unanimous written consent on
four occasions. No incumbent member attended fewer than 88% of the total number
of meetings (including consents) of the Board and of any Board committees of
which he was a member during that fiscal year.
Compensation of Directors
Directors of the Company do not receive cash compensation for their
services as directors or members of committees of the Board, but are reimbursed
for their reasonable expenses incurred in attending Board or Committee meetings.
The Company's 1997 Stock Option Plan, as amended (the "Option Plan"),
permits the grant of options for the purchase of shares of Common Stock to
directors of the Company.
On February 10, 1999, Mr. Balousek was granted an option to purchase 16,000
shares of Company common stock at a strike price of $2.50, vesting 50% at issue
and the balance in quarterly increments over the course of eight consecutive
quarters. There were no other option grants to named directors in 1999.
Committees of the Board
Committees of the Board consist of an Audit Committee and a Compensation
Committee. The Audit Committee, currently composed of Messrs. Ballantine,
Balousek and Loevner, reviews the Company's internal accounting procedures and
consults with and reviews the services provided by the Company's independent
auditors. The Audit Committee met one time during the fiscal year ended December
31, 1999. The Compensation Committee, which was composed of Messrs. Ballantine
and Lansing, reviewed and recommended to the Board the compensation and benefits
to be provided to the Company's officers as well as reviews general policy
matters relating to employee compensation and benefits. The Compensation
Committee met two times during the fiscal year ended December 31, 1999. Due to
Mr. Lansing's resignation in March 2000, only one director is currently
appointed to the Compensation Committee. The Compensation Committee needs a
minimum of two non-employee directors in order to function. Until another
director is appointed to the Compensation Committee, all functions previously
handled by the Compensation Committee are being handled by the full Board of
Directors.
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<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
Ownership Information
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of its Common Stock as of June 30 2000,
by (i) each person known by the Company to be the beneficial owner of more than
five percent (5%) of the outstanding Common Stock, (ii) each director of the
Company, (iii) each of the Company's four most highly compensated executive
officers, and (iv) all directors and officers as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
Directors, Named Executive Officers Number of Shares
and 5% Shareholders(2) Beneficially Owned(1) % of Total Shares Owned
-------------------------------------- ---------------------- -----------------------
<S> <C> <C>
Fingerhut Companies, Inc. 5,131,255 32.71
4400 Baker Road
Minnetonka, MN 55343(3)
Timothy C. Choate(4) 1,845,121 11.76
John P. Ballantine(5) 1,657,739 10.56
Kirk M. Loevner(6) 88,171 *
John B. Balousek(7) 54,000 *
Lisa Wolff(8) 66,946 *
John A. Wade(9) 60,960 *
Ron Christiansen(10) 52,700 *
William H. Fritsch(11) 43,967 *
All directors and executive officers 3,869,604 24.47
as a group (8 persons)(12)
</TABLE>
* Represents beneficial ownership of less than one percent (1%) of the
Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC, based on factors including voting and investment power with respect
to shares. Common Stock subject to options currently exercisable, or
exercisable within 60 days after June 30, 2000, are deemed outstanding for
computing the percentage ownership of the person holding such options, but
are not deemed outstanding for computing the percentage ownership for any
other person. Applicable percentage ownership based on aggregate Common
Stock outstanding as of June 30, 2000, together with the applicable
options of such shareholder.
(2) Unless otherwise indicated, the address of each beneficial owner is that
of the Company.
(3) Federated Department Stores, Inc. may be deemed to control Fingerhut by
virtue of its ownership of 100% of Fingerhut's capital stock and its
corresponding right to elect Fingerhut's directors, and, therefore, the
Company's common stock owned by Fingerhut may also be deemed to be
beneficially owned by Federated.
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<PAGE>
(4) Represents 1,831,121 shares held by Mr. Choate directly, 12,000 shares
held by trusts established for Mr. Choate's children and 2,000 shares that
Mr. Choate has a right to acquire pursuant to options exercisable within
60 days of June 30, 2000.
(5) Represents 1,641,739 shares held by Mr. Ballantine directly and 16,000
shares that Mr. Ballantine has a right to acquire pursuant to options
exercisable within 60 days of June 30, 2000.
(6) Represents 73,171 shares held by Kirk Loevner Trust w/d/t dated 8/5/96
directly and 15,000 shares that Mr. Loevner has a right to acquire
pursuant to options exercisable within 60 days of June 30, 2000.
(7) Represents 12,000 shares held by Mr. Balousek directly, 30,000 shares held
by the Balousek Family Limited Partnership, 10,000 shares held by the
Balousek 1994 Irrevocable Trust, and 2,000 shares that Mr. Balousek has a
right to acquire pursuant to options exercisable within 60 days of
June 30, 2000.
(8) Represents 65,388 shares held by Ms. Wolff directly and 1,558 shares that
Ms. Wolff has a right to acquire pursuant to options exercisable within 60
days of June 30, 2000.
(9) Represents 10,000 shares held by Mr. Wade directly and 50,960 shares that
Mr. Wade has a right to acquire pursuant to options exercisable within 60
days of June 30, 2000.
(10) Represents 45,420 shares held by Mr. Christiansen directly and 7,280
shares that Mr. Christiansen has a right to acquire pursuant to options
exercisable within 60 days of June 30, 2000.
(11) Represents 15,667 shares held by Mr. Fritsch directly and 27,300 shares
that Mr. Fritsch has a right to acquire pursuant to options exercisable
within 60 days of June 30, 2000.
(12) Represents 3,747,506 shares listed as to all current directors and
executive officers and 122,098 shares issuable within 60 days of June 30,
2000 upon the exercise of outstanding options.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's officers and directors, and persons
who own more than ten percent (10%) of a registered class of the Company's
equity securities, file reports of ownership and changes of ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten percent (10%) shareholders are required by SEC regulation to furnish
the Company with copies of all such reports they file.
Based solely on its review of the copies of such reports received by the
Company, and on written representations by the Company's officers and directors
regarding their compliance with the applicable reporting requirements under
Section 16(a) of the Exchange Act, the Company believes that, with respect to
its fiscal year ended December 31, 1999, all of the Company's officers and
directors, and all of the persons known to the Company to own more than ten
percent (10%) of the Common Stock, complied with all such reporting
requirements.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee is currently composed only of Mr.
Ballantine. In 1999, the Compensation Committee was composed of Messrs.
Ballantine and Lansing. Mr. Lansing resigned as a director in March 2000. No
member of the Compensation Committee is an officer or employee of the Company.
No executive officer of the Company serves as a member of the board or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board or Compensation Committee. In
addition, no interlocking relationship exists between
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<PAGE>
any member of the Company's Compensation Committee and any member of the
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
Transactions with Directors and Officers
The Company has entered into indemnification agreements with each of its
directors and officers containing provisions that may require it, among other
things, to indemnify its directors and officers against liabilities that may
arise by reason of their status or service as directors and officers, other than
liabilities arising from willful misconduct of a culpable nature, and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.
Transactions with Fingerhut
Fingerhut is the Company's largest shareholder. On December 10, 1998, the
Company issued 1,619,387 shares of its Common Stock to Fingerhut for $4.0
million, or $2.47 per share. Immediately following the issuance of the shares,
Fingerhut owned 19.9% of the Company's issued and outstanding common stock. On
December 10, 1998, the Company entered into a warrant agreement with Fingerhut,
pursuant to which the Company granted Fingerhut the several warrants to purchase
the Company's Common Stock. In May of 1999 the Company agreed to issue Fingerhut
shares of its Series B convertible preferred stock in lieu of Common Stock upon
the exercise of these warrants. All of the warrants were exercised prior to the
completion of the initial public offering on October 1, 1999. On October 1,
1999, the Series B convertible preferred stock converted into Common Stock.
Certain Business Relationships
William J. Lansing, a member of the Board during 1999, was the President
and Chief Executive Officer of Fingerhut. During 1999, the Company provided
approximately $55,000 in lead-generation services to Fingerhut and Fingerhut
provided approximately $215,000 in fulfillment services to the Company. Mr.
Lansing is also a director of BigStar Entertainment, Inc., a client of FreeShop.
In 1998 and 1999, the Company billed BigStar approximately $9,000 and $265,000,
respectively, for its services. In January 2000, the Company entered into an
agreement with Digital River to offer free commercial software products to the
Company's customers. The Company has not yet provided any services under the
agreement with Digital River to date. Timothy Choate is a director of Digital
River.
Fingerhut is a significant shareholder of Roxy.com, Inc. In 1999, the
Company billed Roxy approximately $425,000 for its services.
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COMPENSATION AND BENEFITS
Executive Officer Compensation
The following table sets forth the compensation paid to the Company's Chief
Executive Officer and four most highly compensated executive officers for the
years ended December 31, 1998 and December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
-------------------
Annual Compensation Securities
----------------------------------------- Underlying
Name and Principal Position Salary Bonus Options
------------------------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Timothy C. Choate(1) 1999 $107,293 $35,417
Chairman, President and Chief 1998 26,825(2) 16,000
Executive Officer
William H. Fritsch 1999 105,208 30,208 25,000
Executive Vice President, 1998 50,000
Marketing
John A. Wade 1999 97,500 25,000
Secretary, Vice President, Finance 1998 37,500 80,000
and Chief Financial Officer
Ronald C. Christiansen Vice 1999 93,205 25,000 40,000
President, Sales
Lisa C. Wolff 1999 76,917 24,167
Vice President, Business 1998 65,167
Development
</TABLE>
(1) Mr. Choate became the Company's Chief Executive Officer in March 1998.
(2) Includes $19,220 in deferred compensation paid in January 1999.
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding stock option
grants to the Company's Chief Executive Officer and four most highly compensated
executive officers during the year ended December 31, 1999. The potential
realizable value is calculated based on the assumption that the Common Stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of its term. These numbers are calculated based on
SEC requirements and do not reflect the Company's projection or estimate of
future stock price growth. Potential realizable values are computed by:
o multiplying the number of shares of Common Stock subject to a given
option by the exercise price;
o assuming that the aggregate stock value derived from that calculation
compounds at the annual five percent (5%) or ten percent (10%) rate
shown in the table for the entire ten-year term of the option; and
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<PAGE>
o subtracting from that result the aggregate option exercise price.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------
Potential Realizable Value
% Of Total At Assumed Annual Rates Of
Number Of Options Stock Price Appreciation
Securities Granted To Exercise For Option Term
Underlying Employees In Price (Per -----------------------------
Options Fiscal Year Share) Expiration
Name Granted (1) (2) Date 5% 10%
------------------------------ -------------- -------------- -------------- -------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Timothy C. Choate -- -- -- -- -- --
William H. Fritsch 25,000(3) 5.4% $12.69 11/15/09 $199,517 $505,615
John A. Wade -- -- -- -- -- --
Ronald C. Christiansen 40,000(4) 8.7% 2.50 2/9/09 62,889 159,374
Lisa C. Wolff -- -- -- -- -- --
</TABLE>
(1) During 1999, options to purchase 462,066 shares were issued to employees.
(2) The exercise price per share was equal to the fair market value of the
Common Stock on the date of grant as determined by the board of directors.
(3) Represents options vesting according to the following schedule: 20%
vesting at one year, 6.7% vesting quarterly for the following 11 quarters
and 6.3% vesting at the end of four years.
(4) Represents options vesting according to the following schedule: 9.1%
vesting at six months, 9.1% vesting quarterly for the following nine
quarters and 9.0% vesting at the end of three years.
Option Exercises and Fiscal Year-End Values
The following table sets forth for the Company's Chief Executive Officer
and four most highly compensated executive officers the number of shares
acquired upon exercise of stock options during the year ended December 31, 1999
and the number of shares subject to exercisable and unexercisable stock options
held at December 31, 1999.
Aggregated Option Exercises in 1999
and Year-End Option Values
<TABLE>
<CAPTION>
Number Of Securities Value Of Unexercised
Underlying Unexercised Options In-The-Money Options At
At December 31,1999 December 31, 1999(1)
-------------------------------- --------------------------------
Shares Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---------------------------- ------------------ -------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Timothy C. Choate 14,000 $180,320 1,000 1,000 $ 46,980 $ 46,980
William H. Fritsch -- -- 13,650 61,350 634,725 2,573,025
John A. Wade -- -- 32,760 47,240 1,532,076 2,207,124
Ronald C.Christiansen 3,640 41,496 3,640 32,720 165,620 1,488,760
Lisa C. Wolff 7,185 98,794 22,853 9,563 1,085,388 452,958
</TABLE>
(1) The value of unexercised in-the-money options at December 31, 1999 is
based on $48.00 per share, the closing price of the Common Stock at such
time, less the exercise price per share.
10
<PAGE>
Report on Executive Compensation
The Compensation Committee of the Board (the "Committee") is responsible
for recommending to the Board compensation for the Company's executive officers,
and for reviewing and approving compensation recommendations made by the Chief
Executive Officer for the other officers and key employees. The Committee is
also responsible for administering all of the Company's compensation programs.
In determining the base salary for a particular executive within the salary
range for his or her position, the Committee initially takes into account the
salary necessary to encourage the executive to join the Company in lieu of
pursuing other employment opportunities. In later years, the Committee considers
the amount budgeted for salary increases and the executive's success in
achieving the performance objectives established for such executive.
In August 1997, the Company adopted a stock option program whereby Company
executives and employees are granted on option to purchase a number of the
Company's Common Stock within a predetermined range on the date of hire. In
later years, the Committee considers individual and departmental performance
objectives in granting additional options to individual employees. The option
program is one element of a three-pronged compensation strategy developed by the
Company to compensate its employees, including its senior executives. The
remaining elements of this plan are base salary and a bonus based on the
Company's financial performance. The Committee believes this compensation
strategy closely aligns the interests of executives and other key employees to
that of the Company and its shareholders, and also serves to attract and retain
high quality employees.
The Company's Chief Executive Officer, Mr. Choate, does no participate in
Committee discussions, nor does he act as a member with respect to matters
related to the Chief Executive Officer's compensation. The compensation of the
Chief Executive Officer is determined under the same policies and criteria as
the compensation of the other executive officers. Mr. Choate did not receive any
stock option grants in 1999.
Under the Omnibus Budget Reconciliation Act of 1993, the federal income tax
deduction for certain types of compensation paid to the chief executive officer
and four other most highly compensated executive officers of publicly held
companies is limited to $1 million per officer per fiscal year unless such
compensation meets certain requirements. The Committee is aware of this
limitation and believes no compensation paid by the Company during 1998 will
exceed the $1 million limitation.
December 31, 1999 THE COMPENSATION COMMITTEE
William Lansing
John Balantine
Performance Graph
The following chart presents a comparison of the cumulative total
shareholder returns since the date of the Company's initial public offering
(September 27, 1999) of the Company's Common Stock, the Nasdaq Composite Index,
and the Inter@ctive Week Internet Index. The graph assumes an initial investment
of $100 and reinvestment of all dividends, if any. The stock performance shown
on the graph below is not necessarily indicative of future price performance.
11
<PAGE>
September 27, 1999 December 31, 1999
------------------ -----------------
FreeShop.com, Inc. $100.00 $400.00
Common Stock
Nasdaq Composite $100.00 $147.35
Index
Inter@ctive Week $100.00 $180.78
Internet Index
PROPOSAL 2 - ADOPTION OF THE FREESHOP.COM, INC. 2000 EMPLOYEE STOCK PURCHASE
PLAN
The following is a summary of the material provisions of the FreeShop.com,
Inc. 2000 Employee Stock Purchase Plan (the "ESPP") which is qualified in its
entirety by the full text of the ESPP, a copy of which is attached to this proxy
statement.
On April 17, 2000, the Board adopted the ESPP. The purpose of the ESPP is
to enable employees of the Company to share in the ownership of the Company by
providing them with a convenient means for regular and systematic purchases of
the Company's Common Stock and, thus, to develop a stronger incentive to work
for the continued success of the Company. An aggregate of 2,000,000 shares will
be reserved for purchase under the ESPP, subject to adjustment in the event of
stock dividends, stock splits, combinations of shares, a merger or
consolidation, or other similar changes in capitalization of the Company.
The ESPP will be administered by a committee of two or more directors of
the Board, of which all must be "non-employee" directors, based on semi-annual
purchase periods commencing March 16 or September 16 (the "Purchase Period").
The initial Purchase Period commenced on April 17, 2000. Any employee of the
Company or a designated subsidiary of the Company as of the first day of a
Purchase Period who is regularly scheduled to work a minimum of 20 hours per
week may be a participant in the ESPP ("Participant").
Participation in the ESPP is voluntary, and an eligible employee may elect
to participate in the ESPP prior to the commencement of a Purchase Period. For
the initial Purchase Period, eligible employees had two (2) pay periods from the
first day of the initial Purchase Period to elect to participate in the ESPP for
the initial Purchase Period. No employee shall be granted any right to purchase
Common Stock under the ESPP if, immediately after such a right to purchase is
granted, that employee would own, directly or indirectly, Common Stock
possessing five percent (5%) or more of the total combined voting power or value
of the Capital Stock of the Company or all its subsidiaries.
Payroll Deductions
The maximum rate of deduction that a Participant may elect for any Purchase
Period is 50% of the Participant's compensation. An amount equal to the elected
percentage of the Participant's compensation will be deducted on each regular
payday falling within the Purchase Period. All amounts will be deducted from a
Participant's compensation on an after-tax basis. No interest will be paid on
payroll deductions accumulated under the ESPP. The Company may, in the sole
discretion of the committee administering the ESPP, from time to time contribute
to each Participant's deductions an amount equal to up to 50% of the payroll
deduction credited to that Participant.
At any time prior to the end of a Purchase Period, a Participant may elect
to withdraw from the ESPP. If a Participant withdraws from the ESPP all of the
Participant's payroll deductions for that Purchase Period will be promptly
returned to the Participant and all contributions made by the Company on behalf
of that Participant for the Purchase Period will be returned to the Company. In
this situation,
12
<PAGE>
the Participant will not be eligible to participate in the ESPP again before the
next Purchase Period. If a Participant withdraws effective for a Purchase Period
that has not yet commenced, the Participant may elect to participate in any
subsequent Purchase Period.
Neither payroll deductions credited to a Participant's account nor any
rights with regard to the purchase of the Company's Common Stock under the ESPP
may be assigned, transferred, pledged, hypothecated or otherwise disposed of in
any way by the participant.
Purchase of Common Stock
On the last business day of a Purchase Period (the "Purchase Date") a
Participant's accumulated payroll deductions will be applied toward the purchase
of shares of Common Stock at a purchase price equal to the lesser of:
(i) 85% of the fair market value of the Common Stock on the first
business day of the Purchase Period; or
(ii) 85% of the fair market value of the Common Stock on the last business
day of the Purchase Period.
During any Purchase Period, the maximum number of shares of Common Stock
that may be purchased by a Participant may not exceed 1,800 shares. During any
calendar year, the maximum value of the Common Stock that may be purchased by a
Participant under the ESPP is $25,000. If the purchases for all Participants in
any Purchase Period would result in the sale of more that 330,000 shares of
Common Stock in the aggregate under the ESPP for such Purchase Period, each
Participant shall be allocated a pro rata portion of 330,000 shares of Common
Stock for that Purchase Period, subject to the limitation that no Participant
may purchase more than 1,800 shares in any Purchase Period.
Amendment and Termination of ESPP
The Board may amend or discontinue the ESPP at any time. No amendment or
discontinuation of the ESPP, however, shall without shareholder approval be made
that: (i) absent such shareholder approval, would cause Rule 16b-3 under the
Exchange Act to become unavailable with respect to the ESPP, (ii) requires
shareholder approval under any rules or regulations of the National Association
of Securities Dealers, Inc. or any securities that are applicable to the Company
or (iii) permit the issuance of Common Stock before payment therefor in full.
The Plan shall automatically terminate when all of the shares of Common Stock
provided for under the ESPP have been sold.
Termination of Employment
Participants have no right to acquire the Company's Common Stock under the
ESPP after their employment is terminated, unless that termination results from
either death or, in certain situations, approved normal or early retirement.
When a Participant dies, the entire amount of deductions and contributions made
to the Company on behalf of the employee will be used to purchase Common Stock,
unless the estate of the employee notifies the Company otherwise pursuant to
certain requirements under the ESPP. Upon a Participant's termination of
employment for any other reason on or prior to the last business day of a
Purchase Period, the balance in such Participant's account, excluding the
contributions made by the Company on behalf of that Participant, will be paid to
the Participant within 30 calendar days.
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<PAGE>
Federal Income Tax Consequences
The Plan is intended to qualify as an employee stock purchase plan under
Section 423 of the Code. The following is a general outline of tax features and
is based on the assumption that the purchase price is equal to the lesser of (a)
85% of the fair market value of the shares of Common Stock on the first day of
the Purchase Period or (b) 85% of the fair market value of the shares of Common
Stock on the last day of the Purchase Period. Each participant is encouraged to
seek specific advice from the participants tax advisor.
The amounts deducted under the Plan will be reportable by a participant as
a part of his or her income for the year in which such amounts would otherwise
have been paid to him or her. The participant will not have any additional
taxable income at the time shares of Common Stock are purchased under the Plan,
even though the purchase will be made for less than fair market value. A
participant may have taxable income in the year in which a sale or other
disposition is made, depending upon the circumstances.
When a participant sells shares of Common Stock purchased under the Plan
more than two (2) years after the first day of the Purchase Period and more than
one (1) year after the shares were transferred to the participant:
(a) The excess of the fair market value on the date of sale over
the amount paid for the shares, or the excess of the fair market value on
the first day of the Purchase Period over the purchase price therefor
determined as if the Purchase Period ended on that same date, whichever is
smaller, will be treated as compensation taxable as ordinary income;
(b) The excess of the amount realized upon the sale over the sum
of the amount paid for the shares and the amount of ordinary income
recognized under (a) above will be treated as long-term capital gain;
(c) If the sales price is less than the amount paid for the shares
of Common Stock, the participant will realize a capital loss.
When a participant sells shares of Common Stock purchased under the Plan
less than two (2) years after the first day of the Purchase Period or less than
one (1) year after the shares were transferred to the participant:
(a) The excess of the fair market value on the date of purchase
over the amount paid for the shares will be compensation taxable as
ordinary income;
(b) The excess (deficiency) of the amount realized upon the date
of sale over the fair market value on the date of purchase will be long-
or short-term capital gain (loss);
(c) The Company will be allowed a tax deduction in the amount of
ordinary income described in (a) above, if and to the extent such amount
is an ordinary and necessary expense and satisfies the test for reasonable
compensation.
The officers and directors of the Company are eligible to participate in
the ESPP.
The Board has unanimously approved the ESPP and recommends a vote "FOR"
approval of the adoption of the ESPP.
14
<PAGE>
AUDITORS
Representatives of PricewaterhouseCoopers LLP, independent public auditors
for the Company for fiscal 1999 and the current fiscal year, will be present at
the meeting, will have an opportunity to make a statement if the choose, and
will be available to respond to appropriate questions.
OTHER BUSINESS
The Board does not intend to bring any other business before the meeting
and, so far as is known to the Board, no matters are to be brought before the
meeting except as specified in the Notice of Annual Meeting of Shareholders.
However, as to any other business that may properly come before the meeting, it
is intended that proxies, in the form enclosed, will be voted in respect thereof
in accordance with the judgment of the persons voting such proxies.
IT IS IMPORTANT THAT PROXIES ARE RETURNED PROMPTLY AND THAT YOUR SHARES ARE
REPRESENTED. SHAREHOLDERS ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED PROXY
CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Tim C. Choate
Timothy C. Choate
Chairman, President and Chief Executive Officer
July 27, 2000
Seattle, Washington
15
<PAGE>
APPENDIX A
FREESHOP.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I. INTRODUCTION
Section 1.01 Purpose. The purpose of the FreeShop.com, Inc. 2000
Employee Stock Purchase Plan (the "Plan") is to provide employees of
FreeShop.com, Inc., a Washington corporation (the "Company"), and its subsidiary
corporations, if any, with an opportunity to share in the ownership of the
Company by providing them with a convenient means for regular and systematic
purchases of the Company's Common Stock, no par value per share, and, thus, to
develop a stronger incentive to work for the continued success of the Company.
Section 1.02 Rules of Interpretation. It is intended that the Plan be
an "employee stock purchase plan" as defined in Section 423(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations
promulgated thereunder. Accordingly, the Plan shall be interpreted and
administered in a manner consistent therewith if so approved. All Participants
in the Plan will have the same rights and privileges consistent with the
provisions of the Plan.
Section 1.03 Definitions. For purposes of the Plan, the following
terms will have the meanings set forth below:
(a) "Acceleration Date" means the later of the date of stockholder
approval or approval by the Company's Board of Directors of (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Company
Common Stock would be converted into cash, securities or other property,
other than a merger of the Company in which stockholders of the Company
immediately prior to the merger have the same proportionate ownership of
stock in the surviving corporation immediately after the merger; (ii) any
sale, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the
Company; or (iii) any plan of liquidation or dissolution of the Company.
(b "Affiliate" means any subsidiary corporation of the Company,
as defined in Section 424(f) of the Code, whether now or hereafter
acquired or established.
(c) "Committee" means the committee described in Section 10.01.
(d) "Common Stock" means the Company's Common Stock, no par
value, as such stock may be adjusted for changes in the stock or the
Company as contemplated by Article XI herein.
(e) "Company" means FreeShop.com, Inc., a Washington corporation,
and its successors by merger or consolidation as contemplated by
Article XI herein.
(f) "Current Compensation" means all regular wage, salary and
commission payments paid by the Company to a Participant in accordance
with the terms of his or her employment, and including annual bonus
payments and all other forms of special compensation.
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(g) "Fair Market Value" as of a given date means such value of
the Common Stock as reasonably determined by the Committee, but shall not
be less than the last sale price of the Common Stock as then quoted on the
NASDAQ National Market System on the date as of which the fair market
value is being determined. If on a given date the Common Stock is not
traded on an established securities market, the Committee shall make a
good faith attempt to satisfy the requirements of this Section 1.03 and in
connection therewith shall take such action as it deems necessary or
advisable.
(h) "Participant" means a Permanent Full-Time Employee who is
eligible to participate in the Plan under Section 2.01 and who has elected
to participate in the Plan.
(i) "Participating Affiliate" means an Affiliate which has been
designated by the Committee in advance of the Purchase Period in question
as a corporation whose eligible Permanent Full-Time Employees may
participate in the Plan.
(j) "Permanent Full-Time Employee" means an employee of the
Company or a Participating Affiliate as of the first day of a Purchase
Period, including an officer or director who is also an employee, but
excluding an employee whose customary employment is less than 20 hours
per week.
(k) "Plan" means the FreeShop.com, Inc. 2000 Employee Stock
Purchase Plan, as amended, the provisions of which are set forth herein.
"Purchase Period" means the approximate 6-month period beginning on
the sixteenth calendar day of September and March, respectively, and ending on
the fifteenth calendar day of March and September, respectively; provided,
however, that the initial Purchase Period will commence on the earliest of (i)
the date of adoption of this Plan, (ii) the date of shareholder approval of this
Plan or (iii) the effective date set forth in Section 9.01; and provided,
further, that the then current Purchase Period will end upon the occurrence of
an Acceleration Date.
(m) "Stock Purchase Account" means the account maintained on the
books and records of the Company recording the amount received from each
Participant through payroll deductions made under the Plan and from the
Company through matching contributions.
ARTICLE II. ELIGIBILITY AND PARTICIPATION
Section 2.01 Eligible Employees. All Permanent Full-Time Employees
shall be eligible to participate in the Plan beginning on the first day of the
first Purchase Period to commence after such person becomes a Permanent
Full-Time Employee. Subject to the provisions of Article VI, each such employee
will continue to be eligible to participate in the Plan so long as he or she
remains a Permanent Full-Time Employee.
Section 2.02 Election to Participate. An eligible Permanent Full-Time
Employee may elect to participate in the Plan for a given Purchase Period by
filing with the Company, in advance of that Purchase Period and in accordance
with such terms and conditions as the Committee in its sole discretion may
impose, a form provided by the Company for such purpose (which authorizes
regular payroll deductions from Current Compensation beginning with the first
payday in that Purchase Period and continuing until the employee withdraws from
the Plan or ceases to be eligible to participate in the Plan). Notwithstanding
the foregoing, an eligible Permanent Full-Time Employee shall have two pay
periods from the Effective Date to elect to participate in the Plan.
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Section 2.03 Limits on Stock Purchase. No employee shall be granted
any right to purchase Common Stock hereunder if such employee, immediately after
such a right to purchase is granted, would own, directly or indirectly, within
the meaning of Section 423(b)(3) and Section 424(d) of the Code, Common Stock
possessing 5% or more of the total combined voting power or value of all the
classes of the capital stock of the Company or of all Affiliates.
Section 2.04 Voluntary Participation. Participation in the Plan on the
part of a Participant is voluntary and such participation is not a condition of
employment nor does participation in the Plan entitle a Participant to be
retained as an employee.
ARTICLE III. PAYROLL DEDUCTIONS, COMPANY
CONTRIBUTIONS AND STOCK PURCHASE ACCOUNT
Section 3.01 Deduction from Pay. The form described in Section 2.02
will permit a Participant to elect payroll deductions of up to 50% of such
Participant's Current Compensation for each pay period, subject to such other
limitations as the Committee in its sole discretion may impose. A Participant
may cease making payroll deductions at any time and may elect to retain the
funds then deposited in such Participant's Stock Purchase Account in such
Account for the duration of the then current Purchase Period and purchase the
Company's Common Stock in accordance with Article IV hereof and such other
relevant provisions of the Plan, or to have the funds then deposited in the
Participant's Stock Purchase Account promptly disbursed to the Participant, all
as subject to such limitations as the Committee in its sole discretion may
impose.
Section 3.02 Company Contributions. The Company may, in the sole
discretion of the Committee, from time to time contribute to each Participant's
Stock Purchase Account an amount equal to up to 50% of each payroll deduction
credited to such Account. No Company contributions shall be deemed to have been
made until such contributions are credited to the Participant's Stock Purchase
Account as provided in Section 3.03.
Section 3.03 Credit to Account. Payroll deductions will be credited to
the Participant's Stock Purchase Account on each payday, and Company
contributions will be credited to the Participant's Stock Purchase Account on
the last business day of the Purchase Period at the time of and in connection
with the purchase of shares of Common Stock in accordance with Articles IV and V
hereof.
Section 3.04 Interest. No interest will be paid upon payroll
deductions, Company contributions or on any amount credited to, or on deposit
in, a Participant's Stock Purchase Account.
Section 3.05 Nature of Account. The Stock Purchase Account is
established solely for accounting purposes, and all amounts credited to the
Stock Purchase Account will remain part of the general assets of the Company or
the Participating Affiliate (as the case may be).
Section 3.06 No Additional Contributions. A Participant may not make
any payment into the Stock Purchase Account other than the payroll deductions
made pursuant to the Plan.
ARTICLE IV. RIGHT TO PURCHASE SHARES
Section 4.01 Number of Shares. Each Participant will have the right to
purchase on the last business day of the Purchase Period all, but not less than
all, of the largest number of whole shares of Common Stock that can be purchased
at the price specified in Section 4.02 with the entire credit balance in the
Participant's Stock Purchase Account, subject to the limitations that (a) no
more than 1,800 shares of Common Stock may be purchased under the Plan by any
one Participant for a given Purchase Period,
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(b) in accordance with Section 423(b)(8) of the Code, no more than $25,000 in
Fair Market Value (determined at the beginning of each Purchase Period) of
Common Stock and other stock may be purchased under the Plan and all other
employee stock purchase plans (if any) of the Company and the Affiliates by any
one Participant for any calendar year and (c) if the purchases for all
Participants in any Purchase Period would result in the sale of more than
330,000 shares of Common Stock in the aggregate under the Plan for such Purchase
Period, each Participant shall be allocated a pro rata portion of the 330,000
shares of Common Stock to be sold for that Purchase Period. If the purchases for
all Participants would otherwise cause the aggregate number of shares of Common
Stock to be sold under the Plan to exceed the number specified in Section 10.03,
each Participant shall be allocated a pro rata portion of the Common Stock to be
sold.
Section 4.02 Purchase Price. The purchase price for any Purchase
Period shall be the lesser of (a) 85% of the Fair Market Value of the Common
Stock on the first business day of that Purchase Period or (b) 85% of the Fair
Market Value of the Common Stock on the last business day of that Purchase
Period, in each case rounded up to the next higher full cent.
ARTICLE V. EXERCISE OF RIGHT
Section 5.01 Purchase of Stock. On the last business day of a Purchase
Period, the entire credit balance in each Participant's Stock Purchase Account
will be used to purchase the largest number of whole shares of Common Stock
purchasable with such amount (subject to the limitations of Section 4.01),
unless the Participant has filed with the Company, in advance of that date and
subject to such terms and conditions as the Committee in its sole discretion may
impose, a form provided by the Company which requests the distribution of the
entire credit balance in cash.
Section 5.02 Cash Distributions. Any amount remaining in a
Participant's Stock Purchase Account after the last business day of a Purchase
Period will be rolled over to the next following Purchase Period unless the
Participant has elected not to participate in such Purchase Period, in which
event such amount will be paid to the Participant in cash within 30 days after
the end of that Purchase Period.
Section 5.03 Notice of Acceleration Date. The Company shall use its
best efforts to notify each Participant in writing at least ten days prior to
any Acceleration Date that the then current Purchase Period will end on such
Acceleration Date.
ARTICLE VI. WITHDRAWAL FROM PLAN; SALE OF STOCK
Section 6.01 Voluntary Withdrawal. A Participant may, in accordance
with such terms and conditions as the Committee in its sole discretion may
impose, withdraw from the Plan and cease making payroll deductions by filing
with the Company a form provided for this purpose. In such event, the entire
credit balance in the Participant's Stock Purchase Account will be paid to the
Participant in cash within 30 days, provided that in no event shall any
Participant be entitled to withdraw from such Account any Company contributions
credited to such Account at the end of the Purchase Period pursuant to Section
3.03. A Participant who withdraws from the Plan will not be eligible to reenter
the Plan until the beginning of the next Purchase Period following the date of
such withdrawal.
Section 6.02 Death. Subject to such terms and conditions as the
Committee in its sole discretion may impose, upon the death of a Participant, no
further amounts shall be credited to the Participant's Stock Purchase Account.
Thereafter, on the last business day of the Purchase Period during which such
Participant's death occurred and in accordance with Section 5.01, the entire
credit balance in such Participant's Stock Purchase Account will be used to
purchase Common Stock, unless such
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Participant's estate has filed with the Company, in advance of that day and
subject to such terms and conditions as the Committee in its sole discretion may
impose, a form provided by the Company which elects to have the entire credit
balance in such Participant's Stock Account distributed in cash within 30 days
after the end of that Purchase Period or at such earlier time as the Committee
in its sole discretion may decide, provided that in no event shall any
Participant's estate be entitled to receive from such Account any Company
contributions credited to such Account at the end of the Purchase Period
pursuant to Section 3.03. Each Participant, however, may designate one or more
beneficiaries who, upon death, are to receive the Common Stock or the amount
that otherwise would have been distributed or paid to the Participant's estate
and may change or revoke any such designation from time to time. No such
designation, change or revocation will be effective unless made by the
Participant in writing and filed with the Company during the Participant's
lifetime. Unless the Participant has otherwise specified the beneficiary
designation, the beneficiary or beneficiaries so designated will become fixed as
of the date of the death of the Participant so that, if a beneficiary survives
the Participant but dies before the receipt of the payment due such beneficiary,
the payment will be made to such beneficiary's estate.
Section 6.03 Termination of Employment. Subject to such terms and
conditions as the Committee in its sole discretion may impose, upon a
Participant's normal or early retirement with the consent of the Company under
any pension or retirement plan of the Company or Participating Affiliate, no
further amounts shall be credited to the Participant's Stock Purchase Account.
Thereafter, on the last business day of the Purchase Period during which such
Participant's approved retirement occurred and in accordance with Section 5.01,
the entire credit balance in such Participant's Stock Purchase Account will be
used to purchase Common Stock, unless such Participant has filed with the
Company, in advance of that day and subject to such terms and conditions as the
Committee in its sole discretion may impose, a form provided by the Company
which elects to receive the entire credit balance in such Participant's Stock
Purchase Account in cash within 30 days after the end of that Purchase Period,
provided that (i) in no event shall any Participant be entitled to receive from
such Account any Company contributions credited to such Account at the end of
the Purchase Period pursuant to Section 3.03, and (ii) such Participant shall
have no right to purchase Common Stock in the event that the last day of such a
Purchase Period occurs more than six months following the termination of such
Participant's employment with the Company by reason of such an approved
retirement. In the event of any other termination of employment (other than
death) with the Company or a Participating Affiliate, participation in the Plan
will cease on the date the Participant ceases to be a Permanent Full-Time
Employee for any reason. In such event, the entire credit balance in such
Participant's Stock Purchase Account will be paid to the Participant in cash
within 30 days, provided that in no event shall any Participant be entitled to
receive from such Account any Company contributions credited to such Account at
the end of the Purchase Period pursuant to Section 3.03. For purposes of this
Section 6.03, a transfer of employment to any Affiliate, or a leave of absence
that has been approved by the Committee, will not be deemed a termination of
employment as a Permanent Full-Time Employee.
ARTICLE VII. NONTRANSFERABILITY
Section 7.01 Nontransferable Right to Purchase. The right to purchase
Common Stock hereunder may not be assigned, transferred, pledged or hypothecated
(whether by operation of law or otherwise), except as provided in Section 6.02,
and will not be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition or
levy of attachment or similar process upon the right to purchase will be null
and void and without effect.
Section 7.02 Nontransferable Account. Except as provided in Section
6.02, the amounts credited to a Stock Purchase Account may not be assigned,
transferred, pledged or hypothecated in any way, and any attempted assignment,
transfer, pledge, hypothecation or other disposition of such amounts will be
null and void and without effect.
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ARTICLE VIII. STOCK CERTIFICATES
Section 8.01 Delivery. Promptly after the last day of each Purchase
Period and subject to such terms and conditions as the Committee in its sole
discretion may impose, the Company will cause to be delivered to or for the
benefit of the Participant a certificate, or in lieu thereof, an electronic
confirmation, representing the Common Stock purchased on the last business day
of such Purchase Period.
Section 8.02 Securities Laws. The Company shall not be required to
issue or deliver any certificate representing Common Stock prior to registration
under the Securities Act of 1933, as amended, or registration or qualification
under any state law if such registration is required. The Company shall use its
best efforts to accomplish such registration (if and to the extent required) not
later than a reasonable time following the Purchase Period, and delivery of
certificates may be deferred until such registration is accomplished.
Section 8.03 Completion of Purchase. A Participant shall have no
interest in the Common Stock purchased until a certificate representing the same
is issued to or for the benefit of the Participant.
Section 8.04 Form of Ownership. The certificates representing Common
Stock issued under the Plan will be registered in the name of the Participant or
jointly in the name of the Participant and another person, as the Participant
may direct on a form provided by the Company.
ARTICLE IX. EFFECTIVE DATE, AMENDMENT AND
TERMINATION OF PLAN
Section 9.01 Effective Date. The Plan was approved by the Board of
Directors on April 17, 2000 and shall be approved by the stockholders of the
Company within twelve (12) months thereof.
Section 9.02 Plan Commencement. The initial Purchase Period under the
Plan will commence on the date prescribed by Section 1.03(l).
Section 9.03 Powers of Board. The Board of Directors may amend or
discontinue the Plan at any time. No amendment or discontinuation of the Plan,
however, shall without stockholder approval be made that: (i) absent such
stockholder approval, would cause Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "Act") to become unavailable with respect to the Plan,
(ii) requires stockholder approval under any rules or regulations of the
National Association of Securities Dealers, Inc. or any securities exchange that
are applicable to the Company, or (iii) permit the issuance of Common Stock
before payment therefor in full
Section 9.04 Automatic Termination. The Plan shall automatically
terminate when all of the shares of Common Stock provided for in Section 10.03
have been sold.
ARTICLE X. ADMINISTRATION
Section 10.01 The Committee. The Plan shall be administered by a
committee (the "Committee") of two or more directors of the Company, none of
whom shall be officers or employees of the Company and all of whom shall be
"non-employee directors" with respect to the Plan within the meaning of Rule
16b-3 under the Act. The members of the Committee shall be appointed by and
serve at the pleasure of the Board of Directors.
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Section 10.02 Powers of Committee. Subject to the provisions of the
Plan, the Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan, to establish
deadlines by which the various administrative forms must be received in order to
be effective, and to adopt such other rules and regulations for administering
the Plan as it may deem appropriate. The Committee shall have full and complete
authority to determine whether all or any part of the Common Stock acquired
pursuant to the Plan shall be subject to restrictions on the transferability
thereof or any other restrictions affecting in any manner a Participant's rights
with respect thereto but any such restrictions shall be contained in the form by
which a Participant elects to participate in the Plan pursuant to Section 2.02.
Decisions of the Committee will be final and binding on all parties who have an
interest in the Plan.
Section 10.03 Stock to be Sold. The Common Stock to be issued and sold
under the Plan may be treasury shares or authorized but unissued shares, or the
Company may purchase Common Stock in the market for sale under the Plan. Except
as provided in Section 11.01, the aggregate number of shares of Common Stock to
be sold under the Plan will not exceed 2,000,000 shares.
Section 10.04 Notices. Notices to the Committee should be addressed as
follow:
FreeShop.com, Inc.
95 South Jackson Street, Suite 300
Seattle, Washington 98104
Attn: John Wade, CFO
ARTICLE XI.
ADJUSTMENT FOR CHANGES IN STOCK OR COMPANY
Section 11.01 Stock Dividend or Reclassification. If the outstanding
shares of Common Stock are increased, decreased, changed into or exchanged for a
different number or kind of securities of the Company, or shares of a different
par value or without par value, through reorganization, recapitalization,
reclassification, stock dividend, stock split, amendment to the Company's
Certificate of Incorporation, reverse stock split or otherwise, an appropriate
adjustment shall be made in the maximum numbers and kind of securities to be
purchased under the Plan with a corresponding adjustment in the purchase price
to be paid therefor.
Section 11.02 Merger or Consolidation. If the Company is merged into
or consolidated with one or more corporations during the term of the Plan,
appropriate adjustments will be made to give effect thereto on an equitable
basis in terms of issuance of shares of the corporation surviving the merger or
of the consolidated corporation, as the case may be.
ARTICLE XII. APPLICABLE LAW
Rights to purchase Common Stock granted under the Plan shall be construed
and shall take effect in accordance with the laws of the State of Washington.
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FREESHOP.COM, INC.
95 South Jackson Street, Suite 300
Seattle, Washington 98104
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Timothy C. Choate and Dave Davis as
Proxies, each with the power to appoint his or her substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares of
Common Stock of FreeShop.com, Inc. held of record by the undersigned at the
close of business on July 14, 2000 at the Annual Meeting of Shareholders to be
held on Wednesday, August 23, 2000, or any adjournment or postponement thereof.
Please mark your votes [X] as indicated.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2.
1. ELECTION OF DIRECTORS:
FOR Timothy C. Choate |_|
WITHHOLD AUTHORITY to vote for Timothy C. Choate |_|
FOR John P. Ballantine |_|
WITHHOLD AUTHORITY to vote for John P. Ballantine |_|
FOR John B. Balousek |_|
WITHHOLD AUTHORITY to vote for John B. Balousek |_|
FOR Kirk M. Loevner |_|
WITHHOLD AUTHORITY to vote for Kirk M. Loevner |_|
FOR the nominee listed below: |_|
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FOR the nominee listed below: |_|
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FOR the nominee listed below: |_|
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2. PROPOSAL TO APPROVE THE 2000 EMPLOYEE STOCK PURCHASE PLAN.
FOR |_| AGAINST |_| ABSTAIN |_|
<PAGE>
3. In their discretion the Proxies are authorized to vote upon such other
business as may property come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date: , 2000
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Signature
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Signature, if held jointly
